424B3 1 tv520301-424b3.htm 424B3 tv520301-424b3 - none - 24.327106s
 Filed Pursuant to Rule 424(b)(3)​
 Registration No. 333-231130​
PROSPECTUS
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DIAMOND S SHIPPING INC.
11,684,435 Common Shares
This prospectus relates to up to 11,684,435 common shares (the “Shares”) of Diamond S Shipping Inc. (the “Company” or “DSSI”) which may be offered for sale by the selling shareholders named in this prospectus or in a supplement hereto.
We are registering the offer and sale of the Shares to satisfy registration rights we have granted pursuant to a registration rights agreement dated as of March 27, 2019 (the “Registration Rights Agreement”). The registration of the Shares to which this prospectus relates does not require the selling shareholders to offer or sell those Shares. We have agreed to bear all of the expenses incurred in connection with the registration of the Shares. The selling shareholders will pay or assume brokerage commission and similar charges, if any, incurred in the sale of the Shares.
We are not selling any Shares under this prospectus and will not receive any proceeds from the sale of Shares by the selling shareholders. The Shares to which this prospectus relates may be offered and sold from time to time directly by the selling shareholders or alternatively through underwriters, broker dealers or agents. The selling shareholders will determine at what price they may sell the Shares offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. For additional information on the methods of sale that may be used by the selling shareholders, see the section entitled “Plan of Distribution.” For a list of the selling shareholders, see the section entitled “Principal and Selling Shareholders.”
Our common shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “DSSI.” On April 29, 2019, the last reported sales price of our common shares on the NYSE was $13.09.
Investing in the Shares involves risks. See “Risk Factors” beginning on page 5 of this prospectus for a discussion of risks regarding an investment in the Shares.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 10, 2019.

Table of Contents
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F-1
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You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. We have not, and the selling shareholders have not, authorized anyone to provide you with different information. If anyone provides you with different information, you should not rely on it. We are not, and the selling shareholders are not, making an offer to sell these securities in any jurisdiction where such an offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained in this prospectus is correct as of any time after its date. Information contained on our website, or any other website operated by us, is not part of this prospectus.
For investors outside the United States: We have not, and the selling shareholders have not, taken any action to permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offer and sale of the Shares and the distribution of this prospectus outside the United States.
This prospectus contains forward-looking statements that are subject to a number of risk and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.”
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to come within the safe harbor protection provided by those sections. These statements relate to future events or our future financial performance. We use words such as “anticipate,” “may,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “plan,” “predict,” “potential,” “forecasts,” “project,” and other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance.
The following important factors, and those important factors described elsewhere in this prospectus, could affect (and in some cases have affected) our actual results and could cause such results to differ materially from estimates or expectations reflected in such forward-looking statements:

the cyclicality of the tanker industry;

changes in economic and competitive conditions affecting our business, including market fluctuations in charter rates;

partial dependence on spot market rates, including earnings from any spot market-related vessel pools we may join;

risks related to an oversupply of tanker vessels;

changes in fuel prices;

decreases in the market values of tanker vessels;

risks related to the management of our growth strategy, counterparty risks and customer relations with key customers;

applicable laws, regulations and taxes as well as changes to such laws and governmental regulations or their application, and actions taken by regulatory authorities;

government claims against us and the effect thereof;

our ability to meet obligations under time charter agreements;

dependence on third-party managers and a limited number of customers;

our liquidity, level of indebtedness, operating expenses, capital expenditures and financing;

our interest rate swap agreements and credit facilities;

changing political and inter-governmental conditions affecting our industry and business;

risk of loss, including potential liability from future litigation and potential costs due to environmental damage, vessel collisions and business interruption; risks related to war, terrorism and piracy;

risks related to the acquisition, modification and operation of vessels;

future supply of, and demand for, refined products and crude oil, including relating to seasonality;

risks related to our insurance, including adequacy of coverage and increased premium payments;

risks related to tax rules applicable to us;

conflicts of interest between the Company and Capital Ship Management Corp. (“CSM”);

our ability to clear the oil majors’ risk assessment processes;

future refined product and crude oil prices and production;

the carrying values of our vessels and the potential for any asset impairments;
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our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term time charter;

our continued ability to enter into long-term, fixed-rate time charters with our charterers and to re-charter our vessels as their existing charters expire at attractive rates;

unexpected costs, charges or expenses resulting from the Transactions (as defined herein);

uncertainty of our expected financial performance following the Transactions;

failure to realize the anticipated benefits of the Transactions, including as a result of integrating the businesses;

failure to maintain effective internal control over financial reporting;

our ability to implement our business strategy and manage planned growth;

substantial sales of common shares;

our ability to meet financial projections;

conflicts of interest between our significant shareholders and our other shareholders;

risks related to our common shares, including low liquidity and high volatility;

our ability to retain and hire key personnel;

risks related to being an independent public company and an emerging growth company, including with respect to accounting practices and policies;

failure to comply with the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”);

risks related to our corporate governance, including the difficulty of changing the composition of our board of directors;

risks related to dividend payments;

the lack of shareholder rights due to being incorporated in the Republic of the Marshall Islands;

the risk that it may be difficult to serve process or enforce a U.S. judgment against us; and

other factors discussed under “Risk Factors.”
Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk. When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our other SEC filings. These forward-looking statements speak only as of the date on which such statements were made, and we undertake no obligation to update these statements, except as required by the federal securities laws. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act to register with the SEC the Shares being offered in this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed with it. For further information about us and the Shares, reference is made to the registration statement and the exhibits and schedules filed with it. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
You may review a copy of the registration statement, including its exhibits and schedules, free of charge on the internet website maintained by the SEC at www.sec.gov. Information contained on any website referenced in this this prospectus is not incorporated by reference into this prospectus or the registration statement of which this prospectus forms a part.
We are subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, file periodic reports, proxy statements and other information with the SEC.
MARKET DATA
We use market data throughout this prospectus. We have obtained certain market data from publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there is no assurance that any of the projections or forecasts will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently verified this information.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus. It does not contain all the information that may be important to you in making an investment decision. You should read this entire prospectus carefully, including the sections entitled “Helpful Information” and “Where You Can Find Additional Information.” You should also carefully consider, among other things, the matters discussed in the section titled “Risk Factors.” In this prospectus, unless the context requires otherwise, hereafter references to the “Company,” “Diamond S,” “we,” “our” or “us” refer to Diamond S Shipping Inc. and its subsidiaries.
Our Business
We provide seaborne transportation of crude oil, refined petroleum and other products in the international shipping markets, operating a fleet of 68 vessels with an aggregate of approximately five million deadweight tons (“dwt”) in carrying capacity. Our vessel operations are composed of two segments: crude tankers, which consists of 15 Suezmax vessels and one Aframax vessel, and product tankers, which consists of 52 medium range (“MR”) vessels.
We are one of the largest publicly listed owners and operators of crude and product tankers in the world. The average age of our overall fleet is approximately 8.8 years weighted by dwt and ownership for the calendar year 2019. Our MR fleet has an average age of approximately 10.5 years, which is approximately equal to the global MR fleet average age. Our Suezmax fleet has an average age of approximately 6.9 years, which compares favorably to the industry average Suezmax age of approximately 9.5 years.
Our full fleet of 68 vessels is active in the market and earning revenue. We do business with large, well-established charterers, which include fully integrated oil companies (oil majors), smaller oil companies (refiners), oil traders, large oil distributors, governments and government agencies, and storage facility operators.
We operate vessels in both spot and time charter markets, with approximately 20% of the fleet on time charter (based on projected revenue days in 2019) with average remaining charter length of 1.2 years as of December 31, 2018. We believes this mix of spot exposure and time charters positions us favorably to benefit from the current rising charter rate environment, while enhancing our ability to maintain an attractive level of cash flows due to the fixed monthly revenue we receive from our time charter agreements.
We believe that we have established a reputation as a safe, high-quality, cost-efficient operator of modern and well-maintained tankers, and our management team strives to maintain high standards of performance, cost-efficient operations, reliability and safety in its operations. Chief Executive Officer Craig H. Stevenson, Jr. leads the management team and has over 40 years of experience in the shipping industry. Based on his previous experience as Chairman and Chief Executive Officer of OMI Corporation from 1998 through 2007, Mr. Stevenson and his team have developed strong relationships with charterers, financing sources, shipyards and other shipping industry participants. In addition, part of our fleet is managed by CSM who we believe has a strong record of vessel safety and compliance with rigorous health, safety and environmental protection standards, and enjoys long-standing relations with charterers with a high level of customer service and support. We intend to leverage the combined experience, reputation and relationships of the management team and CSM to pursue growth in the crude and product tanker sector and create value for our shareholders.
We believe that we are well-positioned to benefit from attractive market opportunities, including the potential for an increase in crude oil transportation distances, an increase in product and crude tonnage demand in connection with requirements of the International Maritime Organization (“IMO”) relating to complying with low sulfur fuel oil standards (the “IMO 2020 Regulations”) and growth opportunities. With respect to the IMO 2020 Regulations, we have committed to installing exhaust gas cleaning systems (“scrubbers”) on five Suezmax vessels, and have options to install scrubbers on the majority of the remaining Suezmax vessels with timing to be determined at our discretion.
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The Transactions
Diamond S was formed for the purpose of receiving, via contribution from Capital Product Partners L.P. (“CPLP”), CPLP’s crude and product tanker business and combining that business with the business and operations of DSS Holdings L.P. (“DSS LP”) pursuant to the Transaction Agreement, dated as of November 27, 2018 (as amended, the “Transaction Agreement”), by and among CPLP, DSS LP, Diamond S and the other parties named therein.
Below is a simplified step-by-step description of the sequence of material events relating to the transactions contemplated by the Transaction Agreement (the “Transactions”):
Step 1: Formation
On November 14, 2018, CPLP formed Diamond S as a wholly owned subsidiary. We issued 500 common shares to CPLP at formation. We formed four wholly owned subsidiaries organized under the laws of the Republic of the Marshall Islands, referred to as “Products Merger Entity,” “Crude Merger Entity,” “Management Merger Entity” and “Surviving Merger Entity.”
Step 2: Separation
CPLP separated its product and crude tanker businesses into separate lines of subsidiaries and contribute them to us. We issued 12,724,500 additional common shares in connection with the contribution by CPLP. In the separation, CPLP contributed to us (1) CPLP’s crude and product tanker vessels, (2) an amount in cash equal to $10 million and (3) associated inventories.
Step 3: Distribution
On the March 27, 2019, CPLP distributed on a pro rata basis all 12,725,000 then-outstanding common shares of Diamond S to its unitholders of record as of March 19, 2019.
Step 4: Combination
Immediately following this distribution, (1) DSS Crude Transport Inc., a wholly owned subsidiary of DSS LP, merged with Crude Merger Entity, with DSS Crude Transport Inc. surviving the merger, (2) DSS Products Transport Inc., a wholly owned subsidiary of DSS LP, merged with Products Merger Entity, with DSS Products Transport Inc. surviving the merger, and (3) Diamond S Technical Management LLC, a wholly owned subsidiary of DSS LP, merged with Management Merger Entity, with Diamond S Technical Management LLC surviving the merger. Pursuant to the Transaction Agreement, DSS LP received 27,165,696 common shares of Diamond S in the combination and in turn distributed those common shares to its limited partners. Following these mergers and pursuant to the same plan each of DSS Crude Transport Inc., DSS Products Transport Inc. and Diamond S Technical Management LLC merged with the Surviving Merger Entity, with the Surviving Merger Entity surviving. Surviving Merger Entity subsequently merged with Diamond S, with Diamond S surviving.
The Transactions closed on March 27, 2019 and the Diamond S common shares commenced trading on NYSE on March 28, 2019.
Risks Factors
Ownership of common shares of Diamond S is subject to a number of risks. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the
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“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding non-binding advisory “say-on-pay” votes on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, the trading market for those securities may be reduced, and the prices of those securities may be traded at lower prices and experience greater volatility.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Emerging growth companies may also take advantage of an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board that require mandatory audit firm rotation or a supplement to the auditors’ report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer. We intend to take advantage of the benefits of this extended transition period for as long as it is available. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Section 107 of the JOBS Act provides that the decision not to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We will remain an emerging growth company until the earlier of  (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act and (b) in which we have total annual gross revenue of at least $1.07 billion, (2) the date on which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently complete second fiscal quarter, and (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Our Corporate Information
Our principal executive offices are located at 33 Benedict Place, Greenwich, Connecticut 06830, and our telephone number is (203) 413-2000. Our common shares are listed on the NYSE under the symbol “DSSI.” Our internet website address is www.diamondsshipping.com. Information on our website is not a part of this prospectus.
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The Offering
Issuer
Diamond S Shipping Inc.
Shares to be offered by the selling shareholders
11,684,435 common shares(1)
Use of proceeds
We will not receive any proceeds from the sale of the Shares by the selling shareholders.
Risk factors
Investing in the Shares involves substantial risk. For a discussion of risks relating to us, our business and an investment in the Shares, see the section titled “Risk Factors” on page 5 of this prospectus and all other information set forth in this prospectus before investing in the Shares.
Listing
Diamond S common shares are traded on the NYSE under the symbol “DSSI.”
(1)
Securities registered pursuant to the registration statement of which this prospectus is a part are not required to be sold, and such registration does not necessarily indicate that the shareholder intends to sell such securities.
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RISK FACTORS
The following are certain risk factors that could affect the Company’s business, financial condition, results of operations, and cash flows. You should carefully consider each of the following risks and all of the other information contained in this prospectus. The risks described below are not the only risks that the Company faces. Additional risks and uncertainties not currently known or that are currently expected to be immaterial also may materially and adversely affect the Company’s business, financial condition, results of operations, cash flows or the price of the Diamond S common shares.
This prospectus also contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by the Company described below and elsewhere in this prospectus. See “Cautionary Statement Regarding Forward-Looking Statements” for information relating to these forward-looking statements.
Risks Related to the Company’s Industry
The highly cyclical nature of the Company’s industry may lead to volatile changes in charter rates and vessel values, which could adversely affect the Company’s business.
The tanker industry is cyclical and volatile in terms of charter rates and profitability, and unfavorable global economic conditions may adversely affect the Company’s ability to charter or re-charter Company vessels or to sell them on the expiration or termination of their charters. Any renewal or replacement charters that the Company enters into may not be sufficient to allow the Company to operate its vessels profitably. The Company expects nine of its charters to expire in 2019. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and petroleum products. The factors affecting the supply and demand for tankers are outside of the Company’s control, and the nature, timing and degree of changes in conditions that affect supply and demand in the petroleum industry are unpredictable.
The factors that influence demand for tanker capacity include:

supply and demand for energy resources and oil and petroleum products, which affect customers’ need for vessel capacity;

regional availability of refining capacity and inventories;

changes in the production levels of crude oil (including in particular production by the Organization of the Petroleum Exporting Countries (“OPEC”), the United States and other key producers);

global and regional economic and political conditions, including armed conflicts, terrorist activities, and strikes;

the distance oil and petroleum products are moved by sea;

changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;

developments in international trade generally;

environmental and other legal and regulatory developments;

construction or expansion of new or existing pipelines or railways;

weather and natural disasters;

competition from alternative sources of energy; and

international sanctions, embargoes, import and export restrictions, nationalizations and wars.
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The factors that influence the supply of tanker capacity include:

supply and demand for energy resources and oil and petroleum products;

availability and pricing of other energy resources such as natural gas;

charter and spot market rates, including earnings from any spot market-related vessel pools the Company may join;

technological innovations;

availability and cost of capital;

the number of newbuild deliveries;

the conversion of vessels from transporting oil and petroleum products to carrying drybulk cargo or vice versa;

the number of vessels being used for storage or as floating storage and offloading service vessels;

the scrapping rate of older vessels;

the number of vessels that are out of service;

availability and pricing of other energy sources such as natural gas for which tankers can be used or to which construction capacity may be dedicated;

environmental concerns and regulations;

port or canal congestion;

cost and supply of labor; and

currency exchange rate fluctuations.
If the Company has to re-charter its tankers when charter hire rates are low, or are unable to re-charter its tankers, its business, financial condition, results of operations, and cash flows could be adversely affected.
Changes to global economic conditions and oil and petroleum product demand, prices and supply could result in decreased demand for the Company’s vessels and services, materially affect the Company’s ability to re-charter its vessels at favorable rates and have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Global economic growth is a significant driver in the demand for oil and, as a result, the demand for shipping. Major economic slowdowns can have a significant impact on the global economy and demand for oil, and there is significant uncertainty over long-term economic growth prospects.
Furthermore, there is a general global trend towards energy efficient technologies and alternative sources of energy. In the long term, oil demand may be reduced by an increased reliance on alternative energy sources, or a drive for increased efficiency in the use of oil, as a result of environmental concerns over carbon emissions or high oil prices, which has the potential to significantly decrease demand for oil and shipping.
The Company expects emerging markets, which historically have had more volatile economies, to be a key driver in future oil demand. A slowdown in these economies, such as in China or India, could severely affect global demand for oil and may result in protracted, reduced consumption of oil products and a decreased demand for the Company’s vessels and lower charter rates.
If global economic conditions deteriorate or oil prices increase and, as a result, demand for oil and petroleum products contracts or increases more slowly, the Company may not be able to operate its vessels profitably or employ its vessels at favorable charter rates as they come up for re-chartering. Furthermore, the market value of the Company’s vessels may decline as a result of such events, which may cause the Company to recognize losses upon disposition of the vessels or record impairments and affect its ability to comply with its loan covenants.
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In addition, reduced global supply of oil due to coordinated action, such as production cuts by OPEC members and other oil producing nations, or other circumstances may adversely affect demand for the transportation of crude oil and oil tankers.
A deterioration of the current economic conditions or changes in oil demand and supply and the product and crude tanker markets would have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The spot market is volatile, and any decrease in spot charter rates in the future may adversely affect the Company’s earnings.
As of December 31, 2018, the Company employed 49 vessels in the spot market on a pro forma basis after giving effect to the Transactions. Additionally, the Company may employ additional vessels that it may acquire in the future in the spot charter market or in spot market-related vessel pools. Although spot chartering is common in the tanker industry, the spot market may fluctuate significantly based upon tanker and oil supply and demand. The successful operation of the Company’s vessels in the competitive spot market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is volatile and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, the Company may be unable to operate its vessels trading in the spot market profitably or meet its obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, the Company will generally experience delays in realizing the benefits from such rate increases.
The Company cannot predict whether its charterers will, upon the expiration of their charters, re-charter the Company’s vessels on favorable terms or at all. If the Company’s charterers decide not to re-charter its vessels, the Company may not be able to re-charter them on terms similar to its current charters or at all. In the future, the Company may also employ its vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market. If the Company receives lower charter rates under replacement charters or are unable to re-charter all of its vessels currently under charter and receive lower rates on the spot market, the Company’s business, financial condition, results of operations and cash flows could be materially adversely affected.
An oversupply of tanker vessels or an expansion of the capacity of newly built tankers may lead to reductions in charter hire rates, vessel values and profitability.
The supply of tankers is affected by a number of factors, such as demand for energy resources and oil and petroleum products, the level of charter hire rates, asset and newbuilding prices and the availability of financing, as well as overall economic growth in parts of the world economy, including Asia, and has been increasing as a result of the delivery of substantial newbuilding orders over the last few years. Newly built tankers were delivered in significant numbers starting at the beginning of 2006 and continuing through 2018. If newly built tankers have more capacity than the tankers being scrapped or lost, tanker capacity overall will expand. If the supply of tankers or their capacity increases over time but demand for tanker vessels does not grow correspondingly, charter rates and vessel values will materially decline. If that happens, as the Company’s charters expire, the Company may only be able to re-charter its vessels at reduced or unprofitable rates, or the Company may not be able to charter its vessels at all. A reduction in charter rates and the value of the Company’s vessels may have a material adverse effect on its business, financial condition, results of operations and cash flows.
Charter rates in the Company’s industry can fluctuate substantially, and declines in charter rates or other market deterioration could cause the Company to incur impairment charges.
The Company reviews the carrying values of its vessels for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Whenever certain indicators of potential impairment are present, such as projected undiscounted cash flows or vessel appraisals, the Company performs a test of recoverability of the carrying amount of the assets. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires the
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Company to make various estimates including future freight rates, residual values, future drydockings and operating costs, which are included in the analysis. All of these items have been historically volatile. The Company recognizes an impairment charge if the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured based on the excess of the carrying amount over the fair market value of the asset.
Although the Company believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they are made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by a significant degree. If charter rates were to remain at depressed levels, future assessments of vessel impairments would be adversely affected. Any impairment charges incurred as a result of further declines in charter rates could have a material adverse impact on the Company’s business, financial condition and results of operations.
Changes in fuel prices may adversely affect profits.
Fuel, or bunkers, is typically the largest expense in the Company’s shipping operations for its vessels and changes in the price of fuel may adversely affect the Company’s profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside the Company’s control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations (the “IMO 2020 Regulations”) adopted by the International Maritime Organization (“IMO”), which may adversely affect the competitiveness of the Company’s business compared to other forms of transportation and reduce the Company’s profitability.
The market values of tanker vessels are highly volatile, have decreased in the past and may decrease further in the future which may cause the Company to recognize losses if it sells its tankers or record impairments and affect the Company’s ability to comply with its loan covenants and refinance its debt.
Values for tanker vessels can fluctuate substantially over time due to a number of factors, including:

prevailing economic conditions in the energy markets;

substantial or extended decline in demand for refined products;

number of vessels in the world fleet;

the level of worldwide refined product production and exports;

changes in the supply-demand balance of the global product tanker market;

changes in prevailing charter hire rates;

the physical condition of the vessel;

the vessel’s size, age, technical specifications, efficiency and operational flexibility;

demand for crude and product tankers;

competition from other shipping companies and from other modes of transportation;

the ability of buyers to access financing and capital; 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.
A decline in the market value of the Company’s vessels could lead to a default under its credit facilities, affect its ability to refinance its existing credit facilities and limit its ability to obtain additional financing and service or refinance its debt. A decline in the market value of the Company’s vessels could cause it to breach covenants in its current or future debt instruments. If the Company does breach such covenants and
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is unable to remedy the breach, its lenders could accelerate its indebtedness and seek to foreclose on the vessels in its fleet securing those debt instruments or seek other similar remedies. In addition, if a charter contract expires or is terminated by the charterer, the Company may be unable to re-charter the affected vessel at an attractive rate and, rather than continue to incur maintenance and financing costs for that vessel, the Company may seek to dispose of the affected vessel. Any foreclosure on the Company’s vessels or any disposal by the Company of a vessel at a time when the value of its vessels is depressed could have a material adverse impact on its business, financial condition results of operations and cash flows.
Technological innovation could reduce the Company’s charter hire income and the value of its vessels.
The charterhire 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, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new tankers are built that are more efficient or more flexible or have longer physical lives than the Company’s vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments the Company receives for its vessels and the resale value of its vessels could significantly decrease. As a result, the Company’s business, financial condition, results of operations and cash flows could be adversely affected.
The market values of the Company’s vessels may decrease, which could limit the amount of funds that it can borrow or trigger certain financial covenants under its current or future debt facilities and the Company may incur a loss if it sells vessels following a decline in their market value.
The fair market values of the Company’s vessels have generally experienced high volatility. The fair market values for tankers declined significantly from historically high levels reached in 2008, and remain at relatively low levels. Such prices may fluctuate depending on a number of factors, including, but not limited to, the prevailing level of charter rates and day rates, general economic and market conditions affecting the international shipping industry, types, sizes and ages of vessels, supply and demand for vessels, availability of or developments in other modes of transportation, competition from other tanker companies, cost of newbuildings, applicable governmental or other regulations and technological advances. In addition, as vessels grow older, they naturally depreciate in value. If the fair market values of the Company’s vessels further decline, the Company may not be in compliance with certain covenants contained in its secured credit facilities, which may result in an event of default. In such circumstances, the Company may not be able to refinance its debt or obtain additional financing and its subsidiaries may not be able to make distributions to the Company. The prepayment of certain debt facilities may be necessary to cause the Company to maintain compliance with certain covenants in the event that the value of the vessels falls below certain levels. If the Company is not able to comply with the covenants in its secured credit facilities and are unable to remedy the relevant breach, its lenders could accelerate the Company’s debt and foreclose on its fleet.
Additionally, if the Company sells one or more of its vessels at a time when vessel prices have fallen, the sale price may be less than the vessel’s carrying value on the Company’s consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction of net income. Furthermore, if vessel values fall significantly, this could indicate a decrease in the recoverable amount for the vessel and may result in an impairment adjustment in the Company’s financial statements, which could adversely affect its business, financial results and results of operations.
The Company may be required to make significant investments in ballast water management which may have a material adverse effect on the Company’s future performance, results of operations, and financial position.
The International Convention for the Control and Management of Vessels’ Ballast Water and Sediments (the “BWM Convention”) aims to prevent the spread of harmful aquatic organisms from one region to another by establishing standards and procedures for the management and control of ships’ ballast water and sediments. The BWM Convention calls for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. The BWM
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Convention was ratified in September 2016 and entered into force in September 2017. On December 4, 2013, the IMO passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (the “IOPP”) renewal survey following entry into force of the convention. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal survey. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. The cost of such systems is estimated by management to be approximately $1.0 million per vessel.
As of February 28, 2019, ten of the vessels in the Company’s fleet currently had ballast water treatment systems installed, and the Company has contracts in place to install ballast water treatment systems for vessels whose compliance date requires such installation in 2019 and 2020. The Company cannot be assured that these systems will be approved by the regulatory bodies of every jurisdiction in which it may wish to conduct its business. Accordingly, the Company may have to make additional investments in these vessels and substantial investments in the remaining vessels in its fleet that do not carry any such equipment. The investment in ballast water treatment systems could have an adverse material impact on the Company’s business, financial condition, results of operations and cash flows depending on the ability to install effective ballast water treatment systems and the extent to which existing vessels must be modified to accommodate such systems.
The Company plans to modify its vessels in order to comply with new air pollution regulations by retrofitting scrubbers on certain vessels and making certain other modifications to the remaining vessels in its fleet. If the Company does not successfully manage the process of installing scrubbers or making modifications to its other vessels, if unforeseen complications arise during installation or operation of scrubbers, or if the Company does not fully realize the anticipated benefits from installing scrubbers, it could adversely affect the Company’s financial condition and results of operations.
In October 2016, the IMO set January 1, 2020 as the implementation date for vessels to comply with IMO 2020 Regulations. Vessel owners and operators may comply with this regulation by (1) using 0.5% sulfur fuels, which will be available to an as-yet unknown extent around the world by 2020 and likely at a higher cost than 3.5% sulfur fuel; (2) installing scrubbers; or (3) by retrofitting vessels to be powered by liquefied natural gas rather than oil fuel.
In consideration of the IMO 2020 Regulations, the Company has signed contracts for the purchase and installation of scrubbers to be installed on five of its vessels, and the Company has options to purchase and install scrubbers on ten additional vessels. These scrubbers are expected to be installed prior to January 1, 2020 or shortly thereafter. The Company may, in the future, determine to purchase additional scrubbers for installation on other vessels owned or operated by the Company. While scrubbers rely on technology that has been developed over a significant period of time for use in a variety of applications, their use for maritime applications is a more recent development. Each vessel will require bespoke modifications to be made in order to install a scrubber, the scope of which will depend on, among other matters, the age and type of vessel, its engine and its existing fixtures and equipment. The purchase and installation of scrubbers will involve significant capital expenditures, and the vessel will be out of operation for as long as 25 to 30 days or more in order for the scrubbers to be installed. In addition, future arrangements that the Company may enter into with respect to shipyard drydock capacity to implement these scrubber installations may be affected by delays or issues affecting vessel modifications being undertaken by other vessel owners at those shipyards, which could cause the Company’s vessels to be out of service for even longer periods or installation dates to be delayed. In addition, as there is a limited operating history of scrubbers on vessels such as those owned or operated by the Company, the operation and maintenance of scrubbers on these vessels is uncertain. Any unforeseen complications or delays in connection with acquiring, installing, operating or maintaining scrubbers installed on the Company’s vessels could adversely affect the Company’s business, financial condition, results of operations and cash flows.
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Furthermore, it is uncertain how the availability of high-sulfur fuel oil around the world will be affected by implementation of the IMO 2020 Regulations, and both the price of high-sulfur fuel generally and the difference in cost between the price of such fuel and low-sulfur fuel after January 1, 2020 are also uncertain. Scarcity in the supply of high-sulfur fuel, or a lower-than-anticipated difference in the costs between the two types of fuel, may cause the Company to fail to recognize anticipated benefits from installing scrubbers, which could adversely affect the Company’s business, financial condition results of operations and cash flows.
With respect to owned or operated vessels on which the Company does not install scrubbers, the Company also currently expects to make certain capital expenditures to ensure those vessels are capable of efficiently using low-sulfur fuel. There is limited or no operating history of using low-sulfur fuel on these vessels, so the impact of using such fuel on such vessels is uncertain. The costs of such capital expenditures are not insignificant. In addition, those vessels will likely incur higher fuel costs associated with using more expensive 0.5% sulfur fuel. Such costs may be material and could adversely affect the Company’s business, financial condition results of operations and cash flows, particularly in any case where vessels owned or operated as part of the Company’s business are unable to pass through the costs of higher fuel to charterers due to competition with vessels that have installed scrubbers, market conditions or otherwise.
The Company is subject to complex laws and regulations, including environmental laws and regulations that can adversely affect its business, results of operations, cash flows and financial condition, and its available cash.
The Company’s operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which the Company’s vessels operate or are registered, which can significantly affect the ownership and operation of its vessels. These requirements include, but are not limited to, the U.S. Oil Pollution Act of 1990 (“OPA”), the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), U.S. coastal state laws; requirements of the U.S. Coast Guard (the “USCG”) and the U.S. Environmental Protection Agency (the “EPA”), the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (the “CAA”), the U.S. Clean Water Act (the “CWA”) and the U.S. Marine Transportation Security Act of 2002 (the “MTSA”), European Union (the “EU”), regulations, and regulations of the IMO, including the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL including the designation of Emission Control Areas (“ECAs”) thereunder, the IMO International Convention for the Safety of Life at Sea of 1974 (“SOLAS”), the International Convention on Load Lines of 1966 (the “LL Convention”), the International Convention of Civil Liability for Oil Pollution Damage of 1969 (the “CLC”), the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”), and the International Ship and Port Facility Security Code (the “ISPS code”).
Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of the Company’s vessels. The Company may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast and bilge waters, maintenance and inspection, restrictions on anti-fouling paints, development and implementation of emergency procedures and insurance coverage or other financial assurance of the Company’s ability to address pollution incidents.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject the Company to liability without regard to whether the Company was negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-nautical mile exclusive economic zone around the United States (unless the spill results solely from, under certain limited circumstances, the act or omission of a third party, an act of God or an act of war). An oil spill could result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages, including punitive damages, and could harm the Company’s reputation with current or potential charterers of its tankers.
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The Company is required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although the Company has arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. This may require companies to implement additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is difficult to predict at this time.
If the Company fails to comply with international safety regulations, it may be subject to increased liability, which may adversely affect its insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of the Company’s vessels is affected by the requirements set forth in the IMO’s International Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”) promulgated by the IMO under SOLAS. The ISM Code requires the party with operational control of a vessel to develop and maintain an extensive “Safety Management System” that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Failure to comply with the ISM Code may subject the Company to increased liability and may invalidate existing insurance or decrease available insurance coverage for the Company’s affected vessels and such failure may result in a denial of access to, or detention in, certain ports, which could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company operates tankers worldwide, and as a result, it is exposed to inherent operational and international risks, which may adversely affect its business and financial condition.
The operation of an ocean-going vessel carries inherent risks. The Company’s vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, payment of ransoms, environmental damage, higher insurance rates, damage to the Company’s customer relationships, market disruptions, and interference with shipping routes (such as delay or rerouting), which may reduce the Company’s revenue or increase its expenses and also subject it to litigation. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to the Company. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
If the Company’s vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. The Company may have to pay drydocking costs that its insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect the Company’s business, financial condition, results of operations and cash flows. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. The Company may be unable to find space at a suitable drydocking facility or its vessels may be forced to travel to a drydocking facility that is not conveniently located to the vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect the Company’s business, financial condition, results of operations and cash flows. Further, the total loss of any of the
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Company’s vessels could harm its reputation as a safe and reliable vessel owner and operator. If the Company is unable to adequately maintain or safeguard its vessels, it may be unable to prevent any such damage, costs, or loss which could negatively impact its business, financial condition, results of operations, and cash flows.
Increased inspection procedures could increase costs and disrupt the Company’s business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or the Company’s vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against the Company. It is possible that changes to inspection procedures could impose additional financial and legal obligations on the Company.
Furthermore, changes to inspection procedures could also impose additional costs and obligations on the Company’s customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Political instability, terrorist or other attacks, war or international hostilities can affect the tanker industry, which may adversely affect the Company’s business.
The Company conducts most of its operations outside of the United States, and its business, financial condition, results of operations and cash flows may be adversely affected by the effects of political instability, terrorist or other attacks, war or international hostilities. Continuing conflicts and recent developments in North Korea, Russia, Ukraine, China, the Middle East, including Iran, Iraq, Syria and the Arabian Peninsula, and North Africa, including Libya and Egypt, and the presence of the United States and other armed forces in these regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further world economic instability and uncertainty in global financial markets. As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. Future terrorist attacks could result in increased volatility of the financial markets and negatively impact the U.S. and global economy. These uncertainties could also adversely affect the Company’s ability to obtain additional financing on terms acceptable to the Company or at all.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf of Guinea off the coast of West Africa, and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company’s international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the European Union and other jurisdictions.
Certain countries (including the Crimea region of Ukraine, Cuba, Iran, North Korea and Syria), entities, persons and organizations are targeted by economic sanctions and embargoes imposed by the United States, the EU and other jurisdictions, and certain countries (currently North Korea, Iran, Sudan and Syria), have been identified as state sponsors of terrorism by the U.S. Department of State. Such economic sanctions and embargo laws and regulations vary in their application with regard to countries, entities, persons and organizations and the scope of activities they subject to sanctions.
The Company’s international operations and activities could expose it to risks associated with trade and economic sanctions, prohibitions or other restrictions imposed by the United States or other governments or organizations, including the United Nations, the EU and its member countries. In the event of a violation, the Company may be subject to fines and other penalties.
If the Company’s vessels call on ports located in countries that are subject to comprehensive sanctions and embargoes imposed by the U.S. or other governments, its reputation and the market for its securities may be adversely affected.
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These sanctions and embargo laws and regulations may be strengthened, relaxed or otherwise modified over time. Governments may seek to impose modifications to prohibitions/restrictions on business practices and activities, which may increase compliance costs and risks.
Iran
Since 2010, the scope of sanctions imposed against Iran, the government of Iran and persons engaging in certain activities or doing certain business with and relating to Iran has been expanded by a number of jurisdictions, including the United States, the EU and Canada. In 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”), which expanded the scope of the former Iran Sanctions Act. The scope of U.S. sanctions against Iran were expanded subsequent to CISADA by, among other U.S. laws, the National Defense Authorization Act of 2012 (“2012 NDAA”), the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), Executive Order 13608, Executive Order 13662, and the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”). The foregoing laws, among other things, expanded the application of prohibitions on non-U.S. companies, such as the Company, limiting the ability of non-U.S. companies and other non-U.S. persons to do business or trade with Iran.
U.S. economic sanctions on Iran fall into two general categories: “primary” sanctions, which prohibit U.S. persons or U.S. companies and their foreign branches (and in some instances foreign subsidiaries owned or controlled by U.S. persons), U.S. citizens, U.S. permanent residents, and persons within the territory of the United States from engaging in all direct and indirect trade and other transactions with Iran without U.S. government authorization, and “secondary” sanctions, which apply to all persons and under which non-U.S. persons can face negative consequences for engaging in certain types of activities involving Iran.
Most of the EU sanctions and U.S. secondary sanctions with respect to Iran (including, inter alia, CISADA, ITRA, and IFCA) were suspended in 2016 through the implementation of the Joint Comprehensive Plan of Action (the “JCPOA”) entered into between the permanent members of the United Nations Security Council (China, France, Russia, the United Kingdom and the United States) and Germany. However, the U.S. sanctions have been reimposed as a result of the United States’ withdrawal from the JCPOA.
EU sanctions remain in place in relation to the export of arms and military goods, missiles-related goods and items that might be used for internal repression. Also, certain nuclear-related EU sanctions remain in place, such as restrictions related to graphite and certain raw or semi-finished metals and goods listed in the Nuclear Suppliers group or that could contribute to nuclear-related activities.
Numerous individuals and entities remain sanctioned and the prohibition to make available, directly or indirectly, economic resources or funds to or for the benefit of sanctioned parties remains. “Economic resources” is widely defined and it remains prohibited to provide vessels for a fixture from which a sanctioned party (or parties related to a sanctioned party) directly or indirectly benefits. It is therefore still necessary to carry out due diligence on the parties and cargoes involved in fixtures involving Iran.
Russia and Ukraine
As a result of the crisis in Ukraine and the annexation of Crimea by Russia in 2014, both the United States and the EU have implemented sanctions against certain persons and entities.
The EU has imposed travel bans and asset freezes on certain persons and entities pursuant to which it is prohibited to make available, directly or indirectly, economic resources or assets to or for the benefit of the sanctioned parties. Certain Russian ports, including Kerch Commercial Port, Sevastopol Commercial Seaport and Feodosia Commercial Port are subject to the above restrictions. Other entities are subject to sanctions which limit the provision of equity and debt financing to the listed entities. In addition, various restrictions on trade have been implemented which, amongst others, include a prohibition on the import into the EU of goods originating in Crimea or Sevastopol, a prohibition on the supply of certain goods and technologies suited for use in the transport, telecommunications, energy or oil, gas and mineral resources sectors to anyone in or for use in Crimea or Sevastopol, as well as restrictions on trade in certain dual-use
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and military items and restrictions in relation to various items of technology associated with the oil industry for use in deep water exploration and production, Arctic oil exploration and production or shale oil projects in Russia. As such, it is important to carry out due diligence on the parties and cargoes involved in fixtures relating to Russia.
The United States has imposed sanctions against certain designated Russian entities and individuals (“U.S. Russian Sanctions Targets”). These sanctions block the property and all interests in property of the U.S. Russian Sanctions Targets. This effectively prohibits U.S. persons from engaging in any economic or commercial transactions with the U.S. Russian Sanctions Targets unless the same are authorized by the U.S. Treasury Department. Similar to EU sanctions, U.S. sanctions also entail restrictions on certain exports from the United States to Russia and the imposition of Sectoral Sanctions which restrict the provision of equity and debt financing to designated Russian entities, as well as restrict certain dealings in goods, services or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that involve certain designated Russian entities. While the prohibitions of these sanctions are not directly applicable to the Company, the Company has compliance measures in place to guard against transactions with U.S. Russian Sanctions Targets which may involve the United States or U.S. persons and thus implicate restrictions. The United States also maintains prohibitions on trade with Crimea.
The U.S.’s “Countering America’s Adversaries Through Sanctions Act” (Public Law 115-44) authorizes imposition of new sanctions on Iran, Russia, and North Korea. These sanctions prohibit a variety of activities involving Russia.
Venezuela-Related Sanctions
The U.S. sanctions with respect to Venezuela prohibit dealings with designated persons and entities, and curtail the provision of financing to Petróleos de Venezuela, S.A. and other government entities. EU sanctions against Venezuela are primarily governed by EU Council Regulation 2017/2063 of November 13, 2017 concerning restrictive measures in view of the situation in Venezuela. The EU sanctions with respect to Venezuela include financial sanctions and restrictions on listed persons, an arms embargo, restrictions related to items that can be used for internal repression, and related prohibitions and restrictions.
Other U.S. Economic Sanctions and Sanctions Targets
In addition to Iran and certain Venezuelan and Russian entities and individuals, as indicated above, the United States maintains economic sanctions against Syria, Cuba, North Korea, the Crimea region of Ukraine and sanctions against entities and individuals (such as entities and individuals in the foregoing targeted countries, designated terrorists and narcotics traffickers) whose names appear on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Treasury Department (collectively, “Sanctions Targets”). The Company is subject to the prohibitions of these sanctions to the extent that any transaction or activity that the Company engages in involves Sanctions Targets and a U.S. person or otherwise has a nexus to the United States. It is also subject to the secondary sanctions that apply to certain dealings with Sanctions Targets.
Other EU Economic Sanctions Targets
The European Union also maintains sanctions against Syria, North Korea and certain other countries and against persons, entities, groups or organizations listed by the EU. These restrictions can apply to the Company’s operations and as such, to the extent that these countries may be involved in any business it is important to carry out checks to ensure compliance with all relevant applicable restrictions and to carry out due diligence checks on counterparties and cargoes.
Possible Conflict of Laws and Risks Related to Blocking Regulation
In 2018, the EU expanded the scope of its Blocking Regulation — Council Regulation (EC) No. 2271/96 of 22 November 1996, in reaction to the United States’ withdrawal from the JCPOA and the associated re-imposition of various sanctions on Iran. The scope of the Blocking Regulation was expanded by including certain U.S. sanctions that were lifted or waived following the JCPOA and which have been or will be re-imposed, including any actions based thereon or resulting therefrom. The Blocking Regulation already covered certain other U.S. sanctions against Cuba, Iran, and Libya. EU operators are prohibited from complying with the blocked U.S. sanctions.
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A violation of the EU Blocking Regulation, where applicable, can give rise to enforcement actions and result in the imposition of penalties. EU operators are also entitled to recover any damages from anyone causing damage to that operator by the application of the blocked sanctions or by actions based thereon or resulting therefrom, or from any person acting on its behalf or intermediary. This can give rise to conflicting obligations under EU and U.S. legislation, and to risks of claims for damages by EU operators when companies or natural persons act in compliance with the blocked sanctions of the United States.
If and when the EU Blocking Regulation applies, the Company needs to be aware of possible conflicting obligations. It is also important for the Company to assess possible risks related to action for damages under the EU Blocking Regulation, when carrying out its operations.
Compliance and Related Risks
Given the prohibitions described above and the nature of the Company’s business, there is a sanctions risk for it due to the worldwide trade of the Company’s vessels. To reduce the risk of violating economic sanctions, the Company has a policy of compliance with applicable economic sanctions laws and have implemented and continue to implement and adhere to compliance procedures to avoid economic sanctions violations.
The Company does not generally do business in sanctions-targeted jurisdictions unless an activity is not restricted or it is authorized by the appropriate governmental or other sanctions authority. In addition, the Company’s charter agreements include provisions that restrict trades of the Company’s vessels to countries or to sub-charterers targeted by economic sanctions unless such trades involving sanctioned countries or persons are permitted under applicable economic sanctions and embargo regimes. In order to maintain the Company’s compliance with applicable sanctions and embargo laws and regulations, the Company monitors and reviews the movement of its vessels, as well as the cargo being transported by its vessels, on a continuing basis.
Although the Company believes that it is in compliance with all applicable sanctions and embargo laws and regulations, and intends to maintain such compliance, there can be no assurance that the Company 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, penalties or other sanctions that could severely impact the Company’s ability to access U.S. capital markets and conduct its business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, the Company’s securities may adversely affect the price at which the Company’s securities trade.
Although the Company intends to comply with all applicable sanctions and embargo laws and regulations, and although the Company has various policies and controls designed to help ensure the Company’s compliance with these economic sanctions and embargo laws, it is nevertheless possible that third-party charterers of the Company’s vessels, or their sub-charterers, may arrange for vessels in the Company’s fleet to call on ports located in one or more sanctioned countries. The Company’s charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve the Company or its vessels, and those violations could in turn negatively affect the Company’s reputation.
Despite, for example, relevant provisions in charter agreements forbidding the use of the Company’s vessels in trade that would violate economic sanctions, the Company’s charterers may nevertheless violate applicable sanctions and embargo laws and regulations and those violations could in turn negatively affect the Company’s reputation and be imputed to the Company. It is possible that the charterers of the Company’s vessels may violate applicable sanctions, laws and regulations, using its vessels or otherwise, and the applicable authorities may seek to review the Company’s activities as the vessel owner.
Should one of the Company’s charterers engage in actions that involve the Company or its vessels and that may, if completed, represent violations of economic sanctions and embargo laws or regulations, the Company would rely on its monitoring and control systems, including documentation, such as bills of lading, regular check-ins with the crews of the Company’s vessels and electronic tracking systems on its vessels to detect such actions on a prompt basis and seek to prevent them from occurring.
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Notwithstanding the above, it is possible that new, or changes to existing, sanctions-related legislation or agreements may impact the Company’s business. The Company is regularly monitoring developments in the United States, the EU and other jurisdictions that maintain economic sanctions, including developments in implementation and enforcement of such sanctions programs. Expansion of sanctions programs, embargoes and other restrictions in the future (including additional designations of countries and persons subject to sanctions), or modifications in how existing sanctions are interpreted or enforced, could prevent the Company’s vessels from calling in ports in sanctioned countries or could limit their cargoes. If any of the risks described above materialize, it could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
Current or future counterparties of the Company may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the United States, the EU, and/or other governmental international bodies. If the Company determines that such sanctions require it to terminate existing or future contracts to which the Company or its subsidiaries are party or if the Company is found to be in violation of such applicable sanctions, its business, financial condition, results of operations and cash flows may be adversely affected or it may suffer reputational harm. Currently, the Company does not believe that any of its existing counterparties are affiliated with persons or entities that are subject to such sanctions.
Although the Company does not believe that current sanctions and embargoes prevent its vessels from making all calls to ports in the sanctioned countries, potential investors could view such port calls negatively, which could adversely affect the Company’s reputation and the market Diamond S common shares. Some investors may decide to divest their interest, or not to invest, in the Company simply because it does business with companies that do business in sanctioned countries. Investor perception of the value of the Company’s securities may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Given the Company’s relationship with its affiliates and subsidiaries, the Company cannot give any assurance that an adverse finding against any of the affiliates and subsidiaries by a governmental or legal authority with respect to the matters discussed herein or any future matter related to regulatory compliance by the Company or the affiliates and subsidiaries, will not have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
In 2018, prior to the separation of CPLP’s crude and product tanker vessels in connection with the Transactions, one vessel then-owned by CPLP made a port call in Iran in March 2018 while the vessel was sublet by an unaffiliated charterer under a voyage charter. In 2017, vessels then-owned by CPLP and chartered under time charter parties to a subsidiary of Capital Maritime & Trading Corp. (“CMTC”), CPLP’s sponsor and the parent of CPLP’s general partner, made the following port calls to Iran and Sudan: four port calls to Iran to load crude oil, three port calls to Iran to discharge vegetable oils and two port calls to Sudan to discharge palm and vegetable oils. In addition, in 2017, one vessel then-owned by CPLP made a port call to Sudan to discharge fuel oil while employed under a voyage charter to an unaffiliated third party. Each of these port calls occurred while the respective vessel was chartered out to an unaffiliated charterer or sub-charterer under the instructions of such charterer or sub-charterer.
The Company believes all such port calls were made in compliance with applicable economic sanctions laws and regulations, including those of the United States, the European Union and other relevant jurisdictions.
The smuggling of drugs or other contraband onto the Company’s vessels may lead to governmental claims against it.
The Company expects that its vessels will call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent the Company’s vessels are found with contraband, whether inside or attached to the hull of its vessel and whether with or without the knowledge of any of its crew, the Company may face governmental or other regulatory claims which could have an adverse effect on its business, financial condition, results of operations and cash flows.
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Maritime claimants could arrest or attach the Company’s vessels, which would have a negative effect on its cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of the Company’s vessels could interrupt its business or require it to pay large sums of money to have the arrest lifted, which would have a negative effect on its cash flows.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel, which 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 vessel in the Company’s fleet for claims relating to another of its ships.
Governments could requisition the Company’s vessels during a period of war or emergency, which may negatively impact its business, financial condition, results of operations and cash flows.
A government could requisition one or more of the Company’s vessels for title or hire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition the Company’s vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of the Company’s vessels may negatively impact its business, financial condition, results of operations and cash flows.
Risks Related to the Company’s Business and Operations
The failure of the Company’s charterers to meet their obligations under its charter agreements could cause the Company to suffer losses or otherwise adversely affect its business.
The Company has entered into, and may enter into in the future, various contracts, including, without limitation, charter and pooling agreements relating to the employment of its vessels, newbuilding contracts, debt facilities, and other agreements. Such agreements subject the Company to counterparty risks. The ability and willingness of each of the Company’s counterparties to perform its obligations under a contract with it will depend on a number of factors that are beyond the Company’s control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, and the overall financial condition of the counterparty.
In addition, with respect to the Company’s charter arrangements, in depressed market conditions, the Company’s charterers may no longer need a vessel that is then under charter or may be able to obtain a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. If the Company’s charterers fail to meet their obligations to the Company or attempt to renegotiate the Company’s charter agreements, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements the Company secures in the spot market or on time charters may be at lower rates. As a result, the Company could sustain significant losses which could have a material adverse effect on its business, financial condition, results of operations and cash flows.
The Company relies on a limited number of customers. The loss of a key customer could result in a significant loss of revenue in a given period.
The Company has derived, and may continue to derive, a significant portion of its revenues from a limited number of customers. Trafigura Group Pte. Ltd. and Petroleo Brasileiro S.A. each respectively accounted for 11.3% and 10.3%, and together accounted for 21.6%, of the Company’s voyage revenue during the pro forma fiscal year ended December 31, 2018. In the future, the loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
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Additionally, oil and natural gas companies, refineries and energy companies have undergone significant consolidation and additional consolidation is possible. Consolidation results in fewer companies to charter or contract for the Company’s services. Merger activity may result in a budget for a combined company that is less than the combined budget of the companies before consolidation. Future consolidation of the Company’s customer base could reduce demand for its vessels and could have a material adverse impact on its business, financial condition, results of operations and cash flows.
The Company may have difficulty managing its planned growth properly, and any significant corporate transactions that may not achieve their intended results.
One of the Company’s principal strategies is to continue to grow by expanding its operations and adding to its fleet. The Company’s future growth will primarily depend upon a number of factors, some of which may not be within its control. These factors include the Company’s ability to:

identify suitable tankers and/or shipping companies for acquisitions at attractive prices;

obtain required financing for the Company’s existing and new operations;

identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures;

integrate any acquired tankers or businesses successfully with the Company’s existing operations, including obtaining any approvals and qualifications necessary to operate vessels that the Company acquires;

hire, train and retain qualified personnel and crew to manage and operate the Company’s growing business and fleet;

identify additional new markets;

enhance the Company’s customer base; and

improve the Company’s operating, financial and accounting systems and controls.
The Company’s failure to effectively identify, purchase, develop and integrate additional tankers or businesses could adversely affect its business, financial condition, results of operations and cash flows. The number of employees that perform services for the Company and its current operating and financial systems may not be adequate as the Company implements its plan to expand the size of its fleet, and it may not be able to effectively hire more employees or adequately improve those systems. Future acquisitions may also require additional equity issuances or debt issuances (with amortization payments). If any such events occur, the Company’s financial condition may be adversely affected. The Company cannot give any assurance that it will be successful in executing its growth plans or that it will not incur significant expenses and losses in connection with its future growth.
Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of the Company’s fleet may impose significant additional responsibilities on its management and may necessitate an increase in the number of personnel. Other risks and uncertainties include distraction of management from current operations, insufficient revenue to offset liabilities assumed, potential loss of significant revenue and income streams, unexpected expenses, inadequate return of capital, potential acceleration of taxes currently deferred, regulatory or compliance issues, the triggering of certain covenants in the Company’s debt instruments (including accelerated repayment) and other unidentified issues not discovered in due diligence. As a result of the risks inherent in such transactions, the Company cannot guarantee that any such transaction will ultimately result in the realization of the anticipated benefits of the transaction or that significant transactions will not have a material adverse impact on its business, financial condition, results of operations and cash flows.
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If the Company purchases and operates secondhand vessels, it will be exposed to increased operating costs which could adversely affect its earnings and, as its fleet ages, the risks associated with older vessels could adversely affect its ability to obtain profitable charters.
The Company’s current business strategy includes additional future growth through the acquisition of secondhand vessels, newbuild resales as well as vessel orders from shipyards. While the Company typically inspects secondhand vessels prior to purchase, this does not provide the Company with the same knowledge about their condition that it would have had if these vessels had been built for and operated exclusively by it. Generally, the Company does not receive the benefit of warranties from the builders for the secondhand vessels that it acquires.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology. Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to the Company’s vessels and may restrict the type of activities in which the vessels may engage. As the Company’s vessels age, market conditions may not justify those expenditures or enable it to operate its vessels profitably during the remainder of their useful lives, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
Any vessel modification projects the Company undertakes could have significant cost overruns or delays or fail to achieve the intended results.
Market volatility and higher fuel prices, coupled with increased regulation and concern about the environmental impact of the international shipping industry, have led to an increased focus on fuel efficiency and controlling emissions. Many shipowners have implemented vessel modification programs for their existing ships in an attempt to capture potential efficiency gains and to comply with emissions requirements. The Company will consider making modifications to its fleet where it believes the efficiency gains will result in a positive return for its shareholders. However, these types of projects are subject to risks of delay and cost overruns, resulting from shortages of equipment, unforeseen engineering problems, work stoppages, unanticipated cost increases, inability to obtain necessary certifications and approvals and shortages of materials or skilled labor, among other problems. In addition, any completed modification may not achieve the full expected benefits or could even compromise the Company’s fleet’s ability to operate at higher speeds, which is an important factor in generating additional revenue in an improving freight rate environment. The failure to successfully complete any modification project the Company undertakes or any significant cost overruns or delays in any retrofitting projects could have a material adverse impact on its business, financial condition, results of operations and cash flows.
The Company may experience operational problems with vessels that reduce revenue and increase costs.
Product and crude tankers are complex vessels and their operation is technically challenging. Marine transportation operations are subject to mechanical risks and problems, in addition to challenges resulting from harsh weather conditions on the high seas. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company relies on information systems to conduct its business, and failure to protect these systems against security breaches could have a material adverse impact on its business, financial condition, results of operations and cash flows.
The Company relies on information technology systems and networks to manage and operate its business. These systems may be damaged, intruded upon, shutdown or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, hardware or software break-ins or viruses, other cyber-security incidents or otherwise) and the Company may suffer any resulting interruptions in its ability to manage and operate its business. The Company’s operations could be targeted by individuals or groups seeking to sabotage or disrupt its information technology systems and networks, or to steal data. A successful cyberattack could materially disrupt the Company’s operations, including the safety or operation
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of its vessels, or lead to unauthorized release of information or alteration of information on its systems. Any such attack or other breach of the Company’s information technology systems could have a material adverse impact on its business, financial condition, results of operations and cash flows.
If the Company is unable to operate its vessels profitably, it may be unsuccessful in competing in the highly competitive international tanker market, which would negatively affect its financial condition and its ability to expand its business.
The operation of tanker vessels and transportation of petroleum products is extremely competitive, in an industry that is capital intensive and highly fragmented. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than the Company does. Competition for the transportation of oil and petroleum products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. The Company may be unable to compete effectively with other tanker owners, including major oil companies as well as independent tanker companies.
The Company’s market share may decrease in the future. The Company may not be able to compete profitably as it expands its business into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than the Company uses in its current markets, and the competitors in those new markets may have greater financial strength and capital resources than the Company does. Inability to compete effectively could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company’s growth depends on its ability to expand relationships with existing customers and obtain new customers, for which it will face substantial competition.
The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids and often extends for several months. Contracts are awarded based upon a variety of factors, including:

the operator’s industry relationships, experience and reputation for customer service, quality operations and safety;

the operator’s construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;

the quality and age of the vessels;

the quality, experience and technical capability of the crew;

the operator’s willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

the competitiveness of the bid in terms of overall price.
The Company’s ability to obtain new customers will depend upon a number of factors, including its ability to:

successfully manage its liquidity and obtain the necessary financing to fund its anticipated growth;

attract, hire, train and retain qualified personnel and managers to manage and operate its fleet;

identify and consummate desirable acquisitions, joint ventures or strategic alliances; and

identify and capitalize on opportunities in new markets.
The Company expects competition for providing transportation services from a number of experienced companies. As a result, the Company may be unable to expand its relationships with existing customers or to obtain new customers on a profitable basis, if at all, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
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The Company’s operating results are subject to seasonal fluctuations.
Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the warmer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to disrupt vessel routing and scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, revenues generated by the Company’s vessels have historically been weaker during the quarters ended June 30 and September 30 and stronger in the quarters ended March 31 and December 31.
Exchange rate fluctuations could adversely affect the Company’s revenues, financial condition and operating results.
The Company generates a substantial part of its revenues in U.S. dollars, but may incur costs in other currencies. The difference in currencies could in the future lead to fluctuations in its net income due to changes in the value of the U.S. dollar relative to other currencies. The Company has not hedged its exposure to exchange rate fluctuations, and as a result, its U.S. dollar denominated results of operations and financial condition could suffer as exchange rates fluctuate, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
If the Company does not set aside funds and is unable to borrow or raise funds for vessel replacement, at the end of a vessel’s useful life the Company’s revenue will decline, which would adversely affect its business, financial condition, results of operations and cash flows.
If the Company does not set aside funds and is either unable to borrow or raise funds for vessel replacement or can only do so at higher interest rates, it may be unable to replace some or all of the vessels in its current fleet upon the expiration of their remaining useful lives, which it expects to occur between 2031 to 2042, depending on the vessel. The Company’s cash flows and income are dependent on the revenues earned by the chartering of its vessels. Higher interest rates would affect the Company’s financial condition even for vessels it is able to replace. If the Company is unable to replace the vessels in its fleet upon the expiration of their useful lives or only do so at higher interest rates, its business, financial condition, results of operations and cash flows could be materially adversely affected.
The Company’s insurance may not be adequate to cover its losses that may result from its operations due to the inherent operational risks of the tanker industry.
The Company carries insurance to protect itself against most of the accident-related risks involved in the conduct of its business, including marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks, crew insurance and war risk insurance. However, the Company may not be adequately insured to cover losses from its operational risks, which could have a material adverse effect on the Company. Additionally, the Company’s insurers may refuse to pay particular claims and its insurance may be voidable by the insurers if the Company takes, or fails to take, certain action, such as failing to maintain certification of its vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. In addition, the Company may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions which could have a material adverse effect on its business, financial condition, results of operations and cash flows.
Changes in the insurance markets attributable to terrorist attacks, political uncertainty, piracy, safety incidents or environmental disasters may also make certain types of insurance more difficult for the Company to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts, piracy or environmental disasters generally, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
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Because the Company obtains some of its insurance through protection and indemnity associations, which result in significant expenses to it, it may be required to make additional premium payments.
The Company may be subject to increased premium payments, or calls, in amounts based on its claim records, the claim records of CSM or technical managers, as well as the claim records of other members of the protection and indemnity associations through which the Company receives insurance coverage for tort liability, including pollution-related liability. The Company’s protection and indemnity associations may not have sufficient resources to cover claims made against them. The Company’s payment of these calls could result in significant expense to the Company, which could have a material adverse effect on its business, results of operations, financial condition and cash flows.
Changes in the insurance markets or increased risks to other members of the Company’s protection and indemnity associations attributable to terrorist attacks, piracy, environmental disasters or other maritime and non-maritime perils may cause increases to premiums and may make certain types of insurance more difficult for the Company to obtain due to increased premiums or reduced or restricted coverage, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
Various tax rules may adversely impact the Company’s results of operations and financial position.
The Company may be subject to taxes in the United States and other jurisdictions in which it operates. If the Internal Revenue Service (the “IRS”), or other taxing authorities disagree with the positions the Company has taken on its tax returns, the Company could face additional tax liability, including interest and penalties. If material, payment of such additional amounts upon final adjudication of any disputes could have a material impact on the Company’s results of operations and financial position. In addition, complying with new tax rules, laws or regulations could impact the Company’s financial condition, and increases to federal or state statutory tax rates and other changes in tax laws, rules or regulations may increase the Company’s effective tax rate. Any increase in the Company’s effective tax rate could have a material adverse impact on its business, financial condition, results of operations and cash flows.
U.S. tax authorities could treat the Company as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences for U.S. shareholders.
A foreign corporation will be treated as a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of  “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of  “passive income.” For purposes of these tests, “passive income” includes dividends, interest and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which 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. shareholders 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 shares in the PFIC.
Based on current and anticipated operations, the Company believes that it is not currently a PFIC nor does it expect to become a PFIC. The Company’s belief is based principally on the advice it has received that the gross income it derives from its time chartering activities should constitute services income rather than rental income. Accordingly, the Company intends to take the position that such income does not constitute passive income, and the assets that it owns and operates in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether the Company is a PFIC. However, no assurance can be given that the IRS or a U.S. court of law will accept this position, and there is accordingly a risk that the IRS or a U.S. court could determine that the Company is or was a PFIC. Moreover, no assurance can be given that the Company would not constitute a PFIC for any future taxable year if there were to be a change in the Company’s assets, income or operations.
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If the IRS were to find that the Company is or has been a PFIC for any taxable year, the Company’s U.S. shareholders would face adverse U.S. federal income tax consequences and incur certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to U.S. federal income tax at the then prevailing maximum rates on ordinary income plus interest, in respect of excess distributions and upon any gain from the disposition of their Diamond S common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the Diamond S common shares.
The Company may have to pay tax on U.S.-source shipping income, which would reduce its earnings.
Under the Code, a foreign corporation that recognizes income attributable to transportation that begins or ends (but that does not begin and end) in the United States, as the Company and its subsidiaries do, may be subject to U.S. federal income taxation under one of two alternative tax regimes unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations thereunder: the 4% gross basis tax or the net basis tax and branch tax. The imposition of any such taxation would have a negative effect on the Company’s business and would decrease its earnings available for distribution to its shareholders.
The Company and its subsidiaries cannot be certain that the Company will qualify for this statutory tax exemption. There are factual circumstances beyond the Company’s control that could prevent the Company from qualifying for this tax exemption and that could cause the Company to become subject to U.S. federal income tax on its U.S. source shipping income. In particular, the Company may not qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in its common shares (“5% Shareholders”) owned, in the aggregate, 50% or more of its outstanding common shares for more than half the days during the taxable year, and there do not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to preclude nonqualified 5% Shareholders from owning 50% or more of the Company’s common shares for more than half the number of days during such taxable year or the Company is unable to satisfy certain substantiation requirements with regard to its 5% Shareholders. The Company believes that there is a risk that this 5% Shareholder exception could apply to the Company, especially in its first year of operation.
The Company’s inability to attract and retain qualified personnel could have an adverse effect on its business.
Attracting and retaining skilled personnel is an important factor in the Company’s future success. The market for qualified personnel is highly competitive and the Company cannot be certain that it will be successful in attracting and retaining qualified personnel in the future. Failure to attract and retain qualified personnel could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company is dependent on its in-house ship and technical management subsidiary and its third-party technical managers and other agents for the commercial, technical and administrative management of its business, and their ability to hire and retain key personnel, and the failure of the Company’s in-house ship and technical management subsidiary or its third-party technical managers and other agents to satisfactorily perform their services may adversely affect the Company’s business. The Company’s success also depends upon its technical managers’ ability to hire and retain key personnel. The underperformance by these firms could adversely affect the Company’s business prospects and financial condition. The loss of any of the Company’s technical managers’ services or failure by any of its technical managers to perform its obligations could materially and adversely affect the results of its operations. If any of the Company’s technical management agreements were to be terminated or if any of their terms were to be altered, the Company’s business could be adversely affected, as it may not be able to immediately replace such services. Even if replacement services were immediately available, the terms offered could be less favorable than those under the Company’s current technical management agreements.
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In such outsourcing arrangements, the Company has transferred direct control over technical and commercial management of some of its vessels while maintaining significant oversight and audit rights and must rely on third party service providers to, among other things:

comply with contractual commitments, including with respect to safety, quality and environmental compliance of the operations of the Company’s vessels;

comply with requirements imposed by the U.S. government, the U.N. and the EU (1) restricting calls on ports located in countries that are subject to sanctions and embargoes and (2) prohibiting bribery and other corrupt practices;

respond to changes in customer demands for the Company’s vessels;

obtain supplies and materials necessary for the operation and maintenance of the Company’s vessels;

mitigate the impact of labor shortages and/or disruptions relating to crews on the Company’s vessels; and

provide services to the Company’s vessels of the same quality and at similar costs to those provided to its other customers.
The failure of third-party service providers to meet such commitments could lead to legal liability or other damages. Failure by such providers to comply with relevant laws may subject the Company to liability or damage its reputation. Furthermore, damage to any such third party’s reputation, relationships or business may reflect on the Company directly or indirectly, and could have a material adverse impact on its business, financial condition, results of operations and cash flows.
There may be conflicts of interest between the Company and CSM that may not be resolved in the Company’s favor.
In addition to managing the Company’s vessels, CSM also manages ships on behalf of CPLP, CMTC and other parties. Conflicts of interest may arise between CSM’s obligations to other parties, on the one hand, and the Company or the Company’s shareholders, on the other hand. As a result of these conflicts, CSM may favor the interests of other parties over the Company’s interests or those of the Company’s shareholders. This could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
The Company’s tanker vessels’ present and future employment could be adversely affected by an inability to clear the oil majors’ risk assessment process.
Shipping, and especially crude oil, refined product and chemical tankers have been, and will remain, heavily regulated. The so-called “oil majors”, together with a number of commodities traders, represent a significant percentage of the production, trading and shipping logistics (terminals) of crude oil and refined products worldwide. Concerns for the environment have led the oil majors to develop and implement a strict ongoing due diligence process when selecting their commercial partners. This vetting process has evolved into a sophisticated and comprehensive risk assessment of both the vessel operator and the vessel, including physical ship inspections, completion of vessel inspection questionnaires performed by accredited inspectors and the production of comprehensive risk assessment reports. In the case of term charter relationships, additional factors are considered when awarding such contracts, including:

office assessments and audits of the vessel operator;

the operator’s environmental, health and safety record;

compliance with the standards of the IMO;

compliance with heightened industry standards that have been set by several oil companies;

shipping industry relationships, reputation for customer service, technical and operating expertise;
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compliance with oil majors’ codes of conduct, policies and guidelines, including transparency, anti-bribery and ethical conduct requirements and relationships with third parties;

shipping experience and quality of ship operations, including cost-effectiveness;

quality, experience and technical capability of crews;

the ability to finance vessels at competitive rates and overall financial stability;

relationships with shipyards and the ability to obtain suitable berths;

construction management experience, including the ability to procure on-time delivery of new vessels according to customer specifications;

willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

competitiveness of the bid in terms of overall price.
Should CSM not continue to successfully clear the oil majors’ risk assessment processes on an ongoing basis, the Company’s vessels’ present and future employment, as the well as the Company’s relationship with the Company’s existing charterers and the Company’s ability to obtain new charterers, whether medium- or long-term, could be adversely affected. Such a situation may lead to the oil majors’ terminating existing charters and refusing to use the Company’s vessels in the future, which would adversely affect the Company’s business, financial condition, results of operations and cash flows.
Marine transportation is inherently risky, and an incident involving significant loss of, or environmental contamination by, any of the Company’s vessels could harm the Company’s reputation and business.
The Company’s vessels and their cargoes are at risk of being damaged or lost because of events such as:

marine disasters;

bad weather;

mechanical failures;

grounding, fire, explosions and collisions;

piracy;

human error; and

war and terrorism.
An accident involving any of the Company’s vessels could result in any of the following:

environmental damage, including liabilities and costs to recover spilled oil or other petroleum products, and to pay for environmental damage and ecosystem restoration where the spill occurred;

death or injury to persons, or loss of property;

delays in the delivery of cargo;

loss of revenues from, or termination of, charter contracts;

governmental fines, penalties or restrictions on conducting business;

higher insurance rates; and

damage to the Company’s reputation and customer relationships generally.
Any of these results could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
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Failure to comply with the FCPA could result in fines, criminal penalties, contract terminations and an adverse effect on the Company’s business.
The Company may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. The Company is committed to doing business in accordance with applicable anti-corruption laws and has adopted a code of conduct and ethics which is consistent and in full compliance with the FCPA. The Company is subject, however, to the risk that it, its affiliated entities, the Company’s or its affiliated entities’ 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 and curtailment of operations in certain jurisdictions, and might adversely affect the Company’s business, financial condition, results of operations and cash flows. In addition, actual or alleged violations could damage the Company’s 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 the Company’s senior management.
The Company may not achieve some or all of the expected benefits of the Transactions.
There is a risk that some or all of the expected benefits of the Transactions may fail to materialize, or may not occur within the time periods anticipated. The realization of such benefits may be affected by a number of factors, many of which are beyond the Company’s control, including but not limited to the strength or weakness of the economy and competitive factors in the areas where it does business, the effects of competition in the markets in which it operates, and the impact of changes in the laws and regulations regulating the seaborne transportation or refined petroleum products industries or affecting domestic or foreign operations. The challenge of coordinating previously separate businesses makes evaluating the Company’s business and future financial prospects following the Transactions difficult. The Company’s ability to realize anticipated benefits and cost savings will depend, in part, on its ability to successfully integrate the operations of CPLP’s tanker business and DSS LP in a manner that results in various benefits, including, among other things, an expanded market reach and operating efficiencies, and that does not materially disrupt existing relationships nor result in decreased revenues. Prior to the Transactions, DSS LP was a privately held company and CPLP’s tanker business was an integrated part of CPLP. The past financial performance of each of CPLP’s tanker business and DSS LP may not be indicative of future financial performance. Realization of the anticipated benefits of the Transactions will depend, in part, on the Company’s ability to successfully integrate its business. The Company expects to devote attention to coordinating processes of reporting and procedures for oversight. The diversion of management’s attention and any delays or difficulties encountered in connection with the Transactions and the coordination of the two companies’ operations could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows. The consummation of the Transactions and the integration of the businesses may also result in additional and unforeseen expenses.
Risks Related to the Company’s Indebtedness and Financing
Servicing the Company’s current or future indebtedness limits funds available for other purposes and if the Company cannot service its debt, it may lose its vessels.
Borrowings under the Company’s debt facilities require the Company to dedicate a part of its cash flow from operations to paying interest on its indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes. Amounts borrowed under the Company’s secured debt facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that the Company would have to pay to its lenders, even though the outstanding principal amount remains the same, and the Company’s net income and cash flows would decrease. The Company expects its earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If the Company does not generate or reserve enough cash flow from operations to satisfy its debt obligations, it may have to make alternative financial arrangements which may include seeking to raise additional capital, refinancing or restructuring its debt, selling tankers, or reducing or delaying capital investments. However, these alternative financial arrangements, if necessary, may not be sufficient to allow the Company to meet its debt obligations.
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If the Company is unable to meet its debt obligations or if some other default occurs under its debt facilities, the Company’s lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from the Company’s debt facilities.
The Company’s debt financing agreements contain restrictive covenants and financial covenants which may limit the Company’s ability to conduct certain activities, and further, the Company may be unable to comply with such covenants, which could result in a default under the terms of such agreements. The Company’s debt agreements impose operating and financial restrictions on it. These restrictions may limit the Company’s ability, or the ability of its subsidiaries party thereto, to, among other things:

pay dividends and make capital expenditures if there is a default under its debt facilities;

make capital expenditures unless related to the use, operation, trading, repairs and maintenance work on collateral vessels or improvements to collateral vessels;

incur additional indebtedness, including the issuance of guarantees;

create liens on its assets;

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

sell the Company’s vessels;

merge or consolidate with, or transfer all or substantially all the Company’s assets to, another person; or

enter into a new line of business.
Therefore, the Company will need to seek permission from its lenders in order to engage in certain corporate actions if such actions do not otherwise comply with the restrictions under its debt facilities. The Company’s lenders’ interests may be different from the Company’s, and the Company may not be able to obtain its lenders’ permission when needed. This may limit the Company’s ability to pay dividends, finance its future operations or capital requirements, make acquisitions or pursue business opportunities.
In addition, the terms and conditions of certain of the Company’s borrowings require it to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in its fleet. Should the Company’s charter rates or vessel values materially decline in the future, it may seek to obtain waivers or amendments from its lenders with respect to such financial ratios and covenants, or it may be required to take action to reduce its debt or to act in a manner contrary to its business objectives to meet any such financial ratios and satisfy any such financial covenants. If the Company is not able to obtain such waivers to agree to such amendments with its lenders or reduce its debt due to the decline in its vessel values it will likely be in default of such covenants, including its collateral maintenance covenant.
Events beyond the Company’s control, including changes in the economic and business conditions in the shipping markets in which it operates, may affect its ability to comply with these covenants. The Company cannot provide any assurance that it will meet these ratios or satisfy these covenants or that its lenders will waive any failure to do so or amend these requirements. A breach of any of the covenants in, or the Company’s inability to maintain the required financial ratios under, the Company’s credit facilities would prevent it from borrowing additional money under its credit facilities and could result in a default under its credit facilities. If a default occurs under the Company’s credit facilities, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of the Company’s assets. Moreover, in connection with any waivers or amendments to the Company’s credit facilities that the Company may obtain, the Company’s lenders may impose additional operating and financial restrictions on the Company or modify the terms of its existing credit facilities. These restrictions may further restrict the Company’s ability to, among other things, pay dividends, repurchase its common shares, make capital expenditures, or incur additional indebtedness.
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Furthermore, the Company’s debt agreements contain cross-default provisions that may be triggered if the Company defaults under the terms of any one of its financing agreements. In the event of default by the Company under one of its debt agreements, the lenders under the Company’s other debt agreements could determine that the Company is in default under such other financing agreements. Such cross defaults could result in the acceleration of the maturity of such indebtedness under these agreements and the lenders thereunder may foreclose upon any collateral securing that indebtedness, including the Company’s vessels, even if the Company was to subsequently cure such default. In the event of such acceleration or foreclosure, the Company might not have sufficient funds or other assets to satisfy all of its obligations, which would have a material adverse effect on its business, financial condition, results of operations and cash flows.
The Company’s interest rate swap agreements are subject to counterparty risks and may be insufficient to protect it against volatility in LIBOR rates and amounts due under its credit facilities.
The Company has partially hedged against the floating interest rate risks under its credit facilities that are not cash flow hedges and are reported in income and, accordingly, could materially affect the Company’s reported income in any period. Moreover, in light of current economic uncertainty, the Company may be exposed to the risk that one or more counterparties to its interest rate swap agreements may be unable to perform its obligations thereunder. LIBOR rates have recently been volatile, with the spread between those rates and prime lending rates widening significantly at times. These conditions are the result of the recent disruptions in the international credit markets. Amounts borrowed under the Company’s credit facilities, which the Company has partially hedged, bear interest at annual rates of between 2.20% and 3.25% above LIBOR. If one or more of the counterparties to the Company’s interest rate swap agreements fails to perform its obligations thereunder, or if the Company chooses not to, or is unable to, enter into such swap agreements for future debt instruments, the Company may be exposed to increased interest rates and additional interest rate volatility, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
If the Company is in breach of any of the terms of its credit facilities, a significant portion of its obligations may become immediately due and payable, and the lenders’ commitments to make further loans to the Company, if any, may terminate. This can adversely affect the Company’s ability to execute its business strategy or make cash distributions.
The Company’s ability to comply with the covenants and restrictions contained in its credit facilities and any other debt instruments it may enter into in the future may be affected by events beyond the Company’s control, including prevailing economic, financial and industry conditions. If the Company is in breach of any of the restrictions, covenants, ratios or tests in its credit facilities, or if the Company triggers a cross-default currently contained in its credit facilities or any interest rate swap agreements, or in any such facility or agreement it may enter into, pursuant to their terms, a significant portion of the Company’s obligations may become immediately due and payable, and the Company’s lenders’ commitment to make further loans to the Company, if any, may terminate. The Company may not be able to reach agreement with its lenders to amend the terms of the loan agreements or waive any breaches and the Company may not have, or be able to obtain, sufficient funds to make any accelerated payments, which could have a material adverse impact on its business, financial condition, results of operations and cash flows.
Risks Related to Diamond S Common Shares
The Diamond S common shares are currently thinly traded, and there is no guarantee that an active and liquid trading market for the Diamond S common shares will develop.
There is currently limited trading volume in Diamond S common shares, and an active and liquid trading market for Diamond S common shares may not develop. In the absence of an active and liquid trading market:

holders of Diamond S common shares may not be able to liquidate their positions in the Diamond S common shares;

the market price of Diamond S common shares may experience more price volatility; and

there may be less efficiency in carrying out holders’ purchase and sale orders.
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The price of Diamond S common shares may be volatile.
The price of Diamond S common shares may fluctuate due to a variety of factors, including:

actual or anticipated fluctuations in the Company’s quarterly and annual results and those of other public companies in its industry;

mergers and strategic alliances in the product tanker industry;

market prices and conditions in the product tanker and oil industries;

introduction of new technology by the Company or its competitors;

commodity prices and in particular prices of oil and natural gas;

the ability or willingness of OPEC to set and maintain production levels for oil;

oil and gas production levels by non-OPEC countries;

changes in government regulation;

potential or actual military conflicts or acts of terrorism;

natural disasters affecting the supply chain or use of petroleum products;

the failure of securities analysts to publish research about the Company, or shortfalls in the Company’s operating results from levels forecast by securities analysts;

the Company’s capital structure;

additions or departures of key personnel;

announcements concerning the Company or its competitors; and

the general state of the securities market.
These broad market and industry factors may materially reduce the Company’s share price, regardless of the Company’s operating performance.
Reports published by analysts, including projections in those reports that exceed the Company’s actual results, could adversely affect the price and trading volume of Diamond S common shares.
The Company currently expects that securities research analysts will establish and publish their own periodic projections for the Company’s business. These projections may vary widely and may not accurately predict the results the Company actually achieves. The Company’s share price may decline if its actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on the Company downgrades the Company’s shares or publishes inaccurate or unfavorable research about the Company’s business, the Company’s share price could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on the Company regularly, the Company’s share price or trading volume could decline. While the Company expects research analyst coverage, if no analysts commence coverage of the Company, the trading price and volume for Diamond S common shares could be adversely affected.
There may be circumstances in which the interests of the Company’s significant shareholders could be in conflict with other shareholders.
As of March 31, 2019, funds managed by WLR and First Reserve owned 24% and 20% and CMTC and its affiliates owned approximately 6% of the outstanding Diamond S common shares, respectively, and have the ongoing right, subject to certain conditions and limitations, to nominate directors to the board of directors of the Company, as more fully described in the section entitled “Certain Relationships and Related Person Transactions.” Circumstances may arise in which these shareholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in the Company or another company in which they invest. Such transactions might adversely affect the Company or other holders of Diamond S common shares.
Furthermore, shareholders may have more difficulty in protecting their interests in connection with actions taken by the Company’s significant shareholders than they would as shareholders of a corporation incorporated in the United States.
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In addition, the holdings by the Company’s significant shareholders may adversely affect the trading price of Diamond S common shares because investors may perceive disadvantages in owning shares in companies with significant shareholders.
The Company may issue additional Diamond S common shares or other equity securities without shareholder approval, which would dilute their ownership interests and may depress the Company’s share price.
The Company may issue additional shares of Diamond S common shares or other equity securities of equal or senior rank in the future in connection with, among other things, future vessel acquisitions, repayment of outstanding indebtedness or the Company’s equity incentive plan, without shareholder approval in a number of circumstances.
Future sales of shares may cause the market price for Diamond S common shares to decline.
Sales of substantial amounts of Diamond S common shares in the public market, or the perception that these sales may occur, could adversely affect the Company’s share price and impair its ability to raise capital through the sale of additional equity securities. As of March 31, 2019, the Company had 39,890,696 shares outstanding of which 12,725,000 shares were freely tradable, without restriction, in the public market unless held by the Company’s “affiliates,” as defined under Rule 405 of the Securities Act. The remaining shares were “restricted securities,” as that term is defined in Rule 144 under the Securities Act, subject to the applicable holding period, volume, manner of sale and other limitations under Rule 144 or Rule 701 of the Securities Act. The Company has registered the shares held by certain the DSS LP limited partners and by CMTC and its affiliates on a shelf registration statement of which this prospectus is a part. The sales of significant amounts of Diamond S common shares, or the perception in the market that this will occur, may result in the lowering of the Company’s share price.
The Company will incur increased costs and obligations as a result of being an independent public company.
As an independent publicly traded company, the Company will incur significant legal, accounting and other expenses that the Company was not required to incur in the recent past, particularly after the Company is no longer an “emerging growth company” as defined under the JOBS Act. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd Frank Act and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations of the SEC and NYSE, have created uncertainty for public companies and increased the Company’s costs and the time that the Company’s board of directors and management must devote to complying with these rules and regulations. The Company expects these rules and regulations to increase its legal and financial compliance costs and lead to a diversion of management time and attention from revenue generating activities.
Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing the Company’s growth strategy, which could prevent the Company from improving its business, financial condition, results of operations and cash flows. The Company has made, and will continue to make, changes to its internal controls and procedures for financial reporting and accounting systems to meet its reporting obligations as a publicly traded company. However, the measures the Company takes may not be sufficient to satisfy its obligations as a publicly traded company.
As an emerging growth company, the Company cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make Diamond S common shares less attractive to investors.
The Company is an emerging growth company as defined in the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to obtain an assessment of the effectiveness of the Company’s internal controls over financial reporting from its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
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shareholder approval of any golden parachute payments not previously approved. The Company cannot predict if investors will find its shares less attractive because it will rely on these exemptions. If some investors find the Company’s shares less attractive as a result, there may be a less active market for the Company’s shares and its share price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. The Company intends to take advantage of the benefits of this extended transition period, for as long as it is available. As a result, the Company’s financial statements may not be comparable to those of companies that comply with such new or revised accounting standards.
Pursuant to the JOBS Act, the Company’s independent registered public accounting firm will not be required to attest to the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as it is an emerging growth company.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of the Company’s internal control over financial reporting, starting with the second annual report that it files with the SEC after the consummation of its initial public listing, and generally requires in the same report a report by its independent registered public accounting firm on the effectiveness of its internal control over financial reporting. However, as an emerging growth company, the Company’s independent registered public accounting firm will not be required to attest to the effectiveness of its internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until it is no longer an emerging growth company. The Company could be an emerging growth company for up to five years.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The Company is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and is required to prepare its financial statements according to the rules and regulations required by the SEC. The Sarbanes-Oxley Act requires that the Company, among other things, establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in the Company’s business, or changes in applicable accounting rules. The Company cannot provide any assurance that its internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which the Company had previously believed that internal controls were effective. If the Company is not able to maintain or document effective internal control over financial reporting, its independent registered public accounting firm will not be able to certify as to the effectiveness of the Company’s internal control over financial reporting when the Company becomes subject to those requirements. Matters impacting the Company’s internal controls may cause it to be unable to report its financial information on a timely basis, or may cause it to restate previously issued financial information, and thereby subject it to adverse regulatory consequences, including sanctions or investigations by the SEC or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in the Company and the reliability of its financial statements. Confidence in the reliability of the Company’s financial statements is also likely to suffer if the Company or its independent registered public accounting firm reports a material weakness in the Company’s internal control over financial reporting. This could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows by, for example, leading to a decline in the Company’s share price and impairing its ability to raise additional capital.
If the Company does not develop and implement all required accounting practices and policies, it may be unable to provide the financial information required of a U.S. publicly traded company in a timely and reliable manner.
Prior to the Transactions, the Company did not adopt all of the financial reporting and disclosure procedures and controls required of a U.S. publicly traded company because its operations were either part of a privately held company or a segment of a larger public company. The Company expects that the
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implementation of all required accounting practices and policies and the hiring of additional financial staff will increase its operating costs and could require significant time and resources from the Company’s management and employees. If the Company fails to develop and maintain effective internal controls and procedures and disclosure procedures and controls, the Company may be unable to provide financial information and required SEC reports that a U.S. publicly traded company is required to provide in a timely and reliable fashion. Any such delays or deficiencies could penalize the Company, including by limiting its ability to obtain financing, either in the public capital markets or from private sources and hurt the Company’s reputation and could thereby impede its ability to implement its growth strategy. In addition, any such delays or deficiencies could result in the Company’s failure to meet the requirements for continued listing of the Diamond S common shares on the NYSE.
Certain provisions of the Company’s articles of incorporation and bylaws may make it difficult for shareholders to change the composition of its board of directors and may discourage, delay or prevent a merger or acquisition that some shareholders may consider beneficial.
Certain provisions of the Company’s articles of incorporation and bylaws may have the effect of delaying or preventing changes in control if its board of directors determines that such changes in control are not in the best interests of the Company and its shareholders. The provisions in the Company’s articles of incorporation and bylaws include, among other things, those that:

authorize the Company’s board of directors to issue preferred shares and to determine the price and other terms, including preferences and voting rights, of those shares without shareholder approval;

establish advance notice procedures for nominating directors or presenting matters at shareholder meetings;

authorize the removal of directors only for cause or pursuant to a plan of merger, consolidation or reorganization approved by the shareholders;

allow only the Company’s board of directors to fill vacancies;

limit the persons who may call special meetings of shareholders;

limit the persons who may bring any business before an annual meeting to shareholders who beneficially own at least 10% of the then outstanding Diamond S common shares; and

provide certain of the Company’s shareholders the right to designate up to five members of the Company’s board of directors.
While these provisions may have the effect of encouraging persons seeking to acquire control of the Company to negotiate with its board of directors, they could enable the board of directors to hinder or frustrate a transaction that some, or a majority, of the shareholders may believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.
These provisions may frustrate or prevent any attempts by the Company’s shareholders to replace or remove its current management by making it more difficult for shareholders to replace members of its board of directors, which is responsible for appointing the members of its management.
The Company may be restricted from paying dividends on Diamond S common shares.
As a holding company, the Company will depend on its subsidiaries’ ability to pay distributions to the Company to pay cash dividends to holders of Diamond S common shares. The Company’s dividends must be authorized by its board of directors, in its sole discretion. Any determination to pay or not pay cash dividends will depend on the Company’s available cash balances, anticipated cash needs, results of operations, financial condition, expected market conditions, investment opportunities, credit agreement restrictions and other factors the Company’s board of directors may deem relevant. In addition, Marshall Islands law generally prohibits the payment of dividends other than from surplus (defined as net assets in excess of stated capital, and stated capital for shares with par value generally means the aggregate par value
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of the issued shares), but in case there is no surplus, dividends may be declared or paid out of the net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. No dividends can be declared or paid when the Company is insolvent or if the payment of the dividend would render the Company insolvent.
The Company is incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law or a bankruptcy law and, as a result, shareholders may have fewer rights and protections under Republic of the Marshall Islands law than under the law of a typical jurisdiction in the United States.
The Company’s corporate affairs are governed by its articles of incorporation and bylaws and by the Republic of the Marshall Islands Business Corporations Act (the “BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, the Company’s public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or significant shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction. Additionally, the Republic of the Marshall Islands does not have a legal provision for bankruptcy or a general statutory mechanism for insolvency proceedings. As such, in the event of a future insolvency or bankruptcy, the Company’s shareholders and creditors may experience delays in their ability to recover their claims after any such insolvency or bankruptcy.
It may be difficult to serve process on or enforce a U.S. judgment against the Company, its officers and its directors because the Company is a foreign corporation.
The Company is a corporation formed in the Republic of the Marshall Islands, and a substantial portion of its assets are located outside of the United States. As a result, the Company’s shareholders may have difficulty serving legal process within the United States upon the Company. The Company’s shareholders may also have difficulty enforcing, both in and outside the United States, judgments they may obtain in U.S. courts against the Company in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of the Republic of the Marshall Islands would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. As a result, it may be difficult or impossible for the Company’s shareholders to bring an original action against the Company or against these individuals in a court in the Republic of the Marshall Islands in the event that the Company’s shareholders believe that their rights have been infringed under the U.S. federal securities laws or otherwise because the courts in the Republic of the Marshall Islands would not have subject matter jurisdiction to entertain such a suit.
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USE OF PROCEEDS
We are filing the registration statement of which this prospectus forms a part to permit holders of the Shares described in the section entitled “Principal and Selling Shareholders” to sell such Shares. We will not receive any proceeds from the sale of our shares by the selling shareholders.
DETERMINATION OF OFFERING PRICE
The selling shareholders will determine at what price they may sell the Shares offered by this prospectus, and such sales may be made at fixed prices, prevailing market prices at the time of the sale, varying prices determined at the time of sale, or negotiated prices.
MARKET FOR THE SECURITIES
Our common shares are listed on the NYSE under the symbol “DSSI” and have been trading since March 28, 2019. No established public trading market existed for our common shares prior to March 28, 2019. As of March 31, 2019, we had 39,890,696 common shares outstanding and 35 record holders of our common shares.
Pursuant to the registration statement of which this prospectus forms a part, 11,684,435 common shares are registered under the Securities Act for sale by the selling shareholders.
DIVIDEND POLICY
The Company intends to pay regular quarterly cash dividends on Diamond S common shares but there can be no assurance that the Company will pay dividends or as to the amount of any dividend. The payment and the amount of dividends paid will be subject to the sole discretion of the Company’s board of directors and will depend, among other things, on available cash balances, anticipated cash needs, results of operations, financial condition, expected market conditions, investment opportunities and credit agreement restrictions binding the Company or its subsidiaries, as well as other relevant factors.
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SELECTED HISTORICAL COMBINED FINANCIAL DATA OF ATHENA
The following tables set forth selected historical combined financial and other data of the crude and product tanker business of CPLP (referred to as “Athena” in this prospectus). The selected historical combined financial data was carved out from the financial information of CPLP as described below.
Diamond S was formed for the purpose of effecting the Transactions, which included the contribution from CPLP of all of CPLP’s crude and product tankers, an amount in cash equal to $10 million and associated inventories followed by the combination with DSS LP. Prior to the consummation of the Transactions, Diamond S did not conduct any business and did not have any material assets or liabilities.
The selected historical financial data of Athena set forth below as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 has been derived from the audited combined carve-out financial statements of Athena, which are included elsewhere in this prospectus.
The historical results set forth below do not indicate results expected for any future periods. The selected financial data set forth below are qualified in their entirety by, and should be read in conjunction with, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Athena” and the audited combined carve-out financial statements of Athena and notes related thereto included elsewhere in this prospectus.
This data may not be comparable to, or indicative of, future operating results. Different factors affect Athena’s results of operations, including among others, the number of vessels in the fleet, prevailing charter rates, management and administrative services fees, as well as financing arrangements.
The combined carve-out financial statements of Athena were prepared in accordance with U.S. GAAP. Presentation of earnings per unit information is not applicable in the combined carve-out financial statements, since the assets and liabilities of Athena prior to the distribution were owned by CPLP.
For the Years Ended December 31,
(in thousands)
2018
2017
2016
Income Statement Data:
Revenues
$ 148,318 $ 97,806 $ 101,506
Revenues – related party
13,342 34,676 26,681
Total revenues
161,660 132,482 128,187
Expenses
Voyage expenses(1)
37,202 10,537 6,568
Voyage expenses–related party(1)
360
Vessel operating expenses(2)
59,962 47,119 38,329
Vessel operating expenses – related party(2)
8,444 7,192 6,533
General and administrative expenses
3,832 3,979 3,960
Vessel depreciation and amortization
40,274 38,014 36,814
Total operating expenses
149,714 106,841 92,564
Operating income
11,946 25,641 35,623
Interest expense and finance costs
(2,578) (583) (93)
Other income/(expense)
167 (321) 118
Net income
$ 9,535 $ 24,737 $ 35,648
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As of December 31,
(in thousands)
2018
2017
Balance Sheet Data:
Fixed assets
$ 643,682 $ 607,528
Total assets
679,599 618,580
Total long-term liabilities
55,320 15,426
Net parent investment(3)
600,074 584,457
For the Years Ended December 31,
(in thousands)
2018
2017
2016
Cash Flow Data:
Net cash provided by operating activities
$ 35,476 $ 64,495 $ 68,545
Net cash used in investing activities
(41,837) (359) (17,192)
Net cash provided by/(used in) financing activities
4,838 (60,566) (52,602)
(1)
Voyage expenses primarily consist of brokerage commissions, port expenses, canal dues and bunkers.
(2)
Vessel operating expenses consist of management fees payable to CSM pursuant to the terms of three separate management agreements and actual operating expenses, such as crewing, repairs and maintenance, insurance, stores, spares, lubricants and other operating expenses incurred in respect of Athena’s vessels.
(3)
Net parent investment represents CPLP’s interest in Athena’s net assets and includes Athena’s cumulative earnings as adjusted for cash distributions to and cash contributions from CPLP.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DSS LP
The following tables set forth selected historical consolidated financial and other data of DSS LP. The selected historical financial data of DSS LP set forth below as of December 31, 2018 and March 31, 2018, for the nine months ended December 31, 2018 and for the years ended March 31, 2018 and 2017 has been derived from the audited consolidated financial statements of DSS LP, which are included elsewhere in this prospectus.
The historical results set forth below do not indicate results expected for any future periods. The selected financial data set forth below are qualified in their entirety by, and should be read in conjunction with, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of DSS LP” and the audited consolidated financial statements of DSS LP and notes related thereto included elsewhere in this prospectus.
This data may not be comparable to, or indicative of, future operating results. Different factors affect DSS LP’s results of operations, including among others, the number of vessels in the fleet, prevailing charter rates, management and administrative services fees, as well as financing arrangements.
The consolidated financial statements of DSS LP were prepared in accordance with U.S. GAAP.
For the Nine
Months Ended
December 31,
2018
For the Years Ended
March 31,
(in thousands)
2018
2017
Income Statement Data:
Revenues
$ 275,473 $ 302,943 $ 303,797
Vessel expenses(1)
85,206 109,176 103,000
Voyage expenses(2)
137,774 89,912 43,344
Depreciation and amortization expense
66,101 86,625 81,048
Loss on sale of vessels(3)
19,970
General and administrative
11,384 14,642 13,201
Other corporate expenses(4)
678 483 580
Management fees
1,018 1,293
Operating (loss) income
(45,640) 1,088 61,331
Total other expense – Net
(26,874) (32,425) (37,510)
Net (loss) income
(72,514) (31,337) 23,821
Less: net (loss) income attributable to noncontrolling interest(5)
(135) 776 (138)
Net (loss) income attributable to DSS Holdings L.P.
$ (72,379) $ (30,561) $ 23,683
38

(in thousands)
As of
December 31,
2018
As of
March 31,
2018
Balance Sheet Data:
Cash and cash equivalents including restricted cash
$ 88,158 $ 84,340
Total current assets
150,302 166,824
Vessels, net
1,454,286 1,565,900
Total assets
1,649,855 1,769,926
Debt
639,541 691,736
Total DSS Holdings L.P. and Affiliated Entity partners’ equity
945,239 1,019,360
Noncontrolling interest(5)
34,607 34,693
For the Nine
Months Ended
December 31,
2018
For the Years Ended
March 31,
(in thousands)
2018
2017
Cash Flow Data:
Net cash provided by (used in):
Operating activities
$ 23,487 $ 34,025 $ 103,889
Investing activities
28,008 48,640 (179,714)
Financing activities
(47,677) (67,676) (7,469)
(1)
Vessel operating expenses consist of technical management fees, crewing, repairs and maintenance, insurance, stores, spares, lubricants and other operating expenses incurred in respect of DSS LP’s vessels.
(2)
Voyage expenses primarily consist of brokerage commissions, port expenses, canal dues and bunkers.
(3)
In November 2018, DSS LP agreed to sell two 2009-built MR vessels for $34.9 million of total proceeds and repaid $24.7 million in related debt.
(4)
Other corporate expenses represent administrative expenses primarily related to restructuring and merger and acquisition advisory activities.
(5)
DSS LP indirectly holds a 51% ownership interest in NT Suez Holdco LLC, a Marshall Islands limited liability company, formed on September 23, 2014, which is a joint venture with an affiliate of the Company’s largest shareholder.
39

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is presented to illustrate the consummation of the Transactions. The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are based on available information and were prepared using certain assumptions set forth in the notes thereto to give effect to the Transactions.
The accompanying unaudited pro forma condensed combined financial information gives effect to adjustments that are (1) directly attributable to the Transactions, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statement of operations, and are expected to have a continuing impact on the consolidated results. The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had occurred on December 31, 2018 and the unaudited pro forma condensed combined statements of operations give effect to the Transactions as if they had occurred on January 1, 2018. The unaudited pro forma condensed combined financial information excludes the information of Diamond S prior to CPLP’s contribution of 25 crude and product tankers since prior to this contribution Diamond S had no significant assets, liabilities, revenues or expenses.
The unaudited pro forma condensed combined financial information is provided for informational purposes only. The unaudited pro forma condensed combined financial information is not necessarily indicative of operating results that would have been achieved had the Transactions been completed as of January 1, 2018 and does not intend to project the future financial results of Diamond S after the Transactions. The unaudited pro forma condensed combined balance sheet does not purport to reflect what the Company’s financial condition would have been had the Transactions been completed on December 31, 2018 or for any future or historical period. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or the benefits from the Transactions and the synergies that may be derived.
The combination of CPLP’s crude and product tanker business with the business of DSS LP (the “combination”) reflects an asset acquisition under the guidelines of the Financial Accounting Standards Board (“FASB”) ASC 805, and ASU 2017-01, whereby DSS LP is the accounting acquirer of Athena’s contributions of 25 crude and product tankers and associated inventories, $10 million in cash plus prorated charter hire and net payments received from the “Lockbox Date” (as defined in the Transaction Agreement”) with specific arrangements relating to the funding of working capital. As the accounting acquirer, all of DSS LP’s assets, liabilities and results of operations will be recorded at their historical cost basis. The unaudited pro forma condensed combined financial statements also include the effect of the acquisition by DSS LP of the Athena business, which will value the acquired assets and liabilities at the cost of the acquisition, including transaction costs, on the basis of relative fair values.
Athena’s fiscal year ends on December 31 and, prior to January 2019, DSS LP’s fiscal year ended on March 31. In January 2019, DSS LP changed its fiscal year end to December 31. The unaudited pro forma condensed combined balance sheet combines the audited combined carve-out balance sheet of Athena as of December 31, 2018 and the audited consolidated balance sheet of DSS LP as of December 31, 2018. The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2018 combines the audited combined carve-out statement of comprehensive income of Athena for the fiscal year ended December 31, 2018 and the unaudited consolidated statement of operations of DSS LP for the four quarterly periods ended December 31, 2018. The unaudited consolidated statement of operations of DSS LP for the four quarterly periods ended December 31, 2018 was determined by adding (without any material adjustments) DSS LP’s audited consolidated statement of operations for the nine months ended December 31, 2018 to DSS LP’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2018. DSS LP’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2018 is not included in this document.
40

The unaudited pro forma condensed combined financial information presented below should be read in conjunction with the following information:

Notes to the unaudited pro forma condensed combined financial information.

Audited combined carve-out financial statements of Crude and Product Tanker Business of Capital Product Partners L.P. as of and for the fiscal year ended December 31, 2018 included in this prospectus.

Audited consolidated financial statements of DSS Holdings L.P. as of and for the nine months ended December 31, 2018 included in this prospectus.
41

Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2018
(in thousands except for share and per share information)
Athena
Historical*
DSS LP
Historical
Pro Forma
Adjustments
Notes
Pro Forma
Combined
Assets
Current assets
Cash and cash equivalents
$ 2,586** $ 83,054 $ (14,500) (1) $ 71,140
Trade accounts receivable
13,181 42,637 (13,181) (2) 42,637
Prepayment and other assets
1,882 3,731 (801) (2),(3) 4,812
Inventories
7,183 20,880 28,063
Total current assets
24,832 150,302 (28,482) 146,652
Non-current assets
Vessels, net
643,682 1,454,286 (104,832) (4) 1,993,136
Other property
756 756
Deferred drydocking, net
2,219 33,287 (2,219) (2),(4) 33,287
Time charter asset
7,531 93 369 (2),(5) 7,993
Restricted cash
300 5,104 (300) (1),(2) 5,104
Long-term prepaid expenses
1,035 3,377 4,412
Other
2,650 2,650
Total non-current assets
654,767 1,499,553 (106,782) 2,047,338
Total assets
$ 679,599 $ 1,649,855 $ (135,464) $ 2,193,990
Liabilities and Equity
Current liabilities
Current portion of long-term debt
$ 3,146 $ 97,315 $ 9,531 (6) $ 109,992
Trade accounts payable
11,458 8,782 (11,458) (2) 8,782
Time charter liability
400 (5) 400
Due to related parties
47 (47) (2)
Accrued liabilities
7,800 16,535 (7,800) (2) 16,535
Derivative liability
630 630
Deferred revenue, current
1,754 3,622 (142) 5,234
Total current liabilities
24,205 126,884 (9,516) 141,573
Long-term liabilities
Long-term debt
55,318 542,225 240,283 (6) 837,826
Derivative liability
900 900
Deferred revenue
2 (2)
Total long-term liabilities
55,320 543,125 230,765 838,726
Total liabilities
79,525 670,009 240,281 980,299
Equity
Common shares with no par value, actual; as adjusted – common shares with 0.001 par value, 110,000,000 shares authorized, 38,560,606 shares issued and outstanding
39 (7) 39
Contributed capital
600,074 994,771 (1,594,845) (7)
Additional paid-in capital
2,558 1,228,577 (7) 1,231,135
Accumulated other comprehensive income
4,387 4,387
Accumulated deficit
(56,477) (56,477)
Noncontrolling interest
34,607 34,607
Total equity
600,074 979,846 (366,229) 1,213,691
Total liabilities and equity
$ 679,599 $ 1,649,855 $ (135,464) $ 2,193,990
*
As of December 31, 2018, Athena SpinCo Inc. (now known as Diamond S Shipping Inc.) had no assets, $3 of liabilities and $3 of stockholders’ deficit. See the audited consolidated balance sheet of Athena SpinCo Inc. (now known as Diamond S Shipping Inc.) and the notes thereto beginning on page F-3 of this prospectus.
**
Includes current restricted cash.
42

Unaudited Pro Forma Condensed Combined Statement of Operations
For the Fiscal Year Ended December 31, 2018
(in thousands except for share and per share information)
Athena For the
Year Ended
December 31,
2018
DSS LP For
the Four
Quarterly
Periods Ended
December 31,
2018
Pro Forma
Adjustments
Notes
Pro Forma
Combined
Revenues
$ 148,318 $ 368,617 $ (2,575) (1) $ 514,360
Revenues-related party
13,342 13,342
Total revenues
161,660 368,617 (2,575) 527,702
Voyage expenses
37,202 182,509 219,711
Vessel operating expenses
59,962 113,271 173,233
Vessel operating expenses-related party
8,444 8,444
General and administrative expenses
3,832 16,184 20,016
Loss on sale of vessels
19,970 19,970
Depreciation and amortization
40,274 88,155 (9,916) (2) 118,513
Operating income (loss)
11,946 (51,472) 7,341 (32,185)
Other (expense)/income, net
Interest expense and finance cost
(2,578) (36,679) (13,971) (3) (53,228)
Other (expense)/income
167 1,574 1,741
Total other expense, net
(2,411) (35,105) (13,971) (51,487)
Net income/(loss)
9,535 (86,577) (6,631) (83,673)
Less: Net loss attributable to noncontrolling
interest
(471) (471)
Net income/(loss) attributable to the Company’s shareholders
$ 9,535 $ (86,106) $ (6,631) $ (83,202)
Weighted average shares outstanding – basic and diluted
38,560,606
Loss per share
$ (2.16)
43

Notes to Unaudited Pro Forma Condensed Combined Financial Information
(dollars in thousands)
1.   Description of the Transactions
On November 27, 2018, CPLP and DSS LP entered into the Transaction Agreement pursuant to which Diamond S received, via contribution from CPLP, CPLP’s crude and product tankers and associated inventories, $10 million in cash plus the amount of charter hire received in advance but not yet earned and net payments received from the Lockbox Date with specific arrangements relating to the funding of working capital, and such assets were combined with DSS LP’s business and operations. As a result of the Transaction Agreement, subject to any disposal of vessels in accordance with the Transaction Agreement, following the combination, the Company owns 68 vessels, consisting of 52 product tankers and 16 crude tankers. The Transactions did not require a vote of the holders of the CPLP common units.
The Company lists its Diamond S common shares on the NYSE under the trading symbol “DSSI.”
2.   Accounting Policies
During the preparation of this unaudited pro forma condensed combined financial information, management of DSS LP has performed a preliminary review and comparison of Athena’s U.S. GAAP accounting policies with DSS LP’s U.S. GAAP accounting policies. For purposes of preparing the unaudited pro forma condensed combined financial information, both Athena’s and DSS LP’s historical audited consolidated financial statements were prepared under U.S. GAAP. The only differences in the application of U.S. GAAP are noted in 4.A and 5.A below, and the difference in this application is not considered significant. No material adjustments were identified as a result of this exercise. The resulting pro forma condensed combined financial information has not been audited.
Management of the Company plans to conduct a final review of the Athena accounting policies in an effort to determine if differences in accounting policies require further adjustment or reclassification of the Athena statement of profit or loss or reclassification of assets or liabilities to conform to DSS LP’s accounting policies and classifications, as required by acquisition accounting rules. As a result of that review, management may identify differences that, when conformed, could have a material impact on this unaudited pro forma condensed combined financial information.
3.   Accounting for the Combination
The unaudited pro forma condensed combined financial information is prepared under consideration of requirements of ASC 805 and ASU 2017-01. The combination is accounted for using DSS LP as the accounting acquirer. However, the Company believes that based on the terms of the Transaction Agreement, the combination did not meet the requirements of a business combination. As a result, the combination is accounted for as an asset acquisition, which values acquired assets and liabilities at the cost of the acquisition, including transaction costs, on the basis of relative fair value.
The factors that were considered in determining that DSS LP should be treated as the accounting acquirer in the Transactions were the relative voting rights and the composition of senior management and board of directors of the Company. As a result of the Transactions, former DSS LP limited partners and holders of CPLP units own approximately 68% and 32%, respectively, of the Company. In addition, the former senior management of DSS LP leads the Company following the Transactions. Following the Transactions, the board of directors of the Company consists of seven members, three that were initially nominated by DSS LP and two that were initially nominated by CMTC and its affiliates. The Company believes that based on the respective voting rights of the initial shareholders, the continuity of DSS LP senior management, and the composition of the board of directors of the Company are the most significant factors in determining that DSS LP is the accounting acquirer.
The combination was determined to not meet the requirements of a business combination under ASU 2017-01. The combination consisted of acquiring vessels and associated time charter contracts, which are concentrated in a group of similar identifiable assets, and therefore not considered a business. As of December 31, 2018, approximately 97% of Athena’s total assets acquired and liabilities assumed, exclusive of cash, were comprised of vessels.
44

The following represents a preliminary calculation for the net asset valuation of Athena’s acquired assets and assumed liabilities (in thousands):
Amount
Notes
Vessels’ value
$ 516,500 (a)
Cash
11,158 (b)
Inventories
7,183
Other current assets
1,081 (b)
Above-market value of time charter contracts, net
7,500 (c)
Long term prepaid expenses
1,035 (d)
Deferred revenue
(1,612) (b)
Net asset value of Athena
$ 542,845
(a)
The carrying value of these assets are adjusted in accordance with the principles set forth under ASC Topic 820, “Fair Value Measurement” to include current market values obtained from at least two independent ship brokers. The appraisals, which are the basis for determining allowable borrowings under the new financing agreements, obtained in December 2018 reflect the average values to be approximately $516,500.
(b)
Pursuant to the Transaction Agreement, Athena’s cash represents $10,000 plus the amount of charter received in advance but not yet earned ($1,612 in deferred revenue), less prepaid insurance. Other current assets include prepaid insurance as well as bonded stores and cash on board the 25 vessels.
(c)
This amount represents an estimate of the fair value of the time charters acquired as of December 31, 2018, which considers the differential between the stated time charter rate and the contracts’ fair value at the time of the acquisition.
(d)
Long-term prepaid expenses consist of prepaid capital items related to future scrubber and ballast water treatment installations.
The aforementioned values are based upon December 31, 2018 estimated values and could have materially changed at closing.
4.   Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments as of December 31, 2018
A.   Adjustments for adoption of certain U.S. GAAP pronouncements
While both Athena and DSS LP prepared historical financial statements in accordance with U.S. GAAP, Athena has early adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” for the reporting period commencing January 1, 2018. The effect of the implementation was insignificant as most of Athena’s revenue is generated under time charter arrangements. As a result, no adjustment was made to reflect the differences in revenue recognition policies by Athena and DSS LP.
B.   Pro Forma Adjustments
The decrease in cash and cash equivalents, including restricted cash, of  $14,800 is composed of the following:
Amount
Notes
Cash contributed by CPLP
$ 7,114 (a)
Add: cash for deferred revenue less prepaid insurance
1,158 (b)
Less: net cash provided in financing activities
5,678 (c)
Less: transaction costs
(28,750) (d)
$ (14,800)
45

(1)
Cash and cash equivalents
(a)
The cash contribution of  $7,114, when added to Athena’s cash on hand of  $2,886, totals Athena’s $10,000 cash contribution requirement pursuant to the Transaction Agreement.
(b)
Further adjustments of  $1,158 represent cash contributed by CPLP for revenues paid, but not earned, less related commissions and net of prepaid insurance costs, which, pursuant to the Transaction Agreement, DSS LP was required to reimburse CPLP.
(c)
Refer to (6)(a), Current portion and long-term debt, below. It was expected that the Company would provide an additional $5,678 of cash in connection with financing Athena’s 25 vessels and three vessels that was under a revolver in DSS LP. The Company expected to borrow $335,000 while extinguishing two facilities: $309,000 related to Athena’s debt and $20,322 related to a revolver collateralized by three of DSS LP’s vessels. The restricted cash of Athena was eliminated as a result of this financing.
(d)
Transaction costs paid by the Company were estimated to approximate $28,750, which includes $6,400 of deferred financing costs discussed in (6) below. The Company expected to use cash on hand or drawdowns under the new debt facility to pay the transaction costs. In connection with the Transaction Agreement, reimbursement of expenses by the Company to CPLP are capped. Certain costs related to debt financing can be deferred and amortized over the debt obligation in accordance with U.S. GAAP.
(2)
Other assets & liabilities
The working capital prior to closing is generally borne by CPLP. In-progress spot voyages are prorated, and cash is settled upon settlement of the voyage. Accounts receivable, accounts payable and accrued liabilities relating to periods prior to the Lockbox Date are settled by CPLP.
(3)
Prepayments
The decrease in prepaid expenses of  $801 consists of prepaid costs that, per the Transaction Agreement, were not acquired by DSS LP. The prepaid expenses that were acquired by DSS LP are bonded stores and cash on board the vessels, and prepayments related to capital expenditures, insurance and commissions related to deferred revenues. Per the Transaction Agreement, the value for bonded stores and cash on board the vessels, and the prepaid capital expenditures were provided to CPLP in shares; the value of the prepaid insurance and commissions related to deferred revenues were paid to CPLP in cash.
(4)
Vessels, net
(a)
The $538,850 balance sheet amount of Athena’s vessels at December 31, 2018, is comprised of the estimated fair value of the vessels of  $516,500, which is based on the consideration of market values from independent brokers as of the balance sheet date, and the estimated transaction costs of  $22,350, which is the $28,750 total transaction costs less the $6,400 of deferred financing costs.
(b)
Deferred drydocking costs are considered in the market values of the vessels.
(5)
Above/below-market time charter contracts
In accordance with ASC Topic 820, “Fair Value Measurement”, the carrying value of above/ below-market time charter contracts are revalued at the time of acquisition. Pursuant to the Transaction Agreement, an independent broker determines the value of all charters as of the Lockbox Date. For purposes of the unaudited pro forma adjustment, the Company estimates the value of  $7,900 above market time charter contracts (assets) and $400 to below market time charter contracts using a Lockbox Date of February 20, 2019. The fair value estimate by the Company considers future cash flows of the time charters compared to future charter rates using a discounted cash flow model.
46

(6)
Current portion and long-term debt
In conjunction with the Transactions, Athena debt of  $58,464 was extinguished, along with $20,322 of DSS LP debt. This was replaced with new borrowings of  $335,000, offset by $6,400 of deferred financing costs, which are included in the transaction costs of  $28,750 noted in (1)(d) above. This results in an increase in pro forma debt of  $249,814. In total, on a combined pro forma basis at December 31, 2018, the Company had debt of  $947,818, of which $109,992 is classified as a current liability and $837,826 is classified as a long-term liability.
(7)
Equity
In connection with the Transactions, contributed capital is converted into common shares of 0.001 par value using 38,560,606 issued shares with the remaining net value attributed to additional paid-in capital. The pro forma incremental equity is calculated as follows:
DSS LP Historical Total Equity
$ 979,846
Cost of net assets acquired
542,845
Cash paid
(309,000)
Pro Forma incremental equity
233,845
Pro Forma Combined Total Equity
$ 1,213,691
5.
Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments for the Year Ended December 31, 2018
A.   Adjustments for adoption of certain U.S. GAAP pronouncements
While both Athena and DSS LP prepared historical financial statements in accordance with U.S. GAAP, Athena has early adopted ASC 2014-09, “Revenue from Contracts with Customers” for the reporting period commencing January 1, 2018. The effect of the implementation was insignificant as most of Athena’s revenue is generated under time charter arrangements. As a result, no adjustment was made to reflect the differences in revenue recognition policies by Athena and DSS LP.
B.   Pro Forma Adjustments
(1)
Revenue
(a)
Revenue has been reduced by $2,575 to eliminate Athena’s historical amortization of time charter contracts acquired of  $2,510 and amortize the revalued time charter contracts acquired of  $5,085, as noted above in (5) Above/below-market time charter contracts, amortized over periods of the remaining term of the applicable time charter contract.
(2)
Depreciation
(a)
Depreciation expense for the period has been reduced by $9,916 as a result of the fair value adjustment to the carrying balance of the vessels owned as of January 1, 2018 as part of the preliminary purchase price allocation, and the application of depreciation, calculated on a straight-line basis over the anticipated remaining useful life of 25 years from date of delivery up to the vessel’s estimated salvage value, using the vessel’s lightweight tonnage multiplied by an estimated scrap rate of  $300 per ton.
(3)
Interest expense and finance cost
(a)
Interest expense for the period has been increased by $12,910 as a result of the estimated borrowing costs of the new financing facility in connection with the Transactions. The estimated expense is based on an estimated drawing $335,000 in the form of term and revolver loans using quarterly repayments under a 17-year amortization profile and an
47

interest rate reflective of the three-month LIBOR rate plus a margin of 265 basis points. Prior to the Transactions, Athena was dependent on CPLP for financing requirements as CPLP used a centralized approach and certain debt-related transactions were accounted for through the net parent investment account.
(b)
Finance costs are increased by $1,061 for the net effect of the estimated annual amortization of the borrowing costs associated with the new financing facility, which are amortized over the life of the expected term and revolver loans less the prior borrowing costs associated with Athena’s debt prior to the Transactions.
6.   Loss Per Share
The unaudited pro forma condensed combined basic and diluted earnings per share calculations are based on the aggregate shares to be distributed pursuant to the Transaction Agreement. The pro forma basic and diluted weighted average shares outstanding are determined by the factor to which DSS LP’s net asset value is to the net asset value of Athena multiplied by the number of shares distributed to CPLP unitholders after the effective date. The distribution was made on the basis of one Diamond S common share for every 10.19149 CPLP common units or 10.19149 CPLP general partner units.
The weighted average numbers of common shares outstanding were calculated as follows for the year ended December 31, 2018:
Indicative common shares distributed to CPLP holders
12,725,000(a)
Ownership percentage estimated attributable to CPLP holders
33%
Net asset value attributable to Diamond S (thousands)
227,895
Ownership percentage estimated to DSS LP holders
67%
Indicative net asset value of DSS LP
462,695
Factor of DSS LP net asset value to Diamond S net asset value
2.03x
Indicative common shares distributed to DSS LP holders
25,835,606
Pro forma total shares outstanding – basic and diluted
38,560,606
(a)
Consists of 500 shares issued by Athena SpinCo Inc. (now known as Diamond S Shipping Inc.) at formation and 12,724,500 additional shares issued by Diamond S for the contribution by CPLP.
48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ATHENA
The following is a discussion of the historical results of operations and liquidity and capital resources of CPLP’s carve-out crude and product tanker business (referred to as “Athena” in this prospectus), and unless otherwise specified does not include a discussion of the historical results of operations and liquidity of DSS LP’s business and operations or pro forma information after giving effect to the Transactions.
You should read the following discussion in conjunction with the audited combined carve-out financial statements of Athena and the corresponding notes and the unaudited pro forma condensed combined financial statements and the corresponding notes included elsewhere in this prospectus. This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please refer to “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
Spin-Off from CPLP
CPLP is an international owner of tanker, container and drybulk vessels that was organized in January 2007 by CMTC, an international shipping company with a long history of operating and investing in the shipping market. Prior to the Transactions, CPLP’s total fleet consisted of 36 high specification vessels with an average age of approximately 8.5 years. CPLP’s total fleet consisted of  (1) three Suezmax crude oil tankers (0.5 million dwt), one Aframax crude oil tanker (0.1 million dwt) and 21 MR product tankers (1.0 million dwt) (these vessels together represent CPLP’s tanker fleet), (2) ten neo-panamax container carrier vessels (0.9 million dwt) (these vessels together represent CPLP’s container fleet) and (3) one Capesize bulk carrier (0.2 million dwt) (this vessel represents CPLP’s drybulk fleet).
On November 27, 2018, CPLP announced its intent to separate its crude and product tanker business, which consisted of 25 vessels, from CPLP’s remaining businesses by means of the separation of CPLP’s crude and product tanker vessels and distribution of Diamond S common shares to CPLP unitholders.
The accompanying historical combined carve-out financial statements of Athena have been prepared on a carve-out basis in accordance with U.S. GAAP. U.S. GAAP requires Athena to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates. The historical financial results for the carved-out assets reflect expense allocations made to Athena by CPLP for certain corporate functions and shared services provided by CPLP. Where possible, these allocations were made by CPLP pro-rata based on Athena’s percentage of total CPLP’s fleet ownership days. Such items do not necessarily reflect what actual expenses would have been if Athena had been operating as a separate standalone public company. These items are discussed further in Note 2(a) of the accompanying audited combined carve-out financial statements of Athena.
The historical audited combined carve-out financial statements of Athena have been derived from CPLP’s consolidated financial statements and accounting records. Therefore, these financial statements reflect, in conformity with U.S. GAAP, Athena’s financial position, results of operations, comprehensive income and cash flows as historically operated as part of CPLP prior to the separation of CPLP’s crude and product tanker vessels and distribution of Diamond S common shares to CPLP unitholders. They may not be indicative of future performance and do not necessarily reflect what Athena’s combined business, financial condition, results of operations, and cash flows would have been had Athena operated as a separate, publicly traded company during the periods presented.
For purposes of the following sections of the MD&A, the term “Athena” is used when referring to CPLP’s crude and product tanker business in respect of the periods discussed in this section.
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Overview
Prior to consummation of the Transactions, Diamond S did not conduct any business as a separate company and had no material assets and liabilities. The operations of the assets transferred to Diamond S are presented as if the transfer had been consummated prior to all historical periods presented in the accompanying audited combined carve-out financial statements of Athena at the carrying amounts of such assets and liabilities reflected in CPLP’s books and records.
The crude and product tankers that comprise the Athena business are capable of carrying a wide range of cargoes, including crude oil, refined oil products, such as gasoline, diesel, fuel oil and jet fuel, edible oils and certain chemicals, such as ethanol.
Prior to the consummation of the Transactions, Athena sought to rely on medium- to long-term, fixed-rate period charters and cost-efficient management of its vessels via CSM. As vessels come up for re-chartering, Athena has sought to redeploy them on terms that reflect its expectations of the market conditions prevailing at the time.
The strategies that Diamond S intends to pursue following the Transactions are described in the section entitled “Business — Chartering Strategy.”
The Charters
Athena generates revenues by charging its charterers for the use of its vessels. Historically, Athena has provided services to its charterers under time or bareboat charter agreements. As of December 31, 2018, 16 of Athena’s vessels were either trading in the period market or were expected to commence period employment. For information on the markets targeted by Diamond S following the Transactions, see the section entitled “Business — Chartering Strategy.”
Athena’s vessels are currently under contracts with CSSA S.A. (Total S.A.), Repsol, Empresa Publica Flota Petrolera Ecuatoriana EP Flopec (“Flopec”), Petroleo Brasileiro S.A. (“Petrobras”), Tesoro Far East Maritime Company (“Tesoro”), Louis Dreyfus Company Suisse SA (“Dreyfus”) and Shell Tankers Singapore Private Limited (“Shell”). Athena re-chartered a total of 17 and nine vessels in the years ended December 31, 2018 and 2017, respectively.
For the year ended December 31, 2018, Petrobras accounted for 33% of total revenue. For the year ended December 31, 2017, Petrobras and CMTC accounted for 34% and 26% of total revenue, respectively. For the year ended December 31, 2016, Petrobras and CMTC accounted for 33% and 21% of total revenue, respectively.
Vessel Acquisitions and Dispositions in 2018
Acquisition of the M/T Anikitos
On May 4, 2018, Athena completed the acquisition of the M/T Anikitos, an eco-type MR product tanker (50,082 dwt IMO II/III chemical product tanker built in 2016, Samsung Heavy Industries (Ningbo) Co., Ltd.), from CMTC for total consideration of  $31.5 million.
The M/T Anikitos is currently employed by Petrobras at a gross daily rate of  $15,300, with earliest charter expiry in June 2020. The charterer has the option to extend the time charter for 18 months (+/-30 days) at the same gross daily rate.
Athena financed the acquisition with $15.9 million in cash and the assumption of a $15.6 million term loan (the “Anikitos tranche”) under a credit facility previously arranged by CMTC with ING Bank N.V. (the “2015 credit facility”). The Anikitos tranche is required to be repaid in 13 consecutive equal quarterly installments of  $0.4 million, beginning two years from the anniversary of the delivery of the M/T Anikitos, plus a balloon payment of  $11 million, which is payable concurrently with the final quarterly installment in June 2023. The Anikitos tranche bears interest at LIBOR plus a margin of 2.50%.
Acquisition of the M/T Aristaios
In January 2018, Athena completed the acquisition of the M/T Aristaios, an eco-type crude tanker (113,689 dwt, Ice Class 1C, built in 2017, Daehan Shipbuilding Co. Ltd., South Korea), from CMTC for a total consideration of  $52.5 million.
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The M/T Aristaios is currently employed under a time charter by Tesoro at a gross daily rate of $26,400. The Tesoro charter commenced in January 2017 with duration of five years +/-45 days.
Athena financed the acquisition of the M/T Aristaios with $24.2 million in cash and the assumption of a $28.3 million term loan under a credit facility previously arranged by CMTC with Crédit Agricole Corporate and Investment Bank and ING Bank NV (the “Aristaios credit facility”). The Aristaios credit facility bears interest at LIBOR plus a margin of 2.85% and is payable in 12 consecutive semi-annual installments of approximately $0.9 million beginning in July 2018, plus a balloon payment of  $17.3 million payable concurrently with the last semi-annual installment due in January 2024.
Vessel Acquisitions and Dispositions in 2017
There were no acquisitions or dispositions of vessels in 2017.
Vessel Acquisitions and Dispositions in 2016
Acquisition of the M/T Amor
On October 24, 2016, Athena completed the acquisition of the M/T Amor, an eco-type MR product (49,999 dwt IMO II/III chemical product tanker built 2015, Samsung Heavy Industries (Ningbo) Co., Ltd.) from CMTC for total consideration of  $32.7 million.
The M/T Amor was employed under a time charter by Cargill at a gross daily rate of  $17,500. The Cargill charter commenced in October 2015 with duration of two years +/-30 days.
Athena financed the acquisition with $16.9 million in cash and the assumption of a $15.8 million term loan (the “Amor tranche”) under the 2015 credit facility. The Amor tranche is required to be repaid in 17 consecutive equal quarterly installments of  $0.3 million, beginning two years from the anniversary of the delivery of the M/T Amor, plus a balloon payment of  $10.2 million, which is payable concurrently with the final quarterly installment in November 2022. The Amor tranche bears interest at LIBOR plus a margin of 2.50%.
Factors to Consider When Evaluating Athena’s Results
You should consider the following factors when evaluating Athena’s results of operations:

Size of Athena’s Fleet.   During the year ended December 31, 2018, the weighted average number of Athena’s vessels increased by 1.6 vessels compared to the year ended December 31, 2017, as Athena took delivery of the M/T Aristaios on January 17, 2018 and the M/T Anikitos on May 4, 2018. During 2017, the weighted average number of Athena’s vessels increased by 0.8 vessels compared to 2016, as Athena took delivery of the M/T Amor on October 24, 2016. As Athena acquired or disposed of vessels, its results of operations reflected the contribution to revenue of, and the expenses associated with, a varying number of vessels over time, which may affect the comparability of its results year-on-year. Please see “— Overview — Accounting Treatment and Considerations” for information on the accounting treatment of vessel acquisitions for the period under review and Note 1 (General Information) to the audited combined carve-out financial statements of Athena included herein.

Management Structure and Operating Expenses.   Athena’s vessels have, over time, been managed under three separate technical and commercial management agreements with CSM: (1) the fixed fee management agreement, (2) the floating fee management agreement and (3), with respect to the vessels acquired as part of the merger with Crude Carriers in 2011, the Crude Carriers management agreement. Each agreement has a different operating expenses structure. In 2017, three vessels, which were previously managed under the fixed fee management agreement and were employed under bareboat charter agreements transitioned to a floating fee arrangement and incurred operating expenses. During the year ended December 31, 2018, two vessels, which were previously managed under the fixed fee management agreement and were employed under bareboat charter agreements, transitioned to a floating fee arrangement and incurred operating
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expenses. Following the Transactions, Athena’s vessels continue to be managed by CSM under new commercial and technical management agreements. For information on Diamond S’s new management agreements and the fees it has agreed to pay to CSM, see “Business — The Company’s Managers.”
Trends and Factors Affecting Future Results of Operations
The principal factors that have affected Athena’s results of operations, and may in the future affect Diamond S’ results of operations, are the economic, regulatory, financial, credit, political and governmental conditions prevailing in the tanker market and shipping industry generally and in the countries and markets in which the Athena vessels are chartered.
The world economy has experienced significant economic and political upheavals in recent history. In addition, credit supply has been constrained and financial markets have been particularly turbulent. Protectionist trends, global growth and demand for the seaborne transportation of goods, including oil and oil products and overcapacity and deliveries of newly-built vessels have affected, and may further affect, the tanker market and shipping industry in general and the business, financial condition, results of operations and cash flows of Athena or Diamond S, as applicable.
Some of the key factors that have affected Athena’s business, financial condition, results of operations and cash flows, and may in the future affect Diamond S’ business, financial condition, results of operations and cash flows, include the following:

levels of oil product demand and inventories;

supply and demand for crude oil and oil products;

charter hire levels (under time and bareboat charters) and the ability to re-charter vessels at competitive rates as their current charters expire;

developments in vessel values, which may affect compliance with covenants under credit facilities and/or debt refinancing;

compliance with covenants in credit facilities, including covenants relating to the maintenance of vessel value ratios;

the level of debt and the related interest expense and amortization of principal;

access to debt and equity and the cost of capital required to acquire additional vessels;

supply and order-book of tanker vessels;

the ability to increase the size of the fleet and make additional acquisitions that are accretive to earnings;

the ability of the commercial and chartering operations to successfully employ vessels at economically attractive rates, particularly as charters expire and the fleet expands;

the continuing demand for crude oil and oil products from China, India, Brazil and Russia and other emerging markets;

the ability to comply with new maritime regulations, the more restrictive regulations for the transport of certain products and cargoes and the increased costs associated therewith;

changes in fuel prices, including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations adopted by the IMO (for those vessels that are not retrofitted with scrubbers);

the effective and efficient technical management of the vessels;

the costs associated with upcoming dry-docking of vessels;

the ability to obtain and maintain major international oil company approvals and to satisfy technical, health, safety and compliance standards;
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the strength of and growth in the number of the customer relationships, especially with major international oil companies and major commodity traders;

the prevailing spot market rates and the number of vessels operating in the spot market; and

the ability to acquire and sell vessels at satisfactory prices.
Please read “Risk Factors” for a discussion of certain risks that may affect the business, financial condition, results of operations and cash flows of Diamond S, and “Business — Chartering Strategy” for a discussion of the strategies that Diamond S intends to pursue.
Results of Operations
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Athena’s results of operations for the years ended December 31, 2018 and 2017, respectively, differ primarily due to:

the increase in the weighted average number of Athena’s vessels as it took delivery of the M/T Aristaios on January 17, 2018 and the M/T Anikitos on May 4, 2018;

lower charter rates as a result of weaker market conditions for product and crude tankers on the back of increased tonnage availability, high oil and oil product inventories and OPEC/Non-OPEC oil production cuts; and

the increase in the number of vessels in Athena’s fleet incurring operating expenses following the redelivery by its charterer of the M/T Alexandros II in December 2017, the M/T Aristotelis II in May 2018 and the M/T Aris II in June 2018, which were each previously employed on bareboat charters.
Total Revenues
Total revenues, consisting of time, voyage and bareboat charter revenues, amounted to $161.7 million for the year ended December 31, 2018 and $132.5 million for the year ended December 31, 2017.
The year-on-year increase of  $29.2 million was primarily attributable to an increase in vessel operating days as the weighted average size of Athena’s fleet expanded by 1.6 vessels in 2018, as well as the increase in the number of voyage charters under which certain of the vessels were employed in 2018, compared to 2017, partly offset by the increase in the number of off-hire days in 2018 compared to 2017 and lower charter rates earned by certain of the vessels compared to the average charter rates earned in 2017 as result of, among other factors, weaker market conditions for product and crude tankers.
For the year ended December 31, 2018, related party revenues decreased to $13.3 million, compared to $34.7 million for the year ended December 31, 2017 as the average number of vessels chartered by CMTC decreased by 5.0 vessels.
Time, voyage and bareboat charter revenues are mainly comprised of the charter hires received from unaffiliated third-party charterers and CMTC, and are generally affected by the number of vessel operating days, the average number of vessels in Athena’s fleet and the charter rates.
For the year ended December 31, 2018, Petrobras accounted for 33% of total revenues.
Voyage Expenses
Total voyage expenses amounted to $37.2 million for the year ended December 31, 2018, compared to $10.5 million for the year ended December 31, 2017. The increase of  $26.7 million was primarily attributable to the increase in the number of voyage charters under which certain of the vessels were employed in 2018, compared to 2017.
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Voyage expenses primarily consist of bunkers, port expenses, canal dues and commissions. Commissions are paid to shipbrokers for negotiating and arranging charter party agreements on Athena’s behalf. Voyage expenses incurred during time and bareboat charters are paid for by the charterer, except for commissions, which are paid for by Athena. Voyage expenses incurred during voyage charters are paid for by Athena.
Vessel Operating Expenses
For the year ended December 31, 2018, Athena’s total vessel operating expenses amounted to $68.4 million compared to $54.3 million for the year ended December 31, 2017. The $14.1 million increase in total vessel operating expenses primarily reflects the expansion in the weighted average size of Athena’s fleet and the increase in the number of vessels in Athena’s fleet incurring operating expenses, following the redelivery of the M/T Alexandros II, the M/T Aristotelis II and the M/T Aris II, which were previously employed under bareboat charters.
Total vessel operating expenses for the year ended December 31, 2018 include expenses of  $8.4 million incurred under the management agreements with CSM, compared to $7.2 million during the year ended December 31, 2017.
See Note 9 (Voyage expenses and vessel operating expenses) to the audited combined carve-out financial statements of Athena included in this prospectus for further information on the composition of Athena’s vessel operating expenses.
General and Administrative Expenses
General and administrative expenses amounted to $3.8 million for the year ended December 31, 2018 compared to $4.0 million for the year ended December 31, 2017. General and administrative expenses include board of directors’ fees and expenses, audit and certain legal fees, and other fees related to the expenses of a publicly traded company. General and administrative expenses represent allocation of the expenses incurred by CPLP based on the number of calendar days Athena’s vessels operated under CPLP.
Vessel Depreciation and Amortization
Depreciation and amortization amounted to $40.3 million for the year ended December 31, 2018, compared to $38.0 million for the year ended December 31, 2017. The increase was mainly due to the increase in the average number of vessels in Athena’s fleet.
Depreciation is expected to increase if the average number of vessels in Athena’s fleet increases.
Total Other Expense, net
Total other expense, net for the year ended December 31, 2018 increased by $1.5 million, compared to the year ended December 31, 2017. The increase reflects mainly interest expense and finance costs incurred following the assumption of term loans amounting to $44.0 million constituting part of the consideration for the acquisitions of the M/T Aristaios and the M/T Anikitos in January and May 2018, respectively.
Interest expense and finance costs include interest expense, amortization of financing charges, commitment fees and bank charges.
The weighted average interest rate on the loans outstanding for the year ended December 31, 2018 was 4.79%, compared to 3.59% for the year ended December 31, 2017.
Please also refer to Note 6 (Long-Term Debt) to the audited combined carve-out financial statements of Athena included in this prospectus.
Net Income
Net income for the year ended December 31, 2018 amounted to $9.5 million compared to $24.7 million for the year ended December 31, 2017.
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Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Athena’s results of operations for the years ended December 31, 2017 and 2016 differ primarily due to:

the increase in the weighted average number of Athena’s vessels as it took delivery of the M/T Amor on October 24, 2016;

lower charter rates as a result of weaker market conditions for product and crude tankers on the back of increased tonnage availability, high oil and oil product inventories and OPEC/Non-OPEC oil production cuts; and

the increase in the number of vessels in Athena’s fleet incurring operating expenses following the redelivery by their charterer of the M/T Atlantas II in September 2016 and the M/T Aiolos and the M/T Aktoras in March 2017, which were previously employed on bareboat charters.
Total Revenues
Total revenues, consisting of time, voyage and bareboat charter revenues, amounted to $132.5 million for the year ended December 31, 2017 compared to $128.2 million for the year ended December 31, 2016.
The increase of  $4.3 million was primarily attributable to the increase in vessel operating days as the weighted average size of Athena’s fleet expanded by 0.8 vessels in 2017 and the decrease in the number of off-hire days incurred by Athena’s vessels during the year 2017, partly offset by lower charter rates earned by certain of Athena’s vessels compared to the average charter rates earned during the year 2016 as result of, among other factors, weaker market conditions for product and crude tankers.
For the year ended December 31, 2017, related party revenues increased to $34.7 million, compared to $26.7 million for the year ended December 31, 2016 as the average number of vessels chartered by CMTC increased by 2.3 vessels.
Time, voyage and bareboat charter revenues are mainly comprised of the charter hires received from unaffiliated third-party charterers and CMTC, and are generally affected by the number of vessel operating days, the average number of vessels in Athena’s fleet and the charter rates.
For the year ended December 31, 2017, Petrobras and CMTC accounted for 34% and 26% of total revenues, respectively.
Voyage Expenses
Total voyage expenses amounted to $10.5 million for the year ended December 31, 2017, compared to $6.9 million for the year ended December 31, 2016. The increase of  $3.6 million was primarily attributable to the increase in the number of voyage charters under which certain of Athena’s vessels were employed during the year 2017, compared to the year 2016.
Voyage expenses primarily consist of bunkers, port expenses, canal dues and commissions. Commissions are paid to shipbrokers for negotiating and arranging charter party agreements on Athena’s behalf. Voyage expenses incurred during time and bareboat charters are paid for by the charterer, except for commissions, which are paid for by Athena. Voyage expenses incurred during voyage charters are paid for by Athena. Please also refer to Note 9 (Voyage expenses and vessel operating expenses) to the audited combined carve-out financial statements of Athena included in this prospectus for further information on the composition of Athena’s voyage expenses.
Vessel Operating Expenses
For the year ended December 31, 2017, Athena’s total vessel operating expenses amounted to $54.3 million compared to $44.9 million for the year ended December 31, 2016. The $9.4 million increase in total vessel operating expenses primarily reflects the expansion in the weighted average size of Athena’s fleet and the increase in the number of vessels in Athena’s fleet incurring operating expenses, following the redelivery of the M/T Atlantas II, the M/T Aktoras and the M/T Aiolos, which were previously employed under bareboat charters.
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Total vessel operating expenses for the year ended December 31, 2017 include expenses of  $7.2 million incurred under the management agreements Athena has with CSM, compared to $6.5 million during the year ended December 31, 2016.
General and Administrative Expenses
General and administrative expenses amounted to $4.0 million for each of the years ended December 31, 2017 and 2016. General and administrative expenses include board of directors’ fees and expenses, audit and certain legal fees, and other fees related to the expenses of a publicly traded company. General and administrative expenses represent allocation of the expenses incurred by CPLP based on the number of calendar days of Athena’s vessels operated under CPLP.
Vessel Depreciation and Amortization
Depreciation and amortization amounted to $38.0 million for the year ended December 31, 2017, compared to $36.8 million for the year ended December 31, 2016. The increase was due to the increase in the average number of vessels in Athena’s fleet.
Total Other (Expense)/Income, Net
Total other expense, net for the year ended December 31, 2017 increased by $0.9 million, compared to the year ended December 31, 2016. The increase reflects mainly interest expense and finance costs incurred following the assumption of a $15.8 million term loan which constituted part of the consideration for the acquisition of M/T Amor in October 2016 and foreign exchange losses.
Interest expense and finance costs include interest expense, amortization of financing charges, commitment fees and bank charges.
The weighted average interest rate on the loans outstanding for the year ended December 31, 2017 was 3.59%, compared to 3.07% for the year ended December 31, 2016.
Net Income
Net income for the year ended December 31, 2017 amounted to $24.7 million compared to $35.6 million for the year ended December 31, 2016.
Liquidity and Capital Resources
As of December 31, 2018 and 2017, total cash and cash equivalents were $2.9 million and $4.4 million, including restricted cash of  $1.3 million and $0.0 million, respectively. As of December 31, 2018 and 2017, Athena did not have available any undrawn amount under any credit facilities.
Generally, Athena’s primary sources of funds have been cash from operations and cash contributed by CPLP. As part of CPLP, Athena was dependent upon CPLP for the major part of its working capital and financing requirements as CPLP uses a centralized approach to cash management and financing of its operations. Accordingly, none of CPLP’s cash and cash equivalents or debt at the corporate level have been assigned to Athena. Transactions with CPLP are included in the accompanying combined carve-out statements of cash flows within net cash used in financing activities.
Total net parent investment as of December 31, 2018 amounted to $600.1 million compared to $584.5 million as of December 31, 2017, corresponding to an increase of  $15.6 million. The increase primarily reflects net transfers from parent of  $6.1 million and net income for the year ended December 31, 2018 of  $9.5 million. Total net parent investment as of December 31, 2017 amounted to $584.5 million compared to $620.3 million as of December 31, 2016, corresponding to a decrease of  $35.8 million. The decrease primarily reflects total net transfers to parent company of  $60.6 million partly off-set by net income for the year ended December 31, 2017 of  $24.7 million.
Effective upon completion of the Transactions, Diamond S has indebtedness outstanding under the new term loan and revolving credit facilities arranged in connection with the Transactions and indebtedness under previously existing credit facilities of DSS LP. See “Description of Material Indebtedness.”
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Passage of environmental legislation or other regulatory initiatives have in the past, and may in the future, have a significant impact on the operations of Athena or Diamond S, as applicable. Regulatory measures can increase the costs related to operating and maintaining the Athena vessels and may require Diamond S to retrofit its vessels with new equipment.
Among other capital expenditures, in consideration of the IMO 2020 Regulations, Athena contracted for the purchase and installation of scrubbers on three of its vessels. These scrubbers are expected to be installed prior to January 1, 2020 or shortly thereafter, and are expected to translate into an aggregate capital expenditures of at least $8.9 million. Diamond S may, in the future, determine to purchase additional scrubbers for installation on other vessels owned or operated by the Company.
In addition, with respect to vessels on which Diamond S has not contracted for the installation of scrubbers, management of Diamond S also expects to make certain capital expenditures to ensure those vessels are capable of efficiently using low-sulfur fuel and estimates that the costs of such capital expenditures are significant.
Furthermore, Athena has contracts in place to install ballast water treatment systems for four vessels whose compliance date requires such installation in 2019 and 2020. Total estimated cost is $4.0 million.
Please read “Risk Factors — Risks Related to the Company’s Industry” and “Business — Environmental and Other Regulations” for a discussion of environmental compliance, regulatory developments and initiatives that may impact Diamond S following the Transactions.
Cash Flows
The following table summarizes Athena’s cash and cash equivalents provided by or used in operating, financing and investing activities for the periods presented below (presented in millions):
For the Years Ended December 31,
(in thousands)
2018
2017
2016
Net Cash Provided by Operating Activities
$ 35.5 $ 64.5 $ 68.5
Net Cash Used in Investing Activities
$ (41.8) $ (0.4) $ (17.2)
Net Cash Provided by/(Used in) Financing Activities
$ 4.8 $ (60.6) $ (52.6)
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $35.5 million for the year ended December 31, 2018, compared to $64.5 million for the year ended December 31, 2017. The decrease of  $29.0 million was mainly attributable to, among other factors, lower charter rates affecting Athena’s revenues and an increase in total expenses, including vessel voyage, operating and total other expenses, net, and the negative effect of the changes in Athena’s operating assets and liabilities amounting of  $16.0 million. Changes in Athena’s operating assets and liabilities were driven mainly by an increase in trade accounts receivable and prepayments and other assets and an increase in inventories mainly due to the increase in the average number of vessels in Athena’s fleet and the increase in the number of voyage charters performed by certain vessels in Athena’s fleet compared to the year ended December 31, 2017. Net cash provided by operating activities was also negatively affected by an increase of  $1.8 million in drydocking costs paid in the year ended December 31, 2018 compared to the year ended December 31, 2017.
Net cash provided by operating activities was $64.5 million for the year ended December 31, 2017, compared to $68.5 million for the year ended December 31, 2016. The decrease of  $4.0 million was mainly attributable to, among other factors, lower charter rates affecting Athena’s revenues and an increase in Athena’s total expenses, including vessel voyage, operating and total other expenses, net, partly set off by the positive effect of the changes in Athena’s operating assets and liabilities amounting to $5.1 million. Changes in Athena’s operating assets and liabilities were driven mainly by an increase in deferred revenue representing cash received in advance for services to be rendered in future periods an increase in accrued liabilities and trade accounts payable and the decrease in drydocking costs paid in 2017 compared to 2016.
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Net Cash Used in Investing Activities
Net cash used in investing activities refers primarily to cash used for vessel acquisitions and improvements.
Net cash used in investing activities for the year ended December 31, 2018 increased to $41.8 million compared to $0.4 million during the year ended December 31, 2017, principally because Athena acquired two vessels, the M/T Aristaios and the M/T Anikitos, in 2018, while it made no such acquisitions in 2017.
Net cash used in investing activities for the year ended December 31, 2017 decreased to $0.4 million compared to $17.2 million during the year ended December 31, 2016, principally because Athena acquired no vessels in 2017, compared with the acquisition of the shares of the company owning the M/T Amor, during the year 2016. Cash consideration paid for vessel improvements during the year ended December 31, 2017 amounted to $0.4 million compared to $0.3 million during the year ended December 31, 2016.
Net Cash Provided by/(Used in) Financing Activities
As part of CPLP, Athena is dependent upon CPLP for the major part of its working capital and financing requirements as CPLP uses a centralized approach to cash management and financing of its operations. Financial transactions relating to Athena are accounted for through the Net Parent Investment account. Accordingly, none of CPLP’s cash and cash equivalents or debt at the corporate level have been assigned to Athena in the audited combined carve-out financial statements. Net Parent Investment represents CPLP’s interest in Athena’s net assets and includes Athena’s cumulative earnings (loss) as adjusted for cash distributions to and cash contributions from CPLP. Transactions with CPLP are reflected in the accompanying combined carve-out statements of cash flows as a financing activity.
For the years ended December 31, 2018, 2017 and 2016, cash contribution by CPLP amounted to $40.0 million, nil and $16.9 million, respectively, referring to contributions for the acquisition of vessels while cash distributions to CPLP amounted to $33.9 million, $60.6 million and $69.5 million, respectively. During the year ended December 31, 2018 payments of long-term debt amounted to $1.2 million compared to nil for the year ended December 31, 2017. This increase was due to the amortization of the Aristaios credit facility and the Amor Tranche of the 2015 credit facility.
Off-Balance Sheet Arrangements
As of December 31, 2018 and 2017, Athena had not entered into any off-balance sheet arrangements.
Contractual Obligations and Contingencies
The following table summarizes Athena’s long-term contractual obligations as of December 31, 2018 (in thousands of U.S. dollars).
Payment due by period
Total
Less than 1 year
1 – 3 years
3 – 5 years
More than 5 years
Long-term Debt Obligations
$ 58,464 $ 3,146 $ 8,777 $ 28,290 $ 18,251
Interest Obligations(1)
12,024 3,074 5,364 3,564 22
Management fee(2)
25,138 8,203 13,126 3,809
Total:
$ 95,626 $ 14,423 $ 27,267 $ 35,663 $ 18,273
(1)
For Athena’s Aristaios and 2015 credit facilities, interest has been estimated based on the LIBOR Bloomberg forward rates and the margins as of December 31, 2018 of 2.85% and 2.5%, respectively.
(2)
The fees payable to CSM represent fees for the provision of commercial and technical services, such as crewing, repairs and maintenance, insurance, stores, spares and lubricants under the CSM management agreements. Management fees under the floating fee and Crude Carriers management agreements have been increased annually based on the United States Consumer Price Index for December 2018.
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Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
The table set forth below indicates (i) the carrying value of each of Athena’s vessels as of December 31, 2018 and 2017; (ii) which of Athena’s vessels CPLP’s management believes has a charter free market value below its carrying value; and (iii) the aggregate difference between carrying value and market value represented by such vessels. This aggregate difference represents the approximate analysis of the amount by which CPLP’s management believes Athena would have had to reduce its net income if it sold all of such vessels in the prevailing environment, on industry standard terms, in cash transactions, and to a willing buyer where Athena was not under any compulsion to sell, and where the buyer was not under any compulsion to buy. For purposes of this calculation, CPLP’s management assumed that the vessels would be sold at a price that reflects its estimate of their current basic market values.
CPLP’s management’s estimates of basic market value assumed that the vessels were all in good and seaworthy condition without need for repair and, if inspected, would be certified in class without notations of any kind. CPLP’s management’s estimates were based on the average of two estimated market values for the vessels received from third-party independent shipbrokers approved by CPLP’s banks. You should note that vessel values are highly volatile; as such, CPLP’s management’s estimates may not be indicative of the current or future basic market value of the vessels or prices that Diamond S could achieve if it were to sell them.
Vessels
(in millions of U.S. dollars)
Carrying value
as of
December 31, 2018
Carrying value
as of
December 31, 2017
M/T Atlantas II
$ 16.9* $ 18.1*
M/T Assos
$ 21.3* $ 22.9*
M/T Aktoras
$ 17.2* $ 18.4*
M/T Agisilaos
$ 17.7* $ 19.0*
M/T Arionas
$ 18.0* $ 19.2*
M/T Avax
$ 20.1* $ 21.5*
M/T Aiolos
$ 18.0* $ 19.2*
M/T Axios
$ 20.4* $ 21.8*
M/T Atrotos
$ 20.8* $ 22.3*
M/T Akeraios
$ 21.0* $ 22.3*
M/T Apostolos
$ 23.3* $ 24.9*
M/T Anemos I
$ 23.5* $ 24.9*
M/T Alexandros II
$ 27.4* $ 29.0*
M/T Aristotelis II
$ 28.0* $ 29.6*
M/T Aris II
$ 28.3* $ 29.9*
M/T Ayrton II
$ 29.4* $ 31.2*
M/T Alkiviadis
$ 18.8* $ 20.3*
M/T Miltiadis M II
$ 35.5* $ 38.0*
M/T Amoureux
$ 37.5* $ 39.7*
M/T Aias
$ 37.4* $ 39.6*
M/T Active
$ 31.2* $ 32.5*
M/T Amor
$ 28.9 $ 30.3*
M/T Amadeus
$ 31.5* $ 32.9*
M/T Aristaios
$ 41.4
M/T Anikitos
$ 30.2
Total $ 643.7 $ 607.5
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*
Indicates vessels for which CPLP’s management believes that, as of December 31, 2018 and 2017, the basic charter-free market value is lower than the carrying value. CPLP’s management believes that the aggregate carrying value of these vessels, assessed separately, exceeded their aggregate basic charter-free market value by approximately $136.0 million and $132.9 million as of December 31, 2018 and 2017, respectively. As discussed in “— Critical Accounting Policies — Vessel Lives and Impairment,” CPLP’s management believes that the carrying values of the vessels as of December 31, 2018 and 2017 were recoverable as the undiscounted projected net operating cash flows of the vessels exceeded their carrying value by a significant amount.
Critical Accounting Policies
This MD&A is based upon Athena’s audited combined carve-out financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires Athena to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of Athena’s audited combined carve-out financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and which could potentially result in materially different results under different assumptions and conditions. Athena has described below what it believes are its most critical accounting policies. For a description of all of Athena’s significant accounting policies, see Note 2 (Significant Accounting Policies) to the audited combined carve-out financial statements of Athena included in this prospectus.
Vessel Lives and Impairment
The carrying value of each of Athena’s vessels represents its original cost (contract price plus initial expenditures) at the time of delivery or purchase less accumulated depreciation or impairment charges. The carrying values of Athena’s vessels may not represent their fair market value at any point in time since the market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. In recent years changing market conditions resulted in a decrease in charter rates and values of assets. Athena considers these market developments as indicators of potential impairment of the carrying amount of its assets.
Athena performed impairment analyses by means of undiscounted cash flow tests as of December 31, 2018 and 2017 on the basis of estimates and assumptions relating to projected undiscounted net operating cash flows, which were based on the following considerations:

the charter revenues from existing time charters for the fixed fleet days (Athena’s remaining charter agreement rates);

vessel operating expenses;

drydocking expenditures;

an estimated gross daily time charter equivalent for the unfixed days (based on the ten-year average historical one-year time charter equivalent) over the remaining economic life of each vessel, excluding days of scheduled off-hires;

residual value of vessels;

commercial and technical management fees;

a utilization rate (defined as the proportion of operating days over available days) of 97.7% based on the fleet’s historical performance; and

the remaining estimated life of Athena’s vessels.
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Although Athena believes that the assumptions used to evaluate potential impairment, which are largely based on the historical performance of its fleet, are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time, which could adversely affect Athena’s revenue and profitability, and future assessments of vessel impairment.
Athena’s assumptions, based on historical trends, and Athena’s accounting policies are as follows:

In accordance with the prevailing industry standard, depreciation is calculated using an estimated useful life of 25 years for Athena’s vessels, commencing on the date the vessel was originally delivered from the shipyard;

Estimated useful life of vessels takes into account design life, commercial considerations and regulatory restrictions based on Athena’s fleet’s historical performance;

Estimated charter rates are based on rates under existing vessel contracts and thereafter at market rates at which Athena expects it can re-charter its vessels based on market trends. Athena believes that the ten-year average historical time charter equivalent is appropriate (or less than ten years if appropriate data is not available) for the following reasons:
 – 
it reflects more accurately the earnings capacity of the type, specification, deadweight capacity and average age of Athena’s vessels;
 – 
it reflects the type of business concluded by Athena (period as opposed to spot);
 – 
it includes at least one market cycle; and
 – 
respective data series are adequately populated;

Estimates of vessel utilization, including estimated off-hire time and the estimated amount of time Athena’s vessels may spend operating on the spot market, are based on the historical experience of Athena’s fleet;

Estimates of operating expenses and drydocking expenditures are based on historical operating and drydocking costs based on the historical experience of Athena’s fleet and Athena’s expectations of future operating requirements;

Vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate of $180 per ton; and

The remaining estimated lives of Athena’s vessels used in its estimates of future cash flows are consistent with those used in its depreciation calculations.
The impairment test that Athena conducts is most sensitive to variances in future time charter rates. Based on the sensitivity analysis performed for December 31, 2018 and 2017, Athena would begin recording impairment on the first vessel that will incur impairment by vessel type for time charter declines from their ten-year historical averages as follows:
Percentage Decline from which
Impairment Would Be Recorded
Vessel
Year Ended
December 31,
2018
Year Ended
December 31,
2017
Product tankers
8.7% 15.5%
Suezmax tankers
27.7% 35.2%
Aframax tankers
27.8%
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As of December 31, 2018 and 2017, Athena’s current rates for time charters on average were above/ (below) their ten-year historical averages as follows:
Time Charter Rates as Compared
with Ten-year Historical Average
(as Percentage Above/(Below))
Vessel
As of
December 31,
2018
As of
December 31,
2017
Product tankers
6.67% 4.2%
Aframax tankers
48.8%
Suezmax vessels(1)
(15.9)%
(1)
As at December 31, 2018 Athena’s Suezmax vessels were operated under voyage charters.
Based on the above assumptions Athena determined that the undiscounted cash flows support the vessels’ carrying amounts as of December 31, 2018 and 2017.
Recent Accounting Pronouncements
Please see Note 2(n) (Significant Accounting Policies — Recent Accounting Pronouncements) to the audited combined carve-out financial statements of Athena included in this prospectus.
Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
Athena does not have a material currency exposure risk. Athena generates all of its revenues in U.S. dollars and incurs less than 21% of its expenses in currencies other than U.S. dollars. For accounting purposes, expenses incurred in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rate prevailing on the date of each transaction. As of December 31, 2018 and 2017, less than 4% and 6% of Athena’s liabilities, respectively, were denominated in currencies other than U.S. dollars. These liabilities were translated into U.S. dollars at the exchange rate prevailing on December 31, 2018 and 2017, respectively. Athena has not hedged currency exchange risks.
Interest Rate Risk
The international tanker industry is capital intensive, requiring significant amounts of investment, a significant portion of which is provided in the form of long-term debt. Athena’s current debt contains interest rates that fluctuate with LIBOR. Athena’s 2015 credit facility bears an interest margin of 2.50% per annum over U.S. dollar LIBOR and the Aristaios credit facility bears an interest margin of 2.85% per annum over U.S. dollar LIBOR. Therefore, Athena is exposed to the risk that its interest expense may increase if interest rates rise.
For the periods under review, Athena did not have and, currently, it has no interest rate swap agreements outstanding. Any increases by the lenders to their “funding costs” under Athena’s credit facilities will lead to proportional increases in the relevant interest amounts payable under such credit facilities on a quarterly basis. As an indication of the extent of Athena’s sensitivity to interest rate changes based upon its debt level, an increase of 100 basis points in LIBOR would have resulted in an increase in Athena’s interest expense by approximately $0.5 million, $0.2 million and $0.0 million for the years ended December 31, 2018, 2017 and 2016, respectively assuming all other variables had remained constant.
Concentration of Credit Risk
Financial instruments which potentially subject Athena to significant concentrations of credit risk consist principally of cash and cash equivalents. As part of CPLP, Athena is dependent upon CPLP for the major part of its working capital and financing requirements as CPLP uses a centralized approach to cash
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management and financing of its operations. As a consequence Athena does not maintain significant cash balances. CPLP places cash and cash equivalents, consisting mostly of deposits, with creditworthy financial institutions as rated by qualified rating agencies. Athena does not obtain rights to collateral to reduce its credit risk.
Inflation
Inflation has had a minimal impact on vessel operating expenses, drydocking expenses and general and administrative expenses to date. Athena does not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment. However, in the event that inflation becomes a significant factor in the global economy, inflationary pressures would result in increased operating, voyage and financing costs.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DSS LP
The following is a discussion of the historical results of operations and liquidity and capital resources of DSS LP, and unless otherwise specified does not include a discussion of the historical results of operations and liquidity of Athena or the pro forma information after giving effect to the Transactions.
You should read the following discussion in conjunction with the audited consolidated financial statements of DSS LP and the corresponding notes and the unaudited pro forma condensed combined financial statements and the corresponding notes included elsewhere in this prospectus. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please refer to “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
Prior to the Transactions, DSS LP provided seaborne transportation of crude oil, refined petroleum and other products in the international shipping markets, operating a fleet of 43 vessels with an aggregate of approximately 3.5 million deadweight tons (“dwt”) in carrying capacity. Prior to the Transactions, DSS LP’s vessel operations were composed of two segments: crude tankers, which consisted of 12 Suezmax vessels, and product tankers, which consisted of 31 MR vessels. As part of the Transactions, the entities owning these vessels merged with subsidiaries of Diamond S.
The strategies that Diamond S intends to pursue following the Transactions are described in the section entitled “Business — Chartering Strategy.”
Factors to Consider When Evaluating DSS LP’s Results
Change to Fiscal Year End
In January 2019, DSS LP’s board of directors approved changing DSS LP’s fiscal year end to December 31 of each calendar year from March 31.
Dispositions of the Alpine Minute and Alpine Magic
In November 2018, DSS LP’s board of directors approved selling the Alpine Minute and Alpine Magic, both 2009-built MR vessels. DSS LP reached an agreement to sell the Alpine Minute for $17.8 million less a 1% broker commission payable to a third party. DSS LP reached an agreement to sell the Alpine Magic for $17.0 million less a 1% broker commission payable to a third party. In December 2018, DSS LP completed the sale of the Alpine Minute and Alpine Magic, receiving total proceeds of  $34.9 million, and repaying related debt of  $24.7 million. The loss on sale of the vessels was $20.0 million, which was recorded to the consolidated statements of operations for the nine months ended December 31, 2018.
Vessel Employment
During the years ended March 31, 2018 and 2017, DSS LP employed some of its vessels in vessel pools. In addition to costs incurred during a pool vessel’s employment, DSS LP paid management fees to the pool. None of DSS LP’s vessels operated in pools during the nine months ended December 31, 2018.
Other Trends and Factors Affecting DSS LP’s Future Results of Operations
The principal factors that have affected DSS LP’s results of operations, and may in the future affect Diamond S’ results of operations, are the economic, regulatory, financial, credit, political and governmental conditions prevailing in the tanker market and shipping industry generally and in the countries and markets in which the DSS LP vessels are chartered.
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The world economy has experienced significant economic and political upheavals in recent history. In addition, credit supply has been constrained and financial markets have been particularly turbulent. Protectionist trends, global growth and demand for the seaborne transportation of goods, including oil and oil products and overcapacity and deliveries of newly-built vessels have affected, and may further affect, the tanker market and shipping industry in general and the business, financial condition, results of operations and cash flows of DSS LP or Diamond S, as applicable.
Some of the key factors that have affected DSS LP’s business, financial condition, results of operations and cash flows, and may in the future affect Diamond S’ business, financial condition, results of operations and cash flows, include the following:

levels of oil product demand and inventories;

supply and demand for crude oil and oil products;

charter hire levels (under time and bareboat charters) and the ability to re-charter vessels at competitive rates as their current charters expire;

developments in vessel values, which may affect compliance with covenants under credit facilities and/or debt refinancing;

compliance with covenants in credit facilities, including covenants relating to the maintenance of vessel value ratios;

the level of debt and the related interest expense and amortization of principal;

access to debt and equity and the cost of capital required to acquire additional vessels;

supply and order-book of tanker vessels;

the ability to increase the size of the fleet and make additional acquisitions that are accretive to earnings;

the ability of the commercial and chartering operations to successfully employ vessels at economically attractive rates, particularly as charters expire and the fleet expands;

the continuing demand for crude oil and oil products from China, India, Brazil and Russia and other emerging markets;

the ability to comply with new maritime regulations, the more restrictive regulations for the transport of certain products and cargoes and the increased costs associated therewith;

changes in fuel prices, including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations adopted by the IMO (for those vessels that are not retrofitted with scrubbers);

the effective and efficient technical management of the vessels;

the costs associated with upcoming dry-docking of vessels;

the ability to obtain and maintain major international oil company approvals and to satisfy technical, health, safety and compliance standards;

the strength of and growth in the number of the customer relationships, especially with major international oil companies and major commodity traders;

the prevailing spot market rates and the number of vessels operating in the spot market; and

the ability to acquire and sell vessels at satisfactory prices.
Please read “Risk Factors” for a discussion of certain risks that may affect the business, financial condition, results of operations and cash flows of Diamond S, and “Business — Chartering Strategy” for a discussion of the strategies that Diamond S intends to pursue.
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Results of Operations
Nine Months Ended December 31, 2018 Compared to the Year Ended March 31, 2018
DSS LP’s results of operations for the nine months ended December 31, 2018 and the year ended March 31, 2018, respectively, differ primarily due to:

the number of operating and revenue days as a result of the change in fiscal year end; and

lower charter rates as a result of weaker market conditions for product and crude tankers on the back of increased tonnage availability, high oil and oil product inventories and OPEC/Non-OPEC oil production cuts.
Total Revenues
Total revenues, consisting of time and voyage charter revenues, amounted to $275.5 million for the nine months ended December 31, 2018 and $302.9 million for the year ended March 31, 2018.
The decrease of  $27.4 million was primarily attributable to the lower operating and revenue days in the nine months ended December 31, 2018 by approximately 4,000 days coupled with lower charter rates as a result weaker market conditions for product and crude tankers.
For the nine months ended December 31, 2018, DSS LP primarily employed its vessels by voyage charters as compared with the year ended March 31, 2018, with approximately 73% of the fleet operating in pools that provide the benefits of large scale operations.
Voyage Expenses
Total voyage expenses amounted to $137.8 million for the nine months ended December 31, 2018, compared to $89.9 million for the year ended March 31, 2018. The increase of  $47.9 million was primarily attributable to the increase in the number of voyage charters under which certain of the vessels were employed in the nine months ended December 31, 2018, compared to the year ended March 31, 2018.
Voyage expenses primarily consist of bunkers, port expenses, canal dues and commissions. Commissions were paid to shipbrokers for negotiating and arranging charter party agreements on DSS LP’s behalf. Voyage expenses incurred during time and pools are paid for by the charterer or pool manager, except for commissions, which were paid for by DSS LP. Voyage expenses incurred during voyage charters were paid for by DSS LP.
Vessel Expenses
For the nine months ended December 31, 2018, total vessel expenses amounted to $85.2 million compared to $109.2 million for the year ended March 31, 2018. The $24.0 million decrease in vessel expenses primarily reflects approximately 4,000 less operating days in the nine months ended December 31, 2018 compared to the year ended March 31, 2018.
Vessel expenses include crew wages and associated costs, the cost of insurance premiums, expenses relating to repairs and maintenance, lubricants and spare parts, technical management fees and other miscellaneous expenses.
Vessel Depreciation and Amortization
Depreciation and amortization amounted to $66.1 million for the nine months ended December 31, 2018, compared to $86.6 million for the year ended March 31, 2018. The decrease was due to the nine month depreciation and amortization compared with the twelve month depreciation and amortization for the year ended March 31, 2018.
General and Administrative Expenses
General and administrative expenses amounted to $11.4 million for the nine months ended December 31, 2018 compared to $14.6 million for the year ended March 31, 2018. The decrease in general and administrative expenses of  $3.2 million was primarily due to lower operating days in the nine months ended December 31, 2018 than the year ended March 31, 2018.
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Other Corporate Expenses
Other corporate expenses increased by $0.2 million to $0.7 million in the nine months ended December 31, 2018 from $0.5 million for the year ended March 31, 2018. The increase was primarily driven by legal and audit fees associated with filing the registration statement on Form 10 in connection with the Transactions.
Management Fees
Management fees, which consist of pool management fees, decreased by $1.0 million from $1.0 million for the year ended March 31, 2018 to zero for the nine months ended December 31, 2018. The decrease was due to the change in employment from pools in the year ended March 31, 2018 to voyage charters in the nine months ended December 31, 2018.
Loss on Sale of Assets
In December 2018, DSS LP sold two vessels, receiving total proceeds of  $34.9 million and repaying debt of  $24.7 million. The carrying value of the assets was $20.0 million above the sale price, which was recorded as a loss in the nine months ended December 31, 2018. There were no vessel sales for the year ended March 31, 2018.
Total Other Expense, net
Total other expense, net, which includes term loan interest, amortization of deferred financing charges and commitment fees and net of interest income, was $26.9 million for the nine months ended December 31, 2018 compared to $32.4 million for the year ended March 31, 2018. The decrease of $5.6 million was primarily a result of the decrease in the number of days of interest expense included in the nine months ended December 31, 2018.
Net Income (Loss) Attributable to Noncontrolling Interest
The net income (loss) attributable to noncontrolling interest was a net loss of  $0.1 million for the nine months ended December 31, 2018 compared to a net loss of  $0.8 million for the year ended March 31, 2018. The net loss attributable to noncontrolling interest primarily represents a 49% interest in NT Suez Holdco LLC, which owns and operates two Suezmax vessels and is 51% owned by DSS LP. The decreases in the net loss of  $0.7 million was mainly attributable to higher charter rates achieved as a result of better fuel efficiencies from long haul voyages.
Year Ended March 31, 2018 Compared to Year Ended March 31, 2017
DSS LP’s results of operations for the years ended March 31, 2018 and 2017 differ primarily due to:

the increase in the weighted average number of vessels as DSS LP took delivery of the four Suezmax vessels in the latter part of the year ended March 31, 2017;

lower charter rates as a result of weaker market conditions for product and crude tankers on the back of increased tonnage availability, high oil and oil product inventories and OPEC/Non-OPEC oil production cuts; and

the increase in voyage expenses due to the product tankers redelivering from pools and subsequent employment in voyage charters.
Total Revenues
Total revenues, consisting of time, voyage and pool revenues, amounted to $302.9 million for the year ended March 31, 2018 compared to $303.8 million for the year ended March 31, 2017.
The decrease of  $0.9 million was primarily attributable to lower charter rates as a result of weaker market conditions for crude and product tankers, partially offset by the increase in vessel operating days as the weighted average size of the fleet expanded by 1.4 vessels in 2018.
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Voyage Expenses
Total voyage expenses amounted to $89.9 million for the year ended March 31, 2018, compared to $43.3 million for the year ended March 31, 2017. The increase of  $46.6 million was primarily attributable to the increase in the number of voyage charters that were employed during the year ended March 31, 2018 compared to the year ended March 31, 2017.
Vessel Expenses
For the year ended March 31, 2018, vessel operating expenses increased by $6.2 million to $109.2 million from $103.0 million for the year ended March 31, 2017. The increase was primarily attributable to the expansion in the weighted average size of the fleet from 43.6 vessels to 45.0 vessels as a result of the delivery of four Suezmax vessels in the latter part of the year ended March 31, 2017.
Depreciation and Amortization
Depreciation and amortization amounted to $86.6 million for the year ended March 31, 2018, compared to $81.0 million for the year ended March 31, 2017. The increase of  $5.6 million was due to the increase in the average number of vessels in the fleet.
General and Administrative Expenses
General and administrative expenses increased $1.4 million to $14.6 million for the year ended March 31, 2018 from $13.2 million for the year ended March 31, 2017. The increase was primarily attributable to an increase in personnel costs as a result of the increase in staff to commercially manage vessels redelivering from pools for employment on voyage charters.
Other Corporate Expenses
Other corporate expenses were $0.5 million for the year ended March 31, 2018 compared to $0.6 million for the year ended March 31, 2017. The decrease of  $0.1 million was primarily related to a decline in legal fees associated with legal restructuring activities.
Management Fees
Management fees, which consist of pool management fees, decreased by $0.3 million from $1.3 million in the year ended March 31, 2017 to $1.0 million in the year ended March 31, 2018. The decrease was due to the change from employment of vessels in pools requiring fees to employment on voyage charters during the latter half of the year ended March 31, 2018.
Total Other Expense, net
Total other expense, net, which includes term loan interest, amortization of deferred financing charge and commitment fees and is presented net of interest income, was $32.5 million for the year ended March 31, 2018 compared to $31.1 million for the year ended March 31, 2017. The increase of  $1.4 million was primarily a result of the increase in the number of days of interest expense from two term loan facilities associated with four newbuild Suezmaxes delivered in the latter half of the year ended March 31, 2017.
Net Income (Loss) Attributable to Noncontrolling Interest
The net income (loss) attributable to noncontrolling interest was a loss of  $0.8 million for the year ended March 31, 2018 compared to a net income of  $0.1 million for the year ended March 31, 2017. The net loss/income attributable to noncontrolling interest primarily represents a 49% interest in NT Suez Holdco LLC, which owns and operates two Suezmax vessels and is 51% owned by DSS LP. The decrease of $0.9 million was mainly attributable lower charter rates as a result of weaker market conditions due to increased tonnage availability, high oil and oil product inventories and OPEC/Non-OPEC oil production cuts.
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Liquidity and Capital Resources
As of December 31, 2018, and March 31, 2018, total cash and cash equivalents were $88.2 million and $84.3 million, including restricted cash of  $5.1 million and $5.0 million, respectively. As of December 31, 2018, and March 31, 2018, DSS LP had $19.3 million and $49.2 million available and undrawn under its credit facilities. However, included in the undrawn amount is one facility, which amounts to $17.9 million in each year above, that was terminated upon commencement of the Transactions.
Generally, primary sources of funds have been cash from operations and undrawn amounts under credit facilities.
Effective upon completion of the Transactions, Diamond S has indebtedness outstanding under the new term loan and revolving credit facilities arranged in connection with the Transactions and indebtedness under previously existing credit facilities of DSS LP. See “Description of Material Indebtedness.”
Passage of environmental legislation or other regulatory initiatives have in the past, and may in the future, have a significant impact on the operations of DSS LP or Diamond S, as applicable. Regulatory measures can increase the costs related to operating and maintaining the DSS LP vessels and may require Diamond S to retrofit its vessels with new equipment.
Among other capital expenditures, in consideration of the IMO 2020 Regulations, DSS LP contracted for the purchase and installation of scrubbers on two of its Suezmax vessels. These scrubbers are expected to be installed prior to January 1, 2020 or shortly thereafter and are expected to translate into aggregate capital expenditures of at least $4.7 million. Diamond S may, in the future, determine to purchase additional scrubbers for installation on other vessels owned or operated by the Company.
In addition, with respect to vessels on which Diamond S has not contracted for the installation of scrubbers, management of Diamond S also expects to make certain capital expenditures to ensure those vessels are capable of efficiently using low-sulfur fuel and estimates that the costs of such capital expenditures are significant.
Furthermore, DSS LP has contracts in place to install ballast water treatment systems for four vessels whose compliance date requires such installation in 2019 and 2020. Total estimated cost is $11.4 million.
Please read “Risk Factors — Risks Related to the Company’s Industry” and “Business — Environmental and Other Regulations” for a discussion of environmental compliance, regulatory developments and initiatives that may impact Diamond S following the Transactions.
Cash Flows
The following table summarizes DSS LP’s cash and cash equivalents provided by or used in operating, financing and investing activities for the periods presented below (presented in millions):
For the Nine
Months Ended
December 31,
2018
For the Years Ended
March 31,
(in thousands)
2018
2017
Net Cash Provided by Operating Activities
$ 23.5 $ 34.0 $ 103.9
Net Cash Provided by/ (Used in) Investing Activities
$ 28.0 $ 48.6 $ (179.7)
Net Cash Used in Financing Activities
$ (47.7) $ (67.7) $ (7.5)
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $23.5 million for the nine months ended December 31, 2018, compared to $34.0 million for the year ended March 31, 2018. The decrease of  $10.5 million was mainly attributable to, among other factors, lower charter rates affecting our revenues offset by the positive effect of the changes in DSS LP’s operating assets and liabilities amounting of  $32.7 million. Changes in DSS LP’s operating assets and liabilities were driven mainly by decreases in trade accounts receivable and pool working capital as a result of the change from pool employment to voyage charters.
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Net cash provided by operating activities was $34.0 million for the year ended March 31, 2018, compared to $103.9 million for the year ended March 31, 2017. The decrease of  $69.9 million was mainly attributable to, among other factors, lower charter rates affecting DSS LP’s revenues and the negative effect of the changes in operating assets and liabilities amounting to $12.3 million. Changes in DSS LP’s operating assets and liabilities were driven mainly by an increase drydocking costs by $15.3 million offset by the increase in accounts payable and accrued expenses as a result of voyage charters associated with newbuild deliveries.
Net Cash Used in Investing Activities
Net cash used in investing activities refers primarily to cash used for vessel acquisitions or dispositions and improvements.
Net cash provided by investing activities for the nine months ended December 31, 2018 was $28.0 million compared to $48.6 million during the year ended March 31, 2018. The decrease of $20.6 million was primarily attributable to vessel sales of two product takers in the nine months ended December 31, 2018 with total proceeds of  $34.9 million offset by $52.5 million in proceeds from the maturities of time deposits in the year ended March 31, 2018.
Net cash provided by investing activities for the year ended March 31, 2018 increased by $228.4 million to $48.6 million from cash used in investing activities of  $179.7 million during the year ended March 31, 2017. The increase was mainly related to payments for newbuild construction in the year ended March 31, 2017 of  $123.8 million and the timing of the investment in time deposits, which were invested in the year ended March 31, 2017 and matured in the year ended March 31, 2018.
Net Cash Used in Financing Activities
Net cash used in financing activities for the nine months ended December 31, 2018 was $47.7 million compared to $67.7 million during the year ended March 31, 2018. The decrease in $20.0 million of cash used in financing activities was primarily driven by an increase in borrowings under revolving credit facilities in the nine months ended December 31, 2018 offset by the impact of recouponing DSS LP’s interest rate swaps.
Net cash used in financing activities for the year ended March 31, 2018 was $67.7 million compared to $7.5 million during the year ended March 31, 2017. The increase of  $60.2 million was primarily due to mandatory payments on long term debt. The year ended March 31, 2017 also included proceeds from two new term loans associated with the delivery of four newbuild Suezmax vessels, which amounted to $141.0 million and $60.0 million in dividends paid to the partners.
Off-Balance Sheet Arrangements
As of December 31, 2018 and March 31, 2018, DSS LP had not entered into any off-balance sheet arrangements.
Contractual Obligations and Contingencies
The following table summarizes DSS LP’s long-term contractual obligations as of December 31, 2018 (in thousands of U.S. dollars).
Payment due by period
Total
Less than 1 year
1 – 3 years
3 – 5 years
More than 5 years
Long-term Debt Obligations
$ 646,688 $ 97,315 $ 507,498 $ 41,875 $
Interest Obligations(1)
76,274 31,678 44,083 513
Capital Commitments
13,230 11,122 2,108
Total:
$ 736,192 $ 140,115 $ 553,689 $ 42,388 $
(1)
Interest has been estimated based on the LIBOR Bloomberg forward rates and the prescribed margin for each of DSS LP’s facilities. Please see Note 7 to the audited consolidated financial statements of DSS LP for details on the margins for each facility.
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Critical Accounting Policies
This MD&A is prepared in accordance with U.S. GAAP. The preparation of these financial statements requires DSS LP to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and which could potentially result in materially different results under different assumptions and conditions. DSS LP has described below what DSS LP’s management believes are its most critical accounting policies. For a description of all of DSS LP’s significant accounting policies, see Note 2 (Significant Accounting Policies) to the audited consolidated financial statements of DSS LP included in this prospectus.
Revenue Recognition
Revenues are generated from time charters, pool arrangements and voyage charters.
DSS LP recognizes revenues over the term of the time charter when there is a time charter agreement, where the rate is fixed or determinable, service is provided and collection of the related revenue is reasonably assured. DSS LP does not recognize revenue during days the vessel is off-hire. Where the time charter contains a profit or loss sharing arrangement, the profit or loss is recognized based on amounts earned or incurred as of the reporting date.
Revenues from pool arrangements are recognized based on its portion of the net distributions reported by the relevant pool, which represents the net voyage revenue of the pool after voyage expenses and pool manager fees.
Under a voyage charter agreement, the revenues are recognized on a pro rata basis based on the relative transit time in each period. The period over which voyage revenues are recognized commences at the time the vessel departs from its last discharge port and ends at the time the discharge of cargo at the next discharge port is completed. DSS LP does not begin recognizing revenue until a charter has been agreed to by the customer and DSS LP, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage. DSS LP does not recognize revenue when a vessel is off-hire. Estimated losses on voyages are provided for in full at the time such losses become evident.
Vessel Lives and Impairment
The carrying value of each of DSS LP’s vessels represents its original cost (contract price plus initial expenditures) at the time of delivery or purchase less accumulated depreciation or impairment charges. The carrying values of vessels may not represent their fair market value at any point in time since the market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. In recent years changing market conditions resulted in a decrease in charter rates and values of assets. DSS LP’s management considers these market developments as indicators of potential impairment of the carrying amount of its assets.
In developing estimates of future undiscounted cash flows, DSS LP makes assumptions and estimates about the vessels’ future performance, with the significant assumptions being related to charter rates, fleet utilization, vessels’ operating expenses, vessels’ capital expenditures and drydocking requirements, vessels’ residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends. Specifically, DSS LP utilizes the rates currently in effect for the duration of their current time charters, without assuming additional profit-sharing. For periods of time where DSS LP’s vessels are not fixed on time charters, DSS LP utilizes an estimated daily time charter equivalent for its vessels’ unfixed days based on the most recent ten year historical one-year time charter average.
Although DSS LP management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates
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and vessel values will remain at their current low levels or whether they will improve by a significant degree. If charter rates were to remain at depressed levels, future assessments of vessel impairment would be adversely affected.
In recent years, the market values of vessels have experienced particular volatility, with substantial declines in many of the charter-free market value, or basic market value, of various vessel classes. As a result, the market value of DSS LP’s vessels may have declined below their carrying values, even though DSS LP did not impair their carrying values under its impairment accounting policy. This is due to DSS LP’s management’s belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts.
The estimates of basic market value assume that DSS LP’s vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified in class without notations of any kind. The estimates are based on the estimated market values for DSS LP’s vessels that it has received from independent ship brokers, reports by industry analysts and data providers that focus on DSS LP’s industry and related dynamics affecting vessel values and news and industry reports of similar vessel sales. Vessel values are highly volatile and as such, the estimates may not be indicative of the current or future market value of the vessels or prices that Diamond S could achieve it we were to sell them.
The table set forth below indicates (i) the carrying value of each of vessel as of December 31, 2018 and March 31, 2018; (ii) which of the DSS LP vessels management believes has a charter free market value below its carrying value; and (iii) the aggregate difference between carrying value and market value represented by such vessels. This aggregate difference represents the approximate analysis of the amount by which management believes DSS LP would have had to reduce its net income if it sold all of such vessels in the prevailing environment, on industry standard terms, in cash transactions, and to a willing buyer where DSS LP was not under any compulsion to sell, and where the buyer was not under any compulsion to buy. For purposes of this calculation, DSS LP management assumed that the vessels would be sold at a price that reflects its estimate of their current basic market values.
Vessels
(in millions of U.S. dollars)
Carrying value
as of
December 31, 2018
Carrying value
as of
March 31, 2018
Adriatic Wave
$ 26.6* $ 27.8*
Aegean Wave
$ 26.9* $ 28.0*
Alpine Madeleine
$ 24.7* $ 25.8*
Alpine Mathilde
$ 24.6* $ 25.8*
Alpine Magic
$ $ 27.7*
Alpine Maya
$ 27.5* $ 28.7*
Alpine Melina
$ 27.6* $ 28.7*
Alpine Mia
$ 25.0* $ 26.0*
Alpine Minute
$ -— $ 27.4*
Alpine Moment
$ 26.2* $ 27.3*
Alpine Mystery
$ 26.5* $ 27.3*
Atlantic Aquarius
$ 24.7* $ 25.9*
Atlantic Breeze
$ 20.8* $ 21.8*
Atlantic Frontier
$ 23.2* $ 24.3*
Atlantic Gemini
$ 24.6* $ 25.8*
Atlantic Grace
$ 24.7* $ 25.8*
Atlantic Leo
$ 24.8* $ 25.9*
Atlantic Lily
$ 24.9* $ 25.9*
Atlantic Mirage
$ 26.4* $ 27.6*
Atlantic Muse
$ 26.2* $ 27.4*
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Vessels
(in millions of U.S. dollars)
Carrying value
as of
December 31, 2018
Carrying value
as of
March 31, 2018
Atlantic Olive
$ 25.0* $ 26.1*
Atlantic Pisces
$ 26.6* $ 27.7*
Atlantic Polaris
$ 26.3* $ 27.4*
Atlantic Rose
$ 24.9* $ 26.0*
Atlantic Star
$ 24.7* $ 25.8*
Atlantic Titan
$ 24.9* $ 26.0*
Citron
$ 20.3* $ 21.2*
Citrus
$ 21.9* $ 22.7*
High Jupiter
$ 24.9* $ 26.0*
High Mars
$ 24.9* $ 26.0*
High Mercury
$ 24.8* $ 25.9*
High Saturn
$ 24.7* $ 25.8*
Pacific Jewel
$ 25.7* $ 26.8*
Brazos
$ 54.0* $ 55.9*