F-1 1 c78320_f1.htm 3B2 EDGAR HTML -- c78320_f1.htm

As filed with the Securities and Exchange Commission on October 1, 2014

Registration No. 333-  



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


Costamare Partners LP
(Exact name of Registrant as specified in its charter)


 

 

 

 

 

Republic of the Marshall Islands
(State or other jurisdiction of
incorporation or organization)

 

4412
(Primary Standard Industrial
Classification Code Number)

 

N/A
(I.R.S. Employer
Identification No.)

60 Zephyrou Street & Syngrou Avenue, 17564 Athens Greece, +30-210-949-0050
(Address, including zip code, and telephone number, including area code, of Registrant’s principal
executive offices)

CT Corporation System
111 Eighth Avenue
New York, New York 10011
(212) 590-9338

(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

 

 

 

 

 

William P. Rogers, Jr.
D. Scott Bennett
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY
(212) 474-1000

 

Stephen P. Farrell
Finnbarr D. Murphy
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
(212) 309-6000

 

Sean T. Wheeler
Tim Fenn
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
(713) 546-5400


Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. £

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

Title of Each Class of
Securities to be Registered

 

Proposed
Maximum Aggregate
Offering Price
(1)(2)

 

Amount of
Registration Fee

 

Common units representing limited partner interests

 

$

 

100,000,000

   

$

 

12,880

 

 

 

(1)

 

Includes common units issuable upon exercise of the underwriters’ option to purchase additional common units.

 

(2)

 

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).


The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 1, 2014

PRELIMINARY PROSPECTUS

Costamare Partners LP
Common Units
Representing Limited Partner Interests
$   per common unit


This is the initial public offering of our common units. We currently expect the initial public offering price to be between $   and $   per common unit.

We have granted the underwriters an option to purchase up to an additional   common units.

Members of the Konstantakopoulos family and certain funds managed by York Capital Management Global Advisors LLC, which is the joint venture partner of Costamare Inc., or “Costamare”, for the ownership of certain vessels, have indicated that they currently intend to purchase up to an aggregate of approximately $  million and $  million, respectively, of common units in the offering at the public offering price. This represents an aggregate of approximately  common units based on the midpoint of the price range set forth above. The number of common units available for sale to the general public will be reduced to the extent of these sales.

We intend to apply to list the common units on the New York Stock Exchange under the symbol “CMRP”.


We are an “emerging growth company”, and we are eligible for reduced reporting requirements. See “Summary—Implications of Being an Emerging Growth Company”.

Investing in our common units involves risks. See “Risk Factors” beginning on page 29.

These risks include the following:

 

 

We may not have sufficient cash from operations, following the establishment of cash reserves and payment of fees and expenses, to enable us to pay the minimum quarterly distribution on our common units and subordinated units.

 

 

We will be required to make substantial capital expenditures to maintain the operating capacity of our fleet and acquire vessels, which may reduce or eliminate the amount of cash available for distribution.

 

 

Our ability to acquire additional containerships from Costamare or third parties will depend upon our ability to raise additional equity and debt financing, to fund all or a portion of the acquisition costs of these vessels, and may be dependent on the consent of existing lenders to Costamare.

 

 

Our debt levels may limit our ability to obtain additional financing, pursue other business opportunities and pay distributions to unitholders.

 

 

We depend on Costamare and its affiliates, including Costamare Shipping Company S.A., to operate and expand our businesses and compete in our markets.

 

 

Our future performance depends on the level of world and regional demand for chartering containerships, and a recurrence of the recent global economic slowdown may impede our ability to continue to grow our business.

 

 

We have only four vessels in our initial fleet. Any limitation in the availability or operation of those vessels could have a material adverse effect on our business, financial condition, results of operations and cash flows, which effect would be amplified by the small size of our initial fleet.

 

 

Unitholders have limited voting rights, and our partnership agreement restricts the voting rights of unitholders (other than our general partner and its affiliates, including Costamare) owning more than 4.9% of our common units.

 

 

Our unitholders will not be entitled to elect our general partner or its directors, subject to our general partner’s option to cause us at some point in the future to be managed by our own board of directors and, in that connection, to cause the common unitholders to permanently have the right to elect a majority of our directors.

 

 

Upon completion of this offering, Costamare and our general partner will own a  % interest in us and will have conflicts of interest and limited fiduciary and contractual duties to us and our common unitholders, which may permit them to favor their own interests to your detriment.

 

 

Even if public unitholders are dissatisfied, they cannot initially remove our general partner without Costamare’s consent.

 

 

You will experience immediate and substantial dilution of $  per common unit.

 

 

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

 

 

U.S. tax authorities could treat us as a “passive foreign investment company” under certain circumstances, which would have adverse U.S. federal income tax consequences to U.S. unitholders.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


 

 

 

 

 

 

 

Per
Common
Unit

 

Total

Public Offering Price

 

 

$

 

 

 

 

 

$

 

 

 

Underwriting Discount(1)

 

 

$

 

 

 

$

 

Proceeds, before expenses, to Costamare Partners LP(1)(2)

 

 

$

 

 

 

$

 


 

(1)

 

Excludes an aggregate structuring fee of  % of the offering proceeds before discounts and expenses, payable to Morgan Stanley & Co. LLC, Barclays Capital Inc. and Citigroup Global Markets Inc. We will also pay up to $  of reasonable fees and expenses of counsel related to the review by the Financial Industry Regulatory Authority, Inc. of the terms of sale of the common units offered hereby. See “Underwriting”.

 

(2)

 

Excludes offering expenses payable by us as described in “Expenses Related to This Offering”.

The underwriters expect to deliver the common units to purchasers on or about  , 2014 through the book-entry facilities of The Depository Trust Company.

 

 

 

 

 

 

 

Morgan Stanley

 

Barclays

 

Citigroup

 

Wells Fargo Securities

 Credit Suisse

 

 J.P. Morgan

 , 2014


 

 

 

 

 

 

 

 

 

 

 


We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus.

TABLE OF CONTENTS

 

 

 

SUMMARY

 

 

 

1

 

Costamare Partners LP

 

 

 

1

 

Initial Fleet

 

 

 

2

 

Option Vessels

 

 

 

2

 

Non-Compete Vessels

 

 

4

 

Costamare Inc.

 

 

 

5

 

Our Relationship with Costamare Inc.

 

 

 

5

 

Market Opportunities

 

 

 

6

 

Competitive Strengths

 

 

 

7

 

Business Strategies

 

 

 

9

 

Risk Factors

 

 

11

 

Implications of Being an Emerging Growth Company

 

 

 

11

 

Formation Transactions

 

 

 

12

 

Simplified Organizational and Ownership Structure After this Offering

 

 

 

14

 

Our Management

 

 

 

16

 

Principal Executive Offices and Internet Address; SEC Filing Requirements

 

 

 

17

 

Summary of Conflicts of Interest and Fiduciary Duties

 

 

 

17

 

The Offering

 

 

 

19

 

Summary Financial, Operating and Pro Forma Data

 

 

 

25

 

RISK FACTORS

 

 

 

29

 

Risks Inherent in Our Business

 

 

 

29

 

Risks Inherent in an Investment in Us

 

 

 

57

 

Tax Risks

 

 

 

69

 

FORWARD-LOOKING STATEMENTS

 

 

 

72

 

USE OF PROCEEDS

 

 

 

75

 

CASH AND CAPITALIZATION

 

 

 

76

 

DILUTION

 

 

 

78

 

OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

 

 

 

80

 

General

 

 

 

80

 

Forecasted Results of Operations for the Twelve Months Ending December 31, 2015

 

 

 

82

 

Forecast Assumptions and Considerations

 

 

 

85

 

Forecasted Cash Available for Distribution

 

 

 

88

 

HOW WE MAKE CASH DISTRIBUTIONS

 

 

 

92

 

Distributions of Available Cash

 

 

 

92

 

Operating Surplus and Capital Surplus

 

 

 

93

 

Subordination Period

 

 

 

96

 

Distributions of Available Cash From Operating Surplus During the Subordination Period

 

 

 

97

 

Distributions of Available Cash From Operating Surplus After the Subordination Period

 

 

 

98

 

General Partner Interest

 

 

 

98

 

Incentive Distribution Rights

 

 

 

98

 

Percentage Allocations of Available Cash From Operating Surplus

 

 

 

99

 

Costamare’s Right to Reset Incentive Distribution Levels

 

 

 

99

 

Distributions From Capital Surplus

 

 

 

102

 

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

 

 

 

103

 

Distributions of Cash Upon Liquidation

 

 

 

103

 

SELECTED HISTORICAL FINANCIAL, OPERATING AND PRO FORMA DATA

 

 

 

105

 

i


 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

109

 

Overview

 

 

 

109

 

Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects

 

 

 

114

 

Factors Affecting Our Results of Operations

 

 

 

116

 

Principal Components of Revenues and Expenses

 

 

 

117

 

Results of Operations

 

 

 

120

 

Customers

 

 

 

124

 

Seasonality

 

 

125

 

Liquidity and Capital Resources

 

 

125

 

Cash Flows

 

 

 

128

 

Borrowing Activities

 

 

130

 

Contractual Obligations

 

 

133

 

Capital Expenditures

 

 

 

133

 

Off-Balance Sheet Arrangements

 

 

 

133

 

Critical Accounting Policies

 

 

134

 

Recent Accounting Pronouncements

 

 

138

 

Quantitative and Qualitative Information About Market Risk

 

 

138

 

THE INTERNATIONAL CONTAINERSHIP INDUSTRY

 

 

 

139

 

BUSINESS

 

 

 

157

 

Overview

 

 

 

157

 

Our Relationship with Costamare Inc.

 

 

 

157

 

Market Opportunities

 

 

 

158

 

Competitive Strengths

 

 

 

159

 

Business Strategies

 

 

 

161

 

Our Fleet

 

 

 

163

 

Chartering of Our Fleet

 

 

 

166

 

Management of Our Fleet

 

 

 

168

 

Competition

 

 

 

171

 

Crewing and Shore Employees

 

 

 

173

 

Risk of Loss, Liability Insurance and Risk Management

 

 

 

174

 

Permits and Authorizations

 

 

 

180

 

Properties

 

 

 

180

 

Legal Proceedings

 

 

 

180

 

Taxation of the Partnership

 

 

 

181

 

MANAGEMENT

 

 

 

186

 

Management of Costamare Partners LP

 

 

 

186

 

Directors and Executive Officers

 

 

 

188

 

Reimbursement of Expenses of Our General Partner

 

 

 

190

 

Compensation of Directors and Senior Management

 

 

 

190

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

 

191

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

 

 

192

 

Distributions and Payments to our General Partner and its Affiliates

 

 

 

192

 

Formation Stage

 

 

 

192

 

Operational Stage

 

 

 

192

 

Liquidation Stage

 

 

 

193

 

Agreements Governing the Transactions

 

 

 

194

 

Supervision Agreement

 

 

204

 

Contribution Agreement

 

 

 

204

 

Other Related Party Transactions

 

 

 

205

 

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

 

 

207

 

Conflicts of Interest

 

 

207

 

DESCRIPTION OF THE COMMON UNITS

 

 

215

 

The Units

 

 

215

 

ii


 

 

 

Transfer Agent and Registrar

 

 

215

 

THE PARTNERSHIP AGREEMENT

 

 

216

 

Organization and Duration

 

 

216

 

Purpose

 

 

216

 

Cash Distributions

 

 

216

 

Capital Contributions

 

 

216

 

Voting Rights

 

 

217

 

Applicable Law; Forum, Venue and Jurisdiction

 

 

218

 

Limited Liability

 

 

219

 

Issuance of Additional Interests

 

 

220

 

Tax Status

 

 

220

 

Amendment of the Partnership Agreement

 

 

220

 

Merger, Sale, Conversion or Other Disposition of Assets

 

 

222

 

Termination and Dissolution

 

 

223

 

Liquidation and Distribution of Proceeds

 

 

223

 

Withdrawal or Removal of our General Partner

 

 

223

 

Transfer of General Partner Interest

 

 

225

 

Transfer of Ownership Interests in General Partner

 

 

225

 

Transfer of Incentive Distribution Rights

 

 

225

 

Change of Management Provisions

 

 

225

 

Limited Call Right

 

 

226

 

Our General Partner’s Option to Create a Partnership Board of Directors

 

 

226

 

Meetings; Voting

 

 

227

 

Status as Limited Partner or Assignee

 

 

227

 

Indemnification

 

 

227

 

Reimbursement of Expenses

 

 

228

 

Books and Reports

 

 

228

 

Right to Inspect Our Books and Records

 

 

228

 

Registration Rights

 

 

229

 

UNITS ELIGIBLE FOR FUTURE SALE

 

 

230

 

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

 

231

 

Election to be Treated as a Corporation

 

 

231

 

U.S. Federal Income Taxation of U.S. Holders

 

 

231

 

U.S. Federal Income Taxation of Non-U.S. Holders

 

 

236

 

Backup Withholding and Information Reporting

 

 

236

 

NON-UNITED STATES TAX CONSIDERATIONS

 

 

237

 

Marshall Islands Tax Consequences

 

 

237

 

UNDERWRITING

 

 

239

 

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

 

 

247

 

LEGAL MATTERS

 

 

247

 

EXPERTS

 

 

247

 

EXPENSES RELATED TO THIS OFFERING

 

 

248

 

WHERE YOU CAN FIND MORE INFORMATION

 

 

248

 

INDUSTRY AND MARKET DATA

 

 

249

 

INDEX TO FINANCIAL STATEMENTS

 

 

 

250

 

APPENDIX—Form of First Amended and Restated Agreement of Limited Partnership of Costamare Partners LP

 

 

 

A-1

 

iii


SUMMARY

This summary highlights information contained elsewhere in this prospectus. Unless we otherwise specify, all references to information and data in this prospectus about our business and fleet refer to our business and fleet to be contributed to the Partnership upon the closing of this offering. Prior to the closing of this offering, the Partnership will not own any vessels. You should read the entire prospectus carefully, including the historical financial statements of Costamare Partners LP Predecessor, which includes the subsidiaries of Costamare Inc. that own the vessels in our initial fleet, and the notes to those financial statements. The information presented in this prospectus assumes, unless otherwise noted, (1) an initial public offering price of $   per common unit (the midpoint of the price range set forth on the cover of this prospectus) and (2) that the underwriters do not exercise their option to purchase additional common units. You should read “Risk Factors” for more information about important risks that you should consider carefully before buying our common units. Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. dollars.

References in this prospectus to “Costamare Partners”, “we”, “our”, “us” and “the Partnership” or similar terms when used in a historical context refer to Capetanissa Maritime Corporation, Jodie Shipping Co., Kayley Shipping Co. and Raymond Shipping Co., the subsidiaries of Costamare Inc. that hold interests in the vessels in our initial fleet. When used in the present tense or prospectively, those terms refer to Costamare Partners LP or any one or more of its subsidiaries, or to all such entities unless the context otherwise indicates. Please read “—Summary Financial and Operating Data” beginning on page 25 for an overview of our predecessor’s operating results and financial position.

References in this prospectus to “our general partner” refer to Costamare Partners GP LLC, the general partner of Costamare Partners. References in this prospectus to “Costamare” refer, depending on the context, to Costamare Inc. and to any one or more of its direct and indirect subsidiaries, including Croy Holdings Inc., other than us. References in this prospectus to “Costamare Shipping” refer to Costamare Shipping Company S.A., an affiliate of Costamare controlled by Costamare’s chairman and chief executive officer. References in this prospectus to “Shanghai Costamare” refer to Shanghai Costamare Ship Management Co., Ltd., a Chinese corporation affiliated with Costamare Inc. References in this prospectus to “York” refer to York Capital Management Global Advisors LLC, Sparrow Holdings L.P., Bluebird Holdings L.P. and certain affiliated funds on whose behalf York Capital Management Global Advisors LLC has entered into the Framework Agreement (as defined herein) and the omnibus agreement (as discussed elsewhere in this prospectus), as the context may require. References in this prospectus to the “Framework Agreement” refer to the Framework Deed between Costamare Inc. and its wholly- owned subsidiary, Costamare Ventures Inc., on the one hand, and York and its affiliated fund, Sparrow Holdings, L.P., on the other, pursuant to which Costamare and York agreed to jointly invest in newbuild and secondhand container vessels through jointly held companies in which Costamare holds a 25% to 75% interest (any such entity, referred to as a “JV Entity”, and any such jointly owned or acquired vessel, referred to as a “JV vessel”). References in this prospectus to “V.Ships Greece” refer to V.Ships Greece Ltd. We use the term “twenty foot equivalent unit”, or “TEU”, the international standard measure of containers, in describing the capacity of our containerships.

Costamare Partners LP

We are a growth-oriented limited partnership formed to own, operate and acquire containerships under long-term, fixed-rate charters, which we define as charters of five full years or more. As of June 30, 2014, our initial fleet of four containerships had an average capacity of approximately 9,000 TEU and an average remaining charter term (weighted by TEU capacity) of approximately 6.7 years, with charter terms expiring between 2018 and 2023. These four vessels will be contributed to us by Costamare, one of the largest publicly listed containership owners by TEU capacity, which will control us through its ownership of our general partner. We believe that Costamare intends to utilize us as its primary growth vehicle to pursue the acquisition of containerships that are expected to generate long-term, predictable cash flows, although there is no

1


guarantee that we will be able to take advantage of opportunities to grow or generate the desired cash flows, nor is there any guarantee that Costamare will utilize us in this manner.

We are an owner of containerships and we generate our revenues by chartering them to leading liner companies pursuant to long-term, fixed-rate charters. Under the terms of these charters, we provide crewing and technical management, while the charterer is generally responsible for securing cargos, fuel costs and voyage expenses. Our charters provide for a fixed hire rate over the life of the charter, regardless of the utilization of the vessel. We intend to focus primarily on large modern vessels because we believe that the economies of scale and fuel savings of newly designed vessels are most appealing to our customers, the major liner companies. We believe our focus on owning modern, high quality containerships, chartered under long-term contracts with staggered maturities, will provide stability and predictability to our revenues and cash flows and minimize re-chartering risk. In addition, we are focused on providing charters to a diversified group of leading liner companies, which we believe will minimize our counterparty risk. Though there is no guarantee that we will be able to take advantage of opportunities to grow or generate the desired cash flows, we believe that our strategy will ensure the long-term stability of our distributions.

Upon the closing of this offering, we will own four containerships, of which three were built in 2013 and one in 2006. These containerships operate under long-term charters with Mediterranean Shipping Company, S.A., or “MSC”, affiliates of the Evergreen Marine Corporation Taiwan Ltd., or “Evergreen”, and Cosco Container Lines Co., Ltd., or “COSCO”. We will also have options to acquire an additional ten identified vessels and certain other rights under which we may acquire additional containerships with long-term charters from Costamare and, with respect to the JV vessels, York as described below. We believe that such options and rights will provide us with significant built-in growth opportunities. We may also grow through further acquisitions of containerships, not only from Costamare and York, but also from liner companies, shipyards and other shipowners. We believe that executing our growth strategy, while providing reliable service to our customers, will enable us to grow our distributions per unit. However, we cannot assure you that we will make any particular acquisition or that as a consequence we will successfully grow the amount of our per unit distributions. Among other things, our ability to acquire additional containerships will be dependent upon our ability to raise additional equity and debt financing.

Initial Fleet

Upon the closing of this offering, our initial fleet will consist of the following four vessels. As of June 30, 2014, these four vessels had an average age (weighted by TEU capacity) of approximately 3.0 years and an average remaining charter term (weighted by TEU capacity) of approximately 6.7 years:

 

 

 

 

 

 

 

 

 

 

 

Vessel Name

 

Charterer

 

Year Built

 

Capacity
(TEU)

 

Daily Charter Rate
(U.S. dollars)

 

Expiration of
Charter
(1)

MSC ATHOS

 

MSC

 

 

 

2013

 

 

 

 

8,827

 

 

 

 

42,000

   

February 2023

MSC ATHENS

 

MSC

 

 

 

2013

 

 

 

 

8,827

 

 

 

 

42,000

   

January 2023

VALUE

 

Evergreen

 

 

 

2013

 

 

 

 

8,827

 

 

 

 

41,700

   

April 2020(2)

COSCO BEIJING

 

COSCO

 

 

 

2006

 

 

 

 

9,469

 

 

 

 

36,400

   

April 2018


 

(1)

 

Charter terms and expiration dates are based on the earliest scheduled date charters could expire. Amounts set out for daily charter rate are the amounts contained in the charter contracts.

 

(2)

 

Assumes exercise of owner’s unilateral options to extend the charter of this vessel for two one-year periods at the same charter rate. The charterer also has corresponding options to unilaterally extend the charter for the same periods at the same charter rate.

Option Vessels

We will have the option to purchase from Costamare the Valence (and shares in the vessel-owning entity) within 12 months following the closing of this offering at fair market value as

2


determined in accordance with the omnibus agreement, provided that Costamare may, at its option, replace the Valence with any of the three vessels that are sister ships to the Valence with the same specifications, including TEU capacity, which vessels were delivered in 2013 and are chartered to the same charterer, Evergreen, subject to the same daily charter rate and charter length as those applicable to the Valence (each such sister ship is hereinafter referred to as the “substitute vessel”). In addition, Costamare and York have a 36-month period after each such vessel’s acceptance by its charterer, in which they may offer us the right to purchase nine additional JV vessels (and shares in the vessel-owning entities) that Costamare and York jointly own, in each case at fair market value as determined in accordance with the omnibus agreement. Within 30 days of receiving such notice, our general partner must make an election on whether to purchase the relevant vessel. If Costamare and York do not reach an agreement to offer us such right during the 36-month period, we will have the right to purchase such vessels at the end of such 36-month period, provided that, at the end of the 36-month period, the relevant vessel is subject to a charter with a remaining term of five full years or more.

As of the date of this prospectus, we have not secured any financing in connection with the ten option vessels. Our ability to purchase these ten option vessels, should we exercise our right to purchase such vessels, is dependent on our ability to obtain financing to fund all or a portion of the acquisition costs and may be dependent on the consent of existing lenders to Costamare and, as applicable, York with respect to these option vessels, as we may seek to transfer existing financing arrangements, including any financing leases, in connection with an acquisition. There are no assurances that we will purchase any of the option vessels. See “Risk Factors—Risk Inherent in Our Business—We may have difficulty obtaining consents that are necessary to acquire vessels with an existing charter or financing agreement”.

 

 

 

 

 

 

 

 

 

 

 

Vessel Name

 

Charterer

 

Date of Delivery(1)

 

Capacity (TEU)

 

Daily Charter Rate
(U.S. dollars)

 

Expiration of
Charter

S2125*

 

Evergreen

 

Q3 2016

 

 

 

14,354

 

 

 

 

46,700

   

2026(2)

S2124*

 

Evergreen

 

Q3 2016

 

 

 

14,354

 

 

 

 

46,700

   

2026(2)

S2123*

 

Evergreen

 

Q3 2016

 

 

 

14,354

 

 

 

 

46,700

   

2026(2)

S2122*

 

Evergreen

 

Q2 2016

 

 

 

14,354

 

 

 

 

46,700

   

2026(2)

S2121*

 

Evergreen

 

Q2 2016

 

 

 

14,354

 

 

 

 

46,700

   

2026(2)

VALENCE**

 

Evergreen

 

2013

 

 

 

8,827

 

 

 

 

41,700

   

July 2020(3)

Not currently chartered

 

 

 

 

 

 

 

 

 

 

NCP0116*

 

 

Q2 2016

 

 

 

11,000

 

 

 

 

   

NCP0115*

 

 

Q2 2016

 

 

 

11,000

 

 

 

 

   

NCP0114*

 

 

Q1 2016

 

 

 

11,000

 

 

 

 

   

NCP0113*

 

 

Q4 2015

 

 

 

11,000

 

 

 

 

   


 

(1)

 

For newbuilds, expected delivery quarters are presented.

 

(2)

 

Assumes exercise of owner’s unilateral options to extend the charter of this vessel for one three-year period and an additional one two-year period at the same charter rate. The charterer also has unilateral options to extend the charter for one three-year period and one two-year period, which correspond to owner’s extension option periods, and an additional two-year period, in each case at the same charter rate.

 

(3)

 

Assumes exercise of owner’s unilateral options to extend the charter of this vessel for two one-year periods at the same charter rate. The charterer also has corresponding options to unilaterally extend the charter for the same periods at the same charter rate.

 

*

 

Denotes vessels acquired by the JV Entities pursuant to the Framework Agreement with York.

 

**

 

Costamare may, at its option, replace the Valence with any of its three substitute vessels. The charters for the three substitute vessels expire in April 2020, June 2020 and September 2020, assuming the exercise of owner’s unilateral options to extend the charter of each such vessels for

3


 

 

 

two one-year periods at the same charter rate. The charterer also has corresponding options to unilaterally extend the charter for the same periods at the same charter rate.

Non-Compete Vessels

In addition to the initial fleet and the option vessels described above, we intend to leverage our relationship with Costamare to make additional accretive acquisitions of containerships with long-term charters. Upon the earliest date on which the purchase options are no longer exercisable, either as a result of the expiration of the last of the option periods described above (which may be as late as 2019 based on the expected delivery schedule) or our having made elections with respect to such options (the “Non-Compete Commencement Date”), the following non-competition provisions of the omnibus agreement will become applicable to Costamare, the JV Entities, York and us. Following the Non-Compete Commencement Date, Costamare and, as applicable, York have agreed to offer us the right to purchase any other containerships (and shares in the vessel-owning entities), including the JV vessels, with the following characteristics:

 

 

vessel is less than seven years old with a carrying capacity of greater than 8,000 TEU; and

 

 

charters are secured with committed terms of five full years or more, which for existing charters shall mean charters with a remaining term of five full years or more.

We refer to any such vessel (and shares in the vessel-owning entities) as a “non-compete vessel”. Costamare and, with respect to any JV vessel, the JV Entities and York have agreed to offer us the right to purchase such non-compete vessel at fair market value as determined in accordance with the omnibus agreement.

In the case of any vessel that constitutes a non-compete vessel as of the Non-Compete Commencement Date, Costamare and, with respect to any JV vessels, the applicable JV Entity and York, have agreed to notify our general partner and offer us, within 36 months following the Non-Compete Commencement Date or, if later, the date of delivery to and acceptance by the charterer, the right to purchase such vessel.

For all vessels that become non-compete vessels after the Non-Compete Commencement Date, Costamare and, with respect to any JV vessels, the applicable JV Entity and York, have agreed to notify our general partner and offer us the right to purchase such non-compete vessels within (1) 36 months after the delivery to and acceptance by the charterer in the case of any newbuild non-compete vessels or (2) 24 months after the consummation of the acquisition or the commencement of operations or charter in the case of any secondhand non-compete vessels.

Costamare and, with respect to any JV vessel, the applicable JV Entity and York will be subject to the requirements described above to provide notice and offer for purchase any non-compete vessel (whether the relevant vessel constitutes a non-compete vessel as of the Non-Compete Commencement Date or becomes a non-compete vessel after the Non-Compete Commencement Date) only if, at the time of such notice and offer, the relevant vessel constitutes a non-compete vessel. If at the end of any such 36-month period or 24-month period, as applicable, the relevant vessel constitutes a non- compete vessel, and Costamare and York have not previously notified and offered us the right to purchase such vessel, we will have the right to do so at the end of such 36-month period or 24-month period, as applicable. Under these provisions, if a vessel ceases to be a non-compete vessel before they are offered to us, that vessel will cease to be subject to these non-competition provisions.

Except as discussed elsewhere in this prospectus, this right to purchase non-compete vessels pursuant to the omnibus agreement will run from the Non-Compete Commencement Date through the entire term of the omnibus agreement. In addition, starting from the closing of this offering, we will have a right of first offer with regard to any proposed sale, transfer or other disposition of any non-compete vessels that Costamare wholly or jointly with York owns, as discussed elsewhere in this prospectus.

Our ability to acquire additional containerships, including option vessels and non-compete vessels, from Costamare and, as applicable, a JV Entity and York is subject to obtaining any

4


applicable consents of governmental authorities and other non-affiliated third parties, including the relevant lenders and charterers. Under the omnibus agreement, Costamare and, as applicable, a JV Entity and York will be obligated to use commercially reasonable efforts to obtain any such consents and to indemnify us if such consents are not obtained. The fair market value to be paid for such vessels and other terms of the purchase will be subject to approval by the conflicts committee of the board of directors of the general partner. Our ability to exercise any right to acquire additional containerships will also be subject to our ability to obtain additional equity and debt financing. We cannot assure you that in any particular case the necessary consent will be obtained. See “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement”.

Costamare Inc.

As of June 30, 2014, Costamare had a fleet of 68 containerships with a total capacity of approximately 450,000 TEU, including nine newbuilds on order, making it one of the largest public containership companies in the world, based on total TEU capacity. Costamare is controlled by members of the Konstantakopoulos family, which has a long history of operating and investing in the international shipping industry, including a long history of vessel ownership.

Costamare Inc. was incorporated in the Republic of The Marshall Islands on April 21, 2008, under the Marshall Islands Business Corporations Act, for the purpose of completing a reorganization of 53 ship-owning companies then owned by our general partner’s chief executive officer and other members of the Konstantakopoulos family under a single corporate holding company. Costamare initially owned and operated drybulk carrier vessels, but in 1984 became the first Greek-owned company to enter the containership market, and, since 1992, it has focused exclusively on containerships. In November 2010, Costamare completed an initial public offering of its common stock in the United States, and its common stock began trading on the New York Stock Exchange under the ticker symbol “CMRE”.

In May 2013, Costamare entered into the Framework Deed or, the “Framework Agreement”, with York, a New York-based investment management firm, to jointly invest up to $500 million in equity for the acquisition of newbuild and secondhand container vessels. The parties have agreed to eliminate the $500 million limitation, conditioned upon the closing of this offering. The Framework Agreement is expected to be each party’s exclusive joint venture for the acquisition of vessels in the containership industry during the investment period ending May 15, 2020. As of June 30, 2014, the joint venture had executed transactions with capital expenditure commitments of approximately $972 million. As of the same date, Costamare and York had made equity payments of $170.7 million, which would decrease to $94.4 million, based on debt financing arrangements that are subject to final documentation. As part of the Framework Agreement, Costamare holds a minority stake in the existing JV vessels and expects to hold a stake of 25% to 75% in future JV vessels. Nine of our option vessels are JV vessels.

Our Relationship with Costamare Inc.

We believe that one of our principal strengths is our relationship with Costamare and its affiliates. We believe our relationship with Costamare will give us access to its relationships with leading liner companies, shipbuilders, financing sources and suppliers and to its technical, commercial and managerial expertise, which we believe will allow us to compete more effectively when seeking additional customers and expanding our fleet. As of June 30, 2014, Costamare’s fleet consisted of (i) 59 vessels in the water, aggregating approximately 335,000 TEU and (ii) nine newbuild vessels aggregating in excess of 115,000 TEU that are scheduled to be delivered through third quarter 2016, based on the current shipyard schedule. As of June 30, 2014, twelve of Costamare’s containerships, including nine newbuilds, had been acquired pursuant to the Framework Agreement with York by vessel-owning joint venture entities in which Costamare holds a minority equity interest.

The vessels in our initial fleet will be managed by Costamare’s affiliated manager, Costamare Shipping, which is controlled by Costamare’s chairman and chief executive officer, unless Costamare

5


Shipping decides to delegate certain of its management services to an affiliated manager (such as Shanghai Costamare), V.Ships Greece or, subject to our consent, other third party managers. Costamare Shipping will also provide certain administrative and commercial management services to the Partnership. Costamare Shipping is a global operator that has successfully managed Costamare’s growing and diverse fleet for the past 40 years. Costamare Shipping utilizes both affiliated and unaffiliated managers for the technical management of vessels, which provides scale and flexibility to its operations. We believe that Costamare Shipping provides superior management services based on its market-specific experience and relationships, and we expect to rely on substantially the same management platform to manage our growing fleet. On January 7, 2013, Costamare Shipping entered into a Co-operation Agreement, or the “Co-operation Agreement”, with V.Ships Greece, a member of V.Group, to establish a ship management cell that, subject to limited exceptions, serves as the exclusive third-party manager of Costamare Shipping.

Upon completion of this offering, Costamare will own our 2.0% general partner interest, all of our incentive distribution rights and a  % limited partner interest in us, which consists of  common units and all of our subordinated units. As a result, Costamare will hold a majority of our total equity interests. Our general partner will manage our operations and day-to-day activities and Costamare will appoint all of the directors of the board of our general partner.

Market Opportunities

We believe there are a number of market factors that create a favorable backdrop for a growth oriented containership company:

 

 

Growing demand for large, modern containerships provided by well-capitalized owners. As reported by Clarkson Research Services Limited, or “Clarkson Research”, due to a combination of high bunker prices and low freight rates in the container shipping market since 2009, liner companies are increasingly relying on large, modern containerships with high TEU capacity and fuel efficiency features, which minimize average operating expenses per TEU of capacity. According to Clarkson Research, this focus on maximizing economies of scale has been accompanied by a compound annual growth rate, or “CAGR”, of 23.4% in total capacity of containerships 8,000 TEU or larger over the last five years, compared to a CAGR of just 1.7% for containerships smaller than 8,000 TEU in size during the same period. On a year-on-year basis, the total capacity of containerships 8,000 TEU or larger grew by 19.3% in 2013, 23.2% in 2012, 26.3% in 2011, 29.1% in 2010 and 17.3% in 2009. This is compared to year-on-year contraction in the total capacity of containerships smaller than 8,000 TEU by 0.2% in 2013, and growth of just 0.3% in 2012, 2.9% in 2011, 5.3% in 2010 and 3.7% in 2009. Furthermore, Clarkson Research reported that recently built vessels with fuel efficiency features or environmental compliance features can achieve significant premium in the charter market. These large, modern containerships are capital intensive assets, and liner companies have traditionally relied on well-capitalized containership owners such as us to help manage their balance sheets. As the global economy continues to strengthen and liner companies continue to balance their capital expenditures and debt capacity with their requirement for larger vessels, we believe they will continue to rely on shipowners like us who can provide them with large vessels with minimal upfront capital outlay.

 

 

Availability of attractive acquisition opportunities in the container shipping industry. Shipbuilding prices for new containerships and prices for secondhand vessels have been, and remain, near historically low levels since the recent economic downturn. As reported by Clarkson Research, benchmark prices for 6,600 TEU new containerships and 8,800 TEU secondhand five-year-old vessels in August 2014 were approximately 37% and 50%, respectively, below their peaks in 2008. The competition for these acquisition opportunities has changed as several historical lenders to shipping companies have tightened lending criteria and either stopped or severely reduced lending to shipping companies. In addition, certain German shipping funds that have historically contracted for nearly half of the containerships ordered between 1999 and 2008 have faced significant financial challenges and, as a result,

6


 

 

 

their share of containership orders in 2013 fell to 12%. Furthermore, we believe liner companies typically prefer to charter from shipowners such as Costamare, who have demonstrated the financial wherewithal to acquire and offer them several vessels in a single transaction. We believe that our moderate leverage profile will position us well to obtain financing to allow us to exploit attractive growth opportunities and enhance our ability to earn an attractive yield on our vessels.

 

 

Containership owners play a significant role in containership trade. Historically, a significant share of the global containership fleet by TEU capacity was owned by the liner companies. Since the 1990s, however, liner companies have increasingly chartered in a larger proportion of the capacity that they operate. Based on Clarkson Research information, the portion of liner companies’ fully cellular containership capacity, meaning that the vessel is a dedicated container vessel, that is supplied by independent charter owners has grown from 29% in 1996 to 47.6% in September 2014. As one of the largest publicly traded containership owners, Costamare has informed us that it expects to participate directly in the continued growth and recovery of the global containership trade. In turn, we believe this will provide us with increased opportunities to grow our fleet and distributable cash flow.

 

 

Global containership trade continues to grow. As reported by Clarkson Research, global container trade grew by 4.0% in 2008, contracted by 9.2% in 2009, rebounded by 13.8% in 2010 and, between 2010 and 2013, grew by a CAGR of 5.0% per annum, and is estimated to have grown by 4.9% in 2013. According to Clarkson Research, current projections suggest that growth will reach 6.0% in 2014 and rise to 6.8% in 2015, outpacing expected growth in global containership fleet capacity. Clarkson Research also reported relative stability in the benchmark three-year charter rates for 9,000 TEU containerships in the past two years and a reduction in the proportion of the vessels in layup from the levels reached in 2009. Clarkson Research projects that this dynamic will help improve the supply and demand balance of the containership market through 2014 and 2015.

 

 

High barriers to entry to the long term charter market. According to Clarkson Research, availability of capital and selectivity by major liner companies can create barrier to entry in the long-term time charter market for larger vessels. We also believe that, given the large capital requirements, limited availability of financing, and need for a high level of operational and technical management expertise, the long-term charter market for larger vessels is difficult to penetrate. Our liner customers are extremely selective, and we believe that our relationship with Costamare, provides us with a significant advantage in being able to attract long-term charters from high quality customers. We believe our relationship with Costamare and Costamare Shipping, and their long track record of operating containerships for some of the largest liner companies in the world, including A.P. Moller- Maersk, MSC, Evergreen, Hapag Lloyd Aktiengesellschaft, or “Hapag Lloyd”, and COSCO, allows us to benefit from the preference for experienced, high-quality operators. We believe this enhances our ability to compete for new customers and charters relative to less qualified and less experienced ship operators.

Competitive Strengths

We believe that our future business prospects are well supported by the following factors:

 

 

Significant built-in growth opportunities. In addition to our initial fleet of four containerships, we will have the option to purchase one wholly-owned vessel of Costamare for which a long-term charter has been arranged. Additionally, Costamare and York have a 36-month period after each such vessel’s acceptance by its charterer, in which they may offer us the right to purchase nine JV vessels expected to be delivered to Costamare and York between 2015 and 2016, for five of which long-term charters have been arranged. If they do not reach an agreement to offer us such right during the 36-month period, we will have the right to purchase such vessels at the end of such 36-month period, provided that, at the end of the 36-month period, the relevant vessel constitutes a non-compete vessel. Once such

7


 

 

 

purchase options are no longer exercisable, Costamare and, with respect to the JV vessels, the JV Entity and York have agreed to offer us the right to purchase at fair market value as determined in accordance with the omnibus agreement other non-compete vessels that Costamare, either by itself or jointly with York owns or acquires, to the extent such vessels constitute non-compete vessels at the time of such offer to us, in each case in accordance with the terms of the omnibus agreement. We believe these acquisition opportunities, as well as other future acquisition opportunities from Costamare, JV Entities and York or other third parties, will facilitate the growth of our distributions per unit.

 

 

Predictable cash flow profile through long-term charters to leading liner companies with staggered expiration dates. Our initial fleet will operate under charters with initial terms that expire between 2018 and 2023, and six of the ten containerships for which we have options to purchase from Costamare and, with respect to the JV vessels, York have or will have charter durations ranging from 7 to 10 years with Evergreen. The staggered maturities of the charters for vessels in our initial fleet will mean that we will likely conduct our re-chartering activity in varying rate environments and we will seek to tailor our charter terms accordingly. Our current charters do not provide the charterers with the option to purchase the vessels at the end of the charter term, which we believe will allow us to take advantage of any improvement in the container shipping market at the end of the charter terms. Furthermore, by contracting with the liner companies that we perceive to be the most financially and operationally sound, such as MSC, Evergreen and COSCO, we believe that we have reduced our potential counterparty risk.

 

 

Enhanced growth opportunities through our relationship with Costamare, an established owner of containerships with significant experience and relationships in the containership sector. We believe our relationship with Costamare will provide us with many benefits that should drive growth in our distributions per unit. We believe charterers award new business to established participants in the containership sector because of their demonstrated technical, commercial and managerial expertise. Because our initial fleet is managed by the same ship manager as Costamare, we believe that we will benefit from the record that Costamare’s containerships have of low unscheduled off-hire days, with fleet utilization levels, excluding scheduled dry-dockings, of 99.3%, 99.9% and 99.9% in 2011, 2012 and 2013, respectively. Furthermore, over the last three years Costamare’s largest customers by revenue included many of the world’s largest liner companies, including A.P. Moller-Maersk, MSC, Evergreen, Hapag-Lloyd and COSCO. We believe that our relationship with Costamare and its affiliated ship managers, with their track record and reputation, will help us to similarly maintain a customer base of large liner companies, as well as to attract additional long-term charters for containerships. Further, we believe that we will be able to enhance our operational and financial efficiency through Costamare’s strong relationships with customers, shipyards and established financing providers, and its large pool of experienced and qualified global seafarers.

 

 

Scale and flexibility in vessel operation. Our vessels will be managed by Costamare Shipping, as head manager, and the same technical managers used for Costamare’s own fleet, which consist of Costamare Shipping, its affiliated manager, Shanghai Costamare (which acts as a sub-manager), V.Ships Greece and, in certain cases, subject to our consent, other third party managers. We believe that utilizing both affiliated and unaffiliated managers will provide us with operational scale, geographical flexibility and market-specific experience and relationships, which will allow us to grow appropriately to meet demand and manage our vessels in an efficient and cost-effective manner.

 

 

Newly constructed and high specification containerships. Our initial fleet will be among the youngest of any containership operator, with three of the four vessels built in 2013 and an average age (weighted by TEU capacity) of approximately 3.0 years as of June 30, 2014. We believe the large size of the vessels in our initial fleet will be attractive to liner companies as such vessels provide economies of scale, reducing costs per TEU of capacity, and can be deployed in numerous trade routes, providing liner companies with operational flexibility. The

8


 

 

 

majority of the vessels in our initial fleet and all of our option vessels are equipped with the latest electronically controlled engines and have been designed with optimized hulls and propulsion systems, which allows the vessels to achieve relatively high fuel efficiency at lower speeds.

 

 

Experienced management team. Our ship managers’ senior management teams have a combined average of approximately 37 years of experience in the shipping industry. In addition, we believe that we will be able to secure attractive long-term charters with leading liner companies because of, among other things, our relationship with Costamare, which has an established operating track record and a high level of service and support. The Chief Executive Officer of our general partner, Konstantinos Konstantakopoulos, and Chief Financial Officer of our general partner, Gregory Zikos, will allocate their time between managing our business and affairs and the business and affairs of Costamare. Mr. Konstantakopoulos is the Chief Executive Officer and Chairman of the Board of Costamare. Mr. Zikos is the Chief Financial Officer and a member of the board of directors of Costamare. The amount of time Mr. Konstantakopoulos and Mr. Zikos will allocate between our business and the businesses of Costamare will vary from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses. Mr. Konstantakopoulos and Mr. Zikos will devote sufficient time to our business and affairs as they believe is necessary for their proper conduct.

 

 

Financial flexibility and access to capital to support our growth. After giving effect to this offering, we expect to have a moderate level of debt. We believe that such capital structure will allow us to pursue accretive vessel acquisitions and explore various ways to maximize unitholder value and grow distributable cash flow per share. Since Costamare’s initial public offering in November 2010, its management team has successfully raised over $1.7 billion in the equity and bank debt markets. We will be managed by the same management team as that of Costamare and we believe that, as a public company, we will have access to the public equity and bank debt markets in order to pursue expansion opportunities.

We can provide no assurance, however, that we will be able to utilize our strengths described above. For further discussion of the risks that we face, see “Risk Factors”.

Business Strategies

Our primary business objective is to grow our business profitably and increase quarterly distributions per unit over time by executing the following strategies:

 

 

Pursue strategic and accretive acquisitions of containerships on long-term, fixed-rate charters. We will seek to leverage our relationship with Costamare to make strategic acquisitions that are accretive to our distributions per unit. As of June 30, 2014, Costamare had 68 containership vessels in its fleet, including twelve vessels in its joint venture with York. This fleet includes a substantial built-in pipeline of potential acquisition targets for us. Furthermore, under the omnibus agreement, we will have the option to purchase one wholly-owned vessel of Costamare for which a long-term charter has been arranged. Additionally, Costamare and York have a 36-month period after each such vessel’s acceptance by its charterer, in which they may offer us the right to purchase nine JV vessels expected to be delivered to Costamare and York between 2015 and 2016, for five of which long-term charters have been arranged. If they do not reach an agreement to offer us such right during the 36-month period, we will have the right to purchase such vessels at the end of such 36-month period, provided that, at the end of the 36-month period, the relevant vessel constitutes a non-compete vessel. Once such purchase options are no longer exercisable, Costamare and, with respect to the JV vessels, the JV Entity and York have agreed to offer us the right to purchase other non-compete vessels in the Costamare fleet, to the extent such vessels constitute non-compete vessels at the time of such offer to us, in each case in accordance with the terms of the omnibus agreement. Finally, we will continuously evaluate potential vessel acquisitions from third-parties and seek to acquire those vessels that meet our rigorous quality

9


 

 

 

standards, have long-term charters and that we believe will be accretive to distributions per unit.

 

 

Acquire attractively priced vessels. We believe we are well-positioned to take advantage of the significant opportunities created by the recent economic downturn to acquire vessels at attractively low prices. In addition to our initial fleet of four containerships, we will also have options to acquire one wholly-owned vessel of Costamare and, subject to being offered such vessels by Costamare and York, nine JV vessels, which are delivered or expected to be delivered to Costamare and York between 2015 and 2016, and other rights under which we may acquire additional containerships from Costamare and, with respect to the JV vessels, York, as described above. We intend to expand our fleet by acquiring additional containerships at relatively low prices using proceeds from this offering to the extent available and proceeds from future equity and debt financings.

 

 

Manage our fleet and charter portfolio to provide a stable base of cash flows. We intend to maintain and grow our cash flow by expanding our relationships with creditworthy counterparties, growing our fleet of vessels on long-term time charters, and minimizing operating costs, while maintaining a high level of service to our customers. Costamare’s largest customers over the last three years have been A.P. Moller-Maersk, MSC, Evergreen, Hapag-Lloyd and COSCO, which we perceive to be among the more creditworthy liner companies. We believe that Costamare will continue to maintain and develop relationships with these and other liner companies, with a particular focus on counterparty diversification and credit quality, in order to support its growth programs. We expect to benefit from these growth and diversification initiatives as we seek to acquire additional vessels with long- term charters from Costamare. We believe that the long-term fixed-rate nature of our charters will continue to provide us with a stable base of contracted future revenue. As of June 30, 2014, the time charters for our initial fleet represented an aggregate of $372.9 million of contracted revenue through 2023.

 

 

Maintain a strong balance sheet through moderate use of leverage. We intend to use approximately $  million of the net proceeds from this offering and the borrowings under our new credit facility to repay the outstanding indebtedness under our existing credit facilities. We intend to manage our balance sheet conservatively, targeting a modest amount of leverage, managing our maturity profile and maintaining an adequate level of liquidity. We believe that managing our balance sheet in a conservative manner will minimize our financial risk while providing a solid foundation for our future expansion and enhancing our ability to apply a substantial portion of our cash flow to the payment of distributions to our unitholders.

 

 

Provide high-quality, low-cost customer service through efficient vessel management. We seek to provide high-quality, low-cost customer service that allows our customers to implement integrated logistics solutions in the marketplace in a cost-effective manner. Our managers’ ship management approach is to provide tailored services based on the customers’ needs, which we believe has helped extend Costamare’s charters and the useful lives of its containerships, and can differentiate us from our competitors. We believe that our partnership with Costamare Shipping, who may delegate certain management services to its affiliated managers, V.Ships Greece and, subject to our consent, other unaffiliated managers, will allow us to have a deep pool of operational management in multiple locations around the globe with the market-specific experience and relationships necessary to manage a large fleet with a high level of service at a low-cost, while offering the scalability and flexibility for future growth. We also believe that our focus on customer service and reliability will enhance our relationships with our charterers. In the past decade, Costamare and our other managers have had successful chartering relationships with the majority of the top 20 liner companies by TEU capacity. We also intend to apply high standards of vessel operation and maintenance to enhance the predictability of our operating expenses and the operational efficiencies of our fleet.

We can provide no assurance, however, that we will be able to implement our business strategies described above. For further discussion of the risks that we face, see “Risk Factors”.

10


Risk Factors

An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. Please read carefully the risks described under “Risk Factors” beginning on page 29 of this prospectus.

These risks include, among other things, the following:

 

 

We may not have sufficient cash from operations, following the establishment of cash reserves and payment of fees and expenses, to enable us to pay the minimum quarterly distribution on our common units and subordinated units.

 

 

We will be required to make substantial capital expenditures to maintain the operating capacity of our fleet and acquire vessels, which may reduce or eliminate the amount of cash available for distribution.

 

 

Our ability to acquire additional containerships from Costamare or third parties will depend upon our ability to raise additional equity and debt financing, to fund all or a portion of the acquisition costs of these vessels, and may be dependent on the consent of existing lenders to Costamare.

 

 

Our debt levels may limit our ability to obtain additional financing, pursue other business opportunities and pay distributions to unitholders.

 

 

We depend on Costamare and its affiliates, including Costamare Shipping, to operate and expand our businesses and compete in our markets.

 

 

Our future performance depends on the level of world and regional demand for chartering containerships, and a recurrence of the recent global economic slowdown may impede our ability to continue to grow our business.

 

 

We have only four vessels in our initial fleet. Any limitation in the availability or operation of those vessels could have a material adverse effect on our business, financial condition, results of operations and cash flows, which effect would be amplified by the small size of our initial fleet.

 

 

Unitholders have limited voting rights and our partnership agreement restricts the voting rights of unitholders (other than our general partner and its affiliates, including Costamare) owning more than 4.9% of our common units.

 

 

Our unitholders will not be entitled to elect our general partner or its directors, subject to our general partner’s option to cause us at some point in the future to be managed by our own board of directors and, in that connection, to cause the common unitholders to permanently have the right to elect a majority of our directors.

 

 

Upon completion of this offering, Costamare and our general partner will own a  % interest in us and will have conflicts of interest and limited fiduciary and contractual duties to us and our common unitholders, which may permit them to favor their own interests to your detriment.

 

 

Even if public unitholders are dissatisfied, they cannot initially remove our general partner without Costamare’s consent.

 

 

You will experience immediate and substantial dilution of $   per common unit.

 

 

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

 

 

U.S. tax authorities could treat us as a “passive foreign investment company” under certain circumstances, which would have adverse U.S. federal income tax consequences to U.S. unitholders.

This is not a comprehensive list of risks to which we are subject, and you should carefully consider all the information in this prospectus prior to investing in our common units.

Implications of Being an Emerging Growth Company

Our Predecessor had less than $1.0 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups

11


Act, or the “JOBS Act”. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include, among others:

 

 

the ability to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of its initial public offering;

 

 

exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting;

 

 

exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and

 

 

exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or “PCAOB”, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and financial statements.

We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company as of the earliest to occur of: (i) the last day of the fiscal year during which we had $1 billion or more in annual gross revenues; (ii) the date of our issuance, in a three-year period, of more than $1 billion in non-convertible debt; or (iii) the date on which we are deemed to be a “large accelerated filer” as defined for purposes of the Securities Exchange Act of 1934, or the “Exchange Act”, which will occur if the market value of our common units held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide unitholders may be different than information provided by other public companies. We have elected to opt out of the extended transition period for complying with new or revised accounting standards applicable to public companies until such standards are also applicable to private companies, which election is irrevocable.

Formation Transactions

General

We were formed on July 30, 2014 as a Marshall Islands limited partnership. We intend to own, operate and acquire containerships under long-term charters with terms of five full years or more, although the vessels in our initial fleet will have charters with remaining terms ranging from 3.8 years to 8.7 years, as of June 30, 2014. Prior to the closing of this offering, our partnership will not own any vessels. At the closing of this offering, Costamare will contribute to us a 100% interest in entities which own a 100% interest in the Cosco Beijing, the MSC Athens, the MSC Athos and the Value. Prior to this offering, we have been a wholly-owned subsidiary of Costamare, and our vessels have operated as part of Costamare’s larger fleet.

At or prior to the closing of this offering, the following transactions will occur:

 

 

we will issue to Costamare  common units and all of our subordinated units, representing a  % limited partner interest in us, and all of our incentive distribution rights, which will entitle Costamare to increasing percentages of the cash we distribute in excess of $  per unit per quarter;

 

 

Costamare and York will enter into a separate agreement, pursuant to which York will be entitled to receive from Costamare certain incentive payments based primarily on York’s interest in the JV vessels acquired by the Partnership and the amount of any incentive distributions received by Costamare;

 

 

we will issue to Costamare Partners GP LLC, a wholly-owned subsidiary of Costamare, general partner units, representing a 2.0% general partner interest in us;

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we will sell  common units to the public in this offering, representing a  % limited partner interest in us, which includes up to an aggregate of approximately $  million and $  million of common units that members of the Konstantakopoulos family and certain funds managed by York have indicated that they currently intend to purchase, respectively;

 

 

we will use the net proceeds from this offering, together with the borrowings under our new credit facility, to repay $  million of outstanding borrowings as part of a refinancing of our vessel financing agreements and retain $  million for general partnership purposes; and

 

 

we will make a payment of the remaining proceeds of approximately $  million to Costamare as partial consideration for the interest described above.

In addition, at or prior to the closing of this offering:

 

 

we, as guarantor, and our vessel owning subsidiaries, as borrowers, have entered into a new credit facility to refinance the existing vessel financing agreements, which will consist of a $126.6 million term loan facility and a $53.4 million revolving credit facility (provided that the amount drawn under the revolving credit facility, when aggregated with the term loan actually drawn, may not exceed 50% of the fair market value of the relevant security vessels). We expect to borrow under the term loan facility concurrently with the closing of this offering. Such new credit facility will be secured solely by vessels in our initial fleet. No guarantee or collateral will be provided by Costamare and its subsidiaries, other than us, in connection with such credit facility;

 

 

we will enter into an omnibus agreement with Costamare, York, our general partner and other affiliates of Costamare and York governing, among other things:

 

 

the extent to which we, Costamare and York may compete with each other;

 

 

following the Non-Compete Commencement Date, our agreement with Costamare and, with respect to any JV vessels, the JV Entities and York regarding their offer to us of certain rights to purchase non-compete vessels with charters having committed terms of five full years or more, which for existing charters shall mean charters with a remaining term of five full years or more;

 

 

our options to purchase the Valence (or, at Costamare’s option, one of the substitute vessels) from Costamare within 12 months following the closing of this offering, and our agreement with Costamare, the JV Entities and York regarding their offer to us, within 36 months following each vessel’s acceptances by its respective charterer, of certain rights to purchase Hulls NCP0113, NCP0114, NCP0115, NCP0116, S2121, S2122, S2123, S2124 and S2125, in each case, at their respective fair market values, as described under “Certain Relationships and Related Party Transactions-Agreements Governing the Transactions-Omnibus Agreement”;

 

 

certain rights of first offer on non-compete vessels under charters of five full years or more that Costamare or, with respect to the JV vessels, York proposes to sell, as described under “Certain Relationships and Related Party Transactions-Agreements Governing the Transactions-Omnibus Agreement”; and

 

 

Costamare’s and, with respect to the JV vessels, York’s provision of certain indemnities to us;

 

 

we and our general partner will enter into a partnership management agreement with Costamare Shipping, pursuant to which Costamare Shipping will agree to provide us and our general partner certain administrative, commercial and technical management services; and

 

 

we expect to enter into an addendum for each of the existing ship management agreements, which govern the crew and technical management of the vessels in our initial fleet, such that our operating subsidiaries will continue to be party to such existing ship management agreements with Costamare Shipping pursuant to the partnership management agreement.

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For further details on our agreements with Costamare and its affiliates, including amounts involved, see “Certain Relationships and Related Party Transactions”.

The consideration for the 100% interests in the entities which own a 100% interest in the Cosco Beijing, the MSC Athens, the MSC Athos and the Value that will be contributed to us will be determined based on fair values; however, since Costamare and the Partnership are entities under common control, the consideration will be accounted for at historical carrying values. The amount of cash consideration will be calculated after deducting from the net proceeds of this offering and the borrowings under our new credit facility the amount that will be used for the debt prepayment and the amount that will remain as cash for general corporate purposes for the Partnership. The non-cash consideration to Costamare will be equal to the fair value of the net assets as adjusted for the fair value of the vessels that will be contributed to the Partnership less the cash consideration. The difference between the fair value of consideration issued to Costamare and the net assets to be received will be accounted for as an equity transaction in the financial statements of the Partnership.

Holding Company Structure

We are a holding entity and will conduct our operations and business through subsidiaries, as is common with publicly traded limited partnerships, to maximize operational flexibility. We believe that conducting our operations through a publicly traded limited partnership will offer us the following advantages:

 

 

access to the public equity and debt capital markets;

 

 

a lower cost of capital for expansion and acquisitions; and

 

 

an enhanced ability to use equity securities as consideration in future acquisitions.

Simplified Organizational and Ownership Structure After this Offering

The following table and diagram depict our simplified organizational and ownership structure, after giving effect to the offering and related transactions described above, assuming no exercise of the underwriters’ option to purchase additional common units:

 

 

 

 

 

 

 

Number of
Units

 

Percentage
Ownership

Public Common Units(1)(2)

 

 

 

 

Costamare Inc. Common Units(1)

 

 

 

 

York Common Units

 

 

 

 

Konstantakopoulos Family Common Units

 

 

 

 

Costamare Inc. Subordinated Units

 

 

 

 

General Partner Units

 

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

 

 

100.0%

 

 

 

 

 

 

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(1)

 

Assumes the underwriters do not exercise their option to purchase additional common units. If the underwriters do not exercise their option to purchase additional common units in full, we will issue up to an additional  common units to Costamare at the expiration of the option. Any such units issued to Costamare will be issued for no additional consideration. If the underwriters exercise their option to purchase up to  additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be sold to the public instead of being issued to Costamare. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding. If the underwriters’ option is exercised in full, then Costamare would own  common units, representing a  % ownership interest in us and the public would own  common units, representing a  % ownership interest in us.

 

(2)

 

Includes up to $  of common units that members of the Konstantakopoulos family have indicated that they currently intend to purchase and up to $  of common units that certain funds managed by York have indicated that they currently intend to purchase, in each case in the offering at the public offering price.

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Our Management

Our partnership agreement provides that our general partner, Costamare Partners GP LLC, a Marshall Islands limited liability company, will manage our operations and day-to-day activities. The executive officers and two of the directors of Costamare Partners GP LLC also serve as executive officers or directors of Costamare, and another director of Costamare Partners GP LLC also serves as a key employee of an affiliate of Costamare. For more information about these individuals, see “Management—Directors and Executive Officers”.

Our unitholders will not be entitled to elect our general partner or its directors. Our general partner will not receive a management fee in connection with its management of our business, but it will be entitled to be reimbursed for all direct and indirect expenses incurred on our behalf. Our general partner will also be entitled to distributions on its general partner interest. Please read “Certain Relationships and Related Party Transactions” and “Management”.

Pursuant to the partnership management agreement, we and our subsidiaries will pay a per vessel management fee to Costamare Shipping in connection with the provision of certain administrative, commercial and technical management services to us. With respect to the provision of technical management of our vessels, Costamare Shipping, either directly or by delegating to another manager, which may be directed to enter into a direct ship management agreement with the relevant containership-owning subsidiary, will provide technical, crewing and provisioning services to our containerships pursuant to separate ship management agreements. Such ship management services have been provided under existing ship management agreements between Costamare Shipping and each of Costamare’s subsidiaries that own the vessels in our initial fleet, which agreements will remain in place after this offering. In connection with the offering, we expect to enter into an addendum for each of the existing ship management agreements for our initial fleet such that our operating subsidiaries will continue to be party to such agreements pursuant to the partnership management agreement. For the four vessels in our initial fleet, we expect that we and our subsidiaries will pay approximately $1.8 million in total under the partnership management agreement and the related ship management agreements for the twelve months ending December 31, 2015. For a more detailed description of these arrangements, see “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Partnership Management Agreement” and “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Ship Management Agreements”.

Although we will initially be managed by our general partner, which will act through its board of directors and officers, all of whom will be appointed by Costamare, our general partner will have the option to cause us instead to be managed by our own board of directors and officers. In that connection, the exercise of such option by our general partner will cause the common unitholders to permanently have the right to elect a majority of our directors. This option is exercisable at the sole discretion of our general partner, which is a wholly-owned subsidiary of Costamare. Our general partner may decide to exercise this right in order to permit us to claim, or continue to claim, an exemption under Section 883 of the Internal Revenue Code of 1986, or the “Code”, from U.S. federal income tax on U.S. Source International Transportation Income. However, there is no assurance that our general partner will exercise this right, and in its sole discretion, our general partner may decide not to exercise this right even if, as a result of such non-exercise, we would become subject to U.S. federal income tax on U.S. Source International Transportation Income. For 2014, we expect to qualify for the exemption under Section 883 of the Code on the basis of Costamare’s qualification under that section and its ownership and control of us, but we cannot assure you that we will continue to do so in the future. Please read “Business—Taxation of the Partnership—United States” for a discussion of material U.S. federal income tax consequences of our activities and the definition of “U.S. Source International Transportation Income”.

In addition, if our general partner exercises its right to delegate management of the partnership to a board of directors of the partnership, then, thereafter, if a majority of our directors ceases to consist of directors that were (1) appointed by our general partner and (2) recommended for

16


election by a majority of our appointed directors, the non-competition provisions of the omnibus agreement applicable to Costamare and York would terminate immediately.

Principal Executive Offices and Internet Address; SEC Filing Requirements

We maintain our principal executive offices at 60 Zephyrou Street & Syngrou Avenue, 17564 Athens, Greece. Our telephone number at that address is +30-210-949-0050. We expect to make our periodic reports and other information filed with or furnished to the United States Securities and Exchange Commission, or the “SEC”, available, free of charge, through our website at www.costamarepartners.com, which will be operational after this offering, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. See “Where You Can Find More Information” for an explanation of our reporting requirements as a foreign private issuer.

Summary of Conflicts of Interest and Fiduciary Duties

Costamare Partners GP LLC, our general partner, has a legal duty to manage us in a manner beneficial to our unitholders, subject to the limitations described under “Conflicts of Interest and Fiduciary Duties”. This legal duty is commonly referred to as a “fiduciary duty”. However, because Costamare Partners GP LLC is owned by Costamare, the officers and directors of Costamare Partners GP LLC also have fiduciary duties to manage the business of Costamare Partners GP LLC in a manner beneficial to Costamare. In addition, the directors of Costamare Partners GP LLC are employed by an affiliate of Costamare and also provide director, executive officer or key employee services to Costamare or its affiliates. The officers of Costamare Partners GP LLC are also employed by an affiliate of Costamare and provide officer services to Costamare. As a result of these relationships, conflicts of interest may arise between us and our unaffiliated limited partners on the one hand, and Costamare and its affiliates, including our general partner, on the other hand. The resolution of these conflicts may not be in the best interest of us or our unitholders. In particular:

 

 

certain of the directors and all of the officers of our general partner also serve as directors and officers of Costamare or its affiliates and as such will have fiduciary duties to Costamare or its affiliates that may cause them to pursue business strategies that disproportionately benefit Costamare or its affiliates or which otherwise are not in the best interests of us or our unitholders. In the exercise of such fiduciary duties to Costamare, in deciding whether we will exercise the right to acquire a vessel under the vessel option or non-competition provisions of the omnibus agreement, our general partner may consider the interests of Costamare as well as us, so long as it does so in good faith;

 

 

our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, which entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligations to give any consideration to any interest of or factors affecting us, our affiliates or any unitholder; when acting in its individual capacity, our general partner may act without any fiduciary obligation to us or our unitholders whatsoever;

 

 

Costamare and its affiliates and, as applicable, York and its affiliates, may compete with us, subject to the restrictions contained in the omnibus agreement, and could own and operate non-compete vessels that may compete with our vessels prior to the Non-Compete Commencement Date or if the Partnership does not exercise its rights to acquire such non-compete vessels;

 

 

any agreement between us, on the one hand, and our general partner and its affiliates, on the other, will not grant to our unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor;

 

 

borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders, including borrowings that have the purpose or effect of:

17


 

 

 

(i) enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or our incentive distribution rights or (ii) hastening the expiration of the subordination period;

 

 

Costamare, as the holder of our incentive distribution rights, has the right to reset the minimum quarterly distribution and the cash target distribution levels upon which the incentive distributions payable to the holders of the incentive distribution rights are based without the approval of our unitholders or the conflicts committee of the board of directors of our general partner at any time when there are not subordinated units outstanding and we have made cash distributions to the holders of our incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters; in connection with such resetting and the corresponding relinquishment by Costamare of incentive distribution payments based on the cash target distribution levels prior to the reset, Costamare will be entitled to receive a number of newly issued common units and general partner units based on a predetermined formula described under “How We Make Cash Distributions-Costamare’s Right to Reset Incentive Distribution Levels”; and

 

 

in connection with this offering, we and our general partner will enter into agreements, and may enter into additional agreements, with Costamare and certain of its subsidiaries and York, relating to the purchase of additional vessels, and with certain of Costamare’s affiliates relating to the provision of certain services to us by Costamare Shipping and other matters. In the performance of their obligations under these agreements, Costamare and its affiliates, other than our general partner, and York are not held to a fiduciary duty standard of care to us, our general partner or our limited partners, but rather to the standard of care specified in these agreements.

For a more detailed description of the conflicts of interest and fiduciary duties of our general partner, see “Conflicts of Interest and Fiduciary Duties”.

The board of directors of our general partner will have a conflicts committee composed of two directors who meet both NYSE and SEC independence requirements and are not any of the following: (a) officers or employees of our general partner, (b) officers, directors or employees of any affiliate of our general partner (other than the Partnership and its subsidiaries) or (c) holders of any ownership interest in the general partner, its affiliates or the Partnership and its subsidiaries (other than (x) common units or (y) awards granted pursuant to any long-term incentive plan, equity compensation plan or similar plan of the Partnership or its subsidiaries). The board of directors of our general partner may, but is not obligated to, seek approval of the conflicts committee for resolutions of conflicts of interest that may arise as a result of the relationships between Costamare and its affiliates, on the one hand, and us and our unaffiliated limited partners, on the other. There can be no assurance that a conflict of interest will be resolved in favor of the Partnership.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held under Marshall Islands law. For example, our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to our unitholders. Our partnership agreement also restricts the remedies available to our unitholders. By purchasing a common unit, you are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner or the directors, officers or affiliates of our general partner, all as set forth in our partnership agreement. See “Conflicts of Interest and Fiduciary Duties” for a description of the fiduciary duties that would otherwise be imposed on our general partner or the directors, officers or affiliates of our general partner under Marshall Islands law, the material modifications of those duties contained in our partnership agreement and certain legal rights and remedies available to our unitholders under Marshall Islands law.

For a more detailed description of the conflicts of interest and fiduciary duties of our general partner and its affiliates, see “Conflicts of Interest and Fiduciary Duties”. For a description of our other relationships with our affiliates, see “Certain Relationships and Related Party Transactions”.

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The Offering

 

 

 

 

 

Common units offered to the public

 

  common units.

 

     

 

  common units, if the underwriters exercise in full their option to purchase additional common units.

 

Units outstanding after this offering

 

  common units and  subordinated units, representing a  % and  % limited partner interest in us, respectively. If the underwriters do not exercise their option to purchase additional common units, we will issue common units to Costamare upon the option’s expiration for no additional consideration. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding. In addition, our general partner will own a 2.0% general partner interest in us.

 

Use of proceeds

 

We intend to use the net proceeds from this offering (approximately $  million, after deducting underwriting discounts and commissions, structuring fees and estimated offering expenses payable by us), together with the borrowings under our new credit facility, to repay $  million of debt and to retain approximately $  million for general partnership purposes. The remaining $  million will be used to make a payment to Costamare as partial consideration for the interest in the subsidiaries that own the vessels in our initial fleet.

 

     

 

The net proceeds from any exercise of the underwriters’ option to purchase additional common units (approximately $  million, if exercised in full, after deducting the underwriting discounts and commissions) will be used to make a payment to Costamare. If the underwriters do not exercise their option to purchase additional common units, we will issue additional common units to Costamare at the expiration of the option for no additional consideration.

 

Cash distributions

 

We intend to make minimum quarterly distributions of $  per common unit ($  per unit on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. In general, we will pay any cash distributions we make each quarter in the following manner:

 

 

   

first, 98.0% to the holders of common units and 2.0% to our general partner, until each common unit has received a minimum quarterly distribution of $  plus any arrearages from prior quarters;

 

 

   

second, 98.0% to the holders of subordinated units and 2.0% to our general partner, until each subordinated unit has received a minimum quarterly distribution of $  ; and

 

 

 

 

19


 

 

 

 

 

 

 

   

third, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unit has received an aggregate distribution of $  .

 

     

 

Within 45 days after the end of each fiscal quarter (beginning with the quarter ending December 31, 2014), we will distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the closing of this offering through December 31, 2014, based on the actual length of the period. Our ability to pay our minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Our Cash Distribution Policy and Restrictions on Distributions”.

 

     

 

If cash distributions to our unitholders exceed $  per unit in a quarter, holders of our incentive distribution rights (initially, Costamare) will receive increasing percentages, up to 48.0%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions”. Pursuant to a separate agreement between Costamare and York, York will be entitled to receive from Costamare certain incentive payments based primarily on York’s interest in the JV vessels acquired by the Partnership and the amount of any incentive distributions received by Costamare. We must distribute all of our cash on hand at the end of each quarter, less reserves established by our general partner to provide for the proper conduct of our business, to comply with any applicable debt instruments or to provide funds for future distributions. We refer to this cash as “available cash”, and we define its meaning in our partnership agreement. The amount of available cash may be greater than or less than the aggregate amount of the minimum quarterly distribution to be distributed on all units.

 

     

 

We believe, based on the estimates contained in and the assumptions listed under “Our Cash Distribution Policy and Restrictions on Distributions—Forecasted Cash Available for Distribution”, that we will have sufficient cash available for distribution to enable us to pay the minimum quarterly distribution of $  on all of our common and subordinated units for each quarter through December 31, 2015. However, unanticipated events may occur that could adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows and financial condition during the forecast period may vary from the forecast, and such variations may be material. Prospective investors are cautioned not to place undue reliance on the forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition.

 

 

 

 

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See “Our Cash Distribution Policy and Restrictions on Distributions—Forecasted Cash Available for Distribution”.

 

Subordinated units

 

Costamare will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that in any quarter during the subordination period the subordinated units are entitled to receive the minimum quarterly distribution of $  per unit only after the common units have received the minimum quarterly distribution and arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. The subordination period generally will end if we have earned and paid at least $  on each outstanding common and subordinated unit and the corresponding distribution on our general partner’s 2.0% interest for any three consecutive four-quarter periods ending on or after September 30, 2017. If the subordination period ends as a result of us having met the tests described above, all subordinated units will convert into common units on a one-for-one basis, and the common units will no longer be entitled to arrearages.

 

     

 

For purposes of determining whether the subordination period will end, the three consecutive four-quarter periods for which the determination is being made may include one or more quarters with respect to which arrearages in the payment of the minimum quarterly distribution on the common units have accrued, provided that all such arrearages have been repaid prior to the end of each such four-quarter period.

 

     

 

See “How We Make Cash Distributions—Subordination Period”.

 

Costamare’s right to reset the target
distribution levels

 


Costamare, as the initial holder of our incentive distribution rights, has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. If Costamare transfers all or a portion of the incentive distribution rights it holds in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. Following a reset election by Costamare, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (we refer to such amount as the “reset minimum quarterly distribution amount”), and the target distribution levels will be reset to correspondingly higher levels based on the same percentage

21


 

 

 

 

 

 

 

increases above the reset minimum quarterly distribution amount as our current target distribution levels.

 

     

 

In connection with resetting these target distribution levels, Costamare will be entitled to receive a number of common units equal to that number of common units whose aggregate quarterly cash distributions equaled the average of the distributions to it on the incentive distribution rights in the prior two quarters. Our general partner will also receive additional general partner units in order to maintain its ownership interest relative to the common units. For a more detailed description of Costamare’s right to reset the target distribution levels upon which the incentive distribution payments are based, see “How We Make Cash Distributions—Costamare’s Right to Reset Incentive Distribution Levels”.

 

Issuance of additional units

 

We can issue an unlimited number of additional units, including units that are senior to the common units in rights of distribution, liquidation and voting, without the consent of our unitholders. See “Units Eligible for Future Sale” and “The Partnership Agreement—Issuance of Additional Interests”.

 

Our general partner’s option to create
a partnership board of directors

 


We will initially be managed by our general partner, which will act through its board of directors and officers, all of whom will be appointed by Costamare. Our general partner will have the option to cause us instead to be managed by our own board of directors and officers and, in that connection, to cause the common unitholders to permanently have the right to elect a majority of our directors. This option is exercisable at the sole discretion of our general partner, which is a wholly-owned subsidiary of Costamare. Our general partner may decide to exercise this right in order to permit us to claim, or continue to claim, an exemption under Section 883 of the Code from U.S. federal income tax on U.S. Source International Transportation Income. However, there is no assurance that our general partner will exercise this right, and in its sole discretion, our general partner may decide not to exercise this right even if, as a result of such non-exercise, we would become subject to U.S. federal income tax on U.S. Source International Transportation Income. For 2014, we expect to qualify for the exemption under Section 883 of the Code on the basis of Costamare’s qualification under that section and its ownership and control of us, but we cannot assure you that we will continue to do so in the future. Please read “Business—Taxation of the Partnership—United States” for a discussion of material U.S. federal income tax consequences of our activities and the definition of “U.S. Source International Transportation Income”. If our general partner exercises this option, we would need to obtain a waiver or amendment of the provision of our new credit facility, which makes it a

22


 

 

 

 

 

 

 

change of control if our general partner ceases to be able to appoint a majority of our directors.

 

Limited voting rights

 

Our general partner will manage and operate us. Holders of our common units will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or the directors of our general partner on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least  % of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, Costamare will own  of our common units and all of our subordinated units, representing a  % limited partner interest in us. If the underwriters’ option to purchase additional common units is exercised in full, Costamare will own  of our common units and all of our subordinated units, representing a  % limited partner interest in us. As a result, you will initially be unable to remove our general partner without its consent, because Costamare will own sufficient units upon completion of this offering to be able to prevent the general partner’s removal.

 

     

 

Except as otherwise described herein, each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders. However, if at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes under our partnership agreement, unless otherwise required by a mandatory provision of applicable law. Effectively, this means that the voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our general partner, its affiliates and persons who acquired common units with the prior approval of the board of directors of our general partner will not be subject to this 4.9% limitation or redistribution of the voting rights described above. See “The Partnership Agreement—Voting Rights”.

 

Limited call right

 

If at any time our general partner and its affiliates own 80.0% or more of the outstanding common units, our general partner has the right, but not the obligation, to purchase all, but not less than all, of the remaining common units at a price equal to the greater of (x) the average of the daily closing prices of the common units over the 20 trading days preceding the date three days before the notice of exercise of the call right is first mailed

23


 

 

 

 

 

 

 

and (y) the highest price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right.

 

U.S. federal income tax
considerations

 


Although we are organized as a partnership, we have elected to be treated as a corporation solely for U.S. federal income tax purposes. Consequently, all or a portion of the distributions you receive from us will constitute dividends for such purposes. We estimate that, if you hold the common units that you purchase in this offering through the period ending  ,  , all of the distributions you receive during that period will constitute dividends for U.S. federal income tax purposes. However, if any distributions you receive exceed the earnings and profits of the Partnership, such excess portion will instead be treated first as a non-taxable return of capital to the extent of your tax basis in your common units, and thereafter, as capital gain. Please see “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders-Ratio of Dividend Income to Distributions” for the basis of this estimate. Please also see “Risk Factors—Tax Risks” for a discussion relating to the taxation of dividends. For a discussion of other material U.S. federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, see “Material U.S. Federal Income Tax Considerations”.

 

Non-U.S. tax considerations

 

We have been organized under the laws of the Republic of the Marshall Islands. Our vessel-owning subsidiaries for the initial fleet have been organized under the laws of Liberia.

 

     

 

For a discussion of material Marshall Islands and Liberian income tax considerations that may be relevant to prospective unitholders and for a discussion of the risk that unitholders may be attributed the activities we undertake in various jurisdictions for taxation purposes, see “Non-United States Tax Considerations” and “Risk Factors—Tax Risks”.

 

Purchase by members of the
Konstantakopoulos family and York

 


Members of the Konstantakopoulos family and certain funds managed by York have indicated that they currently intend to purchase up to an aggregate of approximately $  million and $  million, respectively, of common units in the offering at the public offering price. This represents an aggregate of approximately   and   common units, respectively.

 

Exchange listing

 

We intend to apply to list the common units on the New York Stock Exchange under the symbol “CMRP”.

24


Summary Financial, Operating and Pro Forma Data

The following table presents, in each case for the periods and as of the dates indicated, summary historical financial and operating data of Costamare Partners LP Predecessor, which includes the subsidiaries of Costamare that have interests in the vessels in our initial fleet. The acquisition by which we will acquire the vessels in our initial fleet will be accounted for as a reorganization of entities under common control. The summary historical financial data of Costamare Partners LP Predecessor as of and for the years ended December 31, 2012 and 2013 have been derived from the audited combined carve-out financial statements of Costamare Partners LP Predecessor. The summary historical financial data of Costamare Partners LP Predecessor as of June 30, 2014, and for the six months ended June 30, 2013 and 2014 have been derived from the unaudited interim combined carve-out financial statements of Costamare Partners LP Predecessor. The summary pro forma balance sheet data of Costamare Partners LP as of June 30, 2014 have been derived from the unaudited pro forma combined balance sheet of Costamare Partners LP. The financial statements of Costamare Partners LP Predecessor and the Partnership have been prepared in accordance with U.S. generally accepted accounting principles, or “U.S. GAAP” or “GAAP”, and are included elsewhere in this prospectus. Results for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

The following financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the historical combined carve-out financial statements of Costamare Partners LP Predecessor and the notes thereto, the unaudited interim combined carve-out financial statements of Costamare Partners LP Predecessor and the notes thereto, the unaudited pro forma combined balance sheet and the notes thereto and our forecasted results of operations for the twelve months ending December 31, 2015, in each case included elsewhere in this prospectus.

The results of operations for the six month periods ended June 30, 2013 and June 30, 2014, and the year ended December 31, 2013 reflect operations of the MSC Athens, the MSC Athos and the Value from March 2013, April 2013 and June 2013, respectively, when they commenced operations under their respective charters. The Cosco Beijing has been in operation under its charter from June 2006.

Our financial position, results of operations, cash flows and financial conditions could differ from those that would have resulted if we operated autonomously or as an entity independent of Costamare in the periods for which historical financial data are presented below, and such data may not be indicative of our future operating results or financial performance.

25


 

 

 

 

 

 

 

 

 

 

 

Year Ended
December 31,

 

Six Months Ended
June 30,

 

2012

 

2013

 

2013

 

2014

 

 

(audited)

 

(unaudited)

 

 

(Expressed in thousands of U.S. dollars)

STATEMENT OF INCOME DATA

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Voyage revenue

 

 

$

 

13,322

 

 

 

$

 

44,369

 

 

 

$

 

14,545

 

 

 

$

 

29,334

 

Expenses:

 

 

 

 

 

 

 

 

Voyage expenses

 

 

 

 

 

 

 

(190

)

 

 

 

 

(189

)

 

 

 

 

 

Voyage expenses-related parties

 

 

 

(100

)

 

 

 

 

(334

)

 

 

 

 

(109

)

 

 

 

 

(220

)

 

Vessels’ operating expenses

 

 

 

(2,675

)

 

 

 

 

(7,733

)

 

 

 

 

(2,810

)

 

 

 

 

(4,737

)

 

General and administrative expenses

 

 

 

(278

)

 

 

 

 

(316

)

 

 

 

 

(144

)

 

 

 

 

(139

)

 

Management fees-related parties

 

 

 

(311

)

 

 

 

 

(987

)

 

 

 

 

(335

)

 

 

 

 

(664

)

 

Amortization of dry-docking and special survey costs

 

 

 

(173

)

 

 

 

 

(173

)

 

 

 

 

(86

)

 

 

 

 

(85

)

 

Depreciation

 

 

 

(2,834

)

 

 

 

 

(8,928

)

 

 

 

 

(3,022

)

 

 

 

 

(5,810

)

 

Foreign exchange gains / (losses)

 

 

 

(3

)

 

 

 

 

22

 

 

 

 

5

 

 

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

6,948

 

 

 

 

25,730

 

 

 

 

7,855

 

 

 

 

17,661

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

Interest and finance costs

 

 

 

(3,397

)

 

 

 

 

(10,764

)

 

 

 

 

(4,141

)

 

 

 

 

(6,274

)

 

Other

 

 

 

16

 

 

 

 

2

 

 

 

 

(1

)

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

Total other income (expenses)

 

 

 

(3,381

)

 

 

 

 

(10,762

)

 

 

 

 

(4,142

)

 

 

 

 

(6,263

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

3,567

 

 

 

$

 

14,968

 

 

 

$

 

3,713

 

 

 

$

 

11,398

 

 

 

 

 

 

 

 

 

 

Pro forma earnings per unit (unaudited)

 

 

 

 

 

 

 

 

Common unitholders’ interest in net income

 

 

 

 

$

 

 

 

 

 

$

 

Subordinated unitholder’s interest in net income

 

 

 

 

$

 

 

 

 

 

$

 

General Partner’s interest in net income

 

 

 

 

$

 

 

 

 

 

$

 

Pro forma net income per common unit, basic and diluted(5)

 

 

 

 

$

 

 

 

 

 

$

 

Pro forma common units outstanding, basic and diluted

 

 

 

 

 

 

 

 

Pro forma adjusted earnings per unit (unaudited)

 

 

 

 

 

 

 

 

Pro forma adjusted net income per common unit, basic and diluted(6)

 

 

 

 

$

 

 

 

 

 

$

 

Pro forma adjusted common units outstanding, basic and diluted(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended
December 31,

 

Six Months Ended
June 30,

 

2012

 

2013

 

2013

 

2014

 

 

(Expressed in thousands of U.S. dollars)

OTHER FINANCIAL DATA

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

 

7,719

 

 

 

 

25,897

 

 

 

 

10,037

 

 

 

 

16,059

 

Net cash used in investing activities

 

 

 

(60,953

)

 

 

 

 

(184,852

)

 

 

 

 

(184,852

)

 

 

 

 

 

Net cash provided by / (used in) financing activities

 

 

 

53,234

 

 

 

 

158,955

 

 

 

 

175,445

 

 

 

 

(16,059

)

 

Net increase (decrease) in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

630

 

 

 

 

 

EBITDA(1)

 

 

 

9,971

 

 

 

 

34,833

 

 

 

 

10,962

 

 

 

 

23,567

 

26


 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

As of June 30,

 

2012

 

2013

 

2013

 

2014

 

 

(Expressed in thousands of U.S. dollars)

BALANCE SHEET DATA

 

 

 

 

 

 

 

 

Total current assets

 

 

 

578

 

 

 

 

1,844

 

 

 

 

N/A

(2)

 

 

 

 

2,571

 

Total fixed assets

 

 

 

185,564

 

 

 

 

361,488

 

 

 

 

N/A

(2)

 

 

 

 

355,678

 

Total assets

 

 

 

191,148

 

 

 

 

371,479

 

 

 

 

N/A

(2)

 

 

 

 

365,901

 

Total current liabilities

 

 

 

23,537

 

 

 

 

38,152

 

 

 

 

N/A

(2)

 

 

 

 

36,801

 

Total long-term debt, including current portion

 

 

 

136,400

 

 

 

 

257,915

 

 

 

 

N/A

(2)

 

 

 

 

248,229

 

Total equity

 

 

 

27,063

 

 

 

 

91,616

 

 

 

 

N/A

(2)

 

 

 

 

94,605

 

 

 

 

 

 

As of June 30,

 

2014

 

 

(unaudited)

 

 

(Expressed in
thousands of U.S. dollars)

PRO FORMA BALANCE SHEET DATA(3)

 

 

Total assets

 

 

Total long-term debt, including current portion

 

 

Total equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended
December 31,

 

Six Months Ended
June 30,

 

2012

 

2013

 

2013

 

2014

FLEET DATA

 

 

 

 

 

 

 

 

Number of vessels (at period end)

 

 

 

1

 

 

 

 

4

 

 

 

 

4

 

 

 

 

4

 

Average number of vessels during period

 

 

 

1

 

 

 

 

3.1

 

 

 

 

2.1

 

 

 

 

4

 

Average TEU capacity during period

 

 

 

9,469

 

 

 

 

27,631

 

 

 

 

19,175

 

 

 

 

35,950

 

Fleet utilization(4)

 

 

 

100

%

 

 

 

 

99.1

%

 

 

 

 

97.3

%

 

 

 

 

100

%

 

Average age of vessels weighted by TEU (years)

 

 

 

6.6

 

 

 

 

2.5

 

 

 

 

2.0

 

 

 

 

3.0

 


 

(1)

 

EBITDA is a non-GAAP measure. The Partnership reports its financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures, including EBITDA, used in managing the business may provide users of these financial measures additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management will also use these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Partnership’s performance. The table below sets out EBITDA and corresponding reconciliation to net income, the most directly comparable GAAP financial measure for the years ended December 31, 2013 and 2012 and the six month periods ended June 30, 2014 and June 30, 2013. A non-GAAP financial measure should be viewed in addition to, and not as an alternative for, the combined carve-out financial statements of Costamare Partners LP Predecessor prepared in accordance with GAAP.

 

 

 

 

 

 

 

 

 

 

 

Year Ended
December 31,

 

Six Months Ended
June 30,

 

2012

 

2013

 

2013

 

2014

 

 

(Expressed in thousands of U.S. dollars)

Reconciliation of Net Income to EBITDA

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

3,567

 

 

 

$

 

14,968

 

 

 

$

 

3,713

 

 

 

$

 

11,398

 

Interest and finance costs

 

 

 

3,397

 

 

 

 

10,764

 

 

 

 

4,141

 

 

 

 

6,274

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

2,834

 

 

 

 

8,928

 

 

 

 

3,022

 

 

 

 

5,810

 

Amortization of dry-docking and special survey costs

 

 

 

173

 

 

 

 

173

 

 

 

 

86

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

$

 

9,971

 

 

 

$

 

34,833

 

 

 

$

 

10,962

 

 

 

$

 

23,567

 

 

 

 

 

 

 

 

 

 

27


EBITDA represents net income before interest and finance costs, interest income, depreciation and amortization of deferred dry-docking and special survey costs. In addition to EBITDA, we may present other non-GAAP financial measures in the future. However, EBITDA is not a recognized measurement under GAAP. We believe that the presentation of EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, we believe that EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financings, income taxes and the accounting effects of capital expenditures and acquisitions, items which may vary for different companies for reasons unrelated to overall operating performance. In evaluating EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

(2)

 

“N/A” indicates that the data is not available for the specified period.

 

(3)

 

The summary pro forma balance sheet data of Costamare Partners LP as of June 30, 2014 have been derived from the unaudited pro forma combined balance sheet of Costamare Partners LP, which is provided elsewhere in this prospectus.

 

(4)

 

Fleet utilization means fleet revenue days, which we define as days during which a vessel has been on charter, including scheduled off-hire days for dry-docking, divided by fleet ownership days, which we define as days during which we have owned the vessel, after its delivery from the shipyard.

 

(5)

 

Pro forma net income per common unit, basic and diluted, is calculated by dividing the common unitholders’ interest in historical net income by pro forma common units outstanding, basic and diluted. As a result, pro forma net income per common unit represents historical net income presented on a per unit basis giving effect to the ownership structure to be in place subsequent to this offering, assuming the underwriters do not exercise their over-allotment option.

 

(6)

 

Pro forma adjusted net income per common unit gives effect to the additional number of common units that would be required to be issued at an assumed offering price of $   per common unit to pay the amount of the distribution to Costamare that exceeds net income for the year ended December 31, 2013 and for the twelve months ended June 30, 2014.

28


RISK FACTORS

Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.

Any of the risk factors described below could significantly and negatively affect our business, results of operations, prospects or financial condition, which may reduce our ability to make cash distributions to our unitholders and lower the trading price of our common units. You may lose part or all of your investment.

Risks Inherent in Our Business

We may not have sufficient cash from operations, following the establishment of cash reserves and payment of fees and expenses, to enable us to pay the minimum quarterly distribution on our common units and subordinated units.

We may not have sufficient cash from operations to pay the minimum quarterly distribution of $  per unit on our common units and subordinated units. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on the risks described in this section, including, among other things:

 

 

the charter-hire payments we obtain from our charters as well as our ability to re-charter the vessels and the rates obtained upon the expiration of our existing charters;

 

 

the due performance by our charterers of their obligations;

 

 

our fleet expansion strategy and associated uses of our cash and our financing requirements;

 

 

delays in the delivery of newbuild vessels and the beginning of payments under charters relating to those vessels;

 

 

the level of our operating costs, such as the costs of crews, vessel maintenance, lubricants and insurance;

 

 

the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled dry-docking of our containerships;

 

 

prevailing global and regional economic and political conditions;

 

 

changes in interest rates;

 

 

currency exchange rate fluctuations;

 

 

the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business; and

 

 

changes in the basis of taxation of our activities in various jurisdictions.

The actual amount of cash we will have available for distribution will also depend on other factors, including:

 

 

the level of capital expenditures we make, including for maintaining or replacing vessels and complying with regulations;

 

 

our debt service requirements, including fluctuations in interest rates, and restrictions on distributions contained in our debt instruments;

 

 

the level of debt we will incur if we exercise our right to purchase the Valence (or, at Costamare’s option, one of the substitute vessels) from Costamare and, to the extent we are offered the right to purchase, any of Hulls NCP0113, NCP0114, NCP0115, NCP0116, S2121, S2122, S2123, S2124 and S2125 from Costamare and York;

 

 

fluctuations in our working capital needs;

29


 

 

our ability to make, and the level of, working capital borrowings; and

 

 

the amount of any cash reserves, including reserves for future maintenance and replacement capital expenditures, working capital and other matters, established by our general partner, which cash reserves are not subject to any specified maximum dollar amount.

The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which will be affected by non-cash items. We may incur other expenses or liabilities that could reduce or eliminate the cash available for distribution to unitholders. As a result of this and the other factors mentioned above, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.

The assumptions underlying our forecast of cash available for distribution are inherently uncertain and are subject to risks and uncertainties that could cause actual results to differ materially from those forecasted.

The forecast of cash available for distribution set forth in “Our Cash Distribution Policy and Restrictions on Distributions” includes our forecast of operating results and cash flows for the twelve months ending December 31, 2015. The financial forecast has been prepared by management and we have not received an opinion or report on it from our or any other independent auditor. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of the common units may decline materially.

Our ability to grow and to meet our financial needs may be adversely affected by our cash distribution policy.

Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash (as defined in our partnership agreement) each quarter. Accordingly, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations.

In determining the amount of cash available for distribution, our general partner approves the amount of cash reserves to set aside, including reserves for future maintenance and replacement capital expenditures, working capital and other matters. We also rely upon external financing sources, including commercial borrowings, to fund our capital expenditures. Accordingly, to the extent we do not have sufficient cash reserves or are unable to obtain financing, our cash distribution policy may significantly impair our ability to meet our financial needs or to grow.

We must make substantial capital expenditures to maintain the operating capacity of our fleet and acquire vessels, which may reduce or eliminate the amount of cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted.

We must make substantial capital expenditures to maintain and replace, over the long-term, the operating capacity of our fleet and we generally expect to finance these maintenance capital expenditures with cash balances or credit facilities. We estimate that maintenance and replacement capital expenditures will average approximately $6.9 million per year, including potential costs related to replacing current vessels at the end of their useful lives. In addition, we will need to make substantial capital expenditures to acquire vessels in accordance with our growth strategy. These expenditures could vary significantly from quarter to quarter and could increase as a result of changes in:

 

 

the cost of labor and materials;

 

 

customer requirements;

 

 

the size of our fleet;

 

 

the cost of replacement vessels;

30


 

 

length of charters;

 

 

governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment;

 

 

competitive standards; and

 

 

the age of our ships.

Significant capital expenditures, including to maintain and replace, over the long-term, the operating capacity of our fleet, may reduce or eliminate the amount of cash available for distribution to our unitholders. Our partnership agreement requires our general partner to deduct estimated, rather than actual, maintenance and replacement capital expenditures from operating surplus each quarter in an effort to reduce fluctuations in operating surplus (as defined in our partnership agreement). The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by the conflicts committee of the board of directors of our general partner at least once a year. In years when estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance and replacement capital expenditures were deducted from operating surplus. If our general partner underestimates the appropriate level of estimated maintenance and replacement capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures exceed our previous estimates.

The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. While our initial fleet will be relatively young with an average age (weighted by TEU capacity, which means that the average age is calculated as the average age of the TEU capacity of our vessels) of approximately 3.0 years as of June 30, 2014, we will incur increased costs as our fleet ages. Older vessels may require longer and more expensive dry-dockings, resulting in more off-hire days and reduced revenue. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. In addition, older vessels are often less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of a vessel may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our containerships may engage. We cannot assure you that, as our vessels age, market conditions will justify such expenditures or will enable us to profitably operate our older vessels.

Unless we set aside reserves or are able to borrow funds for vessel replacement, at the end of the useful lives of our vessels our revenue will decline, which would adversely affect our business, results of operations and financial condition.

Our initial fleet will be relatively young with an average age (weighted by TEU capacity) of approximately 3.0 years as of June 30, 2014. As our vessels age and reach the end of their useful lives, however, we will be unable to replace the older vessels in our fleet unless we maintain reserves or are able to borrow or raise funds for vessel replacement. Our cash flows and income are dependent on the revenues earned by the chartering of our containerships. The inability to replace the vessels in our fleet upon the expiration of their useful lives could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders. Any reserves set aside for vessel replacement will not be available for distribution.

Capital expenditures financed through cash from operations, commercial bank borrowings or by issuing debt or equity securities, may diminish our ability to make cash distributions, increase our financial leverage and dilute our unitholders.

Use of cash from operations to expand or maintain our fleet will reduce cash available for distribution to unitholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or

31


offering, as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to unitholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain our current level of quarterly distributions to unitholders, both of which could have a material adverse effect on our ability to make cash distributions.

We have only four vessels in our initial fleet. Any limitation in the availability or operation of those vessels could have a material adverse effect on our business, financial condition, results of operations and cash flows, which effect would be amplified by the small size of our initial fleet.

Our initial fleet consists of four containerships that are in operation. If any of our vessels is unable to generate revenues for any significant period of time for any reason, including unexpected periods of off-hire or early charter termination (which could result from damage to our ships), our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders, could be materially and adversely affected. The impact of any limitation in the operation of our vessels or any early charter termination would be amplified during the period prior to the acquisition of additional vessels from Costamare and, with respect to JV vessels, York, or other third parties, as a substantial portion of our cash flows and income are dependent on the revenues earned by the chartering of our four containerships in operation. In addition, the costs of ship repairs are unpredictable and can be substantial. In the event certain repair costs that are not covered by our insurance policies, we may have to pay for such repair costs, which would decrease our earnings and cash flows.

Any charter termination could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our charterers have the right to terminate a ship’s time charter in certain circumstances, such as:

 

 

requisition of the vessel;

 

 

failure of the vessel to maintain certain minimum speed;

 

 

loss of time due to boycott or government restrictions caused by the vessel’s flag, ownership, crew or employment terms, which is not remedied within 96 working hours;

 

 

off-hire of the ship for any reason other than scheduled dry-docking for a period exceeding 45 days on a cumulative basis in any 365-day period or one period of 60 consecutive full days during the course of the charter; or

 

 

outbreak of war involving two or more specified nations, which include the United States and the People’s Republic of China.

A termination right under one ship’s time charter would not automatically give the charterer the right to terminate its other charter contracts with us. However, a charter termination could materially affect our relationship with the customer and our reputation in the container shipping industry, and in some circumstances the event giving rise to the termination right could potentially impact multiple charters. Accordingly, the existence of any right of termination could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders, which effect would be amplified by the small size of our initial fleet.

If we lose a charter, we may be unable to obtain a new time charter on terms as favorable to us or with a charterer of comparable standing, or to obtain a charter at all, particularly if we are seeking new time charters at a time when charter rates in the container shipping industry are depressed. Consequently, we may have an increased exposure to the volatile spot market, which is highly competitive and subject to significant price fluctuations. In the event that we are unable to re-

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deploy a ship for which a charter has been terminated, we will not receive any revenues from that ship, while we will be required to pay expenses necessary to maintain the ship in proper operating condition.

Due to our lack of diversification, adverse developments in the containership transportation business could reduce our ability to service our debt obligations and make cash distributions to our unitholders.

We rely exclusively on the cash flow generated from charters for our containerships. Due to our lack of diversification, an adverse development in the container shipping industry would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business. An adverse development could also impair our ability to service debt or make cash distributions to our unitholders.

A limited number of customers operating in a consolidating industry comprise a large part of our revenues. The loss of these customers could adversely affect our results of operations, cash flows and competitive position.

Our customers in the containership sector for the initial fleet consist of a limited number of liner companies. MSC, Evergreen and COSCO together represented 100% of our revenue in both 2012 and 2013. Furthermore, six of the ten vessels that we have options to acquire from Costamare and, as applicable, York, to the extent such vessels are offered to us, have arranged charters with Evergreen. We expect that a limited number of leading liner companies will continue to generate a substantial portion of our revenues. The cessation of business with these liner companies or their failure to fulfill their obligations under the time charters for our containerships could have a material adverse effect on our financial condition and results of operations, as well as our cash flows. In addition, any consolidations or alliances involving our customers could further increase the concentration of our business. We could lose a customer or the benefits of our time charter arrangements for many different reasons including if the customer is unable or unwilling to make charter hire or other payments to us because of a deterioration in its financial condition, disagreements with us or otherwise. If any of these customers terminates its charters, chooses not to re-charter our ships after the initial charters expire or is unable to perform under its charters and we are not able to find replacement charters on similar terms, we will suffer a loss of revenues that could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Our growth depends upon continued increases in world and regional demand for chartering containerships, and a recurrence of the recent global economic slowdown may impede our ability to continue to grow our business.

The ocean-going container shipping industry is both cyclical and volatile in terms of charter rates and profitability. According to Clarkson Research, containership charter rates peaked in 2005, with the containership time charter rate index (a per TEU weighted average of 6-12 month time charter rates of Panamax and smaller vessels (1993=100)) reaching 172 points in March and April 2005, and generally stayed strong until the middle of 2008, when the effects of the economic crisis began to affect global container trade, driving the containership time charter rate index to a 10-year low of 32 points in the period from November 2009 to January 2010. As of the end of August 2014, the containership time charger rate index stood at 47 points. See “The International Containership Industry—The Containership Markets—Containership Timecharter Rates”.

According to Clarkson Research, demand for containerships declined significantly, following the onset of the global economic downturn. After growing by just 4.0% in 2008, container trade contracted by 9.2% in 2009 before rebounding by 13.8% in 2010. While container trade grew by a CAGR of 5.0% per annum between 2010 and 2013 and is projected to grow further in 2014 and 2015, such projections are subject to a wide range of risks. In 2013, worldwide trade volumes increased, but containership supply continued to exceed demand during the year as more large vessels were delivered. In addition, according to Clarkson Research, as of September 2014, the containership order-book for vessels with carrying capacity of 8,000-12,000 TEU represented 33% of the existing fleet capacity, and for vessels with carrying capacity of 12,000 TEU and above, the

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containership order-book represented 58% of the existing fleet capacity, both increasing the expected future supply of larger vessels and having a spillover effect on the market segment for smaller vessels. An oversupply in the containership market may negatively affected time charter rates for both short- and long-term periods as well as box freight rates charged by liner companies to shippers.

Freight rates have become more volatile since the downturn in 2009 and, despite some short-term improvements, freight rates have remained under pressure. Relatively weak trade growth coupled with the on-going delivery of high capacity containerships has placed significant pressure on certain trade routes as well. The continuation of such low freight rates or any further declines in freight rates would negatively affect the liner companies to which we seek to charter our containerships and could lower prevailing charter rates. Accordingly, weak conditions in the containership sector may affect our ability to generate cash flows and maintain liquidity, as well as adversely affect our ability to obtain financing.

The factors affecting the supply and demand for containerships are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. The factors that influence demand for containership capacity include:

 

 

supply and demand for products shipped in containers;

 

 

changes in global production of products transported by containerships;

 

 

global and regional economic and political conditions;

 

 

developments in international trade;

 

 

environmental and other regulatory developments;

 

 

the distance container cargo products are to be moved by sea;

 

 

changes in seaborne and other transportation patterns;

 

 

port and canal congestion; and

 

 

currency exchange rates.

The factors that influence the supply of containership capacity include:

 

 

the availability of financing;

 

 

the price of steel and other raw materials;

 

 

the number of newbuild vessel deliveries;

 

 

the availability of shipyard capacity;

 

 

the scrapping rate of older containerships;

 

 

the number of containerships that are out of service;

 

 

changes in environmental and other regulations that may limit the useful lives of containerships;

 

 

the price of fuel; and

 

 

the economics of slow steaming.

Hire rates for containerships may fluctuate substantially. If rates are lower when we are seeking a new charter, our revenues and cash flows may decline.

The four vessels in our initial fleet have already secured long-term, fixed-rated charters that expire between 2018 and 2023. However, as the charter terms for our initial fleet expire or terminate, we must seek a new charter in the then prevailing market environment. Our ability to re-charter our containerships upon the expiration or termination of the current time charters and the charter rates payable under any replacement time charters will depend upon, among other things, the state of the containership charter market, which can be affected by consumer demand for products shipped in containers. If the charter market is depressed when our containerships’ time charters expire, we may be forced to re-charter our containerships at reduced or even unprofitable rates, or we may not be able to re-charter them at all, which may reduce or eliminate earnings and

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cash flows or make our earnings and cash flows volatile. The same issues will be faced if we acquire additional vessels and attempt to obtain multi-year time charters as part of our acquisition and financing plan.

Furthermore, four of the nine JV vessels that we have options to acquire from Costamare and York, to the extent such vessels are offered to us, have not yet secured a charter. Such vessels will be unsuitable for acquisition if they remain unchartered, as our strategy is focused on acquiring containerships with long-term charters. Even if Costamare and, as applicable, York succeed in chartering the vessels, there is no assurance that the terms of the charter or the charter counterparty will be acceptable, particularly if the prevailing state of the containership charter market is depressed at the time such charters are arranged.

A decrease in the level of China’s export of goods or an increase in trade protectionism could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.

China exports considerably more goods than it imports. Our containerships are deployed on routes involving containerized trade in and out of emerging markets, and our charterers’ container shipping and business revenue may be derived from the shipment of goods from the Asia Pacific region to various overseas export markets including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could have a material adverse effect on the growth rate of China’s exports and on our charterers’ business. For instance, the government of China has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may have the effect of reducing the supply of goods available for export and may, in turn, result in a decrease of demand for container shipping. Additionally, though in China there is an increasing level of autonomy and a gradual shift in emphasis to a “market economy” and enterprise reform, many of the reforms, particularly some limited price reforms that result in the prices for certain commodities being principally determined by market forces, are unprecedented or experimental and may be subject to revision, change or abolition. The level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government.

Our operations expose us to the risk that increased trade protectionism will adversely affect our business. If global economic recovery is undermined by downside risks and the economic downturn continues, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically, increasing trade protectionism in the markets that our charterers serve has caused and may continue to cause an increase in (i) the cost of goods exported from China, (ii) the length of time required to deliver goods from China and (iii) the risks associated with exporting goods from China, as well as a decrease in the quantity of goods to be shipped.

Any increased trade barriers or restrictions on trade, especially trade with China, would have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

We conduct business in China, including through our time charter with COSCO, and may engage with our local manager, Shanghai Costamare, a Chinese corporation. The legal system in China is not fully developed and has inherent uncertainties that could limit the legal protections available to us.

The Chinese legal system is based on written statutes and their legal interpretation by the Standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment,

35


corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. We may do business in China, including through one of our managers, Shanghai Costamare, a Chinese corporation, which would expose us to potential litigation in China. Additionally, we have a charter with COSCO, a Chinese corporation, and though these charters are governed by English law, we may have difficulties enforcing a judgment rendered by an English court (or other non-Chinese court) in China. Such charter, and any additional charters that we enter into with Chinese customers, may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees.

Liner company customers have been placed under significant financial pressure, thereby increasing our charter counterparty risk.

The continuing weakness in demand for container shipping services and the oversupply of large containerships (as well as potential oversupply of smaller size vessels due to a cascading effect) places our liner company customers under financial pressure. Any future declines in demand could result in worsening financial challenges to our liner company customers and may increase the likelihood of one or more of our customers being unable or unwilling to pay us contracted charter rates. We expect to generate all of our revenues from these charters and if our charterers fail to meet their obligations to us, we will sustain significant losses which could have a material adverse effect on our financial condition and results of operations, and our ability to make cash distributions to our unitholders.

An oversupply of containership capacity may prolong or further depress the current charter rates and adversely affect our ability to re-charter our existing containerships at profitable rates or at all.

From 2005 through the first quarter of 2010, the containership order-book was at historically high levels as a percentage of the in-water fleet. Although order-book volumes have decreased as deliveries of previously ordered containerships increased substantially, some renewed ordering in late 2012 of mainly larger vessels maintained the order-book at average levels. According to Clarkson Research, as of September 2014, the containership order-book for vessels with carrying capacity of 8,000-12,000 TEU represented 33% of the existing fleet capacity, and for vessels with carrying capacity of 12,000 TEU and above, the containership order-book represented 58% of the existing fleet capacity. An oversupply of large newbuild vessel and/or re-chartered containership capacity entering the market, combined with any future decline in the demand for containerships, may result in a reduction of charter rates and may decrease our ability to re-charter our containerships other than for reduced rates or unprofitable rates, or we may not be able to re-charter our containerships at all.

Weak economic conditions throughout the world, particularly the Asia Pacific region and recent European Union sovereign debt default fears, could have a material adverse effect on our business, financial condition and results of operations.

The global economy remains relatively weak, when compared to the period prior to the 2008-2009 financial crisis. The current global recovery is proceeding at varying speeds across regions and is still subject to downside risks stemming from factors like fiscal fragility in advanced economies, highly accommodative macroeconomic policies and persistent difficulties in access to credit. In particular, concerns regarding the possibility of sovereign debt defaults by European Union member countries, including Greece, disrupted financial markets throughout the world, and may lead to weaker consumer demand in the European Union, the United States, and other parts of the world. The deterioration in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods shipped in containerized form. In addition, the resolution of the sovereign debt crisis is not proceeding with uniform speed throughout Europe and a setback or delay could impact the global economy and have a material adverse effect on our business.

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We anticipate that a significant number of port calls made by our containerships will involve the loading or unloading of container cargoes in ports in the Asia Pacific region. In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, which has had a significant impact on shipping demand. However, if China’s growth in gross domestic product slows down and other countries in the Asia Pacific region experience slowed or experience negative economic growth in the future, this may exacerbate the effect of the significant downturns in the economies of the United States and the European Union, and thus, may negatively impact container shipping demand. For example, the possibility of sovereign debt defaults by European Union member countries, including Greece, and the possibility of market reforms to float the Chinese renminbi, either of which development could weaken the Euro against the Chinese renminbi, could adversely affect consumer demand in the European Union. Moreover, the revaluation of the renminbi may negatively impact the United States’ demand for imported goods, many of which are shipped from China in containerized form. Such weak economic conditions could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

We may have difficulty properly managing our growth through acquisitions of new or secondhand vessels and we may not realize expected benefits from these acquisitions, which may negatively impact our cash flows, liquidity and our ability to make cash distributions to our unitholders.

We intend to grow our fleet beyond the vessels we may acquire from Costamare and, with respect to the JV vessels, York by ordering newbuild vessels and through selective acquisitions of high-quality secondhand vessels to the extent that they are available. Our future growth will depend on numerous factors, some of which are beyond our control, including:

 

 

obtaining consents from lenders and charterers with respect to the vessels that we may acquire from Costamare and, as applicable, York;

 

 

the operations of the shipyards that build any newbuild vessels we may order;

 

 

obtaining newbuild contracts at acceptable prices;

 

 

locating and identifying suitable high-quality secondhand vessels;

 

 

obtaining required financing on acceptable terms;

 

 

consummating vessel acquisitions;

 

 

enlarging our customer base;

 

 

hiring additional shore-based employees and seafarers through Costamare Shipping pursuant to the partnership management agreement we will enter into with Costamare Shipping;

 

 

continuing to meet technical and safety performance standards; and

 

 

managing joint ventures or significant acquisitions and integrating the new ships into our fleet.

During periods in which charter rates are high, ship values are generally high as well, and it may be difficult to consummate ship acquisitions or enter into shipbuilding contracts at favorable prices. In addition, any vessel acquisition may not be profitable at or after the time of acquisition and may not generate cash flows sufficient to justify the investment. We may not be successful in executing any future growth plans and we cannot give any assurances that we will not incur significant expenses and losses in connection with such growth efforts. Other risks associated with vessel acquisitions that may harm our business, financial condition and operating results include the risks that we may:

 

 

fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;

 

 

be unable to hire, train or retain through Costamare Shipping qualified shore-based and seafaring personnel to manage and operate our growing business and fleet;

 

 

decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;

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significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;

 

 

incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired; or

 

 

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

Unlike newbuild vessels, secondhand vessels typically do not carry warranties as to their condition. While we will generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for secondhand vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flows, liquidity and our ability to make cash distributions to our unitholders.

Our ability to expand our fleet by acquiring vessels in Costamare’s fleet may be adversely affected by the Framework Agreement or by a default by Costamare’s partner under the Framework Agreement.

The Framework Agreement is the exclusive joint venture of Costamare for the acquisition of new vessels during an investment period ending May 15, 2020 (although Costamare may acquire vessels outside the joint venture where York rejects a vessel acquisition opportunity). Where York decides to participate in a new vessel acquisition, Costamare will hold a 25-75% equity interest in such vessel. Nine of the ten option vessels are JV vessels in which Costamare holds a minority equity interest. Pursuant to the omnibus agreement, Costamare and York have a 36-month period in which they may offer us the right to purchase such nine JV vessels. If they do not reach an agreement to offer us such right during the 36-month period, we will have the right to purchase such vessels at the end of such 36-month period, provided that, at the end of the 36-month period, the relevant vessel constitutes a non- compete vessel. Upon our purchase of any of the JV vessels, Costamare and York will receive a pro rata share of the purchase price we pay based on their percentage interest in such vessels, net of any commissions and fees payable to Costamare Shipping under the ship management agreement for the JV vessels. In addition, Costamare and York will enter into a separate agreement, pursuant to which York will be entitled to receive from Costamare certain incentive payments based primarily on York’s interest in the JV vessels acquired by the Partnership and the amount of any incentive distributions received by Costamare. The operation of the Framework Agreement and the separate agreement may increase certain administrative burdens, delay decision making or make it more difficult to obtain debt financing for JV vessels. For example, the Framework Agreement requires that decisions regarding the joint venture’s vessel acquisition be made jointly by Costamare and York. If York fails to cooperate in the acquisition process, Costamare may not be able to consummate the acquisition in a timely and cost-effective manner, which may result in a reduced pool of vessels that we can acquire or a higher purchase price for the vessels.

In addition, if York were to delay or default in meeting its commitments under the Framework Agreement to provide equity or under any guarantee it provides to support a shipbuilding contract or a charter, our commercial relations with shipbuilders and charterers, which we maintain through our relationship with Costamare, could be adversely affected. Under such circumstances, Costamare may be required to provide additional funding, which may increase the purchase price we pay or delay the delivery of the vessel, which could adversely affect our earnings and cash flows. Furthermore, our ability to consummate acquisitions of the JV vessels in a timely and cost-effective manner will depend upon our reaching an agreement with Costamare and York regarding the purchase price and other material terms. While Costamare, York and the Partnership have, in certain instances, agreed to a form of agreement that contains material terms that will be applicable to any purchase and sale of JV vessels, if York fails to cooperate in the acquisition process or otherwise fails to comply with the terms of the separate agreement described above, we may experience difficulty in acquiring JV vessels, which could have a material adverse effect on our

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business, results of operations, financial condition and our ability to make cash distributions to our unitholders.

We may have difficulty obtaining consents that are necessary to acquire vessels with an existing charter or a financing agreement.

Under the omnibus agreement, we will have certain options and other rights to acquire vessels with existing charters from Costamare and, with respect to the JV vessels, York. The omnibus agreement provides that our ability to consummate the acquisition of any such vessels from Costamare and, as applicable, York will be subject to obtaining any consents of governmental authorities and other non-affiliated third parties and to all agreements existing with respect to such vessel. In particular, with respect to the vessels in Costamare’s existing fleet, we may need the consent of the existing charterers and lenders. While Costamare and, with respect to the JV vessels, York will be obligated to use commercially reasonable efforts to obtain any such consents and, in the case of our initial fleet, to indemnify us if they are not obtained, we cannot assure you that in any particular case the necessary consent will be obtained from the governmental entity, charterer, lender or other entity.

Our growth depends on our ability to expand relationships with existing charterers, establish relationships with new customers and obtain new time charters, for which we will face substantial competition from new entrants and established companies with significant resources.

One of our principal objectives is to acquire additional containerships in conjunction with entering into additional long-term, fixed-rate charters for these vessels. The process of obtaining new long-term, fixed-rate charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Generally, we compete for charters based upon charter rate, customer relationships, operating expertise, professional reputation and containership specifications, including size, age and condition.

In addition, as vessels age, it will become more difficult to employ them on profitable time charters, particularly during periods of decreased demand in the charter market. Accordingly, we may find it difficult to continue to find profitable employment for our vessels as they age.

We face substantial competition from a number of experienced companies, including state-sponsored entities. Some of these competitors have significantly greater financial resources than we do, and can therefore operate larger fleets and may be able to offer better charter rates. In the future, we may also face competition from reputable, experienced and well-capitalized marine transportation companies, including state-sponsored entities, that do not currently own containerships, but may choose to do so. Any increased competition may cause greater price competition for time charters, as well as for the acquisition of high-quality secondhand vessels and newbuild vessels. Further, since the charter rate is generally considered to be one of the principal factors in a charterer’s decision to charter a vessel, the rates offered by our competitors can place downward pressure on rates throughout the charter market. As a result of these factors, we may be unable to re-charter our containerships, expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

Containership values decreased significantly since 2008 and have remained at depressed levels through 2013 and the first half of 2014. Containership values may decrease further and over time may fluctuate substantially. If these values are low at a time when we are attempting to dispose of a vessel, we could incur a loss.

Containership values can fluctuate substantially over time due to a number of different factors, including:

 

 

prevailing economic conditions in the markets in which containerships operate;

 

 

reduced demand for containerships, including as a result of a substantial or extended decline in world trade;

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increases in the supply of containership capacity;

 

 

changes in prevailing charter hire rates;

 

 

the physical condition, size, age and technical specification of the ships; and

 

 

the cost of retrofitting or modifying existing ships to respond to technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise.

If the market values of our vessels further deteriorate, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations. In addition, any such deterioration in the market values of our vessels could trigger a breach under our credit facilities, which could adversely affect our operations. If a charter expires or is terminated, we may be unable to re-charter the vessel at an acceptable rate and, rather than continue to incur costs to maintain the vessel, may seek to dispose of it. Our inability to dispose of the containership at a reasonable price could result in a loss on its sale and could materially and adversely affect our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

We may be unable to obtain additional debt financing for future acquisitions of vessels.

The vessels in our initial fleet will secure related borrowings under the new credit facility that we have entered into in connection with this offering. We also expect to borrow against the vessels we may acquire in the future as part of our growth plan. Our ability to borrow against the ships in our existing fleet and any ships we may acquire in the future largely depends on the value of the ships, which in turn depends in part on charter hire rates and the ability of our charterers to comply with the terms of their charters. The actual or perceived credit quality of our charterers, and any defaults by them, and any decline in the market value of our fleet may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing or committing to financing on unattractive terms could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents, including the funds raised in this offering, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need to raise additional capital to maintain, replace and expand the operating capacity of our fleet and fund our operations. Among other things, we hold options to acquire ten containerships from Costamare and, with respect to the JV vessels, York, to the extent such vessels are offered to us, and we do not currently have financing sources in place to fund the acquisition of these vessels. Our future funding requirements will depend on many factors, including the cost and timing of vessel acquisitions, and the cost of retrofitting or modifying existing ships as a result of technological advances in ship design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our unitholders may experience dilution or reduced distributions per unit. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or pay distributions. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our unitholders. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our fleet expansion plans. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.

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Fluctuations in exchange rates could hurt our results of operations.

Fluctuations in currency exchange rates may have a material impact on our financial performance. We generate all of our revenues in United States dollars and for the year ended December 31, 2013, we incurred a substantial portion of our vessels’ operating expenses in currencies other than United States dollars. This difference could lead to fluctuations in net income due to changes in the value of the United States dollar relative to other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the United States dollar falls in value could increase, thereby decreasing our net income. We do not expect to have any exchange rate hedges at the time of this offering. While we may hedge some of the exposure described above from time to time, our U.S. dollar denominated results of operations and financial condition and ability to make distributions could suffer from adverse currency exchange rate movements.

Indebtedness under our new credit facility will be subject to floating rates of interest and will not be hedged by any interest rate swap agreement at the time of this offering, which could result in higher interest expense if interest rates increase.

All of our indebtedness under our new credit facility is expected to be subject to floating interest rates. Such floating rate risk will not be hedged at the time of this offering, as we have entered into a new credit facility in connection with this offering to refinance the existing vessel financing arrangements for our initial fleet and expect to terminate the existing interest rate swap agreements in connection with this offering. As a result, if interest rates, which have been at historically low levels since the recent economic downturn, increase, the higher interest expense could reduce our cash flows from operations and affect our ability to make cash distributions to our unitholders.

There is no assurance that any derivative contract we may enter into will provide adequate protection against adverse changes in interest rates or currency exchange rates.

In the future, we may enter into interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to floating rate indebtedness. In addition, from time to time we may also enter into certain currency hedges. However, there is no assurance that any derivative contracts we enter into in the future will provide adequate protection against adverse changes in interest rates or currency exchange rates, or that our bank counterparties will be able to perform their obligations. In addition, as a result of the implementation of new regulation of the swaps markets in the United States, the European Union and elsewhere over the next few years, the cost of interest rate and currency hedges may increase or suitable hedges may not be available.

While we will monitor the credit risks associated with our bank counterparties, there can be no assurance that these counterparties would be able to meet their commitments under any derivative contract. Our bank counterparties may include financial institutions that are based in European Union countries that have faced and continue to face severe financial stress due to the ongoing sovereign debt crisis. The potential for the bank counterparties to default on their obligations under any derivative contracts may be highest when we are most exposed to the fluctuations in interest and currency rates such contracts are designed to hedge, and several or all of such bank counterparties may simultaneously be unable to perform their obligations due to the same events or occurrences in global financial markets.

To the extent our future derivative contracts may not qualify for treatment as hedges for accounting purposes, we would recognize fluctuations in the fair value of such contracts in our income statement. In addition, changes in the fair value of any derivative contract are recognized in “Accumulated Other Comprehensive Income” on our balance sheet, and can affect compliance with the net worth covenant requirements in our credit facilities. Changes in the fair value of our derivative contracts that do not qualify for treatment as hedges for accounting and financial reporting purposes affect, among other things, our net income, earnings per unit and EBITDA coverage ratio.

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We are dependent on our charterers and other counterparties fulfilling their obligations under agreements with us, and their inability or unwillingness to honor these obligations could significantly reduce our revenues and cash flow.

We expect that our containerships will continue to be chartered to customers mainly under long-term fixed rate time charters. Payments to us under these time charters are and will be our sole source of operating cash flow. Many of our charterers finance their activities through cash from operations, the incurrence of debt or the issuance of equity. Since 2008, there has been a significant decline in the credit markets and the availability of credit, and the equity markets have been volatile. The combination of a reduction of cash flow resulting from lower demand for our ships due to declines in world trade, a reduction in borrowing bases under any credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. Additionally, we could lose a time charter if the charterer exercises certain specified, limited termination rights.

If we lose a time charter because the charterer is unable to pay us or for any other reason, we may be unable to re-deploy the related vessel on similarly favorable terms or at all. Also, we will not receive any revenues from such a vessel while it is un-chartered, but we will be required to pay expenses necessary to maintain and insure the vessel and service any indebtedness on it. The combination of any surplus of containership capacity and the expected increase in the size of the world containership fleet over the next few years may make it difficult to secure substitute employment for any of our containerships if our counterparties fail to perform their obligations under the currently arranged time charters, and any new charter arrangements we are able to secure may be at lower rates. Furthermore, the surplus of containerships available at lower charter rates and lack of demand for our customers’ liner services could negatively affect our charterers’ willingness to perform their obligations under our time charters, particularly if the charter rates in such time charters are significantly above the prevailing market rates.

The loss of any of our charterers, time charters or vessels, or a decline in payments under our time charters, could have a material adverse effect on our business, results of operations and financial condition, revenues and cash flow and our ability to make cash distributions to unitholders.

We may, among other things, enter into shipbuilding contracts, provide performance guarantees relating to shipbuilding contracts or to charters, enter into credit facilities or other financing arrangements, accept commitment letters from banks, or enter into insurance contracts and interest or exchange rate swaps. Such agreements subject us to counterparty credit risk. The ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend upon a number of factors that are beyond our control and may include, among other things, general economic conditions, the state of the capital markets, the condition of the ocean-going container shipping industry and charter hire rates. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Our debt levels may limit our ability to obtain additional financing, pursue other business opportunities and pay distributions to unitholders.

Upon completion of this offering and the related transactions, we estimate that our consolidated debt will be approximately $  million. Following this offering, we will continue to have the ability to incur additional debt. 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, ship acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

 

we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;

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

 

 

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

 

 

if we are unable to satisfy the restrictions included in any of our financing agreements or are otherwise in default under any of those agreements, as a result of our debt levels or otherwise, we will not be able to make cash distributions to our unitholders, notwithstanding our stated cash distribution policy.

Our ability to service our debt depends upon, among other things, our future 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. We may not be able to refinance all or part of our maturing debt on favorable terms, or at all. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

In the future we may change our operational and financial model by replacing amortizing debt in favor of non-amortizing debt with a higher fixed or floating rate without unitholder approval, which may increase our risk of defaulting on our indebtedness if market conditions become unfavorable.

Credit facilities or other financing arrangements contain payment obligations and restrictive covenants that may limit our liquidity and our ability to expand our fleet. A failure by us to meet our obligations under our credit facilities could result in an event of default under such credit facilities and foreclosure on our vessels.

We, as guarantor, and our vessel owning subsidiaries, as borrowers, have entered into a new credit facility to refinance the existing vessel financing agreements, which will consist of a $126.6 million term loan facility and a $53.4 million revolving credit facility (provided that the amount drawn under the revolving credit facility, when aggregated with the term loan actually drawn, may not exceed 50% of the fair market value of the relevant vessels securing the facility). We expect to borrow under the term loan facility concurrently with the closing of this offering. Such new credit facility will be secured solely by vessels in our initial fleet. No guarantee or collateral will be provided by Costamare and its subsidiaries, other than us, in connection with such credit facility. The operating and financial restrictions and covenants in such refinancing agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, the new credit facility we have entered into will and future financing agreements may restrict our ability and the ability of our subsidiaries to, among other things:

 

 

incur or guarantee indebtedness;

 

 

change ownership or structure, including mergers, consolidations, liquidations and dissolutions;

 

 

pay dividends or make distributions if there is an event of default;

 

 

make certain negative pledges and grant certain liens;

 

 

sell, transfer, assign or convey assets;

 

 

make certain investments; and

 

 

enter into a new line of business.

In addition, the new credit facility we have entered into will and future financing agreements may require us to comply with certain financial ratios and tests, including, among others, maintaining a minimum ratio of EBITDA over net interest expense, maintaining a minimum amount of cash and

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cash equivalents, ensuring that the ratio of net funded debt to total assets does not exceed a certain threshold and maintaining a minimum level of vessel employment.

A failure to meet our payment and other obligations could lead to defaults under our credit facilities. Our lenders could then accelerate our indebtedness and foreclose on the vessels in our fleet securing those credit facilities, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other lenders. If any of these events occur, we cannot guarantee that our assets will be sufficient to repay in full all of our outstanding indebtedness, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that are favorable or acceptable. The loss of these vessels would have a material adverse effect on our operating results and financial condition. Any of these events would adversely affect our ability to make distributions to our unitholders and cause a decline in the market price of our common units. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

Restrictions in our debt agreements may prevent us or our subsidiaries from paying distributions.

The payment of principal and interest on our debt reduces cash available for distribution to us and on our units. In addition, the new credit facility we have entered into and future financing agreements prohibit or may prohibit the payment of distributions upon the occurrence of the following events, among others:

 

 

failure to pay any principal, interest, fees, expenses or other amounts when due;

 

 

breach or lapse of any insurance with respect to vessels securing the facilities;

 

 

breach of certain financial covenants;

 

 

failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;

 

 

default under other indebtedness;

 

 

bankruptcy or insolvency events;

 

 

material misrepresentation;

 

 

a change of control, as defined in the applicable agreement; and

 

 

a material adverse change, as defined in the applicable agreement.

The new credit facility we have entered into in connection with this offering and the existing vessel financing facilities contain customary events of default. For more information regarding these financing agreements, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources”.

The failure to consummate or integrate acquisitions in a timely and cost-effective manner could have an adverse effect on our financial condition and results of operations.

Acquisitions that expand our fleet are an important component of our strategy. Under the omnibus agreement, we will have the right to purchase for fair market value the Valence (or, at Costamare’s option, one of the substitute vessels) from Costamare within 12 months after the closing of this offering. Additionally, Costamare and York have agreed to offer to us, within 36 months after each respective vessel’s acceptance by its charterer, for purchase any of the Hulls NCP0113, NCP0114, NCP0115, NCP0116, S2121, S2122, S2123, S2124 and S2125 in accordance with the terms of the omnibus agreement. We will not be obligated to purchase any of these vessels at the applicable price, and, accordingly, we may not complete the purchase of any of such vessels. Furthermore, even if the applicable price and other material terms have been determined, there are no assurances that we will be able to obtain adequate financing on terms that are acceptable to us.

Certain acquisition and investment opportunities may not result in the consummation of a transaction. In addition, we may not be able to obtain acceptable terms for the required financing for any such acquisition or investment that arises. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common

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units. Our future acquisitions could present a number of risks, including the risk of incorrect assumptions regarding the future results of acquired vessels or businesses or expected cost reductions or other synergies expected to be realized as a result of acquiring vessels or businesses, the risk of failing to successfully and timely integrate the operations or management of any acquired vessels or businesses and the risk of diverting management’s attention from existing operations or other priorities. We may also be subject to additional costs related to compliance with various international laws in connection with such acquisition. If we fail to consummate and integrate our acquisitions in a timely and cost-effective manner, our business, financial condition, results of operations and cash available for distribution could be adversely affected.

We depend on Costamare and its affiliates, including Costamare Shipping who serves as our manager, to operate and expand our businesses and compete in our markets.

In connection with this offering, we will enter into a partnership management agreement with Costamare Shipping pursuant to which Costamare Shipping will agree to provide to us certain administrative, commercial and technical management services. With respect to the provision of technical management of our vessels, Costamare Shipping, either directly or by delegating to another manager, which may be directed to enter into a direct ship management agreement with the relevant containership-owning subsidiary, will provide technical, crewing and provisioning services to our containerships pursuant to separate ship management agreements. Our operational success and ability to execute our growth strategy depends significantly upon the satisfactory performance of these services by Costamare Shipping and other managers. Our business will be harmed if such entities fail to perform these services satisfactorily or if they stop providing these services to us or our operating subsidiaries. In addition, Costamare Shipping owns the Costamare trademarks, which consist of the name “COSTAMARE” and the Costamare logo, and has agreed to license each trademark to us on a royalty free basis for the life of the partnership management agreement. If the partnership management agreement were to be terminated or if its terms were to be altered, our business could be adversely affected, as we may not be able to immediately replace such services, and even if replacement services were immediately available, the terms offered could be less favorable than the ones offered by our managers.

Our ability to compete for and enter into new charters and to expand our customer relationships depends largely on our ability to leverage our relationship with Costamare and its reputation and relationships in the shipping industry. If Costamare or its affiliates suffer material damage to its reputation or relationships, it may harm the ability of us or our subsidiaries to:

 

 

renew existing charters upon their expiration;

 

 

obtain new charters;

 

 

successfully interact with shipyards;

 

 

obtain financing and other contractual arrangements with third parties on commercially acceptable terms (therefore potentially increasing operating expenditure for the fleet);

 

 

maintain satisfactory relationships with our charterers and suppliers; or

 

 

successfully execute our business strategies.

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

The required dry-docking of our ships could be more expensive and time consuming than we anticipate, which could adversely affect our results of operations and cash flows.

Dry-dockings of our ships require significant capital expenditures and result in loss of revenue while our ships are off-hire. Any significant increase in either the number of off-hire days due to such dry-dockings or in the costs of any repairs carried out during the dry-dockings could have a material adverse effect on our profitability and our cash flows. We may not be able to accurately predict the time required to dry-dock any of our ships or any unanticipated problems that may arise. If more than one of our ships is required to be out of service at the same time, or if a ship is dry-

45


docked longer than expected or if the cost of repairs during the dry-docking is greater than budgeted, our results of operations and our cash flows, including cash available for distribution to unitholders, could be adversely affected.

Delay in the delivery of any option vessels or future newbuild vessel order could adversely affect our earnings.

The expected delivery dates of the newbuild vessels for which we have an option or been offered a right to purchase from Costamare and, with respect to the JV vessels, York or any newbuild vessels that we may acquire in the future under any shipbuilding contracts, may be delayed for reasons not under our control, including, among other things:

 

 

quality or engineering problems;

 

 

changes in governmental regulations or maritime self-regulatory organization standards;

 

 

work stoppages or other labor disturbances at the shipyard;

 

 

bankruptcy of or other financial crisis involving the shipyard;

 

 

a backlog of orders at the shipyard;

 

 

any delay or default by Costamare’s joint venture partner in meeting its financial commitments;

 

 

political, social or economic disturbances;

 

 

weather interference or a catastrophic event, such as a major earthquake or fire, or other force majeure event;

 

 

requests for changes to the original vessel specifications;

 

 

shortages of or delays in the receipt of necessary construction materials, such as steel;

 

 

an inability to obtain requisite permits or approvals; and

 

 

financial instability of the charterers under any agreed time charters for the newbuild vessels, resulting in potential delay or inability to charter the newbuild vessels.

If the seller of any newbuild vessel subject to our purchase option or any newbuild that we have contracted to purchase is not able to deliver the vessel to Costamare or us, as applicable, in accordance with the relevant contract, or if Costamare or we cancel a purchase agreement because a seller has not met his obligations, it may result in a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

We may have more difficulty entering into long-term, fixed-rate time charters if a more active short-term or spot container shipping market develops.

One of our principal strategies is to enter into long-term, fixed-rate time charters in both strong and weak charter rate environments, although in weaker charter rate environments we would generally expect to target somewhat shorter charter terms. If more containerships become available for the spot or short-term charter market, we may have difficulty entering into additional multi-year, fixed-rate time charters for our containerships due to the increased supply of containerships and the possibility of lower rates in the spot market. We may then have to charter more of our containerships for shorter periods upon expiration or early termination of the current charters, for any ships for which we have not secured charters, including for any ships we acquire from Costamare and, with respect to the JV vessels, York without a charter attached. As a result, our revenues, cash flows and profitability could then reflect fluctuations in the short-term charter market and become more volatile. In addition, an active short-term or spot charter market may require us to enter into charters based on changing market prices, as opposed to contracts based on fixed rates, which could result in a decrease in our revenues and cash flows, including cash available for distribution to unitholders, if we enter into charters during periods when the market price for container shipping is depressed.

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Increased competition in technology and innovation could reduce our charter hire income and the value of our vessels.

The charter rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed and fuel economy. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new ship designs currently promoted by shipyards as being more fuel efficient perform as promoted, or if new containerships are built in the future that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect our ability to re-charter, the amount of charter hire payments that we receive for our containerships once their current time charters expire and the resale value of our containerships. This could adversely affect our revenues, and cash flows, and our ability to service our debt or make cash distributions to our unitholders.

Risks inherent in the operation of ocean-going vessels could affect our business and reputation, which could adversely affect our expenses, net income, cash flow and unit price.

The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:

 

 

marine disaster;

 

 

piracy;

 

 

environmental accidents;

 

 

grounding, fire, explosions and collisions;

 

 

cargo and property loss or damage;

 

 

business interruptions caused by mechanical failure, human error, war, terrorism, disease and quarantine, political action in various countries, or adverse weather conditions; and

 

 

work stoppages or other labor problems with crew members serving on our containerships, some of whom are unionized and covered by collective bargaining agreements.

Such occurrences could result in death or injury to persons, loss of property or environmental damage, delays in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business, litigation with our employees, customers or third parties, higher insurance rates, and damage to our reputation and customer relationships generally. Although we maintain hull and machinery and war risks insurance, as well as protection and indemnity insurance, which may cover certain risks of loss resulting from such occurrences, our insurance coverage may be subject to caps or not cover such losses, and any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator. Any of these results could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Changes in global and regional economic conditions could adversely impact our business, financial condition, results of operations and cash flows.

Weak global or regional economic conditions may negatively impact our business, financial condition, results of operations and cash flows in ways that we cannot predict. Our ability to expand our fleet will be dependent on our ability to obtain financing to fund the acquisition of additional ships. Global financial markets and economic conditions have been volatile in recent years and remain subject to significant vulnerabilities. In particular, despite recent measures taken by the European Union, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the Euro. Furthermore, a tightening of the credit markets may further negatively impact our operations by affecting the solvency of our suppliers or customers, which could lead to disruptions in delivery of supplies such as equipment for conversions, cost increases for supplies, accelerated payments to suppliers, customer

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bad debts or reduced revenues. Similarly, such market conditions could affect lenders participating in our financing agreements, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to us could adversely affect our business, financial position, results of operation and ability to make cash distributions to our unitholders.

Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on our results of operations, financial condition and cash flows.

Global financial markets and economic conditions have been severely disrupted and volatile in recent years and remain subject to significant vulnerabilities, such as the deterioration of fiscal balances and the rapid accumulation of public debt, continued deleveraging in the banking sector and a limited supply of credit. Credit markets as well as the equity and debt capital markets were exceedingly distressed during 2008 and 2009 and have been volatile since that time. The continuing sovereign debt crisis in Greece and other European Union member countries, the renewed crisis in the Middle East and Argentina and civil unrest in Ukraine, have led to increased volatility in global credit and equity markets. These issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions have made, and will likely continue to make, it difficult to obtain financing. As a result of the disruptions in the credit markets and higher capital requirements, many lenders have increased margins on lending rates, enacted tighter lending standards, required more restrictive terms (including higher collateral ratios for advances, shorter maturities and smaller loan amounts), or have refused to refinance existing debt at all. Furthermore, certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending activities in the shipping industry. Additional tightening of capital requirements and the resulting policies adopted by lenders, could further reduce lending activities. We may experience difficulties obtaining financing commitments or be unable to fully draw on the capacity under committed loans we arrange in the future if our lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity, capital or solvency issues. We cannot be certain that financing will be available on acceptable terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our future obligations as they come due. Our failure to obtain such funds could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distribution to unitholders. In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive pressures.

In addition, as a result of the ongoing economic slump in Greece resulting from the sovereign debt crisis and the related austerity measures implemented by the Greek government, our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees. We also face the risk that strikes, work stoppages, civil unrest and violence within Greece may disrupt our shoreside operations and those of our managers located in Greece.

Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect our business.

The hull and machinery of every commercial vessel must be classed by a classification society. The classification society certifies that the vessel has been built and maintained in accordance with the applicable rules and regulations of the classification society. Moreover, every vessel must comply with all applicable international conventions and the regulations of the vessel’s flag state as verified by a classification society. Finally, each vessel must successfully undergo periodic surveys, including annual, intermediate and special surveys.

If any vessel does not maintain its class, it will lose its insurance coverage and be unable to trade, and the vessel’s owner will be in breach of relevant covenants under its financing arrangements. Failure to maintain the class of one or more of our containerships could have a material adverse effect on our financial condition and results of operations, as well as our cash flows, including cash available for distribution to unitholders.

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Our business depends upon certain members of our general partner’s senior management who may not necessarily continue to work for us.

Our future success depends to a significant extent upon our general partner’s chairman and chief executive officer, Konstantinos Konstantakopoulos, certain members of our general partner’s senior management and our managers. Mr. Konstantakopoulos has substantial experience in the container shipping industry and has worked with Costamare and our managers for many years. He, our managers and certain of our general partner’s senior management team are crucial to the execution of our business strategies and to the growth and development of our business. If these individuals were no longer to be affiliated with us or our managers, or if we were to otherwise cease to receive services from them, we may be unable to recruit other employees with equivalent talent and experience, which could have a material adverse effect on our financial condition and results of operations.

The chairman and chief executive officer of our general partner has entered into certain restrictive covenants for the benefit of Costamare, and indirectly, us, that restrict his ability to compete with us, and such restrictive covenants generally may be unenforceable.

Konstantinos Konstantakopoulos, the chairman and chief executive officer of our general partner, is subject to a restrictive covenant agreement with Costamare, which restricts his ability to own containerships or containership businesses without first offering the same to Costamare. It also requires him to offer certain charters to Costamare vessels where the charter is suitable both for a Costamare vessel and a vessel he owns outside of Costamare. To the extent that those obligations involve vessels that would be, or would become, subject to the non-competition provisions of the omnibus agreement, the omnibus agreement will permit our general partner to require those opportunities to be offered to us. Our general partner is not required to act solely in our interest in making these decisions and may make a decision that unitholders may consider not to be in our best interests.

In addition, the restrictive covenant agreement is governed by English law and English law generally does not favor the enforcement of such restrictions which are considered contrary to public policy and facially are void for being in restraint of trade. Our ability to cause Costamare to enforce these restrictions, should it ever become necessary, will depend upon establishing that there is a legitimate proprietary interest that is appropriate to protect, and that the protection sought is no more than is reasonable, having regard to the interests of the parties and the public interest. We cannot give any assurance that a court would enforce the restrictions as written by way of an injunction or that we or Costamare could necessarily establish a case for damages as a result of a violation of the restrictive covenants agreement.

Our managers are privately held companies and there is little or no publicly available information about them.

The ability of our managers to continue providing services for our benefit will depend in part on their own financial strength. Circumstances beyond our control could impair our managers’ financial strength, and because they are privately held companies, information about their financial strength is not publicly available. As a result, an investor in our common units might have little advance warning of problems affecting any of our managers, even though these problems could have a material adverse effect on us. As part of our reporting obligations as a public company, we will disclose information regarding our managers that has a material impact on us to the extent that we become aware of such information.

The chairman and chief executive officer of our general partner has affiliations with our managers and others that could create conflicts of interest between us and our managers or other entities in which he has an interest.

The partnership management agreement is between us and Costamare Shipping, which is controlled by our general partner’s chairman and chief executive officer, Konstantinos Konstantakopoulos. While we believe that the terms of the partnership management agreement are consistent with normal commercial practice of the industry, the agreement was not negotiated at

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arms’ length by non-related parties. Accordingly, the terms may be less favorable to us than if such terms were obtained from a non-related third party. Additionally, Konstantinos Konstantakopoulos directly or indirectly controls our affiliated managers and will continue to be our chairman and chief executive officer and the owner of approximately  % of our common units, and this relationship could create conflicts of interest between us, on the one hand, and our managers, on the other hand. These conflicts, which are addressed in the partnership management agreement, may arise in connection with the chartering, purchase, sale and operation of the vessels in our fleet versus vessels owned or chartered-in by other companies affiliated with our managers or our general partner’s chairman and chief executive officer. These conflicts of interest may have an adverse effect on our results of operations.

Additionally, Konstantinos Konstantakopoulos holds a passive minority interest in certain companies controlled by the family of Dimitrios Lemonidis that own three containerships and may acquire additional vessels. However, the existing three vessels are older vessels with significantly lower cargo capacity compared to the vessels in our fleet. Such vessels and any additional vessels acquired by such companies, which are expected to have similar specifications as the existing three vessels, are unlikely to compete with our vessels for chartering opportunities. These investments were entered into following the review and approval of Costamare’s audit committee and board of directors.

Certain of our managers are permitted to, and are actively seeking to, provide management services to vessels owned by third parties that compete with us, which could result in conflicts of interest or otherwise adversely affect our business.

Shanghai Costamare is not prohibited from providing management services to vessels owned by third parties, including related parties, that may compete with us for charter opportunities. In addition, the Cell under V.Ships Greece actively seeks to provide management services to vessels owned by third parties that may compete with us. We have also consented to Costamare Shipping providing management services in respect of the JV vessels that are similar to and compete with our vessels in addition to Costamare’s wholly-owned vessels. Our managers’ provision of management services to third parties, including related parties, that may compete with our vessels could give rise to conflicts of interest or adversely affect the ability of these managers to provide the level of service that we require. Conflicts of interest with respect to certain services, including sale and purchase and chartering activities, among others, may have an adverse effect on our results of operations.

We are subject to regulation and liability under environmental and operational safety laws that could require significant expenditures and affect our cash flows and net income.

Our business and the operation of our vessels are materially affected by environmental regulation in the form of international, national, state and local laws, regulations, conventions, treaties and standards in force in international waters and the jurisdictions in which our containerships operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, water discharges and ballast water management. We may incur substantial costs in complying with these requirements, including costs for ship modifications and changes in operating procedures. Because such conventions, laws and regulations are often revised, it is difficult to predict the ultimate cost of compliance with such requirements or their impact on the resale value or useful lives of our containerships.

Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, vessel modifications or operational changes or restrictions, lead to decreased availability of, or more costly insurance coverage for, environmental matters or result in the denial of access to certain jurisdictional waters or ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and claims for natural resource damages, personal injury and/or property damages in the event that there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under,

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environmental requirements can also result in substantial penalties, fines and other sanctions, including criminal sanctions, and, in certain instances, seizure or detention of our containerships. Events of this nature or additional environmental conventions, laws and regulations could have a material adverse effect on our financial condition, results of operations and ability to make cash distributions to our unitholders.

The operation of vessels is also affected by the requirements set forth in the International Safety Management Code (the “ISM Code”). The ISM Code requires vessel owners and managers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe vessel operation and describing procedures for dealing with emergencies. Failure to comply with the ISM Code may subject us to increased liability, may decrease or suspend available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports. Each of the containerships in our fleet and each of our affiliated managers and third party managers are ISM Code-certified. However, there can be no assurance that such certifications can be maintained indefinitely.

Governmental regulation of the shipping industry, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future. In addition, we believe that the heightened environmental, quality and security concerns of insurance underwriters, regulators and charterers will lead to additional requirements, including enhanced risk assessment and security requirements and greater inspection and safety requirements for vessels. In complying with new environmental laws and regulations and other requirements that may be adopted, we may have to incur significant capital and operational expenditures to keep our containerships in compliance, or even to scrap or sell certain containerships altogether.

The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.

Our vessels may call in ports in South America and other areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or penalties which could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to make cash distributions.

Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of our containership business.

International container shipping is subject to security and customs inspection and related procedures in countries of origin, destination, and certain trans-shipment points. These inspection procedures can result in cargo seizure, delays in the loading, offloading, trans-shipment, or delivery of containers, and the levying of customs duties, fines and other penalties against us.

Since the events of September 11, 2001, United States authorities have substantially increased container inspections. Government investment in non-intrusive container scanning technology has grown and there is interest in electronic monitoring technology, including so-called “e-seals” and “smart” containers, that would enable remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation. Also, as a response to the events of September 11, 2001, additional vessel security requirements have been imposed, including the installation of security alert and automatic identification systems on board vessels.

It is unclear what additional changes, if any, to the existing inspection and security procedures may ultimately be proposed or implemented in the future, or how any such changes will affect the industry. It is possible that such changes could impose additional financial and legal obligations on us. Furthermore, changes to inspection and security procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of goods in containers uneconomical or impractical. Any such changes or developments could have a

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material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

The operation of our vessels is also affected by the requirements set forth in the International Ship and Port Facilities Security Code (the “ISPS Code”). The ISPS Code requires vessels to develop and maintain a ship security plan that provides security measures to address potential threats to the security of ships or port facilities. Although each of our containerships is ISPS Code-certified, any failure to comply with the ISPS Code or maintain such certifications may subject us to increased liability and may result in denial of access to, or detention in, certain ports. Furthermore, compliance with the ISPS Code requires us to incur certain costs. Although such costs have not been material to date, if new or more stringent regulations relating to the ISPS Code are adopted by the International Maritime Organization, or “IMO”, and the flag states, these requirements could require significant additional capital expenditures or otherwise increase the costs of our operations.

Climate change and greenhouse gas restrictions may adversely impact our operations and markets.

Due to concern over the risks of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. For example, the Marine Environment Protection Committee, or “MEPC”, of the IMO adopted two new sets of mandatory requirements to address greenhouse gas emissions from ships at its July 2011 meeting. The Energy Efficiency Design Index requires a minimum energy efficiency level per capacity mile and is applicable to new vessels, and the Ship Energy Efficiency Management Plan is applicable to currently operating vessels. The IMO is also considering the development of a market-based mechanism for greenhouse gas emissions from ships, but it is difficult to accurately predict the likelihood that such a standard might be adopted or its potential impact on our operations at this time.

The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine ships. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations under the CAA to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the mobile source emissions do not apply to greenhouse gas emissions from ships, the EPA may, in the future, decide to regulate greenhouse gas emissions from ocean-going ships. Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.

The operation of any vessel includes risks such as mechanical failure, collision, fire, contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of a marine disaster, including oil spills and other environmental mishaps. There are also liabilities arising from owning and operating vessels in international trade. We procure insurance for our fleet of containerships in relation to risks commonly insured against by vessel owners and operators. Our current insurance includes (i) hull and machinery insurance covering damage to our and third-party vessels’ hulls and machinery from, among other things, collisions and contact with fixed and floating objects, (ii) war risks insurance covering losses associated with the outbreak or escalation of hostilities and (iii) protection and indemnity insurance (which includes environmental damage) covering, among other things, third-party and crew liabilities such as expenses resulting from the injury or death of crew members, passengers and other third parties, the loss or damage to cargo, third-party claims arising from collisions with other vessels, damage to other third-party property and pollution arising from oil or other substances.

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We can give no assurance that we are adequately insured against all risks or that our insurers will pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement containership in the event of a loss of a containership. Under the terms of our credit facilities, we are subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. For example, more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage. There is no cap on our liability exposure for such calls or premiums payable to our protection and indemnity association. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs. A catastrophic oil spill or marine disaster could exceed our insurance coverage, which could harm our business, results of operations and cash flows, including cash available for distribution to unitholders. Any uninsured or underinsured loss could harm our business, results of operations and cash flows, including cash available for distribution to unitholders. In addition, the insurance may be voidable by the insurers as a result of certain actions, such as vessels failing to maintain required certification.

We do not carry loss of hire insurance. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled dry-docking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to our unitholders.

The global financial markets continue to experience economic instability resulting from terrorist attacks, regional armed conflicts and general political unrest.

Terrorist attacks in certain parts of the world over the last decade, such as the attacks on the United States on September 11, 2001, and the continuing response of the United States and other countries to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty and volatility in the world financial markets and may affect our business, results of operations and financial condition. In addition, current conflicts in Afghanistan and general political unrest in Ukraine, certain African nations and the Middle East may lead to additional regional conflicts and acts of terrorism around the world, which may contribute to further economic instability in the global financial markets. Political tension or conflicts in the Asia Pacific Region may also reduce the demand for our services. These uncertainties, as well as future hostilities or other political instability in regions where our vessels trade, could also affect trade volumes and patterns and adversely affect our operations, our ability to obtain financing and otherwise have a material adverse effect on our financial condition, results of operations and ability to make cash distributions to our unitholders.

Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.

Acts of piracy have historically affected ocean-going vessels trading in certain regions of the world, such as the South China Sea and the Gulf of Aden off the coast of Somalia. Piracy continues to occur in the Gulf of Aden off the coast of Somalia and increasingly in the Gulf of Guinea. Although both the frequency and success of attacks have diminished recently, we still consider potential acts of piracy to be a material risk to the international container shipping industry, and protection against this risk requires vigilance. Our vessels regularly travel through regions where pirates are active. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Crew costs could also increase in such circumstances.

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We may not be adequately insured to cover losses from acts of terrorism, piracy, regional conflicts and other armed actions.

Costamare Shipping may on our behalf be unable to attract and retain qualified, skilled employees or crew necessary to operate our business or may pay rising crew and other vessel operating cost.

Acquiring and renewing long-term time charters with leading liner companies depend on a number of factors, including our ability to man our containerships with suitably experienced, high-quality masters, officers and crews. Our success will depend in large part on Costamare Shipping’s ability to attract, hire, train and retain highly skilled and qualified personnel. In recent years, the limited supply of and the increased demand for well-qualified crew, due to the increase in the size of the global shipping fleet, has created upward pressure on crewing costs, which we generally bear under our time charters. Changing conditions in the home country of our seafarers, such as increases in the local general living standards or changes in taxation, may make serving at sea less appealing and thus further reduce the supply of crew. Unless we are able to increase our hire rates to compensate for increases in crew costs, our business, results of operations, financial condition and our ability to make cash distributions to our unitholders may be adversely affected. In addition, any inability we experience in the future to attract, hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business. If we cannot retain sufficient numbers of quality onboard seafaring personnel, our fleet utilization will decrease, which could also have a material adverse effect on our business, results of operations, financial condition and our ability to make cash distributions.

Our vessels may call on ports located in countries that are subject to restrictions imposed by the United States government, the European Union, the United Nations and other governments which could negatively affect the trading price of our shares of common units.

The United States, the European Union, the United Nations and other governments and their agencies impose sanctions and embargoes on certain countries and maintain lists of countries, individuals or entities they consider to be state sponsors of terrorism. From time to time on charterers’ instructions, our vessels may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.

For example, in 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or “CISADA”, which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to non-U.S. companies, such as us, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. The Secretary of the Treasury may prohibit any transactions or dealings, including any U.S. capital markets financing, involving any person found to be in violation of Executive Order 13608. Also in 2012, the U.S. enacted the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRA”) which created new sanctions and strengthened existing sanctions. Among other things, the ITRA intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector. The ITRA also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions,

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including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years. The ITRA also includes a requirement that issuers of securities must disclose to the SEC in their annual and quarterly reports filed after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain sanctioned activities involving Iran during the timeframe covered by the report. Finally, in January 2013, the U.S. enacted the Iran Freedom and Counter-Proliferation Act of 2012 (the “IFCPA”) which expanded the scope of U.S. sanctions on any person that is part of Iran’s energy, shipping or shipbuilding sector and operators of ports in Iran, and imposes penalties on any person who facilitates or otherwise knowingly provides significant financial, material or other support to these entities.

Although the ships in our initial fleet have not called on ports in countries subject to sanctions or embargoes or in countries identified as state sponsors of terrorism, including Iran, North Korea, Sudan and Syria, we cannot assure you that these ships will not call on ports in these countries in the future. While we intend to maintain compliance with all applicable sanctions and embargo laws and regulations, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. Additionally, some investors may decide to divest their interest, or not to invest, in us simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common units may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.

We may operate in a number of countries through the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Reliability of suppliers may limit our ability to obtain supplies and services when needed.

We rely, and will in the future rely, on a significant supply of consumables, spare parts and equipment to operate, maintain, repair and upgrade our fleet of ships. Delays in delivery or unavailability of supplies could result in off-hire days due to consequent delays in the repair and maintenance of our fleet. This would negatively impact our revenues and cash flows. Cost increases could also negatively impact our future operations.

Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.

A government of the jurisdiction where one or more of our containerships are registered could requisition for title or seize our containerships. Requisition for title occurs when a government takes control of a vessel and becomes its owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war

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or emergency, although governments may elect to requisition vessels in other circumstances. Although we would expect to be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment, if any, would be uncertain. Government requisition of one or more of our containerships may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, results of operations, financial condition and our ability to make cash distributions to our unitholders.

Maritime claimants could arrest our vessels, which could interrupt our cash flows.

Crew members, suppliers of goods and services to a vessel, shippers or receivers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages, including, in some jurisdictions, for debts incurred by previous owners. In many jurisdictions, a maritime lien-holder may enforce its lien by arresting a vessel. The arrest or attachment of one or more of our vessels, if such arrest or attachment is not timely discharged, could cause us to default on a charter or breach covenants in certain of our credit facilities, could interrupt our cash flows and could require us to pay large sums of money to have the arrest or attachment lifted. Any of these occurrences could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one containership in our fleet for claims relating to another of our containerships.

Because the Public Company Accounting Oversight Board is not currently permitted to inspect our independent accounting firm, you may not benefit from such inspections.

Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board, or “PCAOB”, inspections that assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. Certain European Union countries, including Greece, do not currently permit the PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they are part of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB is prevented from evaluating our auditor’s performance of audits and its quality control procedures, and, unlike stockholders of most U.S. public companies, we and our unitholders would be deprived of the possible benefits of such inspections.

We may be adversely affected by the introduction of new accounting rules for leasing.

International and U.S. accounting standard-setting boards (the International Accounting Standards Board, or “IASB”, and the Financial Accounting Standards Board, or “FASB”) have issued new exposure drafts in their joint project that would require lessees to record most leases on their balance sheets as lease assets and liabilities. Entities would still classify leases, but classification would be based on different criteria and would serve a different purpose than it does today. Lease classification would determine how entities recognize lease-related revenue and expense, as well as what lessors record on the balance sheet. Classification would be based on the portion of the economic benefits of the underlying asset expected to be consumed by the lessee over the lease term. Financial statement metrics such as leverage and capital ratios, as well as EBITDA, may also be affected, even when cash flow and business activity have not changed. This may in turn affect covenant calculations under various contracts (e.g., loan agreements) unless the affected contracts are modified. The IASB and FASB’s redeliberation of certain topics is continuing and an effective date has not yet been determined. Accordingly, the timing and ultimate effect of those proposals on us is uncertain.

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We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make distributions to unitholders.

We are a holding company. Our subsidiaries conduct all of our operations and own all of our operating assets, including our ships. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to pay our obligations and to make distributions to unitholders depends entirely on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by the law of their respective jurisdiction of incorporation which regulates the payment of distributions. If we are unable to obtain funds from our subsidiaries, our general partner may exercise its discretion not to make distributions to unitholders.

We may be subject to litigation that could have an adverse effect on us.

We may in the future be involved from time to time in litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, toxic tort claims, employment matters and governmental claims for taxes or duties, as well as other litigation that arises in the ordinary course of our business. We cannot predict with certainty the outcome of any claim or other litigation matter. The ultimate outcome of any litigation matter and the potential costs associated with prosecuting or defending such lawsuits, including the diversion of management’s attention to these matters, could have an adverse effect on us and, in the event of litigation that could reasonably be expected to have a material adverse effect on us, could lead to an event of default under certain of our credit facilities.

Risks Inherent in an Investment in Us

Costamare and its affiliates and York may compete with us.

Pursuant to the omnibus agreement that we, York and Costamare will enter into in connection with the closing of this offering, Costamare and its controlled affiliates (other than us, our general partner and our subsidiaries) and, during the term of the Framework Agreement, York and any JV Entity generally will agree not to acquire, own, operate or charter certain containerships under charters of five full years or more. However, such restriction will only become applicable after the Non-Compete Commencement Date, which may be as late as 2019 based on the expected delivery schedule. In addition, the omnibus agreement contains significant exceptions that may allow Costamare or certain of its affiliates, York or any JV Entity to compete with us even after the Non-Compete Commencement Date, which could harm our business. For example, these exceptions will result in Costamare, York or any JV Entity not being restricted from: (a) acquiring, owning, operating or chartering Non-Five-Year Vessels (as defined herein); (b) acquiring a non-controlling equity ownership, voting or profit participation interest in any company, business or pool of assets; (c) acquiring, owning, operating or chartering a Five-Year Vessel (as defined herein) that Costamare, York or any JV Entity would otherwise be restricted from owning unless and until we are offered the right to purchase such vessels or if we are not willing or able to acquire such vessel from Costamare and, with respect to the JV vessels, York or any JV Entity despite being offered the right to purchase such vessels; or (d) prior to the Non-Compete Commencement Date, owning or operating any Five-Year Vessel. See “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement—Non- competition” for a detailed description of those exceptions and the definitions of “Five-Year Vessel” and “Non-Five Year Vessel”.

Under the omnibus agreement, Costamare and York may postpone our JV vessel acquisition by up to three years, potentially rendering any vessels subject to the non-competition or purchase option provisions to be no longer eligible for our acquisition with passage of time.

Under the purchase option provisions of the omnibus agreement, Costamare and York have a 36-month period in which they may offer us the right to purchase the nine JV vessels. While the timing of such offer will be mutually agreed by Costamare and York, they have agreed to offer us such purchase right only if, at the time of such offer or the end of such 36-month period, the

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relevant vessel constitutes a non-compete vessel. Currently, five of the nine JV vessels are subject to ten year charters commencing in 2016, and, absent a premature termination of such charters, will have a remaining charter term of five full years or more throughout any such 36-month period. If at the end of any such 36-month period Costamare and York have not previously offered us the right to purchase such vessel, we will have the right to do so at the end of such 36-month period. However, four of the nine JV vessels have not yet secured a charter. If such vessels remain unchartered or, with passage of time during any such 36-month period, result in having a remaining charter term of less than five years, Costamare and York will not be obligated to offer us the right to purchase any such vessel.

Similarly, under the non-competition provisions of the omnibus agreement, Costamare and, with respect to any JV vessels, York have a 24-month period or a 36-month period, as applicable, to offer us the right to purchase any Five-Year Vessels. While the timing of such offer for the JV vessels will be mutually agreed by Costamare and York, they have agreed to offer us such purchase right only if, at the time of such offer or the end of such 24-month period or 36-month period, the relevant vessel constitutes a non-compete vessel. With the passage of time during such 24-month period or 36-month period, the relevant vessel may no longer be less than seven years old or be subject to a charter with a remaining charter term of five full years more, which would result in Costamare and York no longer being obligated to offer us the right to purchase any such vessel. These terms of the omnibus agreement may undermine our ability to acquire additional containerships from Costamare and York.

The voting rights and ability of the unitholders to influence our general partner’s business decisions are limited. Our partnership agreement restricts the voting rights of unitholders owning more than 4.9% of our common units.

Holders of our common unit have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders did not elect our general partner or its board of directors and will have no right to elect our general partner or its board of directors on an annual or other continuing basis, subject to our general partner’s option to create a board of directors of the partnership. The board of directors of our general partner is chosen by Costamare. The general partner will manage our operations and day-to-day activities, and will have significant discretion over whether the Partnership exercises any right to purchase from Costamare and, as applicable, York any additional vessels pursuant to the omnibus agreement.

Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. The unitholders will be unable initially to remove the general partner without its consent because the general partner and its affiliates will own sufficient units upon completion of this offering to be able to prevent its removal. Our general partner may not be removed except by a vote of the holders of at least  % of the outstanding common and subordinated units, including any units owned by our general partner and its affiliates, voting together as a single class. Following the closing of this offering, Costamare will own  % of the units. Also, if the general partner is removed without cause during the subordination period and units held by the general partner and Costamare are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units and any existing arrearages on the common units will be extinguished. A removal of the general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Cause is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business, so the removal of the general partner because of the unitholders’ dissatisfaction with the general partner’s performance in managing our partnership will most likely result in the termination of the subordination period. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

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The partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

Our partnership agreement further restricts unitholders’ voting rights by providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes, unless required by law. Effectively, this means that the voting rights of any unitholders not entitled to vote on a specific matter will be redistributed pro rata among the other common unitholders. Our general partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to the 4.9% limitation.

Upon completion of this offering, Costamare and our general partner will own a  % limited partner interest and a 2.0% general partner interest in us and have conflicts of interest and limited fiduciary and contractual duties to us and our common unitholders, which may permit them to favor their own interests to your detriment.

Following this offering, Costamare will own a  % limited partner interest and a 2.0% general partner interest in us, assuming no exercise of the underwriters’ option to purchase additional common units, and will own and control our general partner. Certain of our general partner’s directors and officers are directors and officers of Costamare or its affiliates, and, as such, they have fiduciary duties to Costamare or its affiliates that may cause them to pursue business strategies that disproportionately benefit Costamare or its affiliates or which otherwise are not in the best interests of us or our unitholders. Conflicts of interest may arise between Costamare and its affiliates (including our general partner), on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner and its affiliates may favor their own interests over the interests of our unitholders. See “—Our partnership agreement limits our general partner’s and our directors’ fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner or our directors”. These conflicts include, among others, the following situations:

 

 

neither our partnership agreement nor any other agreement requires our general partner or Costamare or its affiliates to pursue a business strategy that favors us or utilizes our assets, and Costamare’s officers and directors have a fiduciary duty to make decisions in the best interests of the stockholders of Costamare, which may be contrary to our interests;

 

 

the executive officers and two of the directors of our general partner also serve as executive officers or directors of Costamare and another director of our general partner serves as a key employee of an affiliate of Costamare;

 

 

our general partner is allowed to take into account the interests of parties other than us, such as Costamare and its affiliates, in resolving certain conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders. In addition, in deciding whether we will exercise the right to acquire a vessel under the vessel option or non-competition provisions of the omnibus agreement, our general partner is permitted to consider the interests of Costamare as well as us, so long as it does so in good faith. These decisions may be to the detriment of our future growth;

 

 

our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Specifically, pursuant to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it (a) exercises its (i) call right, (ii) pre-emptive rights, (iii) registration rights, (iv) right to make a determination to receive common units in a resetting of the target distribution levels related to the incentive distribution rights or (v) right to exercise or not exercise the option to cause us to be managed by our own board of directors and officers and in that connection cause the common unitholders to permanently have the right to elect a majority of our directors, (b) consents or withholds consent to any merger or consolidation of

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the partnership, (c) appoints any directors or votes for the election of any director, (d) votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, (e) voluntarily withdraws from the partnership, (f) transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units or general partner interest or (g) votes upon the dissolution of the partnership;

 

 

under our partnership agreement, as permitted under Marshall Islands law, our general partner has limited fiduciary duties. The partnership agreement also restricts the remedies available to our unitholders, as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner, all as set forth in the partnership agreement;

 

 

our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;

 

 

in some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units or to make incentive distributions or to accelerate the expiration of the subordination period;

 

 

our general partner is entitled to reimbursement for expenses incurred on our behalf, which expenses include all expenses necessary or appropriate for conducting our business and allocable to us, as determined by our general partner;

 

 

our partnership agreement does not restrict us from paying our general partner or its affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;

 

 

our general partner controls the enforcement of obligations owed to us by it and its affiliates;

 

 

our general partner decides whether to retain separate counsel, accountants or others to perform services for us;

 

 

our general partner may exercise its right to call and purchase our common units if it and its affiliates own 80.0% or more of our common units; and

 

 

our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of its limited call right.

Even if our general partner exercises its option to create a partnership board of directors and cause the common unitholders to permanently have the right to elect a majority of our directors, our general partner will have substantial influence on decisions made by our board of directors. See “Certain Relationships and Related Party Transactions”, “Conflicts of Interest and Fiduciary Duties” and “The Partnership Agreement”.

Our general partner’s officers face conflicts in the allocation of their time to our business.

Our general partner’s officers, all of whom are employed by Costamare Shipping and perform executive officer functions for us pursuant to the partnership management agreement, are not required to work full-time on our affairs and also perform services for affiliates of our general partner, including Costamare. As a result, there could be material competition for the time and effort of the officers of our general partner who also provide services to our general partner’s affiliates, which could have a material adverse effect on our business, results of operations and financial condition. See “Our Management”.

Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by Marshall Islands law. For example, our partnership agreement:

 

 

permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits,

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our general partner may consider only the interests and factors that it desires, and in such cases it has no fiduciary duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or our unitholders. Decisions made by our general partner in its individual capacity will be made by its sole owner, Costamare. Specifically, pursuant to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it (a) exercises its (i) call right, (ii) pre-emptive rights, (iii) registration rights, (iv) right to make a determination to receive common units in a resetting of the target distribution levels related to the incentive distribution rights or (v) right to exercise or not exercise the option to cause us to be managed by our own board of directors and officers and in that connection cause the common unitholders to permanently have the right to elect a majority of our directors, (b) consents or withholds consent to any merger or consolidation of the partnership, (c) appoints any directors or votes for the election of any director, (d) votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, (e) voluntarily withdraws from the partnership, (f) transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units or general partner interest or (g) votes upon the dissolution of the partnership;

 

 

permits our general partner to consider the interests of Costamare as well as us, in deciding whether we will exercise the right to acquire a vessel under the vessel option or non-competition provisions of the omnibus agreement, so long as it does so in good faith;

 

 

provides that our general partner is entitled to make other decisions in “good faith” if it reasonably believes that the decision is in our best interests;

 

 

generally provides that transactions with our affiliates and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable”, our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be advantageous or beneficial to us; and

 

 

provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions, unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers or directors or those other persons engaged in actual fraud or willful misconduct.

In order to become a limited partner of our partnership, a common unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above. See “Conflicts of Interest and Fiduciary Duties—Fiduciary Duties”.

Fees for the management services provided to us and our subsidiaries by Costamare Shipping will be substantial, will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2013, will be payable regardless of our profitability and will reduce our cash available for distribution to you.

Pursuant to the partnership management agreement, we and our subsidiaries will pay a per vessel management fee to Costamare Shipping in connection with the provision of certain administrative, commercial and technical management services to us. With respect to the provision of technical management of our vessels, Costamare Shipping, either directly or by delegating to another manager, which may be directed to enter into a direct ship management agreement with the relevant containership-owning subsidiary, will provide technical, crewing and provisioning services to our containerships pursuant to separate ship management agreements. Such ship management services have been provided under existing ship management agreements between Costamare Shipping and each of Costamare’s subsidiaries that own the vessels in our initial fleet, which agreements will remain in place after this offering. In connection with the offering, we expect to enter into an addendum for each of the existing ship management agreements for our initial fleet

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such that our operating subsidiaries will continue to be party to such agreements pursuant to the partnership management agreement. For the four vessels in our initial fleet, we expect that we and our subsidiaries will pay approximately $1.8 million in total under the partnership management agreement and the related ship management agreements for the twelve months ending December 31, 2015.

For a more detailed description of these arrangements, see “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Partnership Management Agreement” and “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Ship Management Agreements”. The fees and expenses payable pursuant to the partnership management agreement and the related ship management agreements will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2013. These fees and expenses will be payable without regard to our business, results of operation and financial condition. Additionally, we have limited rights to terminate the partnership management agreement, provided that after December 31, 2015, we may terminate the partnership management agreement by giving 12-months’ notice and paying a termination fee. The payment of fees to Costamare or other applicable managers could adversely affect our ability to pay cash distributions to you.

Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our general partner, and even if public unitholders are dissatisfied, they will be unable to remove our general partner without Costamare’s consent, unless Costamare’s ownership interest in us is decreased, all of which could diminish the trading price of our common units.

Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our general partner.

 

 

The unitholders will be unable initially to remove our general partner without its consent because our general partner and Costamare will own sufficient units upon completion of this offering to be able to prevent its removal. The vote of the holders of at least  % of all outstanding common and subordinated units voting together as a single class is required to remove the general partner. Following the closing of this offering, Costamare will own  % of the outstanding common and subordinated units, assuming no exercise of the underwriters’ option to purchase additional common units.

 

 

If our general partner is removed without “cause” during the subordination period and units held by our general partner and Costamare are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units, any existing arrearages on the common units will be extinguished, and our general partner will have the right to convert its general partner interest and the holders of the incentive distribution rights will have the right to convert such incentive distribution rights into common units or to receive cash in exchange for those interests, based on the fair market value of those interests at the time. A removal of our general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Any conversion of the general partner interest or incentive distribution rights would be dilutive to existing unitholders. Furthermore, any cash payment in lieu of such conversion could be prohibitively expensive. “Cause” is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor business decisions, such as charges of poor management of our business. Therefore, the removal of our general partner because of the unitholders’ dissatisfaction with the general partner’s decisions in this regard would most likely result in the termination of the subordination period.

 

 

Unitholders will have no right to elect our general partner or its board of directors on an annual or continuing basis, subject to our general partner’s option to create a board of

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directors of the partnership. The board of directors of our general partner is chosen by Costamare.

 

 

Our partnership agreement contains provisions limiting the ability of unitholders to call meetings of unitholders, to nominate directors and to acquire information about our operations as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

 

 

Unitholders’ voting rights are further restricted by the partnership agreement provision providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes, unless required by law. Effectively, this means that the voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our general partner, its affiliates and persons who acquired common units with the prior approval of the board of directors of our general partner will not be subject to this 4.9% limitation or redistribution of the voting rights described above.

 

 

There are no restrictions in our partnership agreement on our ability to issue equity securities.

The effect of these provisions may be to diminish the price at which the common units will trade. In addition, upon a change of control of the general partner, Costamare Shipping will have the right to terminate the partnership management agreement and receive a termination fee.

The control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. In addition, our partnership agreement does not restrict the ability of the members of our general partner from transferring their respective membership interests in our general partner to a third party. In the event of any such transfer, the new members of our general partner would be in a position to replace the board of directors and officers of our general partner with their own choices and to control the decisions taken by the board of directors and officers.

Substantial future sales of our common units in the public market could cause the price of our common units to fall.

We have granted registration rights to Costamare and certain of its affiliates. These unitholders have the right, subject to some conditions, to require us to file registration statements covering any of our common, subordinated or other equity securities owned by them or to include those securities in registration statements that we may file for ourselves or other unitholders. Upon the closing of this offering and assuming no exercise of the underwriters’ option to purchase additional common units, Costamare will own  common units and all of our subordinated units and all of the incentive distribution rights. Following their registration and sale under the applicable registration statement, those securities will become freely tradable. By exercising their registration rights and selling a large number of common units or other securities, these unitholders could cause the price of our common units to decline.

In addition, members of the Konstantakopoulos family and certain funds managed by York have indicated that they currently intend to purchase up to an aggregate of approximately $  million and $  million, respectively, of common units in the offering at the public offering price. Assuming members of the Konstantakopoulos family and certain funds managed by York purchase $  million, or an aggregate of approximately  million common units (based on the midpoint of the price range set forth on the cover of this prospectus), these common units will be held by persons who have contractually agreed not to sell such units for 180 days following the date of this prospectus. However, following the expiration of the 180 day lockup period, sales of a large number of these units could cause the price of our common units to decline.

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You will experience immediate and substantial dilution of $  per common unit.

The assumed initial public offering price of $  per common unit exceeds pro forma net tangible book value of $  per common unit. Based on the assumed initial public offering price, you will incur immediate and substantial dilution of $  per common unit. This dilution results primarily because the assets contributed by our general partner and its affiliates are recorded at their historical cost, and not their fair value, in accordance with the Partnership’s accounting policy decision under U.S. GAAP. See “Dilution”.

Costamare, as the initial holder of the incentive distribution rights, may elect to cause us to issue additional common units to it in connection with a resetting of the target distribution levels related to the incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or holders of our common units and subordinated units. This may result in lower distributions to holders of our common units in certain situations.

Costamare, as the initial holder of the incentive distribution rights, has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by Costamare, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution amount.

In connection with resetting these target distribution levels, Costamare will be entitled to receive a number of common units equal to that number of common units whose aggregate quarterly cash distributions equaled the average of the distributions to it on the incentive distribution rights in the prior two quarters. We anticipate that Costamare would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that Costamare could exercise this reset election at a time when it is experiencing, or may be expected to experience, declines in the cash distributions it receives related to its incentive distribution rights and may therefore desire to be issued our common units, rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued additional common units to Costamare in connection with resetting the target distribution levels related to the incentive distribution rights held by Costamare. See “How We Make Cash Distributions—Incentive Distribution Rights” and “How We Make Cash Distributions—Costamare’s Right to Reset Incentive Distribution Levels”.

We may issue additional equity securities, including securities senior to the common units, without your approval, which would dilute your ownership interests.

Our general partner may, without the approval of our unitholders, cause us to issue an unlimited number of additional units or other equity securities. In addition, our general partner may cause us to issue an unlimited number of units that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

 

 

our unitholders’ proportionate ownership interest in us will decrease;

 

 

the amount of cash available for distribution on each unit may decrease;

 

 

because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

 

 

the relative voting strength of each previously outstanding unit may be diminished; and

 

 

the market price of the common units may decline.

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Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash.

During the subordination period, which we define elsewhere in this prospectus, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $  per unit, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash from operating surplus to be distributed on the common units. Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash. See “How We Make Cash Distributions—Subordination Period”, “—Distributions of Available Cash From Operating Surplus During the Subordination Period” and “—Distributions of Available Cash From Operating Surplus After the Subordination Period”.

In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

Our partnership agreement requires our general partner to deduct from operating surplus cash reserves that it determines are necessary to fund our future operating expenditures. These reserves also will affect the amount of cash available for distribution to our unitholders and they are not subject to any specified maximum dollar amount. Our general partner may establish reserves for distributions on the subordinated units, but only if those reserves will not prevent us from distributing the full minimum quarterly distribution, plus any arrearages, on the common units for the following four quarters. As described above in “—Risks Inherent in Our Business—We must make substantial capital expenditures to maintain and replace the operating capacity of our fleet, which will reduce cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted”, our partnership agreement requires our general partner each quarter to deduct from operating surplus estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, which could reduce the amount of available cash for distribution. The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by the board of directors of our general partner at least once a year, provided that any change must be approved by the conflicts committee of the board of directors of our general partner.

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

If at any time our general partner and its affiliates own 80.0% or more of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than the then-current market price of our common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. For additional information about the limited call right, see “The Partnership Agreement—Limited Call Right”.

At the completion of this offering and assuming no exercise of the underwriters’ option to purchase additional common units, Costamare, which owns and controls our general partner, will own  % of our common units. At the end of the subordination period, assuming no additional issuances of common units, no exercise of the underwriters’ option to purchase additional common

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units and the conversion of our subordinated units into common units, Costamare will own  % of our common units.

You may not have limited liability if a court finds that unitholder action constitutes control of our business.

As a limited partner in a partnership organized under the laws of the Marshall Islands, you could be held liable for our obligations to the same extent as a general partner if you participate in the “control” of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. In addition, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions in which we do business. See “The Partnership Agreement—Limited Liability” for a discussion of the implications of the limitations on liability of a unitholder.

We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.

Our partnership agreement allows us to make working capital borrowings to pay distributions. Accordingly, if we have available borrowing capacity, we can make distributions on all our units even though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the amount of working capital borrowings we can make for operating our business. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

The price of our common units after this offering may be volatile.

The price of our common units after this offering may be volatile and may fluctuate due to factors including:

 

 

our payment of cash distributions to our unitholders;

 

 

actual or anticipated fluctuations in quarterly and annual results;

 

 

fluctuations in the international container shipping industry;

 

 

mergers and strategic alliances in the shipping industry;

 

 

changes in governmental regulations or maritime self-regulatory organizations standards;

 

 

shortfalls in our operating results from levels forecasted by securities analysts;

 

 

announcements concerning us or our competitors;

 

 

the failure of securities analysts to publish research about us after this offering, or analysts making changes in their financial estimates;

 

 

general economic conditions;

 

 

terrorist acts;

 

 

future sales of our units or other securities;

 

 

investors’ perceptions of us and the international container shipping industry;

 

 

the general state of the securities markets; and

 

 

other developments affecting us, our industry or our competitors.

Securities markets worldwide are experiencing significant price and volume fluctuations. The market price for our common units may also be volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common units despite our operating performance. Consequently, you may not be able to sell our common units at prices equal to or greater than those that you pay in this offering.

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Increases in interest rates may cause the market price of our common units to decline.

An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield-based equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline.

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for the common units. After this offering, there will be only  publicly traded common units, assuming no exercise of the underwriters’ option to purchase additional common units, which includes up to approximately $  of common units that members of the Konstantakopoulos family have indicated that they currently intend to purchase and up to approximately $  of common units that certain funds managed by York have indicated that they currently intend to purchase. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

Unitholders may have liability to repay distributions.

Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands Limited Partnership Act, or the “Marshall Islands Act”, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Marshall Islands law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Marshall Islands law will be liable to the limited partnership for the distribution amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

We have no history operating as a separate publicly traded entity and will incur increased costs as a result of being a publicly traded limited partnership.

We have no history operating as a separate publicly traded entity. As a publicly traded limited partnership, we will be required to comply with the SEC’s reporting requirements and with corporate governance and related requirements of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act”, the SEC and the securities exchange on which our common units will be listed. We will incur significant legal, accounting and other expenses in complying with these and other applicable regulations. We anticipate that our general and administrative expenses as a publicly traded limited partnership will be approximately $1.9 million annually and will include costs associated with annual reports to unitholders, tax return preparation, investor relations, registrar and transfer agent’s fees, director and officer liability insurance costs and officer and director compensation. In addition, we expect to incur approximately $1.8 million per annum of costs and fees for the four vessels in our initial fleet pursuant to the partnership management agreement that we will enter into with Costamare Shipping and the related ship management agreements. These expenses may increase further after we are no longer an “emerging growth company” and are required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

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We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common units less attractive to investors.

We are an “emerging growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described under “Summary—Implications of Being an Emerging Growth Company”. We have elected to opt out of the extended transition period for complying with new or revised accounting standards under Section 107(b) of the JOBS Act, which election is irrevocable. We cannot predict if investors will find our common units less attractive because we may rely on these exemptions. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units and our unit price may be more volatile.

In addition, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an emerging growth company. For as long as we take advantage of the reduced reporting obligations, the information that we provide unitholders may be different than information provided by other public companies.

We have been organized as a limited partnership under the laws of the Marshall Islands, which does not have a well-developed body of partnership law.

We are organized in the Republic of the Marshall Islands, which does not have a well-developed body of case law or bankruptcy law and, as a result, unitholders have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. Our partnership affairs are governed by our partnership agreement and by the Marshall Islands Act. The provisions of the Marshall Islands Act resemble provisions of the limited partnership laws of a number of states in the United States, most notably Delaware. The Marshall Islands Act also provides that it is to be applied and construed to make it uniform with the Delaware Revised Uniform Partnership Act and, so long as it does not conflict with the Marshall Islands Act or decisions of the Marshall Islands courts, interpreted according to the non-statutory law (or case law) of the State of Delaware. There have been, however, few, if any, court cases in the Marshall Islands interpreting the Marshall Islands Act, in contrast to Delaware, which has a well-developed body of case law interpreting its limited partnership statute. Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as the courts in Delaware. For example, the rights of our unitholders and the fiduciary responsibilities of our general partner under Marshall Islands law are not as clearly established as under judicial precedent in existence in Delaware. As a result, unitholders may have more difficulty in protecting their interests in the face of actions by our general partner and its officers and directors than would unitholders of a similarly organized limited partnership in the United States. See “Service of Process and Enforcement of Civil Liabilities”.

We have been organized as a limited partnership under the laws of the Marshall Islands, which has no established bankruptcy act, and, as a result, unitholders may find it difficult to pursue their claims.

The Marshall Islands has no established bankruptcy act, and as a result, any bankruptcy action involving the Partnership would have to be initiated outside the Marshall Islands, and our public unitholders may find it difficult or impossible to pursue their claims in such other jurisdictions.

Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are organized under the laws of the Marshall Islands and all of our subsidiaries are, and will likely be, incorporated in jurisdictions outside the United States. In addition, our general partner is a Marshall Islands limited liability company, and our executive offices are located outside of the United States in Athens, Greece. All of our general partner’s directors and officers reside outside of the United States, and all or a substantial portion of our assets and the assets of most of our general partner’s officers and directors are, and will likely be, located outside of the United States. As a

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result, it may be difficult or impossible for U.S. investors to serve legal process within the United States upon us or any of these persons or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our or our subsidiaries’ assets are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. Federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws. For more information regarding the relevant laws of the Marshall Islands, see “Service of Process and Enforcement of Civil Liabilities”.

There is also substantial doubt that the courts of the Marshall Islands or Greece would enter judgments in original actions brought in those courts predicated on U.S. Federal or state securities laws.

Our partnership agreement designates the Court of Chancery of the State of Delaware as the sole and exclusive forum, unless otherwise provided for by Marshall Islands law, for certain litigation that may be initiated by our unitholders, which could limit our unitholders’ ability to obtain a favorable judicial forum for disputes with our general partner.

Our partnership agreement provides that, unless otherwise provided for by Marshall Islands law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any claims that:

 

 

arise out of or relate in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us);

 

 

are brought in a derivative manner on our behalf;

 

 

assert a claim of breach of a fiduciary duty owed by any director, officer or other employee of our general partner, or owed by our general partner, to us or the limited partners;

 

 

assert a claim arising pursuant to any provision of the Marshall Islands Act; or

 

 

assert a claim governed by the internal affairs doctrine,

regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. any person or entity otherwise acquiring any interest in our common units shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit our unitholders’ ability to obtain a judicial forum that they find favorable for disputes with us or our general partner’s directors, officers or other employees or our unitholders.

Tax Risks

In addition to the following risk factors, you should read “Business—Taxation of the Partnership”, “Material U.S. Federal Income Tax Considerations” and “Non-United States Tax Considerations” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common units.

We may be subject to taxes, which may reduce our cash available for distribution to you.

We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available for distribution. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our

69


subsidiaries in jurisdictions in which operations are conducted. See “Business—Taxation of the Partnership”.

U.S. tax authorities could treat us as a “passive foreign investment company” under certain circumstances, which would have adverse U.S. federal income tax consequences to U.S. unitholders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company”, or “PFIC”, for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of “passive income” or at least 50.0% of the average value of its assets produce, or are held for the production of, “passive income”. For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income”. U.S. unitholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.

Based on our current and projected method of operation, and an opinion of our U.S. counsel, Cravath, Swaine & Moore LLP, we believe that we will not be a PFIC for our current taxable year, and we expect that we will not be treated as a PFIC for any future taxable year. We have received an opinion of our U.S. counsel in support of this position that concludes that the income our subsidiaries earn from certain of our present time-chartering activities should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our U.S. counsel that we expect that more than 25.0% of our gross income for our current taxable year and each future year will arise from such time-chartering activities or other income our U.S. counsel has opined does not constitute passive income, and more than 50.0% of the average value of our assets for each such year will be held for the production of such nonpassive income. Assuming the composition of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our U.S. counsel for purposes of their opinion, our U.S. counsel is of the opinion that we should not be a PFIC for our current taxable year or any future year. This opinion is based and its accuracy is conditioned on representations, valuations and projections provided by us regarding our assets, income and charters to our U.S. counsel. While we believe these representations, valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that they will continue to be accurate at any time in the future.

Moreover, there are legal uncertainties involved in determining whether the income derived from time-chartering activities constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules. If the reasoning of this case were extended to the PFIC context, the gross income we derive or are deemed to derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the Internal Revenue Service, or “IRS”, stated that it disagreed with the holding in Tidewater, and specified that time charters similar to those at issue in the case should be treated as service contracts. We have not sought, and we do not expect to seek, an IRS ruling on the treatment of income generated from our time-chartering activities, and the opinion of our counsel is not binding on the IRS or any court. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future, or that we will not be a PFIC in the future. If the IRS were to find that we are or have been a

70


PFIC for any taxable year (and regardless of whether we remain a PFIC for any subsequent taxable year), our U.S. unitholders would face adverse U.S. federal income tax consequences. See “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences” for a more detailed discussion of the U.S. federal income tax consequences to U.S. unitholders if we are treated as a PFIC.

We may have to pay tax on U.S.-source income, which will reduce our cash flow.

Under the Code, the U.S. source gross transportation income of a ship-owning or chartering corporation, such as ourselves, is subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under a tax treaty or Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.

We believe that we have qualified for this statutory tax exemption for 2014. We expect to continue to qualify for the foreseeable future, so long as Costamare’s ownership interest in us continues to satisfy the 50% Ownership Test of the Section 883 exemption or our general partner exercises its right to cause the common unitholders to permanently have the right to elect a majority of our directors. See “Summary—Our Management”. However, no assurance can be given that this will continue to be the case in the future, particularly if Costamare sells a portion of our equity that it currently owns in one or more sales or we issue additional equity interests to other owners such that Costamare’s ownership interest in us no longer satisfies the 50% Ownership Test of the Section 883 exemption and we do not take steps to attempt to qualify for the Publicly-Traded Test for such exemption. We may not have control over the timing of any such sales by Costamare, which Costamare may make on the basis of its own interests. If we are not entitled to this exemption under Section 883 for any taxable year, we would be subject for those years to a 4% U.S. federal income tax on our U.S. source gross transportation income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our unitholders. For a more detailed discussion and the definitions of “50% Ownership Test” and “Publicly-Traded Test”, see the section entitled “Business—Taxation of the Partnership—United States—U.S. Taxation of Shipping Income”.

You may be subject to income tax in one or more non-U.S. jurisdictions as a result of owning our common units if, under the laws of any such jurisdiction, we are considered to be carrying on business there. Such laws may require you to file a tax return with, and pay taxes to, those jurisdictions.

We intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes income taxes imposed upon us and our subsidiaries. Furthermore, we intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes the risk that unitholders may be treated as having a permanent establishment or taxable presence in a jurisdiction where we or our subsidiaries conduct activities simply by virtue of their ownership of our common units. However, because we are organized as a partnership, there is a risk in some jurisdictions that our activities or the activities of our subsidiaries may rise to the level of a taxable presence that is attributed to our unitholders for tax purposes. If you are attributed such a taxable presence in a jurisdiction, you may be required to file a tax return with, and to pay tax in, that jurisdiction based on your allocable share of our income. In addition, we may be required to obtain information from you in the event a tax authority requires such information to submit a tax return. We may be required to reduce distributions to you on account of any tax withholding obligations imposed upon us by that jurisdiction in respect of such allocation to you. The United States may not allow a tax credit for any foreign income taxes that you directly or indirectly incur by virtue of an investment in us.

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FORWARD-LOOKING STATEMENTS

All statements in this prospectus that are not statements of historical fact are “forward-looking statements”. The disclosure and analysis set forth in this prospectus includes assumptions, expectations, projections, intentions and beliefs about future events in a number of places, particularly in relation to our operations, cash flows, financial position, plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements are intended as forward-looking statements. In some cases, predictive, future-tense or forward-looking words such as “believe”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “plan”, “potential”, “may”, “should”, “could” and “expect” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In addition, we and our representatives may from time to time make other oral or written statements which are forward-looking statements, including in our periodic reports that we will file with the SEC, other information sent to our unitholders, and other written materials.

Forward-looking statements include, but are not limited to, such matters as:

 

 

forecasts of our ability to make cash distributions on the units and the amount of any borrowings that may be necessary to make such distributions;

 

 

general market conditions and shipping industry trends, including charter rates, vessel values and factors affecting supply and demand;

 

 

future supply of, and demand for, ocean-going containership shipping services

 

 

our continued ability to enter into time charters with our existing customers as well as new customers, including the re-chartering of vessels upon the expiry of existing charters;

 

 

our ability to leverage to our advantage Costamare’s and our managers’ relationships and reputation within the container shipping industry;

 

 

our contracted charter revenue;

 

 

the financial health of our counterparties, both to our time charters and our credit facilities, and the ability of such counterparties to perform their obligations;

 

 

the effect of the worldwide economic slowdown;

 

 

future operating or financial results and future revenues and expenses;

 

 

our future financial condition and liquidity, including our ability to make required payments under our credit facilities, comply with our loan covenants and obtain additional financing in the future to fund capital expenditures, acquisitions and other partnership activities, as well as our ability to refinance indebtedness;

 

 

our ability to purchase any of the Valence (or, at Costamare’s option, one of the substitute vessels) from Costamare and Hulls NCP0113, NCP0114, NCP0115, NCP0116, S2121, S2122, S2123, S2124 and S2125 from Costamare and York;

 

 

the anticipated taxation of our partnership and distributions to our unitholders;

 

 

estimated future maintenance and replacement capital expenditures;

 

 

future sales of our common units in the public market;

 

 

our ability to maximize the use of our ships, including the re-employment or disposal of ships no longer under time charter commitments;

 

 

the overall health and condition of the U.S. and global financial markets;

 

 

fluctuations in interest rates and currencies, including the value of the U.S. dollar relative to other currencies;

 

 

technological advancements and opportunities for the profitable operations of containerships;

 

 

acceptance of a vessel by its charterer;

 

 

our ability to maintain long-term relationships with major liner companies;

 

 

expiration dates and extensions of charters;

72


 

 

future, pending or recent acquisitions of vessels or other assets, business strategy, areas of possible expansion and expected capital spending or operating expenses;

 

 

our expectations relating to making distributions and our ability to make such distributions;

 

 

our ability to enter into shipbuilding contracts for newbuilds and our expectations about availability of existing vessels to acquire or newbuilds to purchase, the time that it may take to construct and deliver new vessels, or the useful lives of our vessels;

 

 

Costamare Shipping’s ability to retain key employees and provide services to us;

 

 

availability of skilled labor, ship crews and management, length and number of off-hire days, dry-docking requirements and fuel and insurance costs;

 

 

our anticipated general and administrative expenses;

 

 

our anticipated incremental general and administrative expenses as a publicly traded limited partnership and our fees and expenses payable under the partnership management agreements and the related ship management agreements;

 

 

expected compliance with financing agreements and the expected effect of restrictive covenants in such agreements;

 

 

environmental and regulatory conditions, including changes in laws and regulations or actions taken by regulatory authorities;

 

 

risks inherent in vessel operation, including terrorism, piracy and discharge of pollutants;

 

 

potential liability from future litigation;

 

 

the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business;

 

 

requirements imposed by classification societies;

 

 

potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;

 

 

Costamare’s cooperation with its joint venture partners and any expected benefits from such joint venture arrangement;

 

 

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

 

 

other factors discussed in the “Risk Factors” section of this prospectus.

Many of these statements are based on our assumptions about factors that are beyond our ability to control or predict and are subject to risks and uncertainties that are described more fully in the “Risk Factors” section of this prospectus. Any of these factors or a combination of these factors could materially affect future results of operations and the ultimate accuracy of the forward-looking statements. Factors that might cause future results to differ include, but are not limited to, the following:

 

 

changes in law, governmental rules and regulations, or actions taken by regulatory authorities;

 

 

changes in economic and competitive conditions affecting our business;

 

 

potential liability from future litigation;

 

 

length and number of off-hire periods and dependence on affiliated managers; and

 

 

other factors discussed in the “Risk Factors” section of this prospectus.

We caution that these and other forward-looking statements included in this prospectus represent our estimates and assumptions only as of the date of this prospectus and are not intended to give any assurance as to future results. Many of the forward-looking statements included in this prospectus are based on our assumptions about factors that are beyond our ability to control or predict. Assumptions, expectations, projections, intentions and beliefs about future events may, and often do, vary from actual results and these differences can be material. The reasons for this include the risks, uncertainties and factors described in the “Risk Factors” section of this prospectus. As a

73


result, the forward-looking events discussed in this prospectus might not occur and our actual results may differ materially from those anticipated in the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking statements.

We undertake no obligation to update or revise any forward-looking statements contained in this prospectus, whether as a result of new information, future events, a change in our views or expectations or otherwise. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

74


USE OF PROCEEDS

We expect to receive net proceeds of approximately $   million from the sale of common units offered by this prospectus, assuming an initial public offering price of $   per unit and, after deducting underwriting discounts and commissions, structuring fees and estimated offering expenses payable by us. We will use approximately $   million of the net proceeds from this offering, together with $   of borrowings under our new credit facility, to:

 

 

repay approximately (i) $   million of borrowings under the $90.0 million Credit Agricole-Capetanissa Credit Facility, which matures in 2018 and had an applicable interest rate of 1.14% as of June 30, 2014; (ii) $   million of borrowings under the $140.0 million ING Credit Facility, which matures in 2021 and had an applicable interest rate of 2.90% as of June 30, 2014; and (iii) $   million of borrowings under the $152.8 million DnB—Raymond Credit Facility, which matures in 2020 and had an applicable interest rate of 2.36% as of June 30, 2014 (the applicable interest rates for such facilities are reset quarterly or semiannually as the sum of three-month LIBOR or six-month LIBOR, as applicable, and the applicable spread);

 

 

retain approximately $  million for general partnership purposes; and

 

 

make a payment of $  to Costamare as the cash portion of the consideration for the interest in the subsidiaries that own the vessels in our initial fleet, a portion of which will be used by Costamare to pay the swap termination fee. The balance of the consideration to Costamare for such interest will consist of (i)   common units, representing a  % limited partner interest in us, (ii) all of our subordinated units, representing a 49.0% limited partner interest in us, and (iii) all of our incentive distribution rights, which will entitle Costamare to increasing percentages of the cash we distribute in excess of $   per unit per quarter. Costamare’s wholly-owned subsidiary, Costamare Partners GP LLC, also holds a 2.0% general partner interest.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowing Activities—Credit Facilities” for a description of the $90.0 million Credit Agricole-Capetanissa Credit Facility, $140.0 million ING Credit Facility and $152.8 million DnB—Raymond Credit Facility. Borrowings under these facilities were used to finance the construction of the vessels in our initial fleet.

The new credit facility will consist of a $126.6 million term loan facility and a $53.4 million revolving credit facility, provided that the amount drawn under the revolving credit facility, when aggregated with the term loan actually drawn, may not exceed 50% of the fair market value of the relevant vessels securing the facility. The purpose of the term loan facility is to refinance the existing vessel financing arrangements for our initial fleet and the purpose of the revolving credit facility is to finance our general corporate and working capital purposes. The obligations under the new credit facility will be guaranteed by the Partnership and are secured by a first priority mortgage over the vessels, the Cosco Beijing, the MSC Athens, the MSC Athos and the Value, first priority assignment of earnings and insurance of such vessels, an account pledge and a first priority assignment of rights under any derivative instruments entered into by the borrowers with respect to such vessels. The interest rate under the new credit facility is LIBOR plus an agreed margin. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowing Activities—Credit Facilities” for a description of the new credit facility.

We have granted the underwriters a 30-day option to purchase up to additional common units. If the underwriters exercise their option to purchase additional common units, we will use the net proceeds (approximately $  million, if exercised in full, after deducting underwriting discounts and commissions) to make a payment to Costamare. If the underwriters do not exercise their option to purchase additional common units, we will issue common units to Costamare at the expiration of the option period. If and to the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Costamare. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units. See “Underwriting”.

75


CASH AND CAPITALIZATION

The following table shows our (i) cash and cash equivalents and (ii) capitalization as of June 30, 2014 on an:

 

 

actual basis;

 

 

as adjusted basis, giving effect to scheduled paydowns of $  million under the existing credit facilities since June 30, 2014; and

 

 

as further adjusted basis, giving effect to the following transactions:

 

 

we will issue to Costamare  common units and all of our subordinated units, representing a  % limited partner interest in us, and all of our incentive distribution rights, which will entitle Costamare to increasing percentages of the cash we distribute in excess of $  per unit per quarter;

 

 

we will issue to Costamare Partners GP LLC, a wholly-owned subsidiary of Costamare, general partner units, representing a 2.0% general partner interest in us;

 

 

we will sell  common units to the public in this offering (assuming the underwriters’ option to purchase additional units is not exercised), at a public offering price of $  per unit resulting in net proceeds of approximately $  million (after deducting underwriting discounts and commissions and structuring fees of $  million and estimated offering expenses of $  million) and representing a  % limited partner interest in us, which includes up to $  of common units that members of the Konstantakopoulos family have indicated that they currently intend to purchase and up to $  of common units that certain funds managed by York have indicated that they currently intend to purchase;

 

 

our vessel owning subsidiaries, as borrowers, will borrow $  under a new credit facility, consisting of $126.6 million term loan facility and a $53.4 million revolving credit facility (provided that the amount drawn under the revolving credit facility, when aggregated with the term loan actually drawn, may not exceed 50% of the fair market value of the relevant security vessels);

 

 

we will use the net proceeds from this offering, together with $  of borrowings under our new credit facility, to repay $  million of the outstanding borrowings as part of a refinancing of our vessel financing agreements related to the Cosco Beijing, the MSC Athens, the MSC Athos and the Value and we will retain $  for general partnership purposes; and

 

 

we will make a payment of the remaining proceeds of approximately $  million to Costamare as partial consideration for the interest described above, a portion of which will be used by Costamare to pay the swap termination fee.

This table is derived from and should be read together with the historical combined carve-out financial statements of Costamare Partners LP Predecessor and the accompanying notes, the unaudited interim combined carve-out financial statements of Costamare Partners LP Predecessor and the notes thereto and the unaudited pro forma combined balance sheet and the notes thereto, in each case contained elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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As of June 30, 2014

 

Historical

 

As Adjusted

 

As Further
Adjusted

 

 

(Expressed in thousands of U.S. dollars)

Cash and cash equivalents(1)

 

 

$

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

Debt(2)

 

 

 

 

 

 

Revolving credit facility(3)

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

19,371

 

 

 

 

 

Long-term debt, net of current portion

 

 

 

228,858

 

 

 

 

 

New term loan facility(4)

 

 

 

 

 

 

 

 

Total debt

 

 

 

248,229

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Partners’ equity

 

 

$

 

94,605

 

 

 

 

 

Held by public:

 

 

 

 

 

 

Common units (  units on an as further adjusted basis)(5)

 

 

 

 

 

 

 

 

Held by general partner and its affiliates:

 

 

 

 

 

 

Common units (  units on an as further adjusted basis)(6)

 

 

 

 

 

 

 

 

Subordinated units (  units on an as further adjusted basis)(6)

 

 

 

 

 

 

 

 

General partner interest (  units on an as further adjusted basis)(6)

 

 

 

 

 

 

 

 

Equity attributable to Costamare Partners

 

 

 

94,605

 

 

 

 

 

 

 

 

 

 

 

 

Total capitalization

 

 

$

 

342,834

 

 

 

$

 

 

 

$

 

 

 

 

 

 

 

 


 

(1)

 

Restricted cash maintained by Costamare as corporate guarantor will not be transferred to the Partnership as it will off-set a related liability. Accordingly, restricted cash is not included in this table.

 

(2)

 

All of our outstanding debt is secured by our vessels. We, as guarantor, and our vessel owning subsidiaries, as borrowers, have entered into a new credit facility to refinance the existing vessel financing agreements. We expect to borrow under the term loan facility concurrently with the closing of this offering. Such credit facility will be secured solely by vessels in our initial fleet. No guarantee or collateral will be provided by Costamare and its subsidiaries, other than us, in connection with such credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

 

(3)

 

We have entered into a new credit facility which includes a revolving credit facility. We do not expect to draw under this revolving credit facility at the closing of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Borrowing Activities”.

 

(4)

 

We have entered into a new credit facility which includes a term loan facility. The proceeds from such term loan facility, together with the net proceeds from this offering, will be used in part to repay borrowings under the existing vessel financing arrangements for our initial fleet. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Borrowing Activities”.

 

(5)

 

Represents the estimated net proceeds from this offering.

 

(6)

 

Represents equity attributable to Costamare Partners before the completion of this offering of $  , less cash payment of $  to Costamare, allocated pro rata among the units to be held by Costamare and its affiliates immediately following the offering on the basis of  common units, subordinated units and  general partner units.

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DILUTION

Dilution is the amount by which the offering price will exceed the pro forma net tangible book value per common unit after this offering. Based on the assumed initial public offering price of $  per common unit, on a pro forma basis as of June 30, 2014, after giving effect to this offering of common units, the application of the net proceeds in the manner described under “Use of Proceeds” and the formation transactions related to this offering, our pro forma net tangible book value would have been $  million, or $  per common unit. Purchasers of common units in this offering will experience substantial and immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

 

 

 

 

 

Assumed initial public offering price per common unit

 

 

 

 

$

 

 

 

Pro forma net tangible book value per common unit before this offering(1)

 

 

$

 

 

 

 

 

Increase in net tangible book value per common unit attributable to purchasers in this offering

 

 

 

 

Decrease in net tangible book value per unit attributable to payments made to Costamare as part of the consideration for our initial fleet(2)

 

 

 

 

 

 

 

Less: Pro forma net tangible book value per common unit after this offering(3)

 

 

 

 

 

 

 

 

 

Immediate dilution in net tangible book value per common unit to purchasers in this offering(4)

 

 

 

 

$

 

 

 

 

 

 


 

(1)

 

Determined by dividing the net tangible book value of the contributed assets and liabilities by the total number of units (  common units, subordinated units and the 2.0% general partner interest represented by  general partner units) to be issued to our general partner and its affiliates for their contribution of assets and liabilities to us.

 

(2)

 

The decrease in net tangible book value per unit attributable to payments made to Costamare as part of the consideration for our initial fleet was determined by dividing the decrease in net tangible book value attributable to payments made to Costamare as part of the consideration for our initial fleet by the total number of units to be outstanding after this offering.

 

(3)

 

Determined by dividing the pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering, by the total number of units (  common units, subordinated units and the 2.0% general partner interest represented by  general partner units) to be outstanding after this offering.

 

(4)

 

Because the total number of common units outstanding following this offering will not be impacted by any exercise of the underwriters’ option to purchase additional common units and any net proceeds from such exercise will not be retained by us, there will be no change to the dilution in net tangible book value per common unit to purchasers in the offering due to any exercise of the option.

The following table sets out the calculation of our historical and pro forma net tangible book value and pro forma net tangible book value per unit before and after the offering.

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

Historical pro forma
before this offering

 

Adjustments

 

Pro forma
after this offering

 

 

(Expressed in thousands of U.S. dollars,
except units and per unit data)

Total equity

 

 

$

 

94,605

 

 

 

$

 

 

(1)

 

 

 

$

 

 

 

Less:

 

 

 

 

 

 

Unamortized deferred loan issuance costs(2)

 

 

 

(1,876

)

 

 

 

 

 

 

 

 

 

 

 

 

Net tangible book value

 

 

$

 

92,729

 

 

 

$

 

 

 

$

 

 

 

 

 

 

 

 

Pro forma number of units

 

 

 

 

 

 

Pro forma net tangible book value per unit before and after offering

 

 

$

 

 

 

$

   

 

$

 


 

(1)

 

This amount represents the net proceeds from this offering after deducting the payment of $  million to Costamare as partial consideration for the interest in the subsidiaries that own the vessels in our initial fleet.

 

(2)

 

See Note 7 to our unaudited interim predecessor combined carve-out financial statements included elsewhere in this prospectus.

78


The following table sets forth the number of units that we will issue and the total consideration contributed to us by Costamare and its affiliates and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.

 

 

 

 

 

 

 

 

 

 

 

 

 

Units Acquired

 

Total Consideration

 

Average Price Per Unit

 

Number

 

Percent

 

Amount

 

Percent

 

 

Costamare and its affiliates(1)(2)

 

 

 

 

 

 

 

 

 

%

 

 

 

$

 

 

 

 

 

 

 

%

 

 

 

 

     

 

New investors

 

 

 

 

 

 

 

 

 

 

 

                      

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

%

 

 

 

$

 

 

 

 

%

 

 

 

 

                      

 

 

 

 

 

 

 

 

 

 

 

 


 

(1)

 

Upon consummation of the transactions contemplated by this prospectus, our general partner and Costamare will own an aggregate of  common units,  subordinated units and the 2.0% general partner interest represented by  general partner units assuming no exercise of the underwriters’ over-allotment option.

 

(2)

 

The assets contributed by our general partner and its affiliates were recorded at historical book value, rather than fair value, in accordance with U.S. GAAP. Book value of the consideration provided by Costamare, as of June 30, 2014, was $  million. Total consideration contributed by Costamare gives effect to the payment to Costamare that will be made from net proceeds of the offering as part of the consideration for our initial fleet.

79


OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy and restrictions on distributions in conjunction with specific assumptions included in this section. In addition, you should read “Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

General

Rationale for Our Cash Distribution Policy

Our cash distribution policy reflects a judgment that our unitholders will be better served by our distributing our available cash (after deducting expenses, including estimated maintenance and replacement capital expenditures and reserves) rather than retaining it. Because we believe we will generally finance any expansion capital expenditures from external financing sources, we believe that our investors are best served by our distributing all of our available cash. Our cash distribution policy is consistent with the terms of our partnership agreement, which requires that we distribute all of our available cash quarterly (after deducting expenses, including estimated maintenance and replacement capital expenditures and reserves).

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

There is no guarantee that unitholders will receive quarterly distributions from us. Our distribution policy is subject to certain restrictions and may be changed at any time, including:

 

 

Our unitholders have no contractual or other legal right to receive distributions other than the obligation under our partnership agreement to distribute available cash on a quarterly basis, which is subject to the broad discretion of our general partner to establish reserves and other limitations.

 

 

We will be subject to restrictions on distributions under our financing agreements. Our financing agreements contain material financial tests and covenants that must be satisfied in order to pay distributions. If we are unable to satisfy the restrictions included in any of our financing agreements or are otherwise in default under any of those agreements, as a result of our debt levels or otherwise, we will not be able to make cash distributions to you, notwithstanding our stated cash distribution policy. These financial tests and covenants are described in this prospectus in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”.

 

 

We are required to make substantial capital expenditures to maintain and replace our fleet. These expenditures may fluctuate significantly over time, particularly as our vessels near the end of their useful lives. In order to minimize these fluctuations, our partnership agreement requires us to deduct estimated, as opposed to actual, maintenance and replacement capital expenditures from the amount of cash that we would otherwise have available for distribution to our unitholders. In years when estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance and replacement capital expenditures were deducted.

 

 

Although our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including provisions contained therein requiring us to make cash distributions, may be amended. During the subordination period, with certain exceptions, our partnership agreement may not be amended without the approval of non-affiliated common unitholders. After the subordination period has ended, our partnership agreement can be amended with the approval of a majority of the outstanding common units. Costamare will own  common units representing a  % ownership interest in us and all of our subordinated units outstanding immediately after the closing of this offering. See “The Partnership Agreement—Amendment of the Partnership Agreement”.

 

 

Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is

80


 

 

 

determined by our general partner, taking into consideration the terms of our partnership agreement.

 

 

Under Section 51 of the Marshall Islands Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets.

 

 

We may lack sufficient cash to pay distributions to our unitholders due to decreases in total operating revenues, decreases in hire rates, the loss of a vessel, increases in operating or general and administrative expenses, principal and interest payments on outstanding debt, taxes, working capital requirements, maintenance and replacement capital expenditures or anticipated cash needs. See “Risk Factors” for a discussion of these factors.

Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable limited partnership and limited liability company laws in the Marshall Islands and other laws and regulations.

Our Ability to Grow Depends on Our Ability to Access External Expansion Capital

Because we distribute all of our available cash, we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations. We expect that we will rely upon external financing sources, including bank borrowings and the issuance of equity and debt securities, to fund acquisitions and expansion and investment capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional units in connection with any acquisitions or other capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may affect the available cash that we have to distribute on each unit. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional borrowings or other debt by us to finance our growth would result in increased interest expense, which in turn may affect the available cash that we have to distribute to our unitholders.

Initial Distribution Rate

Upon completion of this offering, our general partner will adopt a policy pursuant to which we will declare an initial quarterly distribution of $  per unit for each complete quarter, or $  per unit on an annualized basis, to be paid no later than 45 days after the end of each fiscal quarter (beginning with the quarter ending December 31, 2014). This equates to an aggregate cash distribution of $  million per quarter, or $  million per year, in each case based on the number of common units, subordinated units and general partner units outstanding immediately after completion of this offering. Our ability to make cash distributions at the initial distribution rate pursuant to this policy will be subject to the factors described above under
“—General—Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy”.

The table below sets forth the number of outstanding common units, subordinated units and general partner units upon the closing of this offering and the aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate of $  per unit per quarter ($  per unit on an annualized basis).

 

 

 

 

 

 

 

 

 

 

 

Number of
Units

 

Distributions

 

One Quarter

 

Four Quarters

 

 

Common units

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

Subordinated units

 

 

 

 

 

 

 

 

General partner units(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

 

 

(2)

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

81



 

(1)

 

The number of general partner units is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98.0%) by the general partner’s 2.0% general partner interest.

 

(2)

 

Actual payments of distributions on the common units, subordinated units and the general partner units are expected to be $  million for the period between the estimated closing date of this offering (  , 2014) and the end of the fiscal quarter in which the closing date of this offering occurs.

If the underwriters do not exercise their option to purchase additional common units, we will issue common units to Costamare at the expiration of the option period. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the underwriters and the remainder, if any, will be issued to Costamare. Any such units issued to Costamare will be issued for no additional consideration. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units.

During the subordination period, before we make any quarterly distributions to subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution plus any arrearages in distributions from prior quarters. See “How We Make Cash Distributions—Subordination Period”. We cannot guarantee, however, that we will pay the minimum quarterly distribution or any amount on the common units in any quarter.

As of the closing date of this offering, our general partner will be entitled to 2.0% of all distributions that we make prior to our liquidation. Our general partner’s initial 2.0% interest in these distributions may be reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its initial 2.0% general partner interest. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest.

Forecasted Results of Operations for the Twelve Months Ending December 31, 2015

In this section, we present in detail the basis for our belief that we will be able to pay our minimum quarterly distribution on all of our outstanding units for each of the four quarters in the twelve months ending December 31, 2015. We present two tables, consisting of:

 

 

Forecasted Results of Operations for (i) each of the three month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 and (ii) the twelve months ending December 31, 2015; and

 

 

Forecasted Cash Available for Distribution for (i) each of the three month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 and (ii) the twelve months ending December 31, 2015, as well as the significant assumptions upon which the forecast is based.

We do not as a matter of course make public projections as to future sales, earnings, or other results. However, management has prepared the prospective financial information set forth below to present forecasted results of operations and forecasted cash available for distribution. In the view of management, the forecast was prepared on a reasonable basis, reflects the best currently available estimates and judgments of the management as of the date of this prospectus (which is the date of the forecast), and presents, to the best of management’s knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Registration Statement are cautioned not to place undue reliance on the prospective financial information.

Neither our independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

We present below a forecast of our expected results of operations for the twelve months ending December 31, 2015. Our forecast presents, to the best of our knowledge and belief, our expected

82


results of operations for the forecast period. Although we anticipate exercising some or all of our options to purchase the Valence (or, at Costamare’s option, one of the substitute vessels) from Costamare and, to the extent such vessels are offered to us, Hulls NCP0113, NCP0114, NCP0115, NCP0116, S2121, S2122, S2123, S2124 and S2125 from Costamare and York, the timing of such purchases is uncertain and each such purchase is subject to the availability of financing, which we anticipate would be from external sources. As a result, our forecast does not reflect the expected results of operations or related financing of any of such vessels.

Our financial forecast reflects our judgment, as of the date of this prospectus, of conditions we expect to exist and the course of action we expect to take during the twelve months ending December 31, 2015. Our financial forecast is based on assumptions that we believe to be reasonable with respect to the forecast period as a whole. The assumptions and estimates used in the financial forecast are inherently uncertain and represent those that we believe are significant to our financial forecast. We believe that we have a reasonable objective basis for those assumptions. To the extent that there is a shortfall during any quarter in the forecast period, we believe we would be able to make working capital borrowings to pay distributions in such quarter and would be able to repay such borrowings in a subsequent quarter, because we believe the total cash available for distribution for the forecast period will be more than sufficient to pay the aggregate minimum quarterly distribution to all unitholders. We believe our actual results of operations will approximate those reflected in our financial forecast, but we can give no assurance that our forecasted results will be achieved. There will likely be differences between our financial forecast and the actual results and those differences could be material. Our operations are subject to numerous risks that are beyond our control. If the financial forecast is not achieved, we may not be able to pay cash distributions on our units at the initial distribution rate stated in our cash distribution policy or at all.

Our forecast of our results of operations is a forward-looking statement and should be read together with the historical combined carve-out financial statements of Costamare Partners LP Predecessor and the notes thereto, the unaudited interim combined carve-out financial statements of Costamare Partners LP Predecessor and the notes thereto, the unaudited pro forma combined balance sheet and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in each case, contained elsewhere in this prospectus. The financial forecast has been prepared by and is the responsibility of our management. However, our management has prepared the financial forecast set forth below in support of our belief that we will have sufficient cash available to allow us to pay the minimum quarterly distribution on all of our outstanding units during the forecast period. In addition, in the view of our management, the accompanying financial forecast was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of our knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the financial forecast.

When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements included under the heading “Risk Factors” elsewhere in this prospectus. Any of the risks discussed in this prospectus or unanticipated events could cause our actual results of operations, cash flows and financial condition to vary significantly from the financial forecast and such variations may be material. Prospective investors are cautioned to not place undue reliance on the financial forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition.

We are providing the financial forecast in support of our belief that we will have sufficient cash available to allow us to pay cash distributions on all of our units for each quarter in the twelve-month period ending December 31, 2015 at our stated initial distribution rate. See “—Forecast Assumptions and Considerations—Summary of Significant Forecast Assumptions” for further information as to the assumptions we have made for the financial forecast.

We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update the financial forecast to reflect events or circumstances after the date of this prospectus, even in the event that any or all of the underlying assumptions are shown to be in error. Therefore, we caution you not to place undue reliance on this information.

83


COSTAMARE PARTNERS LP FORECASTED RESULTS OF OPERATIONS AND
COSTAMARE PARTNERS LP PREDECESSOR HISTORICAL DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forecast
Costamare Partners LP

 

Historical Data
Costamare Partners LP Predecessor

(Expressed in thousands of U.S. dollars)

 

Three Months
Ending
March 31,
2015

 

Three Months
Ending
June 30,
2015

 

Three Months
Ending
September 30,
2015

 

Three Months
Ending
December 31,
2015

 

Twelve Months
Ending
December 31,
2015

 

Twelve Months
Ended
June 30,
2014
(1)

 

Twelve Months
Ended
December 31,
2013

 

Six Months
Ended
June 30,
2014

 

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(unaudited)

 

(unaudited)

 

(unaudited)

STATEMENT OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage revenue

 

 

$

 

14,548

 

 

 

$

 

14,711

 

 

 

$

 

14,873

 

 

 

$

 

14,873

 

 

 

$

 

59,005

 

 

 

$

 

59,158

 

 

 

$

 

44,369

 

 

 

$

 

29,334

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

(190

)

 

 

 

 

 

Voyage expenses—related parties

 

 

 

(109

)

 

 

 

 

(110

)

 

 

 

 

(112

)

 

 

 

 

(112

)

 

 

 

 

(443

)

 

 

 

 

(445

)

 

 

 

 

(334

)

 

 

 

 

(220

)

 

Vessels’ operating expenses

 

 

 

(2,591

)

 

 

 

 

(2,619

)

 

 

 

 

(2,648

)

 

 

 

 

(2,648

)

 

 

 

 

(10,506

)

 

 

 

 

(9,660

)

 

 

 

 

(7,733

)

 

 

 

 

(4,737

)

 

General and administrative expenses

 

 

 

(457

)

 

 

 

 

(462

)

 

 

 

 

(467

)

 

 

 

 

(467

)

 

 

 

 

(1,853

)

 

 

 

 

(311

)

 

 

 

 

(316

)

 

 

 

 

(139

)

 

Management fees—related parties

 

 

 

(344

)

 

 

 

 

(348

)

 

 

 

 

(352

)

 

 

 

 

(352

)

 

 

 

 

(1,396

)

 

 

 

 

(1,316

)

 

 

 

 

(987

)

 

 

 

 

(664

)

 

Amortization of dry-docking and special survey costs

 

 

 

(43

)

 

 

 

 

(44

)

 

 

 

 

(44

)

 

 

 

 

(44

)

 

 

 

 

(175

)

 

 

 

 

(172

)

 

 

 

 

(173

)

 

 

 

 

(85

)

 

Depreciation

 

 

 

(2,889

)

 

 

 

 

(2,921

)

 

 

 

 

(2,953

)

 

 

 

 

(2,953

)

 

 

 

 

(11,716

)

 

 

 

 

(11,716

)

 

 

 

 

(8,928

)

 

 

 

 

(5,810

)

 

Foreign exchange gains/(losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

22

 

 

 

 

(18

)

 

Other income/(expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

8,115

 

 

 

 

8,207

 

 

 

 

8,297

 

 

 

 

8,297

 

 

 

 

32,916

 

 

 

 

35,536

 

 

 

 

25,730

 

 

 

 

17,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and finance costs

 

 

 

(889

)

 

 

 

(918

)

 

 

 

(970

)

 

 

 

(1,023

)

 

 

 

(3,800

)

 

 

 

 

(12,897

)

 

 

 

 

(10,764

)

 

 

 

 

(6,274

)

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

2

 

 

 

 

11

 

Gain (loss) on derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expenses)

 

 

 

(889

)

 

 

 

(918

)

 

 

 

(970

)

 

 

 

(1,023

)

 

 

 

(3,800

)

 

 

 

 

(12,883

)

 

 

 

 

(10,762

)

 

 

 

 

(6,263

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income attributable to Costamare Partners LP owners

 

 

7,226

   

 

7,289

   

 

7,327

   

 

7,274

   

 

29,115

   

 

 

22,653

 

 

 

 

14,968

 

 

 

 

11,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General partner’s interest in net income

 

 

 

145

 

 

 

 

146

   

 

147

   

 

145

   

 

582

   

 

 

453

 

 

 

 

299

 

 

 

 

228

 

Limited partner’s interest in net income

 

 

7,081

   

 

7,143

   

 

7,180

   

 

7,128

   

 

28,533

   

 

 

22,200

 

 

 

 

14,669

 

 

 

 

11,170

 

Net income per:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unit (basic and diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated unit (basic and diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General partner unit (basic and diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

(1)

 

The historical data for the twelve months ended June 30, 2014 were calculated by making the following adjustments to Costamare Partners LP Predecessor’s combined carve-out statements of income for the year ended December 31, 2013: (a) subtracting the results of the combined carve-out statements of income for the six-month period ended June 30, 2013 and (b) adding the results of the combined carve-out statements of income for the six-month period ended June 30, 2014.

84


Please read the accompanying summary of significant accounting policies and forecast assumptions.

Forecast Assumptions and Considerations

Basis of Presentation

The accompanying financial forecast and related notes present our forecasted results of operations for (i) each of the three month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 and (ii) the twelve months ending December 31, 2015, based on the assumption that:

 

 

we will issue to Costamare  common units and all of our subordinated units, representing a  % limited partner interest in us, and all of our incentive distribution rights, which will entitle Costamare to increasing percentages of the cash we distribute in excess of $  per unit per quarter;

 

 

Costamare and York will enter into a separate agreement, pursuant to which York will be entitled to receive from Costamare certain incentive payments based primarily on York’s interest in the JV vessels acquired by the Partnership and the amount of any incentive distributions received by Costamare;

 

 

we will issue to Costamare Partners GP LLC, a wholly-owned subsidiary of Costamare, general partner units, representing a 2.0% general partner interest in us;

 

 

we will sell  common units to the public in this offering, representing a  % limited partner interest in us, which includes up to an aggregate of approximately $  million and $  million of common units that members of the Konstantakopoulos family and certain funds managed by York have indicated that they currently intend to purchase, respectively;

 

 

we will make a payment of $  million to Costamare as partial consideration for the interest described above;

 

 

we will use approximately $  million of the net proceeds from this offering, together with the borrowings under our new credit facility, to repay outstanding borrowings as part of a refinancing of our vessel financing agreements;

 

 

we will use approximately $  million of the proceeds from this offering, together with the borrowings under our new credit facility, to pay underwriting discounts and commissions, structuring fees and offering expenses, and will retain approximately $  million of cash for working capital; and

 

 

the vessels will be accounted for at their historical carrying values.

Summary of Significant Accounting Policies and Sources of Estimation Uncertainty

A summary of significant accounting policies is set out in Note 2 to our annual combined carve-out financial statements and Note 2 to our unaudited interim combined carve-out financial statements included elsewhere in this prospectus.

Summary of Significant Forecast Assumptions

Vessels. The forecast reflects or assumes the following about our fleet:

 

 

364 days of operation under a time charter for the Cosco Beijing;

 

 

364 days of operation under a time charter for the MSC Athens;

 

 

364 days of operation under a time charter for the MSC Athos; and

 

 

364 days of operation under a time charter for the Value.

We have assumed that we will not make any acquisitions during the forecast period.

85


Voyage revenues. Our forecasted voyage revenues are based on contracted daily hire rates multiplied by the total number of days our vessels are expected to be on-hire during the twelve months ending December 31, 2015. We have assumed one day per year of unscheduled off-hire for each of the vessels in our fleet. The amount of actual off-hire time depends upon, among other things, the time a vessel spends in dry-docking for repairs, maintenance or inspection, equipment breakdowns or delays due to accidents, crew strikes, certain vessel detentions or similar problems, as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

The hire rate payable under the time charters in our initial fleet is fixed and payable every 15 days in advance, in U.S. dollars. For more information on the components of the hire rate payable under our charters, see “Business—Chartering of Our Fleet—Hire Rate Provisions”.

Voyage Expenses—Related Parties. We estimate that we will incur approximately $0.4 million of Voyage expenses—related parties for the twelve months ending December 31, 2015, which represent management fees charged to us by Costamare Shipping pursuant to our partnership management agreement. Voyage expenses—related parties represent a 0.75% charge on our forecast voyage revenues for the twelve months ending December 31, 2015.

Vessels’ Operating Expenses. Vessels’ operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, lubricant costs, statutory and classification expenses and other miscellaneous expenses. Aggregate expenses increase as the size of our fleet increases.

Our forecasted vessel operating cost assumes that all of our vessels are operational during the twelve months ending December 31, 2015. The forecast takes into account (a) historical operating expenses for crew wages, technical and maintenance expenses (including scheduled maintenances and repairs), provisions and stores, insurance expenses, and other expenses, (b) the ownership days and (c) an estimated inflation effect. Estimated expenses are based on Costamare’s 2014 budget and a 2% inflation effect.

General and Administrative Expenses. Forecasted general and administrative expenses for the twelve months ending December 31, 2015, are based on the assumption that we will incur approximately $1.9 million per annum in general and administrative expenses, which include the additional costs of being a publicly traded limited partnership. These expenses will include costs associated with annual reports to unitholders, tax return preparation, investor relations, registrar and transfer agent’s fees, director and officer liability insurance costs and officer and director compensation.

Management Fees—Related Parties. Management fees represent the fees we pay pursuant to our partnership management agreement. Based on this agreement we will pay to our manager a daily management fee of $956 per day per vessel beginning from January 1, 2015. Our forecasted management fees assume that all of our vessels are operational during the twelve months ending December 31, 2015.

Amortization of Dry-docking and Special Survey Costs. We follow the deferral method of accounting for special survey and dry-docking costs whereby actual costs incurred (mainly shipyard costs, paints and class renewal expenses) are deferred and amortized on a straight-line basis over the period through the date the next survey is scheduled to become due.

The amortization of deferred dry-docking and special survey costs of $0.2 million relate to the amortization costs of the dry-docking of the Cosco Beijing, which was dry-docked in 2011. We have no scheduled dry-dockings for the twelve month period ending December 31, 2015.

Depreciation. Our forecasted depreciation of fixed assets includes only the vessels in our initial fleet. Depreciation is based on cost, less the estimated scrap value of the vessels. We depreciate our containerships on a straight-line basis over their estimated useful economic lives, which we estimate to be 30 years for each of the Cosco Beijing, the MSC Athens, the MSC Athos and the Value, respectively. Furthermore, we estimate the residual values of the ships to be the product of the vessel’s lightweight tonnage and estimated scrap rate (approximately $300 per ton).

86


Foreign Exchange Gains / (Losses). Our functional currency is the U.S. dollar because our vessels operate in international shipping markets, and therefore transact business mainly in U.S. dollars. Our books of accounts are maintained in U.S. dollars. Transactions involving other currencies are converted into U.S. dollars using the exchange rates in effect at the time of the transactions.

Other Income / (Expenses). Other expenses represent primarily non-recurring items that are not classified under the other categories of our income statement. Such expenses may, for instance, result from various potential claims against our company, or from payments we are effecting on behalf of charterers that cannot meet their obligations.

Interest Income. We have assumed that any cash surplus balance will not earn any interest during the forecast period.

Interest and Finance Costs. Our financial forecast for the twelve months ending December 31, 2015 assumes we will have an average outstanding loan balance of approximately $122.2 million with an estimated weighted average interest rate of 2.51% per annum. This compares with an average outstanding loan balance of approximately $257.9 million with an estimated weighted average interest rate of 4.8% for the twelve months ended June 30, 2014, which is prior to the refinancing of our debt arrangements. The rates we have assumed are based on the relevant period’s LIBOR forecast and the applicable margin under our new term loan facility, which is part of the new credit facility we have entered into in connection with this offering. Our forecasted interest expense include commitment fees for our revolving credit facility, which is part of our new credit facility, amortization of the upfront fee of the new credit facility and amortization of legal fees.

The forecast assumes that we draw down the full amount of the term loan under the new facility and that we do not draw on the revolving credit facility, therefore paying commitment fees on the full available amount under the revolving credit facility. The amount of legal fees is an estimate.

Other. Other primarily represents vessels’ hull and machinery and vessels’ guarantee claims recoveries.

Gain/(Loss) on Derivative Instruments. We enter into interest rate swap contracts to manage our exposure to fluctuations of interest rate risks associated with specific borrowings. All derivatives are recognized in the financial statements at their fair value. On the inception date of the derivative contract, we designate the derivative as a hedge of a forecasted transaction or the variability of cash flow to be paid (“cash flow” hedge). Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in Other comprehensive income until earnings are affected by the forecasted transaction or the variability of cash flow and are then reported in earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in earnings in the period in which those fair value changes have occurred. With respect to the interest rate derivative instruments that meet hedge accounting criteria, the effective portion in change in their fair value is recognized in Other comprehensive loss in partners’ equity on our balance sheet. We recognize in our statement of income the change in fair value of interest rate swap that does not meet hedge accounting criteria. Historically, all of our Predecessor’s interest rate swaps qualified for hedge accounting. We have assumed that we will not enter into interest rate swap contracts for the twelve months ending December 31, 2015.

Taxes. We have assumed that we will not incur any income tax expense for the twelve months ending December 31, 2015.

Maintenance and replacement capital expenditures. Our partnership agreement requires our general partner to deduct from operating surplus each quarter estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, in order to reduce disparities in operating surplus caused by fluctuating maintenance and replacement capital expenditures, such as dry-docking and vessel replacement. The actual cost of replacing the vessels in our fleet will depend on a number of factors, including prevailing market conditions, hire rates and the availability and cost of financing at the time of replacement. Our

87


general partner, with the approval of the conflicts committee of the board of directors of our general partner, may determine that one or more of our assumptions should be revised, which could cause our general partner to increase the amount of estimated maintenance and replacement capital expenditures. We may elect to finance some or all of our maintenance and replacement capital expenditures through the issuance of additional common units, which could be dilutive to our existing unitholders. See “Risk Factors—Risks Inherent in Our Business—We must make substantial capital expenditures to maintain the operating capacity of our fleet and acquire vessels, which may reduce or eliminate the amount of cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted”.

Dry-docking Capital Expenditures. No dry-docking cost was assumed for the twelve months ending December 31, 2015 because the next dry-docking and special survey will be in 2016 for the Cosco Beijing, and the remaining three vessels will undergo dry-dockings and special surveys in 2018. Our initial annual estimated dry-docking capital expenditure reserve will be $1.1 million.

Replacement Capital Expenditures. Because of the substantial capital expenditures we are required to make to maintain our fleet over time, our initial annual estimated replacement capital expenditures for estimating maintenance and replacement capital expenditures will be $5.8 million per year, including financing costs, for replacing our containerships at the end of their useful lives. The future vessel replacement is based on assumptions and estimates regarding the remaining useful lives of the vessels, a long-term net investment rate equivalent to our current expected long-term borrowing costs, vessel replacement values based on current market conditions and residual value of the vessels at the end of their useful lives based on current steel prices.

Regulatory, Industry and Economic Factors. Our financial forecast for (i) each of the three month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 and (ii) the twelve months ending December 31, 2015 is based on the following assumptions related to regulatory, industry and economic factors:

 

 

no material nonperformance or defaults by suppliers, customers or vendors;

 

 

no new regulation or interpretation of existing regulations or other governmental legislation or action that, in either case, would be materially adverse or costly to our business;

 

 

no material unanticipated costs or expenses;

 

 

no material accidents, environmental incidents, releases, weather-related incidents, unscheduled downtime or similar unanticipated events;

 

 

no major adverse change in the markets in which we operate resulting from substantial or extended decline in world trade or reduced demand container shipping services; and

 

 

no material changes to market, regulatory and overall economic conditions or in prevailing interest rates.

Forecasted Cash Available for Distribution

The table below sets forth our calculation of forecasted cash available for distribution to our unitholders and general partner based on the Forecasted Results of Operations set forth above. Based on the financial forecast and related assumptions, we forecast that our cash available for distribution generated during each of the three month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 would be approximately $8.5 million, or approximately $34.2 million for the twelve months ending December 31, 2015. This amount would be sufficient to pay 100% of the minimum quarterly distribution of $  per unit on all of our common units and subordinated units for the four quarters ending December 31, 2015. For the historical periods presented, we would have had [an excess][a shortfall] in cash available for distribution, based on the units to be outstanding immediately after the offering and a minimum quarterly distribution of $  .

88


Actual payments of distributions on the common units, subordinated units and the general partner units are expected to be $  million for the period between the estimated closing date of this offering (  , 2014) and the end of the fiscal quarter in which the closing date of this offering occurs.

You should read “—Forecast Assumptions and Considerations—Summary of Significant Forecast Assumptions” included as part of the financial forecast for a discussion of the material assumptions underlying our forecast of EBITDA that is included in the table below. Our forecast is based on those material assumptions and reflects our judgment as of the date of this prospectus (which is the date of the forecast) of conditions we expect to exist and the course of action we expect to take. The assumptions disclosed in our financial forecast are those that we believe are significant to generate the forecasted EBITDA. If our estimate is not achieved, we may not be able to pay distributions on the common units at the initial distribution rate of $  per unit per quarter ($  per unit on an annualized basis). Our financial forecast and the forecast of cash available for distribution set forth below have been prepared by our management. This calculation represents available cash from operating surplus generated during the period and excludes any cash from working capital borrowings, capital expenditures and cash on hand on the closing date.

EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance calculated in accordance with U.S. GAAP.

When considering our forecast of cash available for distribution for the twelve months ending December 31, 2015, you should keep in mind the risk factors and other cautionary statements under the headings “Forward-Looking Statements” and “Risk Factors” elsewhere in this prospectus. Any of these factors or the other risks discussed in this prospectus could cause our results of operations to vary significantly from those set forth in the financial forecast and the forecast of cash available for distribution set forth below.

89


COSTAMARE PARTNERS LP
FORECASTED CASH AVAILABLE FOR DISTRIBUTION AND
COSTAMARE PARTNERS LP PREDECESSOR HISTORICAL DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forecast
Costamare Partners LP

 

Historical Data
Costamare Partners LP Predecessor

 

 

Three Months
Ending
March 31,
2015
(1)

 

Three Months
Ending
June 30,
2015
(1)

 

Three Months
Ending
September 30,
2015
(1)

 

Three Months
Ending
December 31,
2015
(1)

 

Twelve Months
Ending
December 31,
2015
(1)

 

Twelve Months
Ended
June 30,
2014
(6)

 

Twelve Months
Ended
December 31,
2013

 

Six Months
Ended
Jnne 30,
2014

(Expressed in thousands of U.S. dollars, except per unit amounts)

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(unaudited)

 

(unaudited)

 

(unaudited)

EBITDA(2)

 

 

$

 

11,047

 

 

 

$

 

11,172

 

 

 

$

 

11,294

 

 

 

$

 

11,294

 

 

 

$

 

44,807

 

 

 

$

 

47,438

 

 

 

$

 

34,833

 

 

 

$

 

23,567

 

Adjustments for cash items, estimated maintenance and replacement capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

889

   

 

918

   

 

970

   

 

1,023

   

 

3,800

   

 

 

12,897

 

 

 

 

10,764

 

 

 

 

6,274

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dry-docking capital expenditure reserves(3)

 

 

 

261

 

 

 

 

264

 

 

 

 

267

 

 

 

 

267

 

 

 

 

1,060

 

 

 

 

1,060

 

 

 

 

808

 

 

 

 

529

 

Replacement capital expenditure reserves(3)

 

 

 

1,437

 

 

 

 

1,453

 

 

 

 

1,469

 

 

 

 

1,469

 

 

 

 

5,828

 

 

 

 

5,828

 

 

 

 

4,443

 

 

 

 

2,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash available for distribution

 

 

$

 

8,460

   

$

 

8,537

   

$

 

8,588

   

$

 

8,535

   

$

 

34,117

   

 

$

 

27,653

 

 

 

$

 

18,818

 

 

 

$

 

13,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total distributions(5)

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excess (shortfall)(7)

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

Annualized minimum quarterly distribution per unit

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

Aggregate distributions based on annualized minimum quarterly distribution

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

Percent of minimum quarterly distributions payable to common unitholders

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

Percent of minimum quarterly distributions payable to subordinated unitholder

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 

 

 

 

%

 


 

(1)

 

The forecast is based on the assumptions set forth in “—Forecast Assumptions and Considerations-Summary of Significant Forecast Assumptions”. It is presented on an accrual basis.

 

(2)

 

EBITDA is a non-GAAP measure. The Partnership reports its financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures used in managing the business may provide users of these financial measures additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management will also use these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Partnership’s performance. The table below sets out EBITDA and corresponding reconciliation to net income, the most directly comparable GAAP financial measure. A non-GAAP financial measure should be viewed in addition to, and not as an alternative for, any measure of financial performance prepared in accordance with GAAP.

90


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forecast
Costamare Partners LP

 

Historical Data
Costamare Partners LP Predecessor

 

 

Three Months
Ending
March 31,
2015

 

Three Months
Ending
June 30,
2015

 

Three Months
Ending
September 30,
2015

 

Three Months
Ending
December 31,
2015

 

Twelve Months
Ending
December 31,
2015

 

Twelve Months
Ended
June 30,
2014
(6)

 

Twelve Months
Ended
December 31,
2013

 

Six Months
Ended
June 30,
2014

(Expressed in thousands of U.S. dollars)

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(estimated)

 

(unaudited)

 

(unaudited)

 

(unaudited)

Net income attributable to Costamare Partners LP owners

 

 

$

 

7,226

   

$

 

7,289

   

$

 

7,327

   

$

 

7,274

   

$

 

29,115

   

 

$

 

22,653

 

 

 

$

 

14,968

 

 

 

$

 

11,398

 

Interest and finance costs

 

 

(889

)

 

 

 

(918

)

 

 

 

(970

)

 

 

 

(1,023

)

 

 

 

(3,800

)

 

 

 

 

12,897

 

 

 

 

10,764

 

 

 

 

6,274

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

2,889

 

 

 

 

2,921

 

 

 

 

2,953

 

 

 

 

2,953

 

 

 

 

11,716

 

 

 

 

11,716

 

 

 

 

8,928

 

 

 

 

5,810

 

Amortization of dry-docking and special survey costs

 

 

 

43

 

 

 

 

44

 

 

 

 

44

 

 

 

 

44

 

 

 

 

175

 

 

 

 

172

 

 

 

 

173

 

 

 

 

85

 

EBITDA

 

 

 

11,047

 

 

 

 

11,172

 

 

 

 

11,294

 

 

 

 

11,294

 

 

 

 

44,807

 

 

 

 

47,438

 

 

 

 

34,833

 

 

 

 

23,567

 
     

EBITDA represents net income before interest and finance costs, interest income, depreciation and amortization of deferred dry-docking and special survey costs. However, EBITDA is not a recognized measurement under GAAP. We believe that the presentation of EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, we believe that EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financings, income taxes and the accounting effects of capital expenditures and acquisitions, items which may vary for different companies for reasons unrelated to overall operating performance. In evaluating EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

(3)

 

Our partnership agreement requires that an estimate of the maintenance and replacement capital expenditures necessary to maintain our asset base be subtracted from operating surplus each quarter, as opposed to amounts actually spent. See “How We Make Cash Distributions—Operating Surplus and Capital Surplus—Capital Expenditures”.

 

(4)

 

Assumes the underwriters’ option to purchase additional common units is not exercised.

 

(5)

 

Represents the amount required to fund distributions to our unitholders and our general partner for four quarters based upon our minimum quarterly distribution rate of $  per unit and the total number of units to be outstanding immediately after the offering.

 

(6)

 

The historical data for the twelve months ended June 30, 2014 were calculated by making the following adjustments to Costamare Partners LP Predecessor’s combined carve-out statements of income for the year ended December 31, 2013: (a) subtracting the results of the combined carve-out statements of income for the six-month period ended June 30, 2013 and (b) adding the results of the combined carve-out statements of income for the six-month period ended June 30, 2014.

 

(7)

 

Any shortfall in the payment of the minimum quarterly distribution will be first borne by the subordinated units. See “How We Make Cash Distributions” for a further description of our cash distribution policy.

Forecast of Compliance with Debt Covenants. Our ability to make distributions could be affected if we do not remain in compliance with the restrictions and covenants of our financing agreements. We have entered into a new credit facility to refinance the existing vessel financing arrangements for our initial fleet. We have assumed that we will be in compliance with all of the covenants in such new credit facility during the forecast period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a further description of our financing agreements, including these financial covenants.

91


HOW WE MAKE CASH DISTRIBUTIONS

Distributions of Available Cash

General

Within 45 days after the end of each quarter, beginning with the quarter ending December 31, 2014, we will distribute all of our available cash (defined below) to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from and including the date of the closing of this offering through December 31, 2014, based on the actual length of the period.

Definition of Available Cash

Available cash generally means, for each fiscal quarter, all cash on hand at the end of the quarter (including our proportionate share of cash on hand of any subsidiaries we do not wholly own):

 

 

less, the amount of cash reserves (including our proportionate share of cash reserves of any subsidiaries we do not wholly own) established by our general partner to:

 

 

provide for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated credit needs);

 

 

comply with applicable law, any of our debt instruments or other agreements; and/or

 

 

provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (except to the extent establishing such reserves would cause us to not be able to distribute the minimum quarterly distribution (plus any arrearage) for such quarter);

 

  plus, all cash on hand (including our proportionate share of cash on hand of any subsidiaries we do not wholly own) on the date of determination of available cash for the quarter resulting from (1) working capital borrowings made after the end of the quarter and (2) cash distributions received after the end of the quarter from any equity interest in any person (other than a subsidiary of us), which distributions are paid by such person in respect of operations conducted by such person during such quarter. Working capital borrowings are generally borrowings that are made under a revolving credit facility and in all cases are used solely for working capital purposes or to pay distributions to partners.

Intent to Distribute the Minimum Quarterly Distribution

We intend to distribute to the holders of common units and subordinated units on a quarterly basis at least the minimum quarterly distribution of $  per unit, or $  per unit per year, to the extent we have sufficient cash on hand to pay the distribution after we establish cash reserves and pay fees and expenses. The amount of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter on all units outstanding immediately after this offering and the related distribution on the 2.0% general partner interest is approximately $  million.

There is no guarantee that we will pay the minimum quarterly distribution on the common units and subordinated units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. We will be effectively prohibited from making any distributions to unitholders if it would cause an event of default, or an