Tsakos’s Falling Leverage, and Where it Stands in the Industry
Tsakos Energy Has a Bright Future, but How Long Must It Wait?
Tsakos’s debt position
Tsakos Energy Navigation’s (TNP) financial position has improved over the past year. The company’s total debt at the end of 4Q15 stood at $1.4 billion, which fell from $1.41 billion at the start of the year. But compared to the previous quarter’s debt, TNP’s debt has increased, and when assessing the debt position of a company, it’s best to look at the company’s leverage ratios.
Crude tanker companies are capital intensive, so it’s especially important to look at leverages. Net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) is an indicator of financial leverage and signifies the financial risk of a company. A higher ratio means higher financial leverage.
Leverage ratios compared to peers
Tsakos’s net debt-to-capital ratio at the end of the fourth quarter was historically low at 43.6%. The net debt-to-EBITDA ratio at the end of 4Q15 was 3.68, an improvement from the 6.81 it had at the start of the year and from last quarter’s 3.8. The leverage ratios of other crude (DBO) tanker companies at the end of the fourth quarter were as follows:
Teekay Tankers (TNK)—4.12
Nordic American Tankers (NAT)—1.42
DHT Holdings (DHT)—2.32
Navios Maritime Midstream (NAP)—2.64
Contractual obligations
Tsakos is obligated to pay $261 million, or ~19% of its total debt, in 2016, and the company’s cash balance of $305 million is sufficient to pay its 2016 debt. So debt repayment is not a concern for Tsakos. But the scheduled payments for the company’s newbuilds in 2016 amount to $373 million, and along with this, the company will also maintenance capital expenditure. In this sense, the company’s cash from operations may not be sufficient to pay the capital expenditure, and for this reason, analysts estimate negative free cash flow for Tsakos in 2016.
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