Capital Product Partners L.P.CPLP

Morningstar Rating

Stock Research and Analysis

by Morningstar Equity Analysts

Ship lessor Capital Product Partners has pushed back its plans to continue expanding its fleet, which will likely threaten its near-term revenue gains. Moreover, the firm's fleet faces a sizeable amount of contract renegotiations during the next year, and weakened industry freight rates could threaten the partnership's hefty dividend. Read more

Bulls Say

Capital Partners' contracts feature rental agreements with topnotch customers.

Similar to its fixed-rate rental strategy, the pricing of Capital Partners' management agreement is set for the next four years.

Although many of Capital Partners' contracts include profit-sharing measures, the company's hefty dividend doesn't depend on this extra revenue. Further, Capital Partners' minimum planned dividend yields about 10% to our fair value estimate. Read more

Bears Say

Capital Partners will need to recharter nine vessels in 2010. If the industry is weaker than we anticipate at this time, Capital Partners could suffer on its renegotiated daily rates.

Although ship prices have decreased, financing constraints will likely prevent Capital Partners from adding accretive vessels to its fleet.

Capital Maritime controls Capital Partners' management and directors through its ownership of Capital Partners' general partner. The decisions by this parent company may not coincide with those of minority shareholders.

If asset prices continue to deteriorate further than we expect, Capital Partners could violate its minimum vessel value-to-loan covenant. In this case, the firm would likely face higher interest costs, slashed dividend payments, or accelerated debt maturities. Read more

Strategy

Capital Product Partners has altered its near-term strategy, as it does not expect to expand its fleet because of difficult financing conditions. For its ship management, the company has signed a five-year contract with its parent company, which fixes each vessel's daily expenses. Read more

Management

Capital Partners' stewardship is an issue for minority shareholders, as Capital Partners' parent firm--private company Capital Maritime--wields a great deal of control through its ownership of the controlled firm's general partner. With this power, Capital Maritime appoints Capital Partners' management and will assign three of its seven directors after the current, all-appointed, staggered board's initial terms roll off. Read more

Profile

Based in Piraeus, Greece, Capital Product Partners owns and leases small to medium-sized ships for the transportation of refined oil products. These rental contracts are typically long-term and range from three to 10 years. Read more

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