Amendment No. 7 to F-1
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As filed with the Securities and Exchange Commission on November 19, 2018.

Registration Statement No. 333-225677

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 7 to

FORM F-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

Navios Maritime Containers L.P.*

(Exact name of registrant as specified in its charter)

 

 

 

*

The registrant is currently a private company named Navios Maritime Containers Inc. incorporated under the Republic of the Marshall Islands and will be converted into a limited partnership named Navios Maritime Containers L.P. organized under the laws of the Republic of the Marshall Islands in connection with the transaction described in this Registration Statement.

 

Republic of the Marshall Islands   4412   N/A

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

7 Avenue de Grande Bretagne, Office 11B2

Monte Carlo, MC 98000 Monaco

(011) +(377) 9798-2140

(Address and telephone number of Registrant’s principal executive offices)

 

 

C T Corporation System

111 8th Avenue

New York, New York 10011

(212) 894-8800

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

 

 

John M. Bibona

Joshua Wechsler

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004

(212) 859-8000 (telephone number)

(212) 859-4000 (facsimile number)

 

 

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

 

 

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

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

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.  ☒

If an emerging growth company that prepares financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Amount to be
registered
 

Proposed maximum
offering price per unit

 

Proposed

Maximum Aggregate

Offering Price(1)(2)

  Amount of
Registration Fee(3)

Common units representing limited partner interests

  855,050   Not applicable   $4,381,146   $531

 

 

(1)

This Registration Statement relates to the common units representing limited partner interests of Navios Maritime Containers L.P. (“Navios Containers”), that will be distributed by Navios Maritime Partners L.P. pro rata to its unit holders (the “Distribution”). The amount of common units to be registered represents the maximum number of common units that may be distributed upon consummation of the Distribution.

(2)

Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act.

(3)

Calculated in accordance with Rule 457 under the Securities Act. The Registrant previously paid the full registration fee in connection with prior filings of this Registration Statement and owes no further amounts.

 

 

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

 

 

 


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The information in this prospectus is not complete and may be changed. The securities described herein may not be distributed until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion,

Preliminary Prospectus dated November 19, 2018.

PRELIMINARY PROSPECTUS

 

 

LOGO

Navios Maritime Containers L.P.

855,050 Common Units

Representing Limited Partner Interests

 

 

This prospectus is being furnished to unit holders of Navios Maritime Partners L.P. (“Navios Partners”) in connection with the planned pro rata distribution, which we refer to as the Distribution, by Navios Partners to its unit holders of 6.9% of the common units of Navios Maritime Containers L.P. (“Navios Containers”) held by Navios Partners immediately prior to the Distribution described below. Following the completion of the Distribution, Navios Partners will hold approximately 33.5% of our outstanding common units.

To effect the Distribution, Navios Partners will make a pro rata distribution of approximately 2.5% of our issued and outstanding common units held by Navios Partners to holders of Navios Partners units as of the close of business, New York City time, on November 23, 2018, the record date for the Distribution. Navios Partners will distribute 0.0050 of our common units for every Navios Partners unit held by such holder. The closing date for the Distribution will be on or about December 3, which is expected to be approximately one week prior to the commencement of trading of our common units on the Nasdaq Global Select Market. The Distribution will be made in book-entry form. Fractional common units will not be distributed in the Distribution. Instead, fractional interests will be reduced down to the nearest whole number and Navios Partners unit holders will receive a cash payment for the fractional interest.

Navios Partners’ unit holders receiving our common units in the Distribution are not required to vote on or take any other action in connection with the Distribution. We are not asking Navios Partners’ unit holders receiving our common units in the Distribution for a proxy, and we request that these Navios Partners unit holders do not send us a proxy. Navios Partners’ unit holders receiving our common units in the Distribution will not be required to pay any consideration, cash or otherwise, for these common units, and Navios Partners’ unit holders will not be required to surrender or exchange their Navios Partners units or take any other action in connection with the Distribution.

Prior to the Distribution, we will convert from a corporation, Navios Maritime Containers Inc., to a limited partnership, Navios Containers at a conversion ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers.

We have applied to list our common units on the Nasdaq Global Select Market under the symbol “NMCI.”

The common shares of Navios Maritime Containers Inc. are currently traded on the Norwegian OTC List, an over-the-counter market that is administered and operated by a subsidiary of the Norwegian Securities Dealers Association, under the symbol “NMCI.” On October 23, 2018, the last trading price of the common shares of Navios Maritime Containers Inc. was 41.15 Norwegian kroner (“NOK”) per share, which was equivalent to approximately $4.96 per share based on the Bloomberg Generic Composite Rate of NOK 8.2918 per $1.00 in effect on that date. The common shares of Navios Maritime Containers Inc. will cease trading on the Norwegian OTC List at least three business days prior to our conversion into a limited partnership.

We are a Marshall Islands limited partnership. Although we are organized as a partnership, we will file an election to be treated as a corporation solely for U.S. federal income tax purposes.

The Distribution will be effective on or about December 3, 2018.

 

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Summary—Implication of Being an Emerging Growth Company.”

 

 

Investing in our common units involves risks. See “Risk Factors” beginning on page 30 of this prospectus.

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

 

 

                , 2018.


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You should rely only on the information contained in this prospectus and any free writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT NAVIOS CONTAINERS AND THE DISTRIBUTION

     1  

PROSPECTUS SUMMARY

     6  

Overview

     6  

Our Relationship with the Navios Group

     7  

Description of Fleet

     8  

Market Opportunity

     9  

Our Competitive Strengths

     11  

Our Business Strategies

     12  

Recent Developments

     13  

Risk Factors

     13  

Implication of Being an Emerging Growth Company

     13  

Organizational Structure

     15  

Summary of Conflicts of Interest and Fiduciary Duties

     16  

Principal Executive Offices and Internet Address; SEC Filing Requirements

     16  

Other Information

     17  

SUMMARY OF THE DISTRIBUTION

     18  

SUMMARY FINANCIAL DATA

     23  

FORWARD-LOOKING STATEMENTS

     26  

MARKET AND INDUSTRY DATA

     29  

RISK FACTORS

     30  

Risks Inherent in Our Business

     30  

Risks Inherent in an Investment in Us

     56  

Tax Risks

     65  

THE DISTRIBUTION

     69  

USE OF PROCEEDS

     73  

CAPITALIZATION

     74  

MARKET PRICE INFORMATION

     75  

OUR DISTRIBUTION POLICY

     77  

SELECTED HISTORICAL FINANCIAL DATA

     78  

 

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

     81  

Business Overview

     81  

Trends and Factors Affecting Our Future Results of Operations

     82  

Components of Our Operating Results

     82  

Operating Results

     84  

Liquidity and Cash Sources and Uses

     90  

Reconciliation of EBITDA from Net Cash Provided by/(Used in) Operating Activities

     96  

Capital Expenditures

     99  

Trend Information

     100  

Off-Balance Sheet Arrangements

     100  

Contractual Obligations and Contingencies

     100  

Reduced Emerging Growth Company Requirements

     101  

Accounting for Vessel Acquisitions

     102  

Critical Accounting Policies

     103  

Quantitative and Qualitative Disclosures about Market Risks

     106  

Inflation

     107  

Recent Accounting Pronouncements

     107  

THE INTERNATIONAL CONTAINER SHIPPING INDUSTRY

     108  

BUSINESS

     138  

Overview

     138  

Description of Fleet

     139  

Market Opportunity

     140  

Our Competitive Strengths

     142  

Our Business Strategies

     143  

Our Customers

     143  

Management of Ship Operations and Administration

     144  

Competition

     144  

Time Charters

     145  

Crewing

     146  

In-House Inspections

     146  

Classification, Inspection and Maintenance

     146  

Risk of Loss and Liability Insurance

     147  

Permits and Authorizations

     149  

Environmental and Other Regulations

     149  

 

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Legal Proceedings

     157  

Properties

     157  

Exchange Controls

     157  

Taxation of the Partnership

     157  

MANAGEMENT

     162  

Management of Navios Maritime Containers L.P.

     162  

Directors and Senior Management

     164  

Reimbursement of Expenses of Our General Partner

     166  

Executive Compensation

     166  

Compensation of Directors

     167  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     168  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     169  

Payments to our General Partner and Its Affiliates; General Partner Interests

     169  

Agreements with the Navios Group

     169  

Other Related Party Transactions

     175  

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

     176  

Conflicts of Interest

     176  

Fiduciary Duties

     179  

DESCRIPTION OF THE COMMON UNITS

     182  

The Units

     182  

Transfer Agent and Registrar

     182  

Transfer of Common Units

     182  

THE PARTNERSHIP AGREEMENT

     184  

Organization and Duration

     184  

Purpose

     184  

Power of Attorney

     184  

Capital Contributions

     184  

Voting Rights

     184  

Limited Liability

     186  

Issuance of Additional Securities

     186  

Tax Status

     187  

Amendment of the Partnership Agreement

     187  

Action Relating to the Operating Subsidiaries

     189  

Merger, Sale, or Other Disposition of Assets

     189  

 

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Termination and Dissolution

     190  

Liquidation and Distribution of Proceeds

     190  

Withdrawal or Removal of our General Partner

     190  

Transfer of General Partner Interest

     191  

Transfer of Ownership Interests in General Partner

     191  

Change of Management Provisions

     191  

Limited Call Right

     191  

Management of the Partnership

     192  

Board of Directors

     192  

Meetings of Limited Partners; Voting

     192  

Status as Limited Partner or Assignee

     193  

Indemnification

     193  

Reimbursement of Expenses

     194  

Books and Reports

     194  

Right to Inspect Our Books and Records

     194  

Registration Rights

     195  

UNITS ELIGIBLE FOR FUTURE SALE

     196  

Rule 144

     196  

Registration Rights

     196  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     198  

Conversion to a Limited Partnership; Election to be Treated as a Corporation

     198  

U.S. Federal Income Taxation of the Distribution

     199  

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

     200  

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

     205  

Backup Withholding and Information Reporting

     205  

MARSHALL ISLANDS TAX CONSIDERATIONS

     207  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     208  

LEGAL MATTERS

     209  

EXPERTS

     209  

EXPENSES OF THE REGISTRATION AND DISTRIBUTION

     210  

WHERE YOU CAN FIND MORE INFORMATION

     210  

INDEX TO FINANCIAL STATEMENTS

     F-1  

APPENDIX A: GLOSSARY OF TERMS

     A-1  

APPENDIX B: FORM OF AGREEMENT OF LIMITED PARTNERSHIP OF NAVIOS MARITIME CONTAINERS L.P.

     B-1  

 

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QUESTIONS AND ANSWERS ABOUT NAVIOS CONTAINERS AND THE DISTRIBUTION

The following questions and answers briefly address some commonly asked questions about Navios Containers and the Distribution. They may not include all the information that is important to you. We encourage you to read carefully this entire prospectus and the other documents to which we have referred you. We have included references in certain parts of this section to direct you to a more detailed discussion of each topic presented in this section.

Q: Who is Navios Containers?

A: We are an international owner and operator of containerships. We were formed as Navios Maritime Containers Inc., a Marshall Islands corporation, by Navios Maritime Holdings Inc. (“Navios Holdings”), in April 2017 and will convert into Navios Maritime Containers L.P., a Marshall Islands limited partnership, pursuant to which all of the outstanding common shares of Navios Maritime Containers Inc. will convert into common units of Navios Containers representing limited partner interests in Navios Containers. At the conversion ratio of one common share of Navios Maritime Containers Inc. to one common unit of Navios Containers, an aggregate of 34,603,100 common units of Navios Containers will be outstanding after the conversion. At least three business days prior to the conversion, the common shares of Navios Maritime Containers Inc. will cease trading on the Norwegian OTC List and, effective on the conversion, will cease to be outstanding.

Q: What is the Distribution?

A: The Distribution is the method by which Navios Partners will distribute a portion of its holdings in us, which will increase our unit holder base. In the Distribution, Navios Partners will distribute to unit holders of Navios Partners on the record date approximately 2.5% of our issued and outstanding common units. Following the Distribution, Navios Partners will retain an approximately 33.5% ownership interest in us and Navios Holdings will own approximately 3.7% of us.

Q: What are the reasons for the Distribution?

A: Navios Containers and Navios Partners are effecting the Distribution to increase the Navios Containers unit holder base in connection with listing on the Nasdaq Global Select Market.

Q: Will the number of Navios Partners units that Navios Partners unit holders own change as a result of the Distribution?

A: No, the number of Navios Partners units that Navios Partners unit holders own will not change as a result of the Distribution.

Q: What will Navios Partners unit holders receive in the Distribution?

A: Each holder of Navios Partners units will receive from Navios Partners a special dividend of 0.0050 of our common units for every Navios Partners unit they hold on the record date (as defined below). The distribution agent will distribute only whole common units in the Distribution. See “—Q: How will fractional common units be treated in the Distribution?” for more information on the treatment of the fractional common units Navios Partners unit holders may be entitled to receive in the Distribution. Navios Partners unit holders’ proportionate interest in Navios Partners will not change as a result of the Distribution. For a more detailed description, see “The Distribution.”



 

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Q: What is being distributed to holders of Navios Partners units in the Distribution?

A: Navios Partners will distribute 855,050 of our common units in the Distribution, based on the 171,009,967 total Navios Partners units issued and outstanding as of November 7, 2018. The actual number of our common units that Navios Partners will distribute will depend on the number of Navios Partners units issued and outstanding on the record date. Our common units that Navios Partners distributes will constitute approximately 2.5% of our issued and outstanding common units immediately prior to the Distribution and, after giving effect to the Distribution, Navios Partners will own approximately 33.5% of our common units. For more information on the common units being distributed in the Distribution, see “Description of the Common Units.”

Q: What is the record date for the Distribution?

A: Navios Partners has set the close of business, New York City time, on November 23, 2018 (the “record date”) as the record ownership date for the Distribution.

Q: When will the Distribution occur?

A: The closing of the Distribution will be on or about December 3, which is expected to be approximately one week prior to the commencement of trading of our common units on the Nasdaq Global Select Market (the “closing date”). On or shortly after the closing date, whole Navios Containers common units will be credited in book-entry accounts for Navios Partners unit holders entitled to receive Navios Containers common units in the Distribution. See “—Q: How will Navios Partners distribute our common units?” for more information on how Navios Partners unit holders can access their book-entry accounts or their bank, brokerage or other accounts holding the common units they will receive in the Distribution.

Q: What do Navios Partners unit holders have to do to participate in the Distribution?

A: Current Navios Partners unit holders are not required to take any action, but we urge them to read this prospectus carefully. Holders of Navios Partners units on the record date will not need to pay any cash or deliver any other consideration, including any Navios Partners units, in order to receive our common units in the Distribution. No Navios Partners unit holder approval of the Distribution is required. We are not asking Navios Partners unit holders for a vote, and we request that they do not send us a proxy card.

Q: If Navios Partners unit holders sell their Navios Partners units on or before the closing date, will they still be entitled to receive our common units in the Distribution?

A: If Navios Partners unit holders hold Navios Partners units on the record date and decide to sell them on or before the closing date, they may choose to sell their Navios Partners units with or without their entitlement to our common units. Navios Partners unit holders should discuss these alternatives with their bank, broker or other nominee.

Q: How will Navios Partners distribute our common units?

A: Registered unit holders: If the current Navios Partners unit holder is a registered unit holder (meaning it holds its Navios Partners units directly through Navios Partners’ transfer agent), the distribution agent will credit the whole amount of our common units that Navios Partners unit holder receives in the Distribution to a new book-entry account with our transfer agent on or shortly after the closing date. The distribution agent will mail the Navios Partners unit holder a book-entry account statement that reflects the number of whole Navios Containers common units it owns. Each Navios Partners unit holder will be able to access information regarding its book-entry account holding our common units at its account with Computershare Trust Company, N.A.



 

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Street name” or beneficial unit holders: If the current Navios Partners unit holder holds its Navios Partners’ units beneficially through a bank, broker or other nominee, its bank, broker or other nominee will credit its account with the whole amount of our common units that Navios Partners unit holder receives in the Distribution on or shortly after the closing date. Each Navios Partners unit holder should contact their bank, broker or other nominee for further information about their account.

We will not issue any physical certificates to any Navios Partners unit holders, even if requested. See “The Distribution—When and How You Will Receive Our Common Units in the Distribution” for a more detailed explanation.

Q: How will fractional common units be treated in the Distribution?

A: No fractional common units will be distributed to holders of Navios Partners units in connection with the Distribution. Instead, fractional interests will be reduced down to the nearest whole number and Navios Partners unit holders will receive a cash payment for the fractional interest. Holders of Navios Partners units that hold Navios Partners’ units through a bank, broker, or nominee shall receive cash in lieu of fractional common units, if any, determined in accordance with the policies of such bank, broker, or nominee. If a Navios Partners unit holder holds fewer than 200 Navios Partners units as of the record date, it will not receive any of our common units; however, it will receive a cash distribution from our distribution agent representing the value of fractional common units to which it is entitled. See “The Distribution—Manner of Effecting the Distribution” for a more detailed explanation.

Q: What are the U.S. federal income tax consequences to me of the Distribution?

A: We expect the distribution of our common units in the Distribution will be treated as a distribution for U.S. federal income tax purposes that is not expected to qualify for tax-free treatment under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, we expect the distribution of our common units by Navios Partners in the Distribution to constitute a dividend for U.S. federal income tax purposes to the extent of the current or accumulated earnings and profits of Navios Partners, determined under U.S. federal income tax principles. Distributions in excess of such current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. unit holder’s tax basis in its common units of Navios Partners, on a dollar-for-dollar basis, and thereafter as capital gain, which will be either long-term or short-term capital gain depending upon whether the U.S. unit holder held the common units of Navios Partners for more than one year at the time of the Distribution. A U.S. unit holder’s basis in our common units received in the Distribution will be equal to the fair market value of such common units and the U.S. unit holder’s holding period in our common units will begin on the day following the Distribution.

To the extent that the distribution of our common units in the Distribution is taxable as a dividend, a U.S. unit holder will generally be subject to tax on such dividend at ordinary income rates, unless the dividend is treated as qualified dividend income. Qualified dividend income is taxable to a non-corporate U.S. unit holder at preferential long-term capital gain tax rates.

Our common units that are received by a non-U.S. unit holder from Navios Partners in the Distribution will not be subject to U.S. federal income tax or withholding tax if the non-U.S. unit holder is not engaged in a U.S. trade or business. If the non-U.S. unit holder is engaged in a U.S. trade or business, the Distribution will be subject to U.S. federal income tax to the extent that it constitutes income effectively connected with the non-U.S. unit holder’s U.S. trade or business (and a corporate non-U.S. unit holder may also be subject to U.S. federal branch profits tax).

See “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of the Distribution” for more information regarding the potential tax consequences to Navios Partners unit holders of the Distribution.



 

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Q: Does Navios Containers intend to make cash distributions?

A: Please see “Our Distribution Policy” for more information.

Q: How will our common units trade?

A: We have applied to list our common units under the symbol “NMCI” on the Nasdaq Global Select Market. We cannot predict the trading prices for our common units or whether an active trading market for the units will develop and the trading price of our common units may fluctuate significantly following the Distribution. See “Risk Factors—Risks Inherent in an Investment in Us.”

Q: Will the Distribution affect the trading price of Navios Partners common units?

A: Neither we nor Navios Partners can assure Navios Partners unit holders as to the trading price of Navios Partners common units after the Distribution, or as to whether the combined trading prices of our common units and the Navios Partners common units after the Distribution will be less than, equal to or greater than the trading prices of Navios Partners common units prior to the Distribution.

Q: What will happen to the listing of Navios Partners common units?

A: Navios Partners common units will continue to be traded on the New York Stock Exchange (the “NYSE”) under the symbol “NMM.”

Q: Do Navios Partners unit holders have appraisal rights in connection with the Distribution?

A: No. Holders of Navios Partners units are not entitled to appraisal rights in connection with the Distribution.

Q: Who is the transfer agent and registrar for our common units?

A: Computershare Trust Company, N.A. is the transfer agent and registrar for our common units.

Q: Are there risks associated with owning our common units?

A: Yes. Our business faces both general and specific risks and uncertainties. In addition to these risks and uncertainties, following the completion of the Distribution, we will also face risks associated with being a U.S. publicly-traded company. Accordingly, you should read carefully the information set forth in “Risk Factors.”

Q: Are there any conditions to completing the Distribution?

A: Yes. The Distribution is conditional upon a number of matters, including the authorization and approval of the board of directors of Navios Partners and the declaration of effectiveness of the registration statement, of which this prospectus is a part, by the Securities and Exchange Commission (the “SEC”). See “Summary of the Distribution—Conditions to the Distribution” for a more detailed description of the conditions to completing the Distribution.

Q: Can Navios Partners decide to cancel the Distribution or modify its terms even if all conditions to the Distribution have been met?

A: Yes. Navios Partners has the right to terminate the Distribution at any time prior to the closing date (even if all conditions to completing the Distribution are satisfied). Also, Navios Partners may modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.



 

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Q: What does Navios Partners and Navios Holdings intend to do with any common units they retain?

A: Following the Distribution, Navios Partners will own approximately 33.5% of our common units and Navios Holdings will own approximately 3.7% of our common units. Navios Partners and Navios Holdings funded these investments in Navios Containers to take advantage of the emerging opportunities in the container shipping sector through an appropriately focused and funded entity. Navios Partners and Navios Holdings have no current intention to dispose of their interests in Navios Containers, but will evaluate their positions from time to time.

Q: Where can Navios Partners unit holders get more information?

A: Navios Partners unit holders having any questions relating to the Distribution should contact:

Navios Maritime Partners L.P.

+1 (212) 906-8645

Investors@navios-mlp.com



 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical consolidated financial statements and the notes to those financial statements contained in this prospectus. You should read “Risk Factors” for more information about important risks relating to an investment in our common units. Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. dollars. Unless otherwise indicated, all data regarding our fleet and the terms of our charters is as of October 31, 2018. We use the term “twenty foot equivalent unit” (“TEU”), the international standard measure of containers, in describing the capacity of our containerships. For the definition of certain shipping terms used in this prospectus, see the “Glossary of Terms” included in this prospectus as Appendix A.

We were incorporated under the laws of the Republic of the Marshall Islands as a private company named Navios Maritime Containers Inc. and we will convert into a limited partnership organized under the laws of the Republic of the Marshall Islands named Navios Maritime Containers L.P., which we refer to as “Navios Containers,” in connection with our listing on the Nasdaq Global Select Market. References in this prospectus to “we,” “our,” “us” or similar terms refer to Navios Containers and any one or more of its subsidiaries, or to all of such entities, depending on the context. Unless otherwise indicated or the context otherwise requires, all information in this prospectus reflects the conversion of Navios Maritime Containers Inc. into Navios Containers at a conversion ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers. In connection with the conversion, Navios Maritime Containers GP LLC, a Marshall Islands limited liability company and wholly-owned subsidiary of Navios Holdings (as defined below), will be admitted as our general partner and will hold a non-economic interest that does not provide the holder with any rights to profits or losses of, or distributions by, the partnership.

Unless the context otherwise requires, references in this prospectus to:

 

   

“Navios Holdings” refer, depending on the context, to Navios Maritime Holdings Inc. or any one or more of its subsidiaries;

 

   

“general partner” refer to Navios Maritime Containers GP LLC, and because the general partner is a wholly-owned subsidiary of Navios Holdings, we may also refer to Navios Holdings as the “general partner” in this prospectus depending on the context;

 

   

“Manager” refer to a wholly-owned subsidiary of Navios Holdings, which manages the commercial and technical operation of our fleet pursuant to a management agreement dated June 7, 2017, as amended on November 23, 2017, April 23, 2018 and June 1, 2018, which we refer to as the “Management Agreement,” and also provides administrative services to us pursuant to an administrative services agreement dated June 7, 2017, which we refer to as the “Administrative Services Agreement”;

 

   

“Navios Partners” refer to Navios Maritime Partners L.P.; and

 

   

“Navios Group” refer, depending on the context, to Navios Holdings, Navios Maritime Acquisition Corporation, which we refer to as “Navios Acquisition,” Navios Partners, Navios Maritime Midstream Partners L.P., which we refer to as “Navios Midstream”, us and any one or more of our and their subsidiaries.

Overview

We are a growth-oriented international owner and operator of containerships. We were formed in April 2017 by Navios Holdings, which owns, operates or manages one of the largest shipping fleets by capacity, to take advantage of acquisition and chartering opportunities in the container shipping sector. We generate our revenues by chartering our vessels to leading liner companies pursuant to fixed-rate time charters. Under the terms of our



 

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charters, we provide crewing and technical management, while the charterer is generally responsible for securing cargoes, fuel costs and voyage expenses. We have grown our fleet to 26 vessels, with an aggregate carrying capacity of 124,101 TEU and an average fleet age of 10.5 years.

The Navios Group began focusing on a strategy to expand its platform in the container sector in 2013, and in 2017 established its core asset base at a time when it believed values were at attractive levels. We believe this is a favorable time to continue to expand in the containership sector by acquiring quality second-hand vessels for which we see attractive employment opportunities. Containership prices remain at levels that are significantly below their 15-year historical averages and the time charter market for containerships started to show signs of improvement in 2017 and has continued to do so in the first half of 2018.

We expect to be able to continue to acquire containerships at attractive prices and capitalize on our low-cost operating structure, which we believe will allow us to maximize the return on investment for our unit holders as a result of expected increased positive cash flow from operations and expected appreciation in the value of our vessels as the market continues to recover.

We also intend to leverage the scale, experience, reputation and relationships of Navios Holdings with maritime industry participants and global financial institutions to continue to expand our fleet through selective acquisitions of vessels and to enable us to sustain a lower than industry average cost structure.

We were initially formed as a corporation under the laws of the Republic of the Marshall Islands on April 28, 2017. In connection with our formation, we registered on the Norwegian OTC List and completed four private placements of an aggregate of 34,603,100 common shares for total proceeds of approximately $180.3 million, as described in the notes to the historical consolidated financial statements included in this prospectus. Prior to the consummation of the Distribution, we will convert into a limited partnership under the laws of the Republic of the Marshall Islands at a ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers.

Our Relationship with the Navios Group

One of our key strengths is our relationship with the Navios Group, which includes four publicly traded seaborne shipping companies which together operate 203 vessels as of November 2018, making it one of the largest global shipping groups. In a highly fragmented industry, we believe this relationship provides us with several advantages.

First, we are able to benefit from significant economies of scale not typically available to smaller owners resulting in efficient spreading of overhead and other costs, which in turn results in lower operating expenditures compared to the industry average. In particular, we derive cost efficiencies from Navios Holdings, a global, vertically integrated seaborne shipping and logistics company focused on the transport and transshipment of dry bulk commodities including iron ore, coal and grain. In addition, the key members of Navios Holdings’ management team have an average of over 20 years of experience in the shipping industry through which Navios Holdings provides entities within the Navios Group, and us, cost-efficient technical and commercial management, as well as administrative services.

Second, our relationship with Navios Holdings provides us access to competitive expansion opportunities, including the right of first refusal to purchase containerships from members of the Navios Group pursuant to the Omnibus Agreement that we entered into on June 7, 2017 with Navios Acquisition, Navios Holdings, Navios Partners, Navios Midstream and Navios Partners Containers Finance Inc. (the “Omnibus Agreement”). See, “Certain Relationships and Related Party Transactions—Agreements with the Navios Group—Omnibus Agreement.”



 

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Finally, Navios Holdings’ active and extensive involvement in the international shipping markets provides us with access to reliable, in-depth and up-to-date market information. In particular, we believe that our relationship with Navios Holdings will enhance our ability to enter into new charters, as well as expand our customer relationships and access to financing. Our relationship with Navios Holdings also provides us with opportunities to expand our fleet through third-party acquisitions at attractive prices, as demonstrated by our track record.

Pursuant to the Management Agreement, the Manager, a wholly owned subsidiary of Navios Holdings, provides commercial and technical management services to our vessels covering all of our vessels’ operating expenses other than certain extraordinary costs. Drydocking and special survey costs are paid to the Manager at cost. Pursuant to the Administrative Services Agreement, the Manager also provides us with administrative services, which include bookkeeping, audit and accounting services, legal and insurance services, administrative and clerical services, banking and financial services, advisory services, client and investor relations and other services. Management fees for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 amounted $38.6 million and $7.3 million, respectively. Management fees for the period from April 28, 2017 (date of inception) to December 31, 2017 amounted $16.5 million. General and administrative fees (inclusive of expense reimbursement) were $4.8 million and $0.8 million, for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017, respectively, and $1.9 million for the period from April 28, 2017 (date of inception) to December 31, 2017.

Description of Fleet

As of October 31, 2018, we had a fleet of 26 containerships aggregating 124,101 TEUs and an average age of 10.5 years, which is below the current industry average of about 12.0 years, according to industry data. Our fleet includes three 3,450 TEU containerships, 20 containerships between 4,250 TEU and 4,730 TEU and three containerships between 8,200 TEU and 10,000 TEU. We will have charters covering 88.9% and 34.2% of available days for the remainder of 2018 and for 2019, respectively.



 

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The following table provides summary information about our fleet as of October 31, 2018:

 

Owned Vessels

   TEU      Built      Charter
Expiration Date(1)
  Charter-Out Rate(2)

Navios Summer(3)

     3,450        2006      September 2019   $10,780

Navios Verano(3)

     3,450        2006      May 2019   $12,127

Navios Spring(3)

     3,450        2007      November 2018   $  8,444

Navios Vermilion(3)

     4,250        2007      March 2019   $  9,525

Navios Indigo(3)

     4,250        2007      December 2018   $  8,133

Navios Amaranth(3)

     4,250        2007      November 2018   $  7,093

Navios Amarillo(3)

     4,250        2007      June 2019   $12,545

Navios Verde(3)

     4,250        2007      December 2018   $10,251

Navios Azure(3)

     4,250        2007      November 2018   $11,603
         May 2019   $10,369

Navios Domino (ex MOL Dominance)(3)

     4,250        2008      April 2019   $  9,928

Navios Dedication (ex MOL Dedication)(3)

     4,250        2008      April 2019   $  9,928

Navios Delight (ex MOL Delight)(3)

     4,250        2008      January 2019(4)   $10,588

MOL Destiny(3)

     4,250        2009      November 2018(4)   $26,850

MOL Devotion(3)

     4,250        2009      February 2019(4)   $26,850

Navios Lapis

     4,250        2009      January 2019   $11,580

Navios Tempo

     4,250        2009      May 2019   $11,011

Niledutch Okapi (ex Navios Dorado)

     4,250        2010      May 2019   $10,468

Navios Felicitas

     4,360        2010      April 2019   $12,979

Navios Miami

     4,563        2009      November 2018   $11,791

APL Oakland

     4,730        2008      March 2020(4)   $27,156

APL Los Angeles

     4,730        2008      April 2020(4)   $27,156

APL Denver

     4,730        2008      May 2020(4)   $27,156

APL Atlanta

     4,730        2008      June 2020(4)   $27,156

YM Utmost

     8,204        2006      January 2019(4)   $20,244

Navios Unite (ex YM Unity)

     8,204        2006      November 2018(4)   $34,266
         May 2019   $26,663

Navios Unison

     10,000        2010      May 2021   $26,325
         April 2022   $27,300

 

(1)

Charter expiration dates shown reflect expected redelivery date based on the midpoint of the full redelivery period in the charter agreement, unless otherwise noted.

(2)

Daily charter-out rate, net of commissions where applicable.

(3)

The vessel is subject to a sale and leaseback transaction with Minsheng Financial Leasing Co. Ltd. for a period of up to five years, at which time we have an obligation to purchase the vessel. See “—Recent Developments.”

(4)

Charter expiration dates shown reflect earliest redelivery date of the full redelivery period in the charter agreement.

Market Opportunity

We believe that the following factors create opportunities for us to successfully execute our business plan and grow our business:

 

   

Improving Containership Sector Fundamentals. According to industry data, 2018 and 2019 are expected to be the third and fourth consecutive years that containership trade growth equals or exceeds



 

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the growth in supply of vessels. We expect the following factors to result in an improvement in both charter rates and asset values.

 

   

Increasing Global Economic Growth and Demand for Seaborne Transportation of Container Shipments. Demand for container shipments declined significantly from 2008 to 2009 in the aftermath of the global financial crisis but has increased each year from 2009 to 2017. Data from the International Monetary Fund (the “IMF”) shows further evidence of the global economic expansion as all major economies are growing simultaneously for the first time since the mid-2000s. The IMF has increased its forecasts for World GDP by 0.2% in 2018 to 3.9% and continued that pace for its 2019 forecast. Concurrently with the world economic growth, in 2017, the containership trade grew by 5.8% and has been projected to grow an additional 5.4% and 5.0% in 2018 and 2019, respectively.

 

   

Decelerating Growth in Containership Supply through the Reduction in New Vessel Ordering and Increased Scrapping. Scrapping of older containerships continued in 2017 with about 400,000 TEU scrapped, and over 1.0 million TEU of containership capacity has been scrapped since the beginning of 2016, mainly attributable to intermediate size and smaller vessels. We expect net fleet capacity to grow by approximately 5.6% in 2018, which is about the level of the current expected containership trade growth of approximately 5.4%. Deliveries in 2018 are expected to continue to be disproportionately weighted in favor of containerships with over 11,000 TEU in capacity, with minimal growth in deliveries of new intermediate-size containerships. Based on the current orderbook data, fleet growth is expected to be 3.4% in 2019, which is below the demand growth forecast of 5.0%, which would make 2019 the fourth straight year that demand growth equals or exceeds supply growth.

 

   

Redeployment of Containerships Across Trade Lanes. Recent disruptions in the container trade, such as the expansion of the Panama Canal in 2016, have created favorable dynamics for certain vessel sizes that have benefited from the increased demand from redeployment across trade lanes, while their orderbooks remain low.

 

   

Classic Panamaxes (3,450 - 4,730 TEU): Post the expansion of the Panama Canal, the deployment of Classic Panamaxes on their main trading route of Far East to U.S. East Coast declined by approximately 80%. Within the 4,000 – 5,100 TEU size in particular, the vessels with shorter lengths and shallower drafts (“Baby Panamaxes”) were able to be successfully redeployed into higher trade-growth trades in Africa and Intra-Asia where certain ports have physical infrastructure limitations that act as a natural barrier to entry for larger vessels. Vessels that were longer and had deeper drafts had far fewer redeployment options and, as a result, comprised of nearly 90% of all the scrapping for this size since 2015.

 

   

New Panamaxes (7,500 - 10,000 TEU): As ship sizes have increased on the main Far East to North Europe trade lanes, New Panamaxes of 7,500 to 10,000 TEU have been increasing in importance in a large number of other markets, particularly in the Transpacific and North South trade routes. Vessels in this size range are used more than any other in trade lanes representing approximately 63% of global capacity deployment. Overall deployment has increased by 15%, from 3.5 million TEUs in January 2015 to 4.1 million TEUs by June 2018.

 

   

Increased Availability of Distressed Acquisition Opportunities. We believe that there is an increased availability of attractive acquisition opportunities to buy containership assets at or near historically low prices resulting from a number of factors, including:

 

   

the increasing willingness of banks seeking to completely exit from distressed, non-performing loans that they entered into at the peak of the market cycle;

 

   

the reduction in availability of debt financing and the tightening of lending criteria applicable to many shipping companies resulting in certain owners being unable to refinance or comply with the terms of their existing financing; and



 

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the significant decline in the German KG system (German closed-end funds of private investors) which historically provided significant capital to the containership sector. A large number of the containerships contracted pre-2009 were financed by the KG (Kommanditgesellshaft) system, which allows tax benefits to private investors in certain shipowning companies. Typically these are companies set up to invest in one or a small number of vessels, financed mainly by private investors and bank financing. Funds from private investors were typically raised after the vessels have been ordered. Since 2009, there have been severe limitations to the ability of KG funds to collect the equity planned for investment in ships which are on order. As a result, just 9% of containerships ordered in 2013 to 2018 were contracted by German owners compared to 44% of containerships ordered in the ten years between 1999 and 2008.

Additionally, lenders and major liner companies are highly selective in their choice of containership operators with whom they conduct business, and have established strict operational and financial standards that they use to pre-qualify operators and managers. Only a select number of managers and operators are able to meet these pre-qualification criteria, which we expect to continue to meet and believe enhance our ability to acquire available vessels.

We can provide no assurance, however, that the industry dynamics described above will continue or that we will be able to capitalize on such business opportunities. For further discussion of the risks that we face, see “Risk Factors” beginning on page 30 of this prospectus.

Our Competitive Strengths

We believe that we possess a number of competitive strengths that will allow us to capitalize on growth opportunities in the containership sector, including:

 

   

Strategically Focused Fleet of Intermediate-Size Containerships. We are one of the largest independent owners of quality intermediate-size containerships that are between 3,000 and 10,000 TEU in capacity. We believe this sector size currently demonstrates the best relative fundamental outlook based on current market dynamics and is where we see significant demand from our customers. We believe our fleet of intermediate-size containerships provides us a competitive advantage when chartering these vessels with liner companies because we believe these vessels are well positioned to withstand recent disruptions in the containership trade, such as the recent expansion of the Panama Canal, and to capitalize on the redeployment of containerships across trade lanes as recent deliveries of containership newbuildings have been dominated by the largest-size containerships. Trade volumes continue to grow more rapidly on North-South and intra-regional trade lanes which traditionally have been served by intermediate-size and smaller containerships at the same time that net fleet growth, deliveries and the orderbook for intermediate-size containerships remain low. All of our 20 Baby Panamaxes are of a shorter length and have a shallower draft, which we believe allows them to be more versatile and capable to be deployed in these trade lanes post-Panama Canal expansion. For example, vessels between 4,000 and 5,100 TEU have seen the highest increase in their share of the deployment capacity in intra-Asia, growing from 13% of the capacity in 2012 to approximately 23% of the capacity by 2018, according to Alphaliner. During the same period, the share of capacity in intra-Asia by vessels between 100 and 999 TEU and 1,000 and 1,999 TEU has declined considerably.

 

   

Relationships with Leading Charterers. We expect to benefit from the long-standing relationships of our Manager with leading liner companies such as Maersk Line A/S, Mediterranean Shipping CO. S.A., CMA CGM, Cosco Shipping Co Ltd, Hapag-Lloyd AG, Evergreen Marine Corp., Mitsui O.S.K. Lines, Ltd. and others. We believe that the experience of our management team, coupled with our Manager’s reputation for excellence, will assist us in securing employment for our vessels and will provide us with an established customer base to facilitate our future growth.



 

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Well-Positioned to Pursue Acquisitions. We believe that our liquidity, low leverage and access to bank financing and the capital markets through our relationship with Navios Holdings positions us with ship brokers, financial institutions and shipyards as a favored purchaser of quality containerships and will allow us to make additional near-term accretive acquisitions as quality secondhand vessel values remain below their historical 15-year averages. We intend to monitor vessel values and charter rates and expect to continue to pursue acquisitions that are consistent with our investment criteria. We will also have a right of first refusal as to all containerships within the Navios Group which provides us with a preferred position for acquisition opportunities as to a large fleet of containers.

 

   

Experience Across Sectors and Growing Through Cycles. Executives of Navios Holdings have substantial experience with investing in and operating fleets in the drybulk, tanker and containership sectors. We believe that the strong reputations and relationships they have developed in these industries and with major financial institutions will continue to provide us with access to distressed situation transactions, vessel acquisition and employment opportunities, as well the ability to access financing to grow our business. Since 2004, the Navios Group has raised $13.2 billion in the equity and debt capital markets and in bank financing and we believe that these financings are indicative of the strong relationships the Navios Group has with the financial and investment communities. Through the shipping cycles over the past 13 years, the Navios Group has strategically grown its fleet from 27 vessels in 2005 to a total of 203 vessels as of November 2018.

 

   

Scale and Cost-Efficient Operations of our Manager. We believe that utilizing an affiliated manager provides us with operational scale, geographical flexibility and market-specific experience and relationships, which will allow us to manage our vessels in an efficient and cost-effective manner. By leveraging Navios Holdings’ established operating platform, we are able to take advantage of a disciplined management team that has been tested through multiple shipping cycles with a long track record of financial reporting, compliance and investor accountability in public markets.

Our Business Strategies

Our primary objectives are to continue to profitably grow our business, increase distributable cash flow per unit and maximize value to our unit holders by pursuing the following strategies:

 

   

Continue to Capitalize on Low Vessel Prices to Pursue Accretive Acquisitions. We are focused on continuing to purchase containerships at favorable prices. We intend to grow our fleet using Navios Holdings’ global network of relationships and long experience in the maritime industry to make selective acquisitions of quality, second-hand containerships. We believe that the recent developments in the container shipping industry described above under “—Market Opportunity” have created significant opportunities to acquire vessels at near historically low prices on an inflation adjusted basis and we will analyze acquisitions based on whether they meet targeted return thresholds and are accretive to cash flow in addition to meeting our strategy of targeting intermediate-size containerships. As a recently formed company without a legacy fleet of highly leveraged vessels, we believe we are well-positioned to take advantage of the significant opportunities created by the developments in the container shipping sector.

 

   

Continue to Actively Manage our Charter Portfolio. We intend to deploy our vessels on a mix of short-term, medium-term and long-term time charters, to leading liner companies according to our continuing assessment of market conditions. We believe that our chartering strategy will afford us opportunities to capture increased profits during strong charter markets while benefiting from the relatively stable cash flows and high utilization rates associated with longer term time charters. We believe our strategy will give us the flexibility to take advantage of rising charter rates if the charter markets improve as the global economy strengthens.



 

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Maintain a Strong Balance Sheet and Flexible Capital Structure. We intend to manage our balance sheet conservatively, targeting a modest amount of leverage, managing our maturity profile and maintaining an adequate level of liquidity. We believe that managing our balance sheet in a conservative manner will minimize our financial risk while providing a solid foundation for our future expansion and enhancing our ability to make distributions to our unit holders and repurchases of common units.

 

   

Provide Superior Customer Service with High Standards of Performance, Reliability and Safety. Our customers seek transportation partners that have a reputation for high standards of performance, reliability and safety. We intend to use Navios Holdings’ excellent vessel safety record, compliance with rigorous health, safety and environmental protection standards, operational expertise and customer relationships to further expand a sustainable competitive advantage and consistent delivery of superior customer service.

We can provide no assurance, however, that we will be able to implement our business strategies described above. For further discussion of the risks that we face, see “Risk Factors” beginning on page 30 of this prospectus.

Recent Developments

On May 25, 2018, we entered into a $119.0 million sale and leaseback transaction with Minsheng Financial Leasing Co. Ltd. in order to refinance our outstanding credit facilities on 18 vessels maturing in the fourth quarter of 2019, with a combined balance of $92.4 million outstanding on March 31, 2018. On June 29, 2018 we completed the sale and leaseback of the first six vessels for approximately $37.5 million. On July 27, 2018 and on August 29, 2018 we completed the sale and leaseback of four additional vessels for approximately $26.0 million. On November 9, 2018 we completed the sale and leaseback of four additional vessels for approximately $26.7 million. We do not intend to proceed with the sale and leaseback transaction of the four remaining vessels. We are obligated to make 60 monthly payments in respect of all 14 vessels of approximately $1.1 million each. We also have an obligation to purchase the vessels at the end of the fifth year for $45.1  million.

Risk Factors

An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units, including those set forth below. Please read carefully these and other risks described under “Risk Factors” beginning on page 30 of this prospectus.

Implication of Being an Emerging Growth Company

We had less than $1.07 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

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

 

   

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



 

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

 

   

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

We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of the Distribution or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1.07 billion in “total annual gross revenues” during our most recently completed fiscal year, if we become a “large accelerated filer” with a public float of more than $700 million, or as of any date on which we have issued more than $1.0 billion in non-convertible debt over the three year period to such date. For as long as we take advantage of the reduced reporting obligations, the information that we provide may be different from information provided by other public companies.



 

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Organizational Structure

The following diagram depicts our organizational structure after giving effect to the Distribution. This diagram is provided for illustrative purposes only and do not represent all of our legal entities.

 

LOGO

We were initially formed on April 28, 2017 as a corporation under the laws of the Republic of the Marshall Islands. In connection with our formation, we registered on the Norwegian OTC List and completed four private placements of an aggregate of 34,603,100 common shares for total proceeds of approximately $180.3 million, as described in the notes to the historical consolidated financial statements included in this prospectus. In connection with the listing on Nasdaq, we will convert into a limited partnership at a ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers.

We believe that conducting our operations through a publicly traded limited partnership will offer us the following advantages:

 

   

access to the public equity and debt capital markets;

 

   

lower cost of capital for expansion and acquisitions; and

 

   

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



 

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We are a holding entity and will conduct our operations and business through subsidiaries, as is common with publicly traded limited partnerships, to maximize operational flexibility. Initially, two operating companies, both incorporated in the Marshall Islands, will be our only directly owned subsidiaries and we will conduct all of our operations through them and their subsidiaries.

Summary of Conflicts of Interest and Fiduciary Duties

Our general partner and our directors have a legal duty to manage us in a manner beneficial to our unit holders, subject to the limitations described below and under “Conflicts of Interest and Fiduciary Duties.” This legal duty is commonly referred to as a “fiduciary” duty. Similarly, our directors and officers have fiduciary duties to manage us in a manner beneficial to us, our general partner and our limited partners. As a result of these relationships, conflicts of interest may arise in the future between us and our unit holders, on the one hand, and Navios Holdings and its other affiliates, including our general partner, on the other hand. In particular:

 

   

certain of our executive officers and/or directors also serve as executive officers and/or directors of Navios Holdings and its affiliates or to the Navios Group;

 

   

Navios Holdings, Navios Acquisition, Navios Partners, Navios Midstream and their affiliates may compete with us; and

 

   

we have entered into arrangements, and may enter into additional arrangements, with Navios Holdings, Navios Acquisition, Navios Partners, Navios Midstream and certain of their subsidiaries, relating to the purchase of additional vessels, the provision of certain services and other matters. In the performance of their obligations under these agreements, Navios Holdings, Navios Acquisition, Navios Partners, Navios Midstream and their subsidiaries are not held to a fiduciary duty standard of care to us, our general partner or our limited partners, but rather to the standard of care specified in these agreements.

See “Management—Directors and Senior Management,” “Conflicts of Interest and Fiduciary Duties” and “Certain Relationships and Related Party Transactions.”

Although a majority of our directors will over time be elected by common unit holders, our general partner will likely have substantial influence on decisions made by our board of directors.

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

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

Principal Executive Offices and Internet Address; SEC Filing Requirements

Our principal executive offices are located at 7 Avenue de Grande Bretagne, Office 11B2, Monte Carlo, MC 98000 Monaco, and our phone number is (011) +(377) 9798-2140. We expect to make our periodic reports



 

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and other information filed with or furnished to the SEC available, free of charge, through our website at www.navios-containers.com, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website, including Navios Holdings’ website, is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. Please read “Where You Can Find More Information” for an explanation of our reporting requirements as a foreign private issuer.

Other Information

Because we are organized under the laws of the Republic of the Marshall Islands, you may encounter difficulty protecting your interests as unit holders, and your ability to protect your rights through the U.S. federal court system may be limited. Please refer to the sections entitled “Risk Factors” and “Service of Process and Enforcement of Civil Liabilities” for more information.



 

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SUMMARY OF THE DISTRIBUTION

 

The Distribution

The Distribution is the method by which Navios Partners will distribute a portion of its holdings in us, which will increase our unit holder base. In the Distribution, Navios Partners will distribute to holders of Navios Partners on the record date approximately 2.5% units of our issued and outstanding common units. Following the Distribution, Navios Partners will retain an approximately 33.5% ownership interest in us.

 

Distributing Company

Navios Maritime Partners L.P., a Marshall Islands limited partnership that currently owns approximately 36.0% of us.

 

Distributed Company

Navios Maritime Containers L.P., a Marshall Islands limited partnership.

 

Distributed Securities

Approximately 6.9% of the issued and outstanding common units of Navios Containers owned by Navios Partners, or approximately 2.5% of our total outstanding common units. Based on the approximately 171,009,967 total units of Navios Partners issued and outstanding as of the close of business on November 7, 2018, and applying the distribution ratio of 0.0050 common units for every whole unit of Navios Partners, approximately 855,050 of our common units will be distributed. The actual number of common units distributed will depend on the number of units of Navios Partners issued and outstanding on the record date.

 

Record Date

The record date is the close of business, New York City time, on November 23, 2018.

 

Closing Date

The closing date is on or about December 3, 2018.

 

Distribution Ratio

Each holder of Navios Partners units will receive 0.0050 of our common units for every whole Navios Partners unit it holds on the record date. The distribution agent will distribute only whole common units in the Distribution. See “Questions and Answers about Navios Containers and the Distribution—Q: How will fractional common units be treated in the Distribution?” for more detail. Please note that if you sell your Navios Partners units on or before the closing date, the buyer of those units may in some circumstances be entitled to receive the Navios Containers common units to be distributed in respect of the Navios Partners units that you sold. See “The Distribution” for more detail.

 

Conditions to the Distribution

The Distribution is subject to the satisfaction or waiver by Navios Partners of the following conditions:

 

   

the Navios Partners board of directors shall have authorized and approved the Distribution and related transactions and not



 

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withdrawn such authorization and approval, and shall have declared the Distribution of our common units to Navios Partners unit holders;

 

   

the SEC shall have declared effective the registration statement of which this prospectus is a part, under the Securities Act of 1933, as amended (the “Securities Act”), and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

 

   

our common units shall have been accepted for listing on the Nasdaq Global Select Market or another national securities exchange or quotation system, subject to official notice of issuance;

 

   

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution shall be in effect, and no other event outside the control of Navios Partners shall have occurred or failed to occur that prevents the consummation of the distribution;

 

   

no other events or developments shall have occurred prior to the distribution that, in the judgment of the board of directors of Navios Partners, would result in the distribution having a material adverse effect on Navios Partners or its unit holders;

 

   

prior to the closing date, this prospectus shall have been made available to the holders of Navios Partners units as of the record date; and

 

   

immediately prior to the distribution, the Plan of Conversion and limited partnership agreement, each in substantially the form filed as an exhibit to the registration statement of which this prospectus is a part, shall be in effect.

 

  The fulfillment of the foregoing conditions will not create any obligation on the part of Navios Partners to effect the Distribution. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the distribution. Navios Partners has the right not to complete the Distribution if, at any time, the board of directors of Navios Partners determines, in its sole discretion, that the Distribution is not in the best interests of Navios Partners or its unit holders, or that market conditions are such that it is not advisable to effect the Distribution. In addition, Navios Partners may at any time and from time to time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.


 

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Fractional Common Units

The distribution agent will not distribute any fractional common units to Navios Partners’ unit holders in connection with the Distribution. Instead, fractional interests will be reduced down to the nearest whole number and Navios Partners unit holders will receive a cash payment for the fractional interest. Holders of Navios Partners’ units that hold common units through a bank, broker, or nominee will receive cash in lieu of fractional common units, if any, determined in accordance with the policies of such bank, broker, or nominee. If a Navios Partners unit holder holds fewer than 200 Navios Partners units as of the record date, it will not receive any of our common units; however, it will receive a cash distribution from our distribution agent representing the value of fractional common units to which it is entitled. See “Questions and Answers about Navios Containers and the Distribution—Q: How will fractional common units be treated in the Distribution?” for more detail. If you receive cash in lieu of fractional common units, you will not be entitled to any interest on the payments.

 

Trading Market and Symbol

We have applied to list our common units on the Nasdaq Global Select Market under the symbol “NMCI”.

 

  We also anticipate that, as early as one trading day prior to the record date, there may be two markets in Navios Partners common units: (i) a “regular-way” market on which common units of Navios Partners will trade with an entitlement for the purchaser of Navios Partners common units to receive our common units that will be distributed in the Distribution, and (ii) an “ex-distribution” market on which common units of Navios Partners will trade without an entitlement for the purchaser of Navios Partners common units to receive our common units.

 

  The common shares of Navios Maritime Containers Inc. will cease trading on the Norwegian OTC List at least three business days prior to our conversion from a corporation to a limited partnership.

 

Distribution Policy

Subject to the sole discretion of our board of directors and the considerations discussed below, we intend to return up to $10.0 million annually to our unit holders through common unit repurchases and/or cash distributions. Any change to our return of capital policy will be subject to a number of factors, including the discretion of our board of directors, Marshall Islands law, our results of operation, final condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms, contractual restriction, the ability of our subsidiaries to distribute funds to us and other factors deemed relevant be our board of directors. See “Our Distribution Policy.”

 

Issuance of Additional Units

Our partnership agreement allows us to issue an unlimited number of units without the consent of our unit holders.

 

Board of Directors

We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other



 

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matters that are properly brought before the meeting. Our general partner has the right to appoint three of the seven members of our board of directors who will serve as directors for terms determined by our general partner. At our 2019 annual meeting, the common unit holders will elect four of our seven directors. The four directors elected by our common unit holders at our 2019 annual meeting will be divided into three classes to be elected by our common unit holders annually on a staggered basis to serve for three-year terms.

 

Voting Rights

Each outstanding common unit is entitled to one vote on matters subject to a vote of common unit holders. If at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unit holders or calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes under our partnership agreement, unless otherwise required by law. The voting rights of any such unit holders in excess of 4.9% will effectively be redistributed pro rata among the other unit holders of the same class that are not subject to this voting limitation. Our general partner, its affiliates, and persons who acquired units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors. This 4.9% limitation is intended to help preserve our ability to qualify for the benefits of Section 883 of the Code.

 

  You will have no right to elect our general partner on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 75% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class.

 

  See “The Partnership Agreement—Voting Rights.”

 

Limited Call Right

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all, but not less than all, of the remaining common units at a price equal to the greater of (x) the average of the daily closing prices of the common units over the 20 trading days preceding the date three days before the notice of exercise of the call right is first mailed and (y) the highest price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right.

 

Tax Consequences

See “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of the Distribution.”


 

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Transfer Agent

Computershare Trust Company, N.A.

 

Risk Factors

Our business faces both general and specific risks and uncertainties. Our business also faces risks relating to the Distribution. Following the Distribution, we will also face risks associated with being a U.S. publicly-traded company. Accordingly, you should read carefully the information set forth under “Risk Factors.”


 

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SUMMARY FINANCIAL DATA

The following table presents summary historical consolidated financial data giving retroactive effect to our conversion from a corporation to a limited partnership, described in Note 1 to our consolidated financial statements included herein. The summary historical financial data as of September 30, 2018 and for the three and nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus, and should be read together with and are qualified in their entirety by reference to such consolidated financial statements. The summary historical financial data as of December 31, 2017 and for the period from April 28, 2017 (date of inception) to December 31, 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus, and should be read together with and are qualified in their entirety by reference to such consolidated financial statements. The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the unaudited condensed consolidated financial statements as of September 30, 2018 and for the three and nine month period ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 and the related notes thereto included elsewhere in this prospectus and the audited consolidated financial statements as of December 31, 2017 and for the period from April 28, 2017 (date of inception) to December 31, 2017 and related notes thereto included elsewhere in this prospectus. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Because we were formed in April 2017, we compare the operating results of the nine month period ended September 30, 2018 with the period from April 28, 2017 (date of inception) to September 30, 2017. We do not have financial results for any historical period that is comparable to the results of our operations for the period from April 28, 2017 (date of inception) to December 31, 2017.



 

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All references to our common units and per unit data included in the summary historical financial data below have been retrospectively adjusted to reflect the assumed conversion ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers in connection with the conversion of Navios Maritime Containers Inc. into Navios Containers.

 

(in thousands of U.S. dollars, except for
unit and per unit data.)
   Three Months
Ended
September 30,
2018(1)
    Three Months
Ended
September 30,
2017(2)
    Nine Months
Ended
September 30,

2018(1)
    Period from
April 28, 2017
(date of inception)

to September 30,
2017(2)
    Period from
April 28, 2017
(date of inception)

to December 31,
2017(3)
 

Statement of Income Data:

          

Revenue

   $ 38,080     $ 14,757     $ 99,505     $ 17,859     $ 39,188  

Time charter and voyage expenses

     (1,048     (343     (2,573     (343     (1,257

Direct vessel expenses

     (355     (515     (815     (515     (672

Management fees (entirely through related parties transactions)

     (14,490     (6,576     (38,578     (7,277     (16,488

General and administrative expenses

     (1,847     (870     (5,207     (987     (2,262

Listing transaction-related expenses

     (2,396  

 

—  

 

    (2,396     —         —    

Depreciation and amortization

     (9,850     (5,351     (30,287     (6,671     (13,578

Interest expense and finance cost, net

     (3,617     (1,007     (7,555     (1,088     (2,268

Other income/(expense), net

     937       (11     848       (13     (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,414     $ 84     $ 12,942     $ 965     $ 2,638  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings per common unit, basic and diluted

   $       $       $         $    

Weighted average number of common units, basic and diluted

          

 

(1) We had 26 vessels in our fleet as of September 30, 2018.

(2) We had 14 vessels in our fleet as of September 30, 2017.

(3) We had 21 vessels in our fleet as of December 31, 2017

 

     September 30, 2018      December 31, 2017  

Balance Sheet Data:

     

Total current assets

   $ 22,443      $ 21,371  

Vessels, net

     318,746        177,597  

Total assets

     387,772        266,811  

Total current liabilities

     54,582        49,559  

Long-term financial liability, net of current portion

     55,776        —    

Long-term debt, net of current portion

     94,699        76,534  

Total partners’ capital

   $ 182,715      $ 140,718  


 

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    Nine Months Ended
September 30, 2018
    Period from
April 28, 2017
(date of inception) to
September 30, 2017
    Period from
April 28, 2017
(date of inception) to
December 31, 2017
 

Cash Flow Data:

     

Net Cash Provided by/(used in) Operating Activities

  $ 37,874     ($ 1,047   $ 2,623  

Net Cash Used in Investing Activities

  ($ 144,608   ($ 120,070   ($ 249,227

Net Cash Provided by Financing Activities

  $ 106,362     $ 151,518     $ 260,825  

Decrease/(increase) in cash and cash equivalents and restricted cash as applicable

  $ (372 )(1)    $ 30,401 (1)     $ 14,221  

Other Financial and Operating Data:

 

(in thousands of U.S dollars except
days and per day TCE)

  Three Months
Ended
September 30, 2018
    Three Months
Ended
September 30,
2017
    Nine Months Ended
September 30, 2018
    Period from
April 28, 2017
(date of
inception) to
September 30,
2017
    Period from
April 28, 2017
(date of inception) to
December 31, 2017
 

EBITDA(2)

  $ 19,236     $ 6,511     $ 51,599     $ 8,792     $ 18,709  

Available days(3)

    2,242       862       6,161       977       2,411  

Time Charter Equivalent (TCE) per day(4)

  $ 16,518     $ 16,724     $ 15,733     $ 17,930     $ 15,730  

 

 

(1)

From January 1, 2018, reflects the adoption of ASU 2016-18.

(2)

EBITDA is a non-GAAP financial measure. The following is a reconciliation of EBITDA from net cash provided by operating activities, the most comparable U.S. GAAP liquidity measure, for the periods presented:

 

 

(in thousands of U.S. dollars)   Three Months Ended
September 30, 2018
    Three Months
Ended

September 30,
2017
    Nine Months
Ended
September 30, 2018
    Period from
April 28, 2017
(date of
inception) to
September 30,
2017
    Period from
April 28, 2017
(date of inception)

to December 31,
2017
 
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net cash provided by/(used in) operating activities

  $ 18,261     $ 444     $ 37,874       (1,047   $ 2,623  

Net (decrease)/increase in operating assets

    (4,681     6,747       3,766       10,957       12,142  

Net decrease/(increase) in operating liabilities

    217       (3,824     (513     (4,343     (1,701

Payments for drydock and special survey

    2,440       2,336       4,061       2,336       3,807  

Deferred finance charges

    (618     (199     (1,144     (199     (430

Net interest cost

    3,617       1,007       7,555       1,088       2,268  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 19,236     $ 6,511     $ 51,599     $ 8,792     $ 18,709  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(3)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

(4)

TCE is defined as revenues less time charter and voyage expenses during a relevant period divided by the number of available days during the period.



 

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FORWARD-LOOKING STATEMENTS

Statements included in this prospectus which are not historical facts (including our statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Such statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business, the markets in which we operate, and our ability to make cash distributions or make common unit repurchases in the future as described in this prospectus. In some cases, you can identify the forward-looking statements by the use of words such as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology.

Forward-looking statements appear in a number of places and include statements with respect to, among other things:

 

   

the favorable timing for acquisitions and chartering opportunities in the container shipping sector and our ability to take advantage of such opportunities;

 

   

the value of container shipping vessels;

 

   

our ability to identify container shipping vessels for acquisition at attractive prices, if at all, including the availability of distressed acquisition opportunities in the container shipping industry;

 

   

our ability to execute on a low-cost operating structure;

 

   

our ability to achieve a return on investment for and to pay cash distributions to our unit holders or make common unit repurchases from our unit holders;

 

   

the level of trade growth and recovery of charter rates and asset values in the container shipping industry;

 

   

general market conditions and shipping industry trends, including charter rates, vessel values and the future supply of, and demand for, ocean-going containership shipping services;

 

   

any advantages resulting from our strategic focus on intermediate-size containerships;

 

   

our ability to leverage the scale, experience, reputation and relationships of the Manager and the Navios Group;

 

   

our ability to maintain or develop new and existing customer relationships with existing charterers and new customers, including liner companies;

 

   

our ability to successfully grow our business and our capacity to manage our expanding business;

 

   

future levels of distributions, as well as our distribution policy;

 

   

our current and future competitive strengths and business strategies and other plans and objectives for future operations;

 

   

our future operating and financial results, our ability to identify and consummate desirable fleet acquisitions, business strategy, areas of possible expansion and expected capital expenditure or operating expenses;

 

   

container shipping industry trends, including charter rates and vessel values and factors affecting vessel supply and demand as well as trends and conditions in the newbuilding markets and scrapping of vessels;

 

   

our future financial condition or results of operations and our future revenues and expenses, including our estimated adjusted cash flow;

 

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the loss of any customer or charter or vessel;

 

   

the aging of our vessels and resultant increases in operation and drydocking costs;

 

   

the ability of our vessels to pass classification, security and customs inspections;

 

   

significant changes in vessel performance, including increased equipment breakdowns;

 

   

the creditworthiness of our charterers and the ability of our contract counterparties to fulfill their obligations to us;

 

   

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

 

   

our ability to retain key executive officers and our Manager’s ability to attract and retain skilled employees;

 

   

our ability to access debt, credit and equity markets;

 

   

changes in the availability and costs of funding due to conditions in the bank market, capital markets and other factors;

 

   

our ability to repay outstanding indebtedness, to obtain additional financing and to obtain replacement charters for our vessels, in each case, at commercially acceptable rates or at all;

 

   

estimated future acquisition, maintenance and replacement expenditures;

 

   

future sales of our common units in the public market;

 

   

potential liability from litigation and our vessel operations, including discharge of pollutants;

 

   

our and the Navios Group’s performance in safety, environmental and regulatory matters;

 

   

global economic outlook and growth and changes in general economic and business conditions;

 

   

general domestic and international political conditions, including wars, acts of piracy and terrorism;

 

   

changes in production of or demand for container shipments, either globally or in particular regions;

 

   

changes in the standard of service or the ability of our Manager to be approved as required;

 

   

increases in costs and expenses, including but not limited to, crew wages, insurance, technical maintenance costs, spares, stores and supplies, charter brokerage commissions on gross voyage revenues and general and administrative expenses;

 

   

the adequacy of our insurance arrangements and our ability to obtain insurance and required certifications;

 

   

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

 

   

the changes to the regulatory requirements applicable to the shipping and container transportation industry, including, without limitation, stricter requirements adopted by international organizations, such as the International Maritime Organization and the European Union, or by individual countries or charterers and actions taken by regulatory authorities and governing such areas as safety and environmental compliance;

 

   

the anticipated taxation of our partnership and our unit holders;

 

   

potential liability and costs due to environmental, safety and other incidents involving our vessels; and

 

   

the effects of increasing emphasis on environmental and safety concerns by customers, governments and others, as well as changes in maritime regulations and standards.

 

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These and other forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties, including those risks discussed in “Risk Factors.”

The forward-looking statements, contained in this prospectus, are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated.

The risks, uncertainties and assumptions involve known and unknown risks and are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

 

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MARKET AND INDUSTRY DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations about our industry, market position, market opportunity and market size, is based on data from various sources including internal data and estimates as well as third party sources widely available to the public such as independent industry publications, government publications, reports by market research firms or other published independent sources. Internal data and estimates are based upon this information as well as information obtained from trade and business organizations and other contacts in the markets in which we operate and management’s understanding of industry conditions. This information, data and estimates involve a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed above and in “Risk Factors.” You are cautioned not to give undue weight to such information, data and estimates. While we believe the market and industry information included in this prospectus to be generally reliable, we have not independently verified any third-party information or verified that more recent information is not available.

 

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RISK FACTORS

Risks Inherent in Our Business

Our profitability and growth depends upon world and regional demand for chartering containerships, and weakness in the global economy may impede our ability to generate cash flows, maintain liquidity and continue to grow our business.

The ocean-going container shipping industry is both cyclical and volatile in terms of charter rates, profitability and, consequently, vessel values. According to industry data, containership charter rates peaked in 2005, with the Containership Timecharter Rate Index (a $/day per TEU weighted average of 6-12 month time charter rates of Panamax and smaller vessels (1993=100)) reaching 172 points in March and April 2005, and generally stayed above 100 points until the middle of 2008, when the effects of the economic crisis began to affect global container trade, driving the Containership Timecharter Rate Index to a 10-year low of 32 points in the period from November 2009 to January 2010. As of the end of January 2018, the Containership Timecharter Rate Index stood at 54 points and as of the end of July 2018 it had risen to 66 points.

Demand for container shipments declined significantly from 2008 to 2009 in the aftermath of the global financial crisis but has increased each year from 2009 to 2017. From 2009 to 2011, there was improvement on the Far East-to-Europe and Trans-Pacific Eastbound container trade lanes, alongside improvements also witnessed on other, non-main lane, trade routes including certain intra-Asia and North-South trade routes. More recently, since the second half of 2015, a slowdown in demand in certain key container trade routes, including the Asia to Europe route at a time of increased vessel supply, has resulted in the highest annual scrapping on record. The oversupply in our market continued to prevent any significant rise in time charter rates for both short-term and long-term periods. Additional orders for large and very large containerships have been placed since 2014, both increasing the expected future supply of larger vessels and having a spillover effect on the market segment for smaller vessels. Ordering of containerships slowed significantly in 2016 and 2017. Since the middle of 2016, as economic growth returned to world markets and in combination with continued scrapping, time charter rates rose and have remained above their 2016 lows.

The continuation of this containership oversupply or any declines in container freight rates could negatively affect the liner companies to which we seek to charter our containerships. The decline in the containership market has affected the major liner companies and the value of container vessels, which follow the trends of freight rates and containership charter rates, and can affect the earnings on our charters, and similarly, our cash flows and liquidity. The decline in the containership charter market has had, and may continue to have, additional adverse consequences for the container industry, including a less active secondhand market for the sale of vessels and charterers not performing under, or requesting modifications of, existing time charters. Weak or volatile conditions in the containership sector may affect our ability to generate cash flows and maintain liquidity, as well as adversely affect our ability to obtain financing.

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

 

   

global and regional economic conditions;

 

   

developments in international trade, including the effects of currency exchange rate changes;

 

   

changes in seaborne and other transportation patterns, such as port congestion and canal closures or expansions;

 

   

supply and demand for products shipped in containers;

 

   

changes in global production of raw materials or products transported by containerships;

 

   

the distance containers are to be moved by sea;

 

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the globalization of manufacturing;

 

   

carrier alliances, vessel sharing or container slot sharing that seek to allocate containership capacity on routes;

 

   

armed conflicts and terrorist activities, including piracy;

 

   

political, environmental and other regulatory developments, including but not limited to, governmental macroeconomic policy changes, import and export restrictions, central bank policies and pollution conventions or protocols;

 

   

embargoes and strikes; and

 

   

technical advances in ship design and construction.

The factors that influence the supply of containership capacity include:

 

   

the number of vessels that are in or out of service;

 

   

the scrapping rate of older vessels;

 

   

the availability of finance or lack thereof for ordering newbuildings or for facilitating ship sale and purchase transactions;

 

   

port and canal traffic and congestion, including canal improvements that can affect employment of ships designed for older canals;

 

   

the number of newbuilding deliveries;

 

   

vessel casualties;

 

   

changes in environmental and other regulations and standards that limit the profitability, operations or useful lives of vessels;

 

   

the availability of shipyard capacity;

 

   

the price of steel, fuel and other raw materials; and

 

   

the economics of slow steaming.

Our ability to re-charter our containerships upon the expiration or termination of their current time charters and the charter rates payable under any replacement or new time charters will depend upon, among other things, the prevailing state of the containership charter market, which can be affected by demand for products shipped in containers. If the charter market is depressed when our containerships’ time charters expire or when we are otherwise seeking new charters, we may be forced to charter our containerships at reduced or even unprofitable rates, or we may not be able to charter them at all and/or we may be forced to scrap them, which may reduce or eliminate our earnings or any future distribution or make our earnings volatile.

An oversupply of containership capacity may depress charter rates, as has happened in the past, or prolong the period of depressed charter rates, and adversely affect our ability to charter our containerships at profitable rates or at all.

From 2005 through 2010, the containership orderbook was at historically high levels as a percentage of the in-water fleet reaching a high of 61.3% in November 2007, according to industry data. Since that time, deliveries of previously ordered containerships increased substantially and ordering momentum slowed somewhat with the total orderbook declining as a percentage of the existing fleet from 20.8% in October 2015 to an all-time low of 12.7% as of February 2018. The orderbook remains significantly skewed towards vessels over 8,000 TEU. An oversupply of large newbuilding vessel and/or re-chartered containership capacity entering the market, combined with any decline in the demand for containerships, may prolong or further depress the current low charter rates and may decrease our ability to charter our containerships when we are seeking new or replacement charters other than for unprofitable or reduced rates, or we may not be able to charter our containerships at all.

 

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The market value of our vessels, which has declined from historically high levels, may fluctuate significantly, which could cause us to breach covenants in our credit facilities and result in the foreclosure on our mortgaged vessels. Additionally, if vessel values are low at a time when we are attempting to dispose of a vessel, we could incur a loss.

Containership vessel values remain below historical averages and may continue to remain at low, or lower, levels for a prolonged period of time and can fluctuate significantly over time due to a number of different factors. The factors that influence vessel values include:

 

   

the number of newbuilding deliveries;

 

   

prevailing economic conditions in the markets in which containerships operate;

 

   

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

 

   

the number of vessels scrapped or otherwise removed from the total fleet;

 

   

changes in environmental and other regulations that may limit the useful life of vessels;

 

   

types and sizes of vessels;

 

   

the development of an increase in use of other modes of transportation;

 

   

where the ship was built and as-built specification;

 

   

lifetime maintenance record;

 

   

the cost of vessel acquisitions;

 

   

governmental or other regulations;

 

   

prevailing level of charter rates;

 

   

the availability of financing, or lack thereof, for ordering newbuildings or for facilitating ship sale and purchase transactions;

 

   

general economic and market conditions affecting the shipping industry; and

 

   

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

If the market value of our owned vessels decreases, we may be required to record an impairment charge in our financial statements that, among other things, could cause us to breach covenants contained in our credit facilities, which could adversely affect our results of operations. If we breach the covenants in our credit facilities and are unable to remedy any relevant breach, our lenders could accelerate our debt and foreclose on the collateral, including our vessels. Any loss of vessels would significantly decrease our ability to generate positive cash flow from operations and therefore service our debt. In addition, if the book value of a vessel is impaired due to unfavorable market conditions, or a vessel is sold at a price below its book value, we would incur a loss. If a charter expires or is terminated, we may be unable to re-charter the vessel at an acceptable rate and, rather than continue to incur costs to maintain the vessel, may seek to dispose of it. Our inability to dispose of a vessel at a reasonable price could result in a loss on its sale and could materially and adversely affect our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

Weak economic conditions throughout the world, particularly the Asia Pacific region, renewed terrorist activity, the growing refugee crises and protectionist policies which could affect advanced economies, could have a material adverse effect on our business, financial condition and results of operations.

The global economy remains relatively weak, especially when compared to the period prior to the 2008-2009 financial crisis. The current global recovery is proceeding at varying speeds across regions and is still

 

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subject to downside economic risks stemming from factors like fiscal fragility in advanced economies, high sovereign and private debt levels, highly accommodative macroeconomic policies, the significant fall in the price of crude oil and other commodities and persistent difficulties in access to credit and equity financing as well as political risks such as the continuing war in Syria, renewed terrorist attacks around the world and the emergence of populist and protectionist political movements in advanced economies.

Concerns regarding new terrorist threats from groups in Europe and the growing refugee crisis may advance protectionist policies and may negatively impact globalization and global economic growth, which could disrupt financial markets, and may lead to weaker consumer demand in the European Union, the United States, and other parts of the world which could have a material adverse effect on our business. The deterioration in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods shipped in containerized form.

In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, which has had a significant impact on shipping demand. However, if China’s growth in gross domestic product declines and other countries in the Asia Pacific region experience slower or negative economic growth in the future, this may negatively affect the fragile recovery of the economies of the United States and the European Union, and thus, may negatively impact container shipping demand. For example, the possibility of the introduction of impediments to trade within the European Union member countries in response to increasing terrorist activities, and the possibility of market reforms to float the Chinese renminbi, either of which development could weaken the euro against the Chinese renminbi, could adversely affect consumer demand in the European Union. Moreover, the revaluation of the renminbi may negatively impact the United States’ demand for imported goods, many of which are shipped from China in containerized form. Any moves by either the United States or the European Union to levy additional tariffs on imported goods carried in containers as part of protectionist measures or otherwise could decrease container shipping demand. Such weak economic conditions or protectionist measures could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

Disruptions in global financial markets from terrorist attacks, regional armed conflicts, general political unrest and the resulting governmental action could have a material adverse impact on our results of operations, financial condition and cash flows.

Terrorist attacks in certain parts of the world, such as the attacks on the United States on September 11, 2001 or more recently in Paris and London, and the continuing response of the United States and other countries to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty and volatility in the world financial markets and may affect our business, results of operations and financial condition. In addition, global financial markets and economic conditions have been severely disrupted and volatile in recent years and remain subject to significant vulnerabilities, such as the deterioration of fiscal balances and the rapid accumulation of public debt, continued deleveraging in the banking sector and a limited supply of credit. Credit markets as well as the debt and equity capital markets were exceedingly distressed during 2008 and 2009 and have been volatile since that time. The continuing refugee crisis in the European Union, the continuing war in Syria and advances of ISIS and other terrorist organizations in the Middle East, conflicts in Iraq, general political unrest in Ukraine, and political tension or conflicts in the Asia Pacific Region such as in the South China Sea and North Korea have led to increased volatility in global credit and equity markets. The resulting uncertainty and volatility in the global financial markets may accordingly affect our business, results of operations and financial condition. These uncertainties, as well as future hostilities or other political instability in regions where our vessels trade, could also affect trade volumes and patterns and adversely affect our operations, and otherwise have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows and cash available for distributions to our unit holders and repurchases of common units.

Further, as a result of the ongoing political and economic turmoil in Greece resulting from the sovereign debt crisis and the related austerity measures implemented by the Greek government, the operations of our

 

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Manager located in Greece may be subjected to new regulations and potential shift in government policies that may require us to incur new or additional compliance or other administrative costs and may require the payment of new taxes or other fees. We also face the risk that strikes, work stoppages, civil unrest and violence within Greece may disrupt the shoreside operations of our Manager located in Greece.

Specifically, these issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions, have made, and will likely continue to make, it difficult to obtain financing. As a result of the disruptions in the credit markets and higher capital requirements, many lenders have increased margins on lending rates, enacted tighter lending standards, required more restrictive terms (including higher collateral ratios for advances, shorter maturities and smaller loan amounts), or have refused to refinance existing debt at all. Furthermore, certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending activities in the shipping industry. Additional tightening of capital requirements and the resulting policies adopted by lenders, could further reduce lending activities. We may experience difficulties obtaining financing commitments or be unable to fully draw on the capacity under our committed term loans in the future if our lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity, capital or solvency issues. We cannot be certain that financing will be available on acceptable terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our future obligations as they come due. Our failure to obtain such funds could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units. In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive pressures.

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

Payments to us by our charterers under time charters are and will be our sole source of operating cash flow. Weaknesses in demand for container shipping services and the oversupply of large containerships as well as the oversupply of smaller size vessels due to a cascading effect would place our liner company customers under financial pressure. Any declines in demand could result in worsening financial challenges to our liner company customers and may increase the likelihood of one or more of our customers being unable or unwilling to pay us contracted charter rates or going bankrupt.

If we lose a time charter because the charterer is unable to pay us or for any other reason, we may be unable to re-deploy the related vessel on similarly favorable terms or at all. Also, we will not receive any revenues from such a vessel while it is un-chartered, but we will be required to pay expenses necessary to maintain and insure the vessel and service any indebtedness on it. The combination of any surplus of containership capacity and the expected increase in the size of the world containership fleet over the next few years may make it difficult to secure substitute employment for any of our containerships if our counterparties fail to perform their obligations under the currently arranged time charters, and any new charter arrangements we are able to secure may be at lower rates. Furthermore, the surplus of containerships available at lower charter rates and lack of demand for our customers’ liner services could negatively affect our charterers’ willingness to perform their obligations under our time charters, particularly if the charter rates in such time charters are significantly above the prevailing market rates. Accordingly we may have to grant concessions to our charterers in the form of lower charter rates for the remaining duration of the relevant charter or part thereof, or to agree to re-charter vessels coming off charter at reduced rates compared to the charter then ended. Because we enter into short-term and medium-term time charters from time-to-time, we may need to re-charter vessels coming off of charter more frequently than some of our competitors, which may have a material adverse effect on business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

 

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The loss of any of our charterers, time charters or vessels, or a decline in payments under our time charters, could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

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

Our customers in the containership sector consist of a limited number of liner companies. For the nine months ended September 30, 2018, two customers, Mitsui O.S.K. Lines and NOL Liner PTE Ltd represented 30.7% and 25.0% of our total revenues, respectively. For the period from April 28, 2017 (date of inception) to December 31, 2017, one customer, Mitsui O.S.K. Lines represented 71.0% of our total revenues. The tough economic conditions faced by liner companies and the intense competition among them has caused, and may in the future cause, certain liner companies to default and are also resulting in consolidation among liner companies. The number of leading liner companies which are our client base may continue to shrink and we may depend on an even more limited number of customers to generate a substantial portion of our revenues. The cessation of business with these liner companies or their failure to fulfill their obligations under the time charters for our containerships could have a material adverse effect on our business, financial condition and results of operations, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units. In addition to consolidations, alliances involving our customers could further increase the concentration of our business and reduce our bargaining power.

We could lose a customer or the benefits of our time charter arrangements for many different reasons, including if the customer is unable or unwilling to make charter hire or other payments to us because of a deterioration in its financial condition, disagreements with us or if the charterer exercises certain termination rights or otherwise. If any of these customers terminate its charters, chooses not to re-charter our ships after charters expire or is unable to perform under its charters and we are not able to find replacement charters on similar terms or are unable to re-charter our ships at all, we will suffer a loss of revenues that could have a material adverse effect on our business, results of operations and financial condition and our ability to make distributions to our unit holders and repurchases of common units. See “Business—Our Customers.”

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

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

 

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

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

Due to our lack of diversification, adverse developments in the container shipping industry could reduce our ability to service our debt obligations and make distributions to our unit holders and repurchases of common units.

We rely exclusively on the cash flow generated from charters for our containerships and our fleet is focused on a limited size and type of vessel. 23 of the 26 containerships we will own are between 3,450 TEU and 4,730 TEU. The number of vessels with 10,000 or more TEU capacity has increased substantially since 2006, and as of April 1, 2018, vessels over 10,000 TEU account for nearly 30% of the world containership fleet in terms of fleet capacity, while vessels above 13,300 TEU represent 17% of fleet capacity. Based on containership order data, we expect the increase in containership vessel capacity will continue. Due to the current evolution to larger vessels there can be adjustments to trade patterns, particularly on the main trade lanes, as smaller replaced ships may cascade down to secondary trade lanes, as long as there is sufficient demand and the physical infrastructure is in place to accommodate them. Therefore, the development of large ships not only impacts the trade lanes in which these ships are used, but the entire maritime transport chain as well. As a result, we cannot assure you that we will be able to successfully renew the charters for our size vessels at favorable rates, if at all, which may have an adverse effect on our revenues, profitability, cash flows and our ability to comply with the financial covenants in our loan agreements.

In addition, under the Omnibus Agreement, we have agreed that we will own and operate only containerships. Due to our lack of diversification, an adverse development in the container shipping industry would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business. An adverse development could also impair our ability to service debt or make distributions to our unit holders and repurchases of common units.

We currently have a majority of our vessels on short-term and medium-term charters and we expect to continue to charter a portion of our fleet on short-term to medium-term charters in the future. As a result, the charter rates we obtain are less predictable than rates we would capture under longer-term charters, which may have an adverse impact on our growth. The current time charters for seven of our 26 containerships will expire before the end of 2018. While we generally expect to be able to obtain time charters for our vessels within a reasonable period prior to their time charter expiry or delivery, as applicable, we cannot be assured that this will occur in any particular case, or at all. The current economic conditions have reduced the demand for long-term time charters while the supply of containerships has increased due to newbuilding deliveries and the ongoing consolidation among liner companies. In addition, even if a short-term time charter is secured it may be at

 

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unprofitable rates and may not be continuous, leaving the vessels idle for some days in between charters. If there is a downward trend in the market, we expect to have difficulty entering into multi-year, fixed-rate time charters for our containerships due to the increased supply of containerships and the possibility of lower rates in the spot market. We would then have to charter more of our containerships for shorter periods upon expiration or early termination of the current charters. As a result, our revenues, cash flows and profitability would then reflect fluctuations in the short-term charter market and become more volatile. It may also become more difficult or expensive to finance or re-finance vessels that do not have long-term employment at fixed rates. In addition, we may have to enter into charters based on changing market prices, as opposed to contracts based on fixed rates, which would increase the volatility of our revenues, cash-flows and profitability and, during a prolonged period of depressed charter rates, could also result in a decrease in our revenues, cash flows and profitability. If we are unable to re-charter these containerships or obtain new time charters at favorable rates or at all, it could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

An increase in trade protectionism and the unraveling of multilateral trade agreements could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.

Our operations expose us to the risk that increased trade protectionism will adversely affect our business. Recently, government leaders have declared that their countries may turn to trade barriers to protect or revive their domestic industries in the face of foreign imports, thereby depressing the demand for shipping. The United Kingdom recently resolved to leave the European Union, and it is not yet clear how it plans to approach international trade with the European Union and other trade partners. In the United States, the current administration has created significant uncertainty about the future relationship between the United States and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. The U.S. presidential administration has stated that it rejects multilateral trade agreements in favor of bilateral relations and purports to seek more favorable terms in its dealings with its trade partners. The U.S. administration has indicated that it may resort to aggressive tactics, such as the imposition of punitive tariffs, in order to secure achieve these goals.

Restrictions on imports, including in the form of tariffs, could have a major impact on global trade and demand for shipping. Specifically, increasing trade protectionism in the markets that our charterers serve may cause an increase in (i) the cost of goods exported from exporting countries such as China and Mexico, (ii) the length of time required to deliver goods from exporting countries, (iii) the costs of such delivery and (iv) the risks associated with exporting goods. These factors may result in a decrease in the quantity of goods to be shipped. Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade, including trade between the United States and China. These developments would have an adverse impact on our charterers’ business, operating results and financial condition. This could, in turn, affect our charterers’ ability to make timely charter hire payments to us and impair our ability to renew charters and grow our business. This could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

China exports considerably more goods than it imports. Our containerships are deployed on routes involving containerized trade in and out of emerging markets, and our charterers’ container shipping and business revenue may be derived from the shipment of goods from the Asia Pacific region, including China, to various overseas export markets including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could have a material adverse effect on the growth rate of China’s exports and on our charterers’

 

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business. For instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may have the effect of reducing the supply of goods available for export and may, in turn, result in a decrease of demand for container shipping. Additionally, while there is an increasing level of autonomy and a gradual shift in emphasis to a “market economy” and enterprise reform in China, many of the reforms, particularly some limited price reforms that result in the prices for certain commodities being principally determined by market forces, are unprecedented or experimental and may be subject to revision, change or abolition. The level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government.

In China, trade protectionism may cause (i) a decrease in cargoes available to our charterers in favor of Chinese charterers and Chinese owned ships and (ii) an increase in the risks associated with importing goods to China. Any increased trade barriers or restrictions on trade, especially trade with China, would have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.

In addition, China has enacted a new tax for non-resident international transportation enterprises engaged in the provision of services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels, including any stevedore, warehousing and other services connected with the transportation. The new regulation broadens the range of international transportation companies which may find themselves liable for Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports. This tax or similar regulations by China may reduce our operating results and may also result in an increase in the cost of goods exported from China and the risks associated with exporting goods from China, as well as a decrease in the quantity of goods to be shipped from or through China, which would have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.

We conduct a substantial amount of business in China. The legal system in China has inherent uncertainties that could limit the legal protections available to us and could have a material adverse impact on our business, results of operations, financial condition and cash flows.

Many of our vessels regularly call to ports in China and we have entered into a sale and leaseback transaction in respect of 18 of our vessels with a Chinese financial institution. Although our charters and sale and leaseback agreements are governed by English law, we may have difficulties enforcing a judgment rendered by an English court (or other non-Chinese court) in China. Such charters and any additional agreements that we enter into with Chinese counterparties, may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and pay new taxes or other fees to the Chinese government. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our vessels chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

We may be unable to obtain additional debt financing for future acquisitions of vessels and to fund payments in respect of any newbuilding orders that we may place in the future.

Our ability to borrow against the ships in our existing fleet and any ships we may acquire in the future largely depends on the existence of time charter employment of the ship and on the value of the ships, which in turn depends in part on charter hire rates and the creditworthiness of our charterers. The actual or perceived credit quality of our charterers, any defaults by them, any decline in the market value of our fleet and the lack of long-term employment of our ships may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such

 

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capital. Our inability to obtain additional financing or committing to financing on unattractive terms could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

Our credit facilities impose certain operating and financial restrictions on us. These restrictions in our existing credit facilities generally limit our and our subsidiaries’ ability to, among other things:

 

   

incurring or guaranteeing indebtedness;

 

   

entering into affiliate transactions other than on arm’s length terms;

 

   

charging, pledging or encumbering our vessels;

 

   

changing the flag, class, management or ownership of our vessels;

 

   

acquiring any vessel or permitting any guarantor to acquire any further assets or make investments;

 

   

purchasing or otherwise acquiring for value any shares of our capital;

 

   

declaring or paying any distributions; or

 

   

permitting any guarantor to form or acquire any subsidiaries.

Our credit facilities also require that our vessels comply with the ISM Code and ISPS Code and maintain safety management certificates and documents of compliance at all times. Additionally, our credit facilities require compliance with certain financial covenants, including maintenance covenants, such as loan-to-value ratio, minimum liquidity, net worth and ratio of liabilities-to-assets, as defined in the agreements governing our credit facilities. In addition, it is a requirement under our credit facilities that Navios Holdings, Navios Partners, Angeliki Frangou and their respective affiliates collectively own at least 25% of us. After giving effect to the Distribution, Navios Holdings, Navios Partners, Angeliki Frangou and their respective affiliates will collectively own approximately 37.2% of us.

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

Substantial debt levels may limit our ability to obtain additional financing and pursue other business opportunities.

As of September 30, 2018, we had outstanding indebtedness of approximately $200.5 million. For additional information, see “Capitalization”. We also expect to incur additional indebtedness as we grow our fleet or in order to cover its operational needs. This level of debt could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

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we may need to use a substantial portion of our cash from operations to make principal and interest payments on our debt, thereby reducing the funds that would otherwise be available for operations, future business opportunities, distributions to our unit holders and repurchases of common units;

 

   

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

 

   

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

Our ability to service our debt depends upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. We may not be able to refinance all or part of our maturing debt on favorable terms, or at all. If our operating income is not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or discontinuing distributions and repurchases of common units, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

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

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

We intend to grow our business through selective acquisitions of quality secondhand vessels to the extent that they are available and may order newbuilding vessels in the future. Our future growth will primarily depend on:

 

   

the availability of employment for our vessels;

 

   

locating and identifying suitable quality secondhand vessels;

 

   

obtaining required financing on acceptable terms;

 

   

consummating vessel acquisitions;

 

   

enlarging our customer base;

 

   

continuing to meet technical and safety performance standards;

 

   

managing significant acquisitions and integrating newly acquired vessels into our fleet;

 

   

the potential to identify and enter into shipbuilding contracts at acceptable prices; and

 

   

the operations of the shipyards that build any newbuilding vessels that we may order in the future and any delays in delivery that may arise as a result.

Vessel values are correlated with charter rates. During periods in which charter rates are high, vessel values are generally high as well, and it may be difficult to consummate ship acquisitions or potentially enter into shipbuilding contracts in the future at favorable prices. During periods in which charter rates are low and employment is scarce, vessel values are low and any vessel acquired without time charter attached will automatically incur additional expenses to operate, insure, maintain and finance the vessel thereby significantly increasing the acquisition cost. In addition, any vessel acquisition may not be profitable at or after the time of acquisition and may not generate cash flows sufficient to justify the investment. We may not be successful in

 

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executing any future growth plans and we cannot give any assurance that we will not incur significant expenses and losses in connection with such growth efforts. Other risks associated with vessel acquisitions that may harm our business, financial condition and operating results include the risks that we may:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

Additionally, if the delivery of any vessel is materially delayed or cancelled, especially if we have committed the vessel to a charter for which we become responsible for substantial liquidated damages to the customer as a result of the delay or cancellation, our business, financial condition and results of operations, which would materially and adversely affect our business, results of operations, financial condition and cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

Our fleet of 26 containerships has an average age of 10.5 years. See “Business—Description of Fleet.” Unless we maintain reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace the older vessels in our fleet. Our cash flows and income are dependent on the revenues earned by the chartering of our containerships. The inability to replace the vessels in our fleet upon the expiration of their useful lives could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

As noted above, our fleet of 26 containerships has an average age of 10.5 years. In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our fleet ages, we will incur increased costs. Older vessels may require longer and more expensive dry-dockings, resulting in more off-hire days and reduced revenue. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. In addition, older vessels are often less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of a vessel may also require expenditures for alterations or the addition of new equipment to our vessels and may

 

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restrict the type of activities in which our containerships may engage. See “Business—Description of Fleet.” We cannot assure you that, as our vessels age, market conditions will justify such expenditures or will enable us to profitably operate our older vessels.

The Manager may be unable to attract and retain qualified, skilled employees or crew necessary to operate our vessels and business or may have to pay increased crew and other vessel operating costs.

Acquiring and renewing time charters with leading liner companies depends on a number of factors, including our ability to man our containerships with suitably experienced, high-quality masters, officers and crews. Our success will depend in part on the Manager’s ability to attract, hire, train and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract, hire, train and retain qualified crew members is intense, and crew manning costs continue to increase. If we are not able to increase our hire rates to compensate for any crew cost increases, our business, financial condition, results of operations and ability to make cash distributions to our unit holders and repurchases of common units may be adversely affected. Any inability we experience in the future to attract, hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business.

Fuel price fluctuations may have an adverse effect on our profits.

The cost of fuel is a significant factor in negotiating charter rates and can affect us in both direct and indirect ways. This cost will be borne by us when our containerships are not employed or are employed on voyage charters or contracts of affreightment. We currently have no voyage charters or contracts of affreightment, but we may enter into such arrangements in the future, and to the extent we do so, an increase in the price of fuel beyond our expectations may adversely affect our profitability. Even where the cost of fuel is borne by the charterer, which is the case with all of our existing time charters, that cost may affect the level of charter rates that charterers are prepared to pay. Rising costs of fuel will make our older and less fuel efficient vessels less competitive compared to the more fuel efficient newer vessels or compared with vessels which can utilize less expensive fuel and may reduce their charter hire, limit their employment opportunities and force us to employ them at a discount compared to the charter rates commanded by more fuel efficient vessels or not at all.

Falling costs of fuel may lead our charterers to abandon slow steaming, thereby releasing additional capacity into the market and exerting downward pressure on charter rates or may lead our charterers to employ older, less fuel efficient vessels which may drive down charter rates and make it more difficult for us to secure employment for our newer vessels.

The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geo-political developments, supply and demand for oil, actions by members of the OPEC and other oil and gas producers, economic or other sanctions levied against oil and gas producing countries, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations.

Our vessels may be subject to unbudgeted periods of off-hire, which could materially adversely affect our business, financial condition and results of operations.

Under the terms of the charter agreements under which our vessels operate, when a vessel is “off-hire,” or not available for service or otherwise deficient in its condition or performance, the charterer generally is not required to pay the hire rate, and we will be responsible for all costs (including the cost of bunker fuel) unless the charterer is responsible for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off-hire if there is an occurrence preventing the full working of the vessel due to, among other things:

 

   

operational deficiencies;

 

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the removal of a vessel from the water for repairs, maintenance or inspection, which is referred to as drydocking;

 

   

equipment breakdowns;

 

   

delays due to accidents or deviations from course;

 

   

occurrence of hostilities in the vessel’s flag state or in the event of piracy;

 

   

crewing strikes, labor boycotts, certain vessel detentions or similar problems; or

 

   

our failure to maintain the vessel in compliance with its specifications, contractual standards and applicable country of registry and international regulations or to provide the required crew.

Under some of our charters, the charterer is permitted to terminate the time charter if the vessel is off-hire for an extended period, which is generally defined as a period of 90 or more consecutive off-hire days. Under some circumstances, an event of force majeure may also permit the charterer to terminate the time charter or suspend payment of charter hire.

As we do not maintain off-hire insurance except in cases of loss of hire up to a limited number of days due to war or piracy events any extended off-hire period could have a material adverse effect on our results of operations, cash flows and financial condition.

We must make substantial capital expenditures to maintain the operating capacity of our fleet and acquire vessels, which may reduce the amount of cash for distributions to our unit holders and repurchases of common units.

We must make substantial capital expenditures to maintain the operating capacity of our fleet and replace, over the long-term, the operating capacity of our fleet and we generally expect to finance these maintenance capital expenditures with cash balances or credit facilities. In addition, we will need to make substantial capital expenditures to acquire vessels in accordance with our growth strategy. These expenditures could increase as a result of, among other things: the cost of labor and materials; customer requirements; the size of our fleet; the cost of replacement vessels; the length of charters; governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; competitive standards; and the age of our ships. Significant capital expenditures, including to maintain and replace, over the long-term, the operating capacity of our fleet, as well as to comply with environmental and safety regulations, may reduce or eliminate the amount of cash available for distribution to our unit holders and repurchases of common units.

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

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

The loss of key members of our senior management team could disrupt the management of our business.

We believe that our success depends on the continued contributions of the members of our senior management team, including Angeliki Frangou, our Chairman and Chief Executive Officer. The loss of the

 

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services of Ms. Frangou or one of our other executive officers or senior management members could impair our ability to identify and secure new charter contracts, to maintain good customer relations and to otherwise manage our business, which could have a material adverse effect on our financial performance and our ability to compete.

We depend on Navios Holdings and its affiliates to assist us in operating and expanding our business.

Pursuant to the Management Agreement between us and the Manager, an affiliate of our general partner, the Manager provides to us significant commercial and technical management services (including the commercial and technical management of our vessels, vessel maintenance and crewing, purchasing and insurance and shipyard supervision). In addition, pursuant to the Administrative Services Agreement between us and the Manager, the Manager provides to us significant administrative, financial and other support services. Our operational success and ability to execute our growth strategy will depend significantly upon the Manager’s satisfactory performance of these services. Our business will be harmed if the Manager fails to perform these services satisfactorily, if the Manager cancels either of these agreements, or if the Manager stops providing these services to us.

Our ability to enter into new charters and expand our customer relationships will depend largely on our ability to leverage our relationship with Navios Holdings and its reputation and relationships in the shipping industry. If Navios Holdings suffers material damage to its reputation or relationships, it may harm our ability to:

 

   

renew existing charters upon their expiration;

 

   

obtain new charters;

 

   

successfully interact with shipyards during periods of shipyard construction constraints;

 

   

obtain financing on commercially acceptable terms; or

 

   

maintain satisfactory relationships with suppliers and other third parties.

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions and repurchases of common units.

Technological innovation could reduce our charter hire income and the value of our vessels.

The charter hire 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 vessels are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels and the resale value of our vessels could significantly decrease. As a result, our results of operations and financial condition could be adversely affected.

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

The charter rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed and fuel economy. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new ship designs currently promoted by shipyards as being more fuel efficient perform

 

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as promoted, or if new containerships are built in the future that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect our ability to re-charter, the amount of charter hire payments that we receive for our containerships once their current time charters expire and the resale value of our containerships. This could adversely affect our revenues and cash flows, and our ability to service our debt or make distributions to our unit holders and repurchases of common units.

We are subject to various laws, regulations and conventions, including environmental and safety laws that could require significant expenditures both to maintain compliance with such laws and to pay for any uninsured environmental liabilities including any resulting from a spill or other environmental incident.

The shipping business and vessel operation are materially affected by government regulation in the form of international conventions, national, state and local laws, and regulations in force in the jurisdictions in which vessels operate, as well as in the country or countries of their registration. Governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make capital and other expenditures. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations, or the impact thereof on the fair market price or useful life of our vessels. In order to satisfy any such requirements, we may be required to take any of our vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable us to operate our vessels, particularly older vessels, profitably during the remainder of their economic lives. This could lead to significant asset write downs. In addition, violations of environmental and safety regulations can result in substantial penalties and, in certain instances, seizure or detention of our vessels.

Additional conventions, laws and regulations may be adopted that could limit our ability to do business, require capital expenditures or otherwise increase our cost of doing business, which may materially adversely affect our operations, as well as the shipping industry generally. For example, in various jurisdictions, legislation has been enacted, or is under consideration, that would impose more stringent requirements on air pollution and effluent discharges from our vessels. For example, the International Maritime Organization (the “IMO”) periodically proposes and adopts amendments to revise the International Convention for the Prevention of Pollution from Ships (“MARPOL”), such as the revision to Annex VI which came into force on July 1, 2010. The revised Annex VI implements a phased reduction of the sulfur content of fuel and allows for stricter sulfur limits in designated emission control areas (“ECAs”). Thus far, ECAs have been formally adopted for the Baltic Sea area (limits SOx emissions only); the North Sea area including the English Channel (limiting SOx emissions only) and the North American ECA (which came into effect on August 1, 2012 limiting SOx, NOx and particulate matter emissions). In October 2016, the IMO approved the designation of the North Sea and the Baltic Sea as ECAs for NOx under Annex VI, which would take effect in January 2021. The U.S. Caribbean Sea ECA entered into force on January 1, 2013 and has been effective since January 1, 2014, limiting SOx, NOx and particulate matter emissions. In January 2015, the limit for fuel oil sulfur levels fell to 0.10% mass by mass (“m/m”) in ECAs established to limit SOx and particulate matter emissions.

After considering the issue for many years, the IMO announced on October 27, 2016 that it was proceeding with a requirement for 0.5% m/m sulfur content in marine fuel (down from current levels of 3.5%) outside the ECAs starting on January 1, 2020. Under Annex VI, the 2020 date was subject to review as to the availability of the required fuel oil. Annex VI required the fuel availability review to be completed by 2018 but was ultimately completed in 2016. In April 2018, the IMO’s Marine Environment Protection Committee (“MEPC”) further prohibited the carriage of non-compliant fuel after 2020, unless a ship is fitted with an equivalent arrangement to reduce emissions, such as a scrubber. Therefore, by 2020, ships will be required to remove sulfur from emissions through the use of emission control equipment, or purchase marine fuel with 0.5% sulfur content, which may see increased demand and higher prices due to supply constraints. Installing pollution control equipment or using lower sulfur fuel could result in significantly increased costs to our company. Similarly MARPOL Annex VI

 

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requires Tier III standards for NOx emissions to be applied to ships constructed and engines installed in ships operating in NOx ECAs from January 1, 2016.

Certain jurisdictions have adopted more stringent requirements. For instance, California has adopted more stringent low sulfur fuel requirements within California-regulated waters. Compliance with new emissions standards could require modifications to vessels or the use of more expensive fuel. While it is unclear how new emissions standards will affect the employment of our vessels, over time it is possible that ships not retrofitted to comply with new standards may become less competitive.

In addition, the IMO, the United States and states within the United States have proposed or implemented requirements relating to the management of ballast water to prevent the harmful effects of foreign invasive species. In February 2004, the IMO adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”). The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, as well as other obligations including recordkeeping requirements and implementation of a Ballast Water and Sediments Management Plan. The BWM Convention stipulated that it would not enter into force until twelve months after it has been adopted by at least 30 states, the combined merchant fleets of which represent at least 35% of the gross tonnage of the world’s merchant shipping. With Finland’s accession to the Agreement on September 8, 2016, the 35% threshold was reached, and the BWM convention entered into force on September 8, 2017. Thereafter, on October 19, 2016, Panama also acceded to the BWM convention, adding its 18.02% of world gross tonnage. As of February 7, 2017, the BWM Convention had 54 contracting states for 53.30% of world gross tonnage. Although new ships constructed after September 8, 2017 must comply on delivery with the BWM Convention, implementation of the BWM Convention has been delayed for existing vessels (constructed prior to September 8, 2017) for a further two years. For such existing vessels, installation of ballast water management systems must take place at the first renewal survey following September 8, 2017 (the date the BWM Convention entered into force). The BWM Convention requires ships to manage ballast water in a manner that removes, renders harmless or avoids the update or discharge of aquatic organisms and pathogens within ballast water and sediment. Recently updated Ballast Water and Sediment Management Plan guidance includes more robust testing and performance specifications. The entry of the BWM Convention and revised guidance, as well as similar ballast water treatment requirements in certain jurisdictions (such as the United States and states within the United States), will likely result in substantial compliance costs relating to the installation of equipment on our vessels to treat ballast water before it is discharged and other additional ballast water management and reporting requirements.

The operation of vessels is also affected by the requirements set forth in the International Safety Management Code (the “ISM Code”). The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive Safety Management System (the “SMS”) that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe vessel operation and describing procedures for dealing with emergencies. Further to this, the IMO has introduced the first ever mandatory measures for an international greenhouse gas reduction regime for a global industry sector. These energy efficiency measures took effect on January 1, 2013 and apply to all ships of 400 gross tonnage and above. They include the development of a ship energy efficiency management plan (the “SEEMP”), which is akin to a safety management plan, with which the industry will have to comply. The failure of a ship owner or bareboat charterer to comply with the ISM Code and IMO measures may subject such party to withdrawal of the permit to operate or manage the vessels, increased liability, decreased available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports.

International liability for oil pollution is governed in part by the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”). In 2001, the IMO adopted the Bunker Convention, which imposes strict liability on ship owners for pollution damage and response costs incurred in contracting states caused by discharges, or threatened discharges, of bunker oil from all classes of ships not covered by the International Convention for Civil Liability for Oil Pollution Damage (the “CLC”), which governs pollution from

 

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tankers. The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance to cover their liability for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime, including liability limits calculated in accordance with the Convention on Limitation of Liability for Maritime Claims 1976, as amended (the “1976 Convention”), discussed in more detail in the following paragraph. The Bunker Convention became effective in contracting states on November 21, 2008. In non-contracting states, liability for such bunker oil pollution typically is determined by the national or other domestic laws in the jurisdiction where the spillage occurs.

The Bunker Convention also provides vessel owners a right to limit their liability, depending on the applicable national or international regime. The 1976 Convention is the most widely applicable international regime limiting maritime pollution liability. Rights to limit liability under the 1976 Convention are forfeited where a spill is caused by a ship owner’s intentional or reckless conduct. Certain jurisdictions have ratified the IMO’s Protocol of 1996 to the 1976 Convention, referred to herein as the “Protocol of 1996.” The Protocol of 1996 provides for substantially higher liability limits in those jurisdictions than the limits set forth in the 1976 Convention. Finally, some jurisdictions, such as the United States, are not a party to either the 1976 Convention or the Protocol of 1996, and, therefore, a ship owner’s rights to limit liability for maritime pollution in such jurisdictions may be uncertain.

Environmental legislation in the United States merits particular mention as it is in many respects more onerous than international laws, representing a high-water mark of regulation with which ship owners and operators must comply, and of liability likely to be incurred in the event of non-compliance or an incident causing pollution. Though it has been eight years since the Deepwater Horizon oil spill in the Gulf of Mexico (the “Deepwater Horizon incident”), such regulation may become even stricter because of the incident’s impact. In the United States, the Oil Pollution Act of 1990 (“OPA 90”) establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from cargo and bunker oil spills from vessels. OPA 90 covers all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in U.S. waters, which includes the United States’ territorial sea and its 200 nautical mile exclusive economic zone. Under OPA 90, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or substantial threats of discharges, of oil from their vessels. The U.S. Congress has in the past considered bills to strengthen certain requirements of OPA 90; similar legislation may be introduced in the future. Further, under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state laws, investigation and cleanup requirements for threatened or actual releases of hazardous substances may be imposed upon owners and operators of vessels, on a joint and several basis, regardless of fault or the legality of the original activity that resulted in the release of hazardous substances.

In addition to potential liability under the federal OPA 90 and CERCLA, vessel owners may in some instances incur liability on an even more stringent basis under state law in the particular state where the spillage occurred. For example, California regulations prohibit the discharge of oil, require an oil contingency plan be filed with the state, require that the ship owner contract with an oil response organization and require a valid certificate of financial responsibility, all prior to the vessel entering state waters.

In recent years, the European Union has become increasingly active in the field of regulation of maritime safety and protection of the environment. In some areas of regulation the European Union has introduced new laws without attempting to procure a corresponding amendment to international law. Notably, in 2005 the European Union adopted a directive, as amended in 2009, on ship-source pollution, imposing criminal sanctions for pollution not only where pollution is caused by intent or recklessness (which would be an offence under MARPOL), but also where it is caused by “serious negligence.” The concept of “serious negligence” may be interpreted in practice to be little more than ordinary negligence. The directive could therefore result in criminal liability being incurred in circumstances where it would not be incurred under international law.

 

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Criminal liability for a pollution incident could not only result in us incurring substantial penalties or fines, but may also, in some jurisdictions, facilitate civil liability claims for greater compensation than would otherwise have been payable.

We maintain insurance coverage for each owned vessel in our fleet against pollution liability risks in the amount of $1.0 billion in the aggregate for any one event. The insured risks include penalties and fines as well as civil liabilities and expenses resulting from accidental pollution. However, this insurance coverage is subject to exclusions, deductibles and other terms and conditions. If any liabilities or expenses fall within an exclusion from coverage, or if damages from a catastrophic incident exceed the aggregate liability of $1.0 billion for any one event, our cash flow, profitability and financial position would be adversely impacted.

Climate change and government laws and regulations related to climate change could negatively impact our financial condition.

We are and will be, directly and indirectly, subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related to climate change. A number of countries have adopted or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions, such as carbon dioxide, methane, and nitrogen oxides. In the U.S., the United States Environmental Protection Agency (the “EPA”) has declared greenhouse gases to be dangerous pollutants and has issued greenhouse gas reporting requirements for emissions sources in certain industries (which currently do not include the shipping industry). The EPA does require owners of vessels subject to MARPOL Annex VI to maintain records for nitrogen oxides standards and in-use fuel specifications. In addition, while the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “UNFCCC”), which requires adopting countries to implement national programs to reduce greenhouse gas emissions, the IMO intends to develop limits on greenhouse gases from international shipping. It has responded to the global focus on climate change and greenhouse gas emissions by developing specific technical and operational efficiency measures and a work plan for market-based mechanisms in 2011. These include the mandatory measures of the SEEMP, outlined above, and an energy efficiency design index (“EEDI”) for new ships. The IMO is also considering its position on market-based measures through an expert working group. Among the numerous proposals being considered by the working group are the following: a port state levy based on the amount of fuel consumed by the vessel on its voyage to the port in question; a global emissions trading scheme which would allocate emissions allowances and set an emissions cap; and an international fund establishing a global reduction target for international shipping, to be set either by the UNFCCC or the IMO.

At its 64th session (2012), the IMO’s MEPC indicated that 2015 was the target year for member states to identify market-based measures for international shipping. At its 66th session (2014), the MEPC continued its work on developing technical and operational measures relating to energy-efficiency measures for ships, following the entry into force of the mandatory efficiency measures on January 1, 2013. It adopted the 2014 Guidelines on the Method of Calculation of the Attained EEDI, applicable to new ships. It further adopted amendments to MARPOL Annex VI concerning the extension of the scope of application of the EEDI to Liquefied Natural Gas (“LNG”) carriers, ro-ro cargo ships (vehicle carriers), ro-ro cargo ships, ro-ro passenger ships and cruise passengers ships with nonconventional propulsion. At its 67th session (2014), the MEPC adopted the 2014 Guidelines on survey and certification of the EEDI, updating the previous version to reference ships fitted with dual-fuel engines using LNG and liquid fuel oil. The MEPC also adopted amendments to the 2013 Interim Guidelines for determining minimum propulsion power to maintain the maneuverability of ships in adverse conditions, to make the guidelines applicable to phase 1 (starting January 1, 2015) of the EEDI requirements. At its 68th session (2015), the MEPC amended the 2014 Guidelines on EEDI survey and certification as well as the method of calculating of EEDI for new ships, the latter of which was again amended at the 70th session (2016). At its 70th session, the MEPC also adopted mandatory requirements for ships of 5,000 gross tonnage or greater to collect fuel consumption data for each type of fuel used, and report the data to the flag State after the end of each calendar year.

 

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In December 2011, UN climate change talks took place in Durban and concluded with an agreement referred to as the Durban Platform for Enhanced Action. The Durban Conference did not result in any proposals specifically addressing the shipping industry’s role in climate change but the progress that has been made by the IMO in this area was widely acknowledged throughout the negotiating bodies of the UNFCCC process, and an ad hoc working group was established.

Although regulation of greenhouse gas emissions in the shipping industry was discussed during the 2015 UN Climate Change Conference in Paris (the “Paris Conference”), the agreement reached among the 195 nations did not expressly reference the shipping industry. Following the Paris Conference, the IMO announced it would continue its efforts on this issue at the MEPC, and at its 70th session, the MEPC approved a Roadmap for developing a comprehensive greenhouse gas emissions reduction strategy for ships, which includes the goal of adopting an initial strategy and emission reduction commitments in 2018. In April 2018, the IMO’s MEPC adopted the initial strategy to reduce greenhouse gas emissions from shipping by at least 50% by 2050 compared to 2008 levels, while pursuing efforts towards phasing them out entirely, as a pathway towards greenhouse gas emissions reduction consistent with the Paris Agreement’s temperature goals. The initial strategy is due to be revised and adopted by 2023.

The European Union announced in April 2007 that it planned to expand the European Union emissions trading scheme (“ETS”) by adding vessels as ETS-regulated businesses required to report on carbon emissions and subject to a credit trading system for carbon allowances. A proposal from the European Commission (“EC”) was expected if no global regime for reduction of seaborne emissions had been agreed to by the end of 2011. On October 1, 2012, the EC announced that it would propose measures to monitor, verify and report on greenhouse- gas emissions from the shipping sector. On June 28, 2013, the EC adopted a communication setting out a strategy for progressively including greenhouse gas emissions from maritime transport in the European Union’s policy for reducing its overall greenhouse gas emissions. The first step proposed by the EC was an EU Regulation (as defined below) for an EU-wide system for the monitoring, reporting and verification of carbon dioxide emissions from large ships starting in 2018. The EU Regulation (2015/757) was adopted on April 29, 2015 and took effect on July 1, 2015, with monitoring, reporting and verification requirements beginning on January 1, 2018. This Regulation appears to be indicative of an intent to maintain pressure on the international negotiating process. The EC also adopted an Implementing Regulation, which entered into force in November 2016, setting templates for monitoring plans, emissions reports and compliance documents pursuant to Regulation 2015/757.

In February 2017, European Union member states met to consider independently regulating the shipping industry under the ETS. On February 15, 2017, European Parliament voted in favor of a bill to include maritime shipping in the ETS by 2023 if the IMO has not promulgated a comparable system by 2021. In November 2017, the Council of Ministers, the European Union’s main decision making body, agreed that the European Union should act on shipping emissions by 2023 if the IMO fails to deliver effective global measures. Last year, IMO’s urgent call to action to bring about shipping greenhouse gas emissions reductions before 2023 was met with industry push-back in many countries. Depending on how fast IMO and the European Union move on this issue, the ETS may result in additional compliance costs for our vessels.

We cannot predict with any degree of certainty what effect, if any possible climate change and government laws and regulations related to climate change will have on our operations, whether directly or indirectly. However, we believe that climate change, including the possible increase in severe weather events resulting from climate change, and government laws and regulations related to climate change may affect, directly or indirectly, (i) the cost of the vessels we may acquire in the future, (ii) our ability to continue to operate as we have in the past, (iii) the cost of operating our vessels, and (iv) insurance premiums, deductibles and the availability of coverage. As a result, our financial condition could be negatively impacted by significant climate change and related governmental regulation, and that impact could be material.

 

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

We expect that our vessels will call in ports in South America and other areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or penalties which could have an adverse effect on our business, results of operations, cash flows, financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.

International shipping is subject to various security and customs inspections and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of contents of vessels, delays in the loading, offloading or delivery and the levying of customs, duties, fines and other penalties.

It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our future customers and may, in certain cases, render the shipment of certain types of cargo impractical. Any such changes or developments may have a material adverse effect on our business, financial condition, and results of operations.

We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.

The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

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

A government of the jurisdiction where one or more of our containerships are registered could requisition for title or seize our containerships. Requisition for title occurs when a government takes control of a vessel and becomes its owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would expect to be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment, if any, would be uncertain. Government requisition of one or more of our containerships may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders and repurchases of common units.

 

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

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

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

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

 

   

marine disaster;

 

   

piracy;

 

   

environmental accidents;

 

   

grounding, fire, explosions and collisions;

 

   

cargo and property loss or damage;

 

   

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

 

   

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

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

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

The operation of any vessel includes risks such as mechanical failure, collision, fire, contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of a marine disaster, including oil spills and other environmental mishaps. There are also liabilities arising from owning and operating vessels in international trade. We procure insurance for our fleet of containerships in relation to risks commonly insured against by vessel owners and operators. Our current insurance includes (i) hull and machinery and war

 

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risk insurance covering damage to our vessels’ hulls and machinery from, among other things, collisions and contact with fixed and floating objects, (ii) war risks insurance covering losses associated with the outbreak or escalation of hostilities and (iii) protection and indemnity insurance (which includes environmental damage) covering, among other things, third-party and crew liabilities such as expenses resulting from the injury or death of crew members, passengers and other third parties, the loss or damage to cargo, third-party claims arising from collisions with other vessels, damage to other third-party property and pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal.

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

Our charterers may in the future engage in legally permitted trading in locations which may still be subject to sanctions or boycott. However, no vessels in our fleet have called on ports in sanctioned countries or countries designated as state sponsors of terrorism by the U.S. State Department, including Iran, Syria, or Sudan. Our insurers may be contractually or by operation of law prohibited from honoring our insurance contract for such trading, which could result in reduced insurance coverage for losses incurred by the related vessels. Furthermore, our insurers and we may be prohibited from posting or otherwise be unable to post security in respect of any incident in such locations, resulting in the loss of use of the relevant vessel and negative publicity for our Company which could negatively impact our business, results of operations, cash flows and share price.

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

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

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

 

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

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

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

Our international activities increase the compliance risks associated with economic and trade sanctions imposed by the United States, the European Union and other jurisdictions.

Our international operations and activities could expose us 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 European Union and its member countries. Under economic and trade sanctions laws, governments may seek to impose modifications to, prohibitions/restrictions on business practices and activities, and modifications to compliance programs, which may increase compliance costs, and, in the event of a violation, may subject us to fines and other penalties.

Iran

During the last few years until January 2016, 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 was expanded by a number of jurisdictions, including the United States, the European Union 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 (the “2012 NDAA”), the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), 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 to non-U.S. companies, such as our company, and introduced limits on the ability of non-U.S. companies and other non-U.S. persons to do business or trade with Iran when such activities relate to specific trade and investment activities involving 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, 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 are mainly nuclear-related sanctions.

Most of the EU and U.S. nuclear-related 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, these U.S. (secondary) sanctions have been reimposed effective August 7, 2018 and November 5, 2018 as a result of the withdrawal of the United States from the JCPOA.

 

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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. The main nuclear-related EU sanctions which remain in place include restrictions on:

 

  i.

Graphite and certain raw or semi-finished metals such as corrosion-resistant high-grade steel, iron, aluminium and alloys, titanium and alloys and nickel and alloys (as listed in Annex VIIB to EU Regulation 267/2012 as updated by EU Regulation 2015/1861 (the “EU Regulation”);

 

  ii.

Goods listed in the Nuclear Suppliers Group list (listed in Annex I to the EU Regulation);

 

  iii.

Goods that could contribute to nuclear-related or other activities inconsistent with the JCPOA (as listed in Annex II to the EU Regulation); and

 

  iv.

Software designed for use in nuclear/military industries (as listed in Annex VIIA to the EU Regulation).

Dealing with the above is no longer prohibited, but prior authorization must be obtained first and is granted on a case-by-case basis. The remaining restrictions apply to related actions, including the sale, supply, transfer or export, directly or indirectly to any Iranian person/for use in Iran, as well as the provision of technical assistance, financing or financial assistance in relation to the restricted activity. Certain individuals and entities remain sanctioned and the prohibition to make available, directly or indirectly, economic resources or assets 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/Ukraine

As a result of the crisis in Ukraine and the annexation of Crimea by Russia in 2014, both the United States and the European Union have implemented sanctions against certain persons and entities.

The European Union 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 Seaport; Sevastopol Commercial Seaport and Port Feodosia are subject to the above restrictions. Other entities are subject to sectoral 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 European Union of goods originating in Crimea or Sevastopol as well as restrictions on trade in certain dual-use 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 U.S. 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. While the prohibitions of these sanctions are not directly applicable to Navios, Navios 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 prohibitions. 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) (CAATSA), authorizes imposition of new sanctions on Iran, Russia, and North Korea. These sanctions prohibit a variety of activities involving Russia.

 

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Venezuela-Related Sanctions

The U.S. sanctions with respect to Venezuela prohibit dealings with designated Venezuelan government officials, and curtail the provision of financing to PDVSA and other government entities. EU sanctions against Venezuela are primarily governed by EU Council Regulation 2017/2063 of 13 November 2017 concerning restrictive measures in view of the situation in Venezuela. This includes financial sanctions and restrictions on listed persons, an arms embargo, and related prohibitions and restrictions including restrictions related to internal repression.

Other U.S. Economic Sanctions and Sanctions Targets

In addition to Iran and certain Russian entities and individuals, as indicated above, the United States maintains economic sanctions against Syria, Cuba, North Korea, and sanctions against entities and individuals (such as entities and individuals in the foregoing targeted countries, designated terrorists, narcotics traffickers) whose names appear on the List of SDNs and Blocked Persons maintained by the U.S. Treasury Department (collectively, the “Sanctions Targets”). We are subject to the prohibitions of these sanctions to the extent that any transaction or activity we engage in involves Sanctions Targets and a U.S. person or otherwise has a nexus to the United States.

Other EU Economic Sanctions Targets

The European Union also maintains sanctions against Syria, North Korea and certain other countries and against individuals listed by the EU. These restrictions apply to our 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 restrictions and to carry out due diligence checks on counterparties and cargoes.

Compliance

Considering the aforementioned prohibitions of U.S. as well as EU sanctions and the nature of our business, there is a sanctions risk for us due to the worldwide trade of our vessels, which we seek to minimize by following our corporate written Economic Sanctions Compliance Policy and Procedures and our compliance with all applicable sanctions and embargo laws and regulations. Although we intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations, and the law may change. Moreover, despite, for example, relevant provisions in charter parties forbidding the use of our vessels in trade that would violate economic sanctions, our charterers may nevertheless violate applicable sanctions and embargo laws and regulations and those violations could in turn negatively affect our reputation and be imputed to us. In addition, given our relationship with the Navios Group, we cannot give any assurance that an adverse finding against any of the entities in the Navios Group by a governmental or legal authority or others with respect to the matters discussed herein or any future matter related to regulatory compliance by the Navios Group or ourselves will not have a material adverse impact on our business, reputation or the market price or trading of our common units.

We are constantly monitoring developments in the United States, the European Union and other jurisdictions that maintain economic sanctions against Iran, other countries, and other sanctions targets, 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 our 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 our business and results of operations.

To reduce the risk of violating economic sanctions, we have a policy of compliance with applicable economic sanctions laws and have implemented and continue to implement and diligently follow compliance procedures to avoid economic sanctions violations.

 

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We could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and anti-corruption laws in other applicable jurisdictions.

We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws and regulations in various jurisdictions in which we conduct activities, including the U.S. Foreign Corrupt Practices Act (“FCPA), and other anti-corruption laws and regulations. In addition, we may be subject to the U.K. Bribery Act 2010. The FCPA and the U.K. Bribery Act 2010 prohibit us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The UK Bribery Act also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation.

As an international shipping company, we operate in countries known to present heightened risks for corruption. In addition, our business requires us to interact with government officials, including port officials, harbor masters, maritime regulators, customs officials and pilots, and we have client relationships with state-owned enterprises. Both factors raise the risk of anticorruption issues.

Non-compliance with anti-corruption, anti-bribery or anti-money laundering laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. Compliance with the FCPA, the U.K. Bribery Act and other applicable anti-corruption laws and related regulations and policies imposes potentially significant costs and operational burdens on us. Although we have policies and procedures in place to mitigate the risk of non-compliance with anti-corruption, anti-bribery or anti-money laundering laws, including our Code of Ethics and anti-bribery and anti-corruption policy, we may not be able to adequately prevent or detect all possible violations under applicable anti-bribery and anti-corruption legislation, including by third-party agents.

Risks Inherent in an Investment in Us

Navios Acquisition, Navios Holdings, Navios Partners and Navios Midstream and their respective affiliates may compete with us.

Pursuant to the Omnibus Agreement that we entered into with Navios Acquisition, Navios Holdings, Navios Partners and Navios Midstream, Navios Acquisition, Navios Holdings, Navios Partners, Navios Midstream and their controlled affiliates (other than us, our general partner and our subsidiaries) generally have agreed not to acquire or own any containerships. The Omnibus Agreement also provides us with rights of first offer on containerships. The Omnibus Agreement, however, contains significant exceptions that will allow Navios Acquisition, Navios Holdings, Navios Partners, Navios Midstream or any of their controlled affiliates to compete with us under specified circumstances which could materially harm our business.

Unit holders have limited voting rights and our partnership agreement restricts the voting rights of unit holders owning more than 4.9% of our common units.

Holders of common units have only limited voting rights on matters affecting our business. We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Common unit holders may only elect four of the seven members of our board of directors. The elected directors will be elected on a staggered basis and will serve for three-year terms. Our general partner in its sole discretion has the right to appoint the remaining three directors and to set the terms for which those directors will serve. The partnership agreement also contains

 

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provisions limiting the ability of unit holders to call meetings or to acquire information about our operations, as well as other provisions limiting the unit holders’ ability to influence the manner or direction of management. Unit holders will have no right to elect our general partner and our general partner may not be removed except by a vote of the holders of at least 75% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class.

Our partnership agreement further restricts unit holders’ voting rights by providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unit holders or calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes, unless required by law. The voting rights of any such unit holders in excess of 4.9% will effectively be redistributed pro rata among the other unit holders of the same class that are not subject to this voting limitation.

Our general partner, its affiliates and persons who acquired units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.

Our general partner and its affiliates own a significant interest in us and have conflicts of interest and limited fiduciary and contractual duties, which may permit them to favor their own interests to your detriment.

After giving effect to the Distribution, Navios Holdings will indirectly own and control our general partner and own an approximately 3.7% limited partner interest in us. The general partner interest and the limited partner interest are represented in units. The general partner unit, however, does not have the same economic rights as a common unit. The general partner unit will not entitle our general partner to participate in our distributions, profits or losses. The interests of Navios Partners or Navios Holdings may be different from your interests. This concentration of ownership may delay, deter or prevent acts that would be favored by our other unit holders or deprive unit holders of an opportunity to receive a premium for their common units as part of a sale of our business, and it is possible that the interests of the controlling unit holders may in some cases conflict with our interests and the interests of our other unit holders.

Further, certain of our executive officers and/or directors also serve as executive officers and/or directors of Navios Holdings and its affiliates or to the Navios Group and as such they have fiduciary duties to Navios Holdings, Navios Acquisition, Navios Partners and Navios Midstream that may cause them to pursue business strategies that disproportionately benefit Navios Acquisition, Navios Partners, Navios Holdings or Navios Midstream or which otherwise are not in the best interests of us or our unit holders. Conflicts of interest may arise between Navios Acquisition, Navios Partners, Navios Holdings, Navios Midstream and their affiliates, including our general partner on the one hand, and us and our unit holders, on the other hand. As a result of these conflicts, our general partner and its affiliates may favor their own interests over the interests of our unit holders. These conflicts include, among others, the following situations:

 

   

neither our partnership agreement nor any other agreement requires our general partner or the other members of the Navios Group or their affiliates to pursue, in the operation of their businesses, a business strategy that favors us or utilizes our assets, and the officers and directors of the entities comprising the Navios Group (some of which hold officer or board positions with us) have a fiduciary duty to make decisions in the best interests of the stockholders of those entities, which may be contrary to our interests;

 

   

our general partner and our directors have limited liabilities and reduced their fiduciary duties under the laws of the Marshall Islands, while the remedies available to our unit holders are also restricted, and, as a result of purchasing common units, unit holders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner and our directors, all as set forth in the partnership agreement;

 

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either or both of our general partner and our board of directors are involved in determining the amount and timing of our asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distributions to our unit holders and repurchases of common units;

 

   

our general partner is authorized to cause us to borrow funds in order to permit the payment of cash distributions and repurchases of common units;

 

   

our general partner is entitled to reimbursement of all reasonable costs incurred by it and its affiliates for our benefit;

 

   

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

 

   

our general partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common units.

Our officers face conflicts in the allocation of their time to our business.

Certain of our executive officers and/or directors also serve as executive officers and/or directors of Navios Holdings and their affiliates or to the Navios Group. Navios Partners, Navios Holdings, Navios Acquisition and Navios Midstream conduct substantial businesses and activities of their own in which we have no economic interest. If these separate activities are significantly greater than our activities, there will be material competition for the time and effort of our officers, who also provide services to the Navios Group. Our officers are not required to work full-time on our affairs and, in the future, we may have additional officers that also provide services to the Navios Group and their affiliates. Based solely on the anticipated relative sizes of our fleet and the fleet owned by the Navios Group and their affiliates over the next twelve months, we estimate that our officers, excluding our Chief Financial Officer, may spend a substantial portion of their monthly business time dedicated to the business activities of the Navios Group and their affiliates. However, the actual allocation of time could vary significantly from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses.

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

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

 

   

permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases it has no fiduciary duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or our unit holders. Decisions made by our general partner in its individual capacity will be made by its board of directors or members of its management. Specifically, pursuant to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units, general partner interest or votes upon the dissolution of the partnership;

 

   

provides that our general partner and our directors are entitled to make other decisions in “good faith” if they reasonably believe that the decision is in our best interests;

 

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

 

   

provides that neither our general partner nor our officers or our directors are liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or directors or our officers or directors or those other persons engaged in actual fraud or willful misconduct.

Fees and cost reimbursements, which the Manager determines for services provided to us, represent a significant percentage of our revenues, are payable regardless of profitability and reduce our cash available for distributions and repurchases of common units.

A large portion of the management, staffing and administrative services that we require to operate our business are provided to us by the Manager. We pay the Manager, a wholly owned subsidiary of Navios Holdings, a commercial and technical management fee under the Management Agreement, as well as an administrative services fee under the Administrative Services Agreement. For the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 these fees amounted to $43.4 million, or 43.6%, and $8.10 million, or 45.3%, of our revenue for such period, respectively. For the period from April 28, 2017 (date of inception) to December 31, 2017, these fees amounted to $18.4 million, or 46.9% of our revenue for such period.

Under the terms of our Management Agreement with the Manager, we will pay a daily fixed fee of $6,100 for containerships from 3,000 TEU up to 5,500 TEU, $6,700 for containerships from 5,500 TEU and up to 8,000 TEU and $7,400 for containerships from 8,000 TEU up to 10,000 TEU until June 2019 for technical and commercial management services provided to us by the Manager. This fixed daily fee covers all of our vessels’ operating expenses, other than certain extraordinary fees and costs. Drydocking and special survey are paid to the Manager at cost. During the remaining three years of the term of the Management Agreement, we will reimburse the Manager for all of the actual operating costs and expenses it incurs in connection with the management of our fleet. The initial term of the Management Agreement expires in June 2022. The daily fee to be paid to the Manager includes all costs incurred in providing certain commercial and technical management services to us as described in this prospectus under “Certain Relationships and Related Party Transactions.” We expect that we will reimburse the Manager for all dry-docking expenses it incurs in connection with the management of our fleet, which may result in significantly higher fees. All of the fees we are required to pay to the Manager under the Management Agreement will be payable to our manager without regard to our financial condition or results of operations. In addition, the Manager will provide us with administrative services, including the services of our officers and directors, pursuant to an Administrative Services Agreement which has an initial term of five years, expiring in June 2022, and we will reimburse the Manager for all costs and expenses reasonably incurred by it in connection with the provision of those services. The exact amount of these future costs and expenses are unquantifiable at this time and they are payable regardless of our profitability. If we desire to terminate either of these agreements before its scheduled expiration, we must provide twelve months’ prior notice to the Manager. As a result, our ability to make short-term adjustments to manage our costs by terminating one or both these agreements may be limited which could cause our results of operations and ability to pay cash distributions and repurchases of common units to be materially and adversely affected.

 

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

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

 

   

The vote of the holders of at least 75% of all outstanding common units voting is required to remove the general partner. As of September 30, 2018, after giving effect to our conversion from a corporation to a limited partnership and the Distribution, Navios Holdings owns approximately 3.7% of the total number of common units.

 

   

Common unit holders elect only four of the seven members of our board of directors. Our general partner in its sole discretion has the right to appoint the remaining three directors.

 

   

Election of the four directors elected by unit holders is staggered, meaning that the members of only one of three classes of our elected directors are selected each year. In addition, the directors appointed by our general partner will serve for terms determined by our general partner.

 

   

A director appointed by our general partner may be removed from our board of directors at any time without cause only by our general partner and with cause by either our general partner, the vote of holders of a majority of all classes of equity interests in us voting as a single class or the majority vote of the other members of our board. A director elected by our common unit holders may be removed from our board of directors at any time without cause only by the majority vote of the other members of our board and with cause by the vote of holders of a majority of our outstanding common units or the majority vote of the other members of our board. “Cause” is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor business decisions such as charges of poor management of our business by the directors appointed by our general partner.

 

   

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

 

   

Unit holders’ voting rights are further restricted by the partnership agreement provision providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unit holders or calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes, unless required by law. The voting rights of any such unit holders in excess of 4.9% will be effectively redistributed pro rata among the other unit holders of the same class that are not subject to this voting limitation. Our general partner, its affiliates and persons who acquired units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.

 

   

We have substantial latitude in issuing equity securities without unit holder approval.

Our general partner may transfer its general partner interest to, and the control of our general partner may be transferred to, a third party without unit holder consent.

Our general partner may transfer its general partner interest to a third party without the consent of the unit holders. In addition, our partnership agreement does not restrict the ability of a member of our general partner

 

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from transferring its membership interests in our general partner to a third party. A different general partner may make decisions or operate our business in a manner that that is different, and significantly less skilled and beneficial to the Company, and that could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for distributions to our unit holders.

The price of our common units may be volatile.

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

 

   

actual or anticipated fluctuations in quarterly and annual results;

 

   

fluctuations in the seaborne transportation industry, including fluctuations in the containership market;

 

   

our making of distributions and repurchases of common units;

 

   

mergers and strategic alliances in the shipping industry;

 

   

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

 

   

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

 

   

announcements concerning us or our competitors;

 

   

general economic conditions;

 

   

terrorist acts;

 

   

future sales of our common units or other securities;

 

   

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

 

   

the general state of the securities markets; and

 

   

other developments affecting us, our industry or our competitors.

The containership sector of the shipping industry has been highly unpredictable and volatile. Securities markets worldwide are experiencing significant price and volume fluctuations. The market price for our securities may also be volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our securities in spite of our operating performance. Consequently, you may not be able to sell our securities at prices equal to or greater than those at which you pay or paid.

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

Under the partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws any common units or other partnership securities proposed to be sold by our general partner, our Chairman and CEO, Angeliki Frangou, or any of their current or future affiliates if an exemption from the registration requirements is not otherwise available or advisable. These registrations may be solely for sales of partnership securities by our general partner, Angeliki Frangou or any of their current or future affiliates, or may also register sales of partnership securities by us or, if we grant registration rights to any unitholder other than our general partner, Angeliki Frangou or any of their current or future affiliates, a third party. Following the Distribution, Navios Holdings will own 1,263,287 of our outstanding common units and Navios Partners will own 11,592,227 of our outstanding common units. Following their registration and sale under an applicable registration statement, those securities will become freely tradable. By exercising their registration rights and selling a large number of common units or other securities, these unit holders could cause the price of our common units to decline. Further, the issuance from time to time of new common units in any equity offering, or the perception that such sales may occur, could have the effect of depressing the market price of our common units. See “Units Eligible for Future Sale.”

 

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You may experience future dilution as a result of future equity offerings and other issuances of our common units or other securities.

In order to raise additional capital, we may in the future offer additional common units or other securities convertible into or exchangeable for our common units, including convertible debt. We cannot predict the size of future issuances or sales of our common units, including those made in connection with future acquisitions or capital activities, or the effect, if any, that such issuances or sales may have on the market price of our common units. The issuance and sale of substantial amounts of common units, or announcement that such issuance and sales may occur, could adversely affect the market price of our common units. In addition, we cannot assure you that we will be able to make future sales of our common units or other securities in any other offering at a price per unit that is equal to or greater than the price per unit paid by investors, and investors purchasing shares or other securities in the future could have rights that are superior to existing unit holders. The issuance of additional common units could adversely impact the trading price of our common units.

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

Prior to the listing on the Nasdaq Global Select Market the public market for our securities has been very limited through the Norwegian OTC List. We do not know the extent to which investor interest will lead to an active U.S. trading market or how liquid that market might be and you may not be able to resell your common units. Immediately upon completion of the Distribution there will be 34,603,100 common units outstanding. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who may buy common units.

We may issue additional equity securities and may do so without unit holder approval, which would dilute your ownership interests.

We may, without the approval of our unit holders, issue an unlimited number of additional units or other equity securities. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

 

   

our unit holders’ proportionate ownership interest in us will decrease;

 

   

the amount of cash available for distribution on each common unit and repurchases of common units may decrease;

 

   

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

 

   

the market price of the common units may decline.

If we expand the size of our fleet in the future, we generally will be required to make significant installment payments for acquisitions of vessels prior to their delivery and generation of revenue. Depending on whether we finance our expenditures through cash from operations or by issuing debt or equity securities, our ability to make cash distributions and repurchases of common units may be diminished or our financial leverage could increase or our unit holders could be diluted.

We cannot assure you that our board of directors will declare cash distributions or unit repurchases in the foreseeable future.

While we initially expect to make annual cash distribution and/or unit repurchases, our board of directors may not declare cash distributions or unit repurchases in the future.

The declaration and payment of cash distributions or unit repurchases, if any, will always be subject to the discretion of our board of directors, restrictions contained in our credit facilities and the requirements of Marshall

 

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Islands law. The timing and amount of any cash distributions and unit repurchases declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, the terms of our outstanding indebtedness and the ability of our subsidiaries to distribute funds to us. The containership sector of the shipping industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as cash distributions in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of cash distributions and repurchases of common units.

We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as cash distributions and repurchases of common units, including as a result of the risks described herein. Our growth strategy contemplates that we will finance our acquisitions of additional vessels primarily through debt financings and/or the net proceeds of future equity issuances on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for distributions and repurchases of common units.

Our general partner has a limited call right that may require our unit holders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates, including Navios Partners, own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, unit holders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Unit holders may also incur a tax liability upon a sale of their units.

After giving effect to the Distribution, our general partner and its affiliates, including Navios Partners, will own approximately 37.2% of our common units.

We can borrow money to make distributions and repurchases of common units, which would reduce the amount of credit available to operate our business.

Our partnership agreement will allow us to make borrowings to make distributions and repurchases of common units. Accordingly, we can make distributions on all our units and repurchases of common units even though cash generated by our operations may not be sufficient to pay such distributions and repurchases. Any borrowings by us to make distributions and unit repurchases will reduce the amount of borrowings we can make for operating our business.

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

An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield-based equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline. In addition, our interest expense will increase, since initially our debt will bear interest at a floating rate, subject to any interest rate swaps we may enter into the future.

Unit holders may have liability to repay distributions.

Under some circumstances, unit holders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands Act, we may not make a distribution to you if the distribution would cause our

 

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liabilities to exceed the fair value of our assets. Marshall Islands law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Marshall Islands law will be liable to the limited partnership for the distribution amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

We have been organized as a limited partnership under the laws of the Republic of the Marshall Islands, which does not have a well-developed body of partnership law; as a result, unit holders may have more difficulty in protecting their interests than would unit holders of a similarly organized limited partnership in the United States.

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

Because we are organized under the laws of the Marshall Islands and our business is operated primarily from our office in Monaco, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are organized under the laws of the Marshall Islands, and all of our assets are located outside of the United States. Our business is operated primarily from our office in Monaco. In addition, our general partner is a Marshall Islands limited liability company, and our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for unit holders to bring an action against us or against these individuals in the United States if unit holders believe that their rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands, Monaco and of other jurisdictions may prevent or restrict unit holders from enforcing a judgment against our assets or the assets of our general partner or our directors or officers.

Unit holders may not have limited liability if a court finds that unit holder action constitutes control of our business.

As a limited partner in a partnership organized under the laws of the Marshall Islands, unit holders could be held liable for our obligations to the same extent as a general partner if you participate in the “control” of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner.

 

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

We are an “emerging growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”. We cannot predict if investors will find our common units less attractive because we may rely on these exemptions. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units and our unit price may be more volatile.

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

We have no operating history as a U.S. publicly-traded company, and our historical financial information is not necessarily representative of the results we would have achieved as a publicly-traded company and may not be a reliable indicator of our future results.

Following the listing on the Nasdaq Global Select Market, we will be responsible for the additional costs associated with being a U.S. publicly-traded company, including costs related to corporate governance, investor and public relations and public reporting. Therefore, our historical financial statements may not be indicative of our future performance as a publicly-traded company. We cannot assure you that our operating results will continue at a similar level when we are a publicly-traded company. For additional information about our past financial performance and the basis of presentation of our financial statements, see “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and the notes thereto included elsewhere in this prospectus.

Tax Risks

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

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

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

In accordance with the currently applicable Greek law, foreign flagged vessels that are managed by Greek or foreign ship management companies having established an office in Greece are subject to duties towards the Greek state which are calculated on the basis of the relevant vessels’ tonnage. The payment of said duties exhausts the tax liability of the foreign ship owning company and the relevant manager against any tax, duty, charge or contribution payable on income from the exploitation of the foreign flagged vessel. As our Manager is located in Greece, we will have to pay these duties.

 

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U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. unit holders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of certain types of “passive income,” or at least 50.0% of the average value of the entity’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” generally includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. unit holders 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 units in the PFIC, as well as additional U.S. federal income tax filing obligations.

Based on our current and projected method of operation, we believe that we will not be a PFIC for our current taxable year, and we expect that we will not become a PFIC with respect to any future taxable year. In this regard, we expect that all of the vessels in our fleet will be engaged in time chartering activities, and we intend to treat our income from those activities as non-passive income, and the vessels engaged in those activities as non-passive assets, for PFIC purposes. However, we cannot assure you that the method of our operations, or the nature or composition of our income or assets, will not change in the future and that we will not become a PFIC. Moreover, although there is legal authority for our position, there is also contrary authority and no assurance can be given that the Internal Revenue Service (the “IRS”), will accept our position. We express no belief regarding our PFIC status with respect to any U.S. Holder that acquired common units prior to the listing of the common units on the Nasdaq Global Select Market or any U.S. person that acquired common shares of Navios Maritime Containers Inc.

We may have to pay tax on U.S. source income, which would reduce our earnings.

Under the Code, 50.0% of the gross transportation income of a vessel-owning or chartering corporation that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source international transportation income. U.S. source international transportation income generally is subject to a 4.0% U.S. federal income tax without allowance for deduction or, if such U.S. source international transportation income is effectively connected with the conduct of a trade or business in the United States, U.S. federal corporate income tax (presently imposed at a 21.0% rate) as well as a branch profits tax (presently imposed at a 30.0% rate on effectively connected earnings), unless the non-U.S. corporation qualifies for exemption from tax under Section 883 of the Code.

Based on certain assumptions, we intend to take the position that our common units will represent more than 50.0% of the total combined voting power of all classes of our equity interests entitled to vote and, therefore, that we will qualify for the statutory tax exemption under Section 883 of the Code, provided that our common units (i) represent more than 50.0% of the total value of all of our outstanding equity interests, (ii) satisfy certain listing and trading volume requirements, and (iii) are not subject to certain exceptions based on our common units being closely held. However, our position is based on certain assumptions regarding us, our units and the holders thereof, and there are factual circumstances, including some that may be beyond our control, which could cause us to fail to qualify for the benefit of this tax exemption. Furthermore, our board of directors or general partner could determine that it is in our best interests to take an action or actions that would result in this tax exemption not applying to us. In addition, our position that we qualify for this exemption is based upon legal authorities that do not expressly contemplate an organizational structure such as ours; specifically, although we intend to elect to be treated as a corporation for U.S. federal income tax purposes, we are organized as a limited partnership under Marshall Islands law. We cannot give any assurance that we will qualify for this tax exemption for any taxable year or that the IRS will not take a different position regarding our qualification for this tax exemption.

 

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If we were not entitled to the Section 883 exemption for any taxable year, we generally would be subject to a 4.0% U.S. federal income tax with respect to our gross U.S. source international transportation income or, if such U.S. source international transportation income were effectively connected with the conduct of a trade or business in the United States, U.S. federal corporate income tax as well as a branch profits tax for any such taxable year or years. Our failure to qualify for the Section 883 exemption could have a negative effect on our business and would result in decreased earnings available for distribution to our unit holders. See “Business—Taxation of the Partnership.”

We expect the receipt of common units in the Distribution to be a taxable distribution for U.S. federal income tax purposes.

We expect that U.S. unit holders which receive our common units in the Distribution will be treated as receiving a distribution from Navios Partners of an amount equal to the fair market value of our common units received, which will be taxable as a dividend to the extent of the current or accumulated earnings and profits of Navios Partners, as determined under U.S. federal income tax principles. Distributions in excess of such current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. unit holder’s tax basis in its units of Navios Partners, on a dollar-for-dollar basis, and thereafter as capital gain, which will be either long-term or short-term capital gain depending upon whether the U.S. unit holder held the units of Navios Partners for more than one year at the time of the Distribution. A U.S. unit holder’s basis in our common units received in the Distribution will be equal to the fair market value of such common units and the U.S. unit holder’s holding period in our common units will begin on the day following the Distribution.

To the extent that the distribution of our common units in the Distribution is taxable as a dividend, a U.S. unit holder will generally be subject to tax on such dividend at ordinary income rates, unless the dividend is treated as qualified dividend income. Qualified dividend income is taxable to a non-corporate U.S. unit holder at preferential long-term capital gain tax rates.

Our common units that are received by a non-U.S. unit holder from Navios Partners in the Distribution will not be subject to U.S. federal income tax or withholding tax if the non-U.S. unit holder is not engaged in a U.S. trade or business. If the non-U.S. unit holder is engaged in a U.S. trade or business, the Distribution will be subject to U.S. federal income tax to the extent that it constitutes income effectively connected with the non-U.S. unit holder’s U.S. trade or business (and a corporate non-U.S. unit holder may also be subject to U.S. federal branch profits tax).

See “Material U.S. Federal Income Tax Considerations” for a discussion of material U.S. federal income tax considerations related to the Distribution.

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

We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income taxes imposed upon us and our subsidiaries or which may be imposed upon you as a result of owning our common units. However, because we are organized as a partnership, there is a risk in some jurisdictions that our activities and the activities of our subsidiaries may be attributed to our unit holders for tax purposes and, thus, that you will be subject to tax in one or more non-U.S. countries, including Greece, as a result of owning our common units if, under the laws of any such country, we are considered to be carrying on business there. If you are subject to tax in any such country, you may be required to file a tax return with and to pay tax in that country based on your allocable share of our income. We may be required to reduce distributions to you on account of any withholding obligations imposed upon us by that country in respect of such allocation to you. The United States may not allow a tax credit for any foreign income taxes that you directly or indirectly incur.

 

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We believe we can conduct our activities in such a manner that our unit holders should not be considered to be carrying on business in Greece solely as a consequence of the acquisition, holding, disposition or redemption of our common units. However, the question of whether either we or any of our subsidiaries will be treated as carrying on business in any particular country, including Greece, will be largely a question of fact to be determined based upon an analysis of contractual arrangements, including the Management Agreement and the Administrative Services Agreement we entered into with the Manager, and the way we conduct business or operations, all of which may change over time. Furthermore, the laws of Greece or any other country may change in a manner that causes that country’s taxing authorities to determine that we are carrying on business in such country and are subject to its taxation laws. Any foreign taxes imposed on us or any subsidiaries will reduce our cash available for distribution.

 

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THE DISTRIBUTION

Overview

Navios Partners currently owns approximately 36.0% of us and is distributing approximately 6.9% of its interest in us as a pro rata dividend to its unit holders, representing approximately 2.5% of our outstanding common units. Following the Distribution, Navios Partners will own approximately 33.5% of us.

On the closing date, each Navios Partners unit holder will receive 0.0050 common units of Navios Containers for every unit of Navios Partners held as of the close of business on the record date. Immediately following the Distribution, Navios Partners’ unit holders will own approximately 2.5% of the voting power of Navios Containers’ common units. Navios Partners unit holders will not be required to make any payment, surrender or exchange their units of Navios Partners or take any other action to receive common units in the Distribution.

The Distribution of our common units as described in this prospectus is subject to the satisfaction of certain conditions. For a more detailed description of these conditions, see “—Distribution Conditions” below.

Manner of Effecting the Distribution

For every 200 Navios Partners units that you own as of the close of business, New York City time, on November 23, 2018, the record date, you will receive one of our common units on the closing date.

Fractional common units will not be distributed to Navios Partners’ unit holders. Instead, in the case of registered unit holders, fractional interests will be reduced down to the nearest whole number and Navios Partners unit holders will receive a cash payment for the fractional interest. Unit holders of Navios Partners units that hold their securities through a bank, broker, or nominee shall receive cash in lieu of fractional common units if any, determined in accordance with the policies of such bank, broker, or nominee. If you hold fewer than 200 units of Navios Partners as of the record date, you will not receive any of our common units in the Distribution; however, you will receive a cash distribution from our distribution agent representing the value of fractional common units to which you are otherwise entitled. If you receive cash in lieu of fractional common units, you will not be entitled to any interest on the payments.

If you physically hold certificates for Navios Partners units or held through the direct registration system and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of any cash payment for fractional shares. We estimate that it will take approximately eight business days from the closing date for the distribution agent to complete the distributions of cash payments. If you hold your Navios Partners units through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your cash payments and will electronically credit your account for your share of such payments. Navios Partners unit holders should consult their bank or broker for further detail.

If you own Navios Partners units as of the close of business on the record date, the common units that you are otherwise entitled to receive in the Distribution will be issued electronically, as of the closing date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership when no physical certificates are issued to unit holders, as is the case in this distribution. If you sell Navios Partners units in the “regular-way” market up to and including the closing date, you will be selling your right to receive our common units from Navios Partners in the Distribution.

Commencing on or shortly after the closing date, if you hold physical certificates that represent your Navios Partners units and you are the registered holder of the Navios Partners units represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of our common units that have been registered in book-entry form in your name.

 

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Most Navios Partners unit holders hold their Navios Partners units through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Navios Partners units through a bank or brokerage firm, your bank or brokerage firm will credit your account for our common units that you are entitled to receive in the Distribution. If you have any questions concerning the mechanics of having Navios Partners units held in “street name,” we encourage you to contact your bank or brokerage firm.

See “—When and How You Will Receive Our Common Units in the Distribution” below for more information regarding how shares will be distributed in the Distribution.

Results of the Distribution

Immediately after the Distribution, our unit holder base will increase and our issued and outstanding capital structure will consist of a non-economic general partner interest held by the general partner, and 34,603,100 common units, representing the limited partner interests held by limited partners. The Distribution will not affect the number of issued and outstanding units of Navios Partners or any rights of Navios Partners’ unit holders.

See “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of the Distribution” for an explanation of the tax consequences of the Distribution.

Listing and Trading of Our Common Units

In connection with the Distribution, we have applied to list our common units on the Nasdaq Global Select Market under the symbol “NMCI”.

Following the Distribution, Navios Partners common units will continue to trade on the NYSE under the symbol “NMM”.

Neither we nor Navios Partners can assure you as to the trading price of Navios Partners’ common units or our common units after the Distribution. The trading price of our common units may fluctuate significantly following the Distribution. Please read “Risk Factors—Risks Inherent in an Investment in Us—There is no existing U.S. market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment” in this prospectus for more detail.

Substantially all of our outstanding 34,603,100 common units will be freely transferable without restriction or further registration under the Securities Act, except for common units received by entities and individuals who are our affiliates and certain common units which may be “restricted securities” as defined in Rule 144 of the Securities Act. Entities and individuals who may be considered our affiliates include entities and individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These entities and individuals may include some or all of our directors and executive officers. Following the Distribution, individuals who are our affiliates will hold 12,855,514 common units and our affiliates will be permitted to sell their common units only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(a)(1) of the Securities Act or Rule 144 thereunder. To the extent common units may be “restricted securities,” those common units will only be eligible for public sale if they are registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act.

Distribution Conditions

The Distribution is subject to the satisfaction or waiver by Navios Partners of the following conditions:

 

   

the Navios Partners board of directors shall have authorized and approved the Distribution and related transactions and not withdrawn such authorization and approval, and shall have declared the dividend of our common units to Navios Partners unit holders;

 

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the SEC shall have declared effective the registration statement of which this prospectus is a part, under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

 

   

our common units shall have been accepted for listing on the Nasdaq Global Select Market or another national securities exchange or quotation system, subject to official notice of issuance;

 

   

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of Navios Partners shall have occurred or failed to occur that prevents the consummation of the Distribution;

 

   

no other events or developments shall have occurred prior to the Distribution that, in the judgment of the board of directors of Navios Partners, would result in the Distribution having a material adverse effect on Navios Partners or its unit holders;

 

   

prior to the closing date, this prospectus shall have been made available to the holders of Navios Partners units as of the record date; and

 

   

immediately prior to the Distribution, the Plan of Conversion and limited partnership agreement, each in substantially the form filed as an exhibit to the registration statement of which this prospectus is a part, shall be in effect.

The fulfillment of the foregoing conditions will not create any obligation on the part of Navios Partners to effect the Distribution. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the distribution. Navios Partners has the right not to complete the Distribution if, at any time, the board of directors of Navios Partners determines, in its sole discretion, that the Distribution is not in the best interests of Navios Partners or its unit holders, or that market conditions are such that it is not advisable to effect the Distribution. In addition, Navios Partners may at any time and from time to time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.

When and How You Will Receive Our Common Units in the Distribution

In connection with the Distribution, Navios Partners will distribute to its unit holders, as a pro rata dividend, 0.0050 of our common units for every unit of Navios Partners issued and outstanding as of November 23, 2018, the record date of the Distribution.

Prior to the Distribution Navios Partners will deliver approximately 2.5% of the issued and outstanding common units to the distribution agent. Computershare Trust Company, N.A. will serve as distribution agent in connection with the Distribution and as transfer agent and registrar for our common units.

If you own Navios Partners units as of the close of business, New York City time, on November 23, 2018, the common units that you are entitled to receive in the Distribution will be issued to your account as follows:

 

   

Registered unit holders. If you hold your Navios Partners units directly through Navios Partners’ transfer agent, Continental Stock Transfer & Trust Company, you are a registered unit holder. In this case, the distribution agent will credit the whole Navios Containers common units you receive in the Distribution by way of direct registration in book-entry form to a new account with our transfer agent, Computershare Trust Company, N.A. Registration in book-entry form refers to a method of recording ownership where no physical certificates are issued to unit holders, as is the case in the Distribution. You will be able to access information regarding your book-entry account holding our common units at Computershare Trust Company, N.A.

 

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Commencing on or shortly after the closing date, the distribution agent will mail to you an account statement that indicates the number of whole common units that have been registered in book-entry form in your name. We expect it will take the distribution agent up to two weeks after the closing date to complete the Distribution of our common units and mail statements of holding to all registered unit holders.

 

   

“Street name” or beneficial unit holders. Most Navios Partners unit holders hold their Navios Partners units beneficially through a bank, broker or other nominee. In these cases, the bank, broker or other nominee holds the units in “street name” and records your ownership on its books. If you own your Navios Partners units through a bank, broker or other nominee, your bank, broker or other nominee will credit your account with the whole common units of us that you receive in the Distribution on or shortly after the closing date. We encourage you to contact your bank, broker or other nominee if you have any questions concerning the mechanics of having Navios Partners units held in “street name.”

If you sell any of your Navios Partners units on or before the closing date, the buyer of those units may in some circumstances be entitled to receive the common units to be distributed in respect of the Navios Partners units you sold.

We are not asking Navios Partners unit holders to take any action in connection with the Distribution. No approval of the holders of Navios Partners units is required for the Distribution. We are not asking Navios Partners unit holders for a proxy and request that Navios Partners unit holders do not send us a proxy. We are also not asking Navios Partners unit holders to make any payment or surrender or exchange any of your Navios Partners units for our common units. The number of issued and outstanding Navios Partners units will not change as a result of the Distribution.

Computershare Trust Company, N.A. will serve as transfer agent and registrar for our common units.

Reason for Furnishing this Prospectus

This prospectus is being furnished to provide information to Navios Partners unit holders who will receive our common units in the Distribution. It is not to be construed as an inducement or encouragement to buy any of our securities or the securities of Navios Partners, nor is it to be construed as a solicitation of proxies in respect of the Distribution or any other matter. We believe that the information contained in this prospectus is accurate as of the date set forth on the cover. Changes to the information contained in this prospectus may occur after that date, and neither we nor Navios Partners undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

 

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USE OF PROCEEDS

We will not receive any proceeds in connection with the Distribution.

 

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2018:

 

   

on a historical basis; and

 

   

on an as adjusted basis after giving effect to:

 

   

a borrowings repayment of $27.0 million made subsequent to September 30, 2018, of which $26.6 million relate to our secured credit facilities maturing in the fourth quarter of 2019.

 

   

drawdown of an additional $26.7 million for the sale and leaseback of four additional vessels under the $119.0 million sale and leaseback transaction that will refinance our credit facilities maturing in the fourth quarter of 2019.

You should read this capitalization table together with the sections of this prospectus entitled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

     As of September 30, 2018  
     Historical      As Adjusted  
(in thousands of U.S. dollars)    (unaudited)      (unaudited)  

Long-term debt (including current portion):

     

Senior secured credit facilities

   $ 138,095      $ 111,509  

Financial liability(1)

     62,410        88,649  
  

 

 

    

 

 

 

Total long-term debt(2)

   $ 200,505      $ 200,158  
  

 

 

    

 

 

 

Partners’ capital:

     

Common units held by public (21,064,914 units on a historical and as adjusted basis

   $ 111,229      $ 111,229  

Common units held by general partner and its affiliates (13,538,186 units on a historical and as adjusted basis

   $ 71,486      $ 71,486  
  

 

 

    

 

 

 

Total Navios Containers partners’ capital(3)

   $ 182,715      $ 182,715  
  

 

 

    

 

 

 

Total capitalization

   $ 383,220      $ 382,873  
  

 

 

    

 

 

 

 

(1)

Represents the drawdown of $37.5 million for the sale and leaseback of six vessels on June 29, 2018, of $26.0 million for the sale and leaseback of four additional vessels on July 27, 2018 and on August 29, 2018 and the drawdown of $26.7 million for the sale and leaseback of four additional vessels on November 9, 2018.

(2)

Total long-term debt (including current portion and the financial liability deriving from the sale and leaseback transaction) is presented gross of deferred financing costs of $3.0 million as of September 30, 2018.

(3)

Partners’ capital, as adjusted, does not give effect to fees and estimated expenses relating to the Distribution and listing of our common units on the Nasdaq Global Select Market.

 

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MARKET PRICE INFORMATION

The common shares of Navios Maritime Containers Inc. (the entity that will convert into Navios Maritime Containers L.P.) have traded on the Norwegian OTC List, an over-the-counter market that is administered and operated by a subsidiary of the Norwegian Securities Dealers Association, since June 12, 2017 under the symbol “NMCI.” In connection with our conversion from a corporation into a limited partnership, we intend to deregister from the Norwegian OTC List. We have applied to list our common units on the Nasdaq Global Select Market under the symbol “NMCI.”

The following tables set forth the high and low prices for the common shares of Navios Maritime Containers Inc. for the calendar periods listed below.

Share prices on the Norwegian OTC List are presented in Norwegian kroner (“NOK”). Share prices below have been converted into, and are presented in, U.S. dollars per common share based on the Bloomberg Generic Composite Rate on each day of measurement. On October 23, 2018, the exchange rate between the NOK and the U.S. dollar was NOK 8.2918 to one U.S. dollar based on the Bloomberg Generic Composite Rate in effect on that date.

 

     Norwegian OTC List  
         High              Low      

For the Fiscal Year Ended

     

December 31, 2017 (from June 12, 2017)

   $ 5.86      $ 5.26  

 

     Norwegian OTC List  
         High              Low      

For the Calendar Quarter

     

Fourth Quarter 2018 (through November 14, 2018)

   $ 4.96      $ 4.96  

Third Quarter 2018

   $ 5.22      $ 5.22  

Second Quarter 2018

   $ 5.60      $ 5.10  

First Quarter 2018

   $ 6.12      $ 5.58  

Fourth Quarter 2017

   $ 5.86      $ 5.49  

Third Quarter 2017

   $ 5.52      $ 5.26  

Second Quarter 2017 (from June 12, 2017)

   $ 5.31      $ 5.31  

 

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     Norwegian OTC List  
         High              Low      

For the Month

     

November 2018 (through November 14, 2018)

     —          —    

October 2018

   $ 4.96      $ 4.96  

September 2018

   $ 5.22      $ 5.22  

August 2018

     —          —    

July 2018

     —          —    

June 2018

   $ 5.41      $ 5.33  

May 2018

   $ 5.38      $ 5.10  

April 2018

   $ 5.60      $ 5.15  

March 2018

   $ 5.80      $ 5.62  

February 2018

   $ 6.00      $ 5.58  

January 2018

   $ 6.12      $ 5.70  

December 2017

   $ 5.86      $ 5.49  

November 2017

   $ 5.82      $ 5.60  

October 2017

   $ 5.69      $ 5.54  

September 2017

   $ 5.52      $ 5.36  

August 2017

     —          —    

July 2017

   $ 5.26      $ 5.26  

June 2017 (from June 12, 2017)

   $ 5.31      $ 5.31  

 

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OUR DISTRIBUTION POLICY

Subject to the sole discretion of our board of directors and the considerations discussed below, we intend to return up to $10.0 million annually to our unit holders through common unit repurchases and/or cash distributions. Any change to our return of capital policy will be subject to a number of factors, including the discretion of our board of directors, Marshall Islands law, our results of operation, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms, contractual restriction, the ability of our subsidiaries to distribute funds to us and other factors deemed relevant by our board of directors.

There is no guarantee that common unit holders will receive distributions from us or that we will make common unit repurchases. Our distribution policy may be changed at any time and is subject to certain risks and restrictions, including:

 

   

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

 

   

We may lack sufficient cash to pay distributions to our common unit holders or make common unit repurchases due to decreases in net revenues or increases in operating expenses, principal and interest payments on outstanding debt, tax expenses, working capital requirements, capital expenditures or anticipated cash needs.

 

   

Our distribution policy will be affected by restrictions on distributions under our existing credit facilities. Specifically, our credit facilities contain material financial tests that must be satisfied and we will not pay any distributions or make common unit repurchases that will cause us to violate our credit facilities or other debt instruments. These financial tests are described in this prospectus in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility.’’ Should we be unable to satisfy these restrictions or if we are otherwise in default under our credit facilities, our ability to make cash distributions to you, notwithstanding our cash distribution policy, would be materially adversely affected.

 

   

Our ability to make distributions to our unit holders or make common unit repurchases depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable partnership and limited liability company laws and other laws and regulations.

 

   

We have a limited operating history upon which to rely with respect to whether we will have sufficient cash available for cash distributions or common unit repurchases.

 

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SELECTED HISTORICAL FINANCIAL DATA

The following table presents summary historical consolidated financial data giving retroactive effect to our conversion from a corporation to a limited partnership described in Note 1 to our consolidated financial statements included herein. The selected historical financial data as of September 30, 2018 and for the three and nine months ended September 30, 2018 and three month period ended September 30, 2017 and for the period from April 28, 2017 (date of inception) to September 30, 2017 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus, and should be read together with and are qualified in their entirety by reference to such consolidated financial statements. The selected historical financial data as of December 31, 2017 and for the period from April 28, 2017 (date of inception) to December 31, 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus, and should be read together with and are qualified in their entirety by reference to such consolidated financial statements. The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the unaudited condensed consolidated financial statements as of September 30, 2018 and for the three and nine months ended September 30, 2018 and for the three month period ended September 30, 2017 and for the period from April 28, 2017 (date of inception) to September 30, 2017 and related notes thereto included elsewhere in this prospectus and the audited consolidated financial statements as of December 31, 2017 and for the period from April 28, 2017 (date of inception) to December 31, 2017 and related notes thereto included elsewhere in this prospectus. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Because we were formed in April 2017, we compare the operating results of the nine month period ended September 30, 2018 with the period from April 28, 2017 (date of inception) to September 30, 2017. We do not have financial results for any historical period that is comparable to the results of our operations for the period from April 28, 2017 (date of inception) to December 31, 2017.

 

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All references to our common units and per unit data included in the selected historical financial data below have been retrospectively adjusted to reflect the assumed conversion ratio of one common share of Navios Maritime Containers Inc. for each common unit of Navios Containers in connection with the conversion of Navios Maritime Containers Inc. into Navios Containers.

 

(in thousands of U.S. dollars, except for unit and
per unit data.)
  Three Months
Ended
September 30,

2018
    Three Months
Ended
September 30,
2017
    Nine Months
Ended
September 30,

2018
    Period from
April 28, 2017
(date of
inception) to
September 30,
2017
    Period from
April 28, 2017

(date of inception) to
December 31,

2017
 

Statement of Income Data:

         

Revenue

  $ 38,080     $ 14,757     $ 99,505       17,859     $ 39,188  

Time charter and voyage expenses

    (1,048     (343     (2,573     (343     (1,257

Direct vessel expenses

    (355     (515     (815     (515     (672

Management fees (entirely through related parties transactions)

    (14,490     (6,576     (38,578     (7,277     (16,488

General and administrative expenses

    (1,847     (870     (5,207     (987     (2,262

Listing transaction-related expenses

    (2,396     —         (2,396     —         —    

Depreciation and amortization

    (9,850     (5,351     (30,287     (6,671     (13,578

Interest expense and finance cost, net

    (3,617     (1,007     (7,555     (1,088     (2,268

Other income/(expense), net

    937       (11     848       (13     (25
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 5,414     $ 84     $ 12,942     $ 965     $ 2,638  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings per common unit, basic and diluted

  $       $       $         $    

Weighted average number of common units, basic and diluted

         

 

     September 30, 2018      December 31, 2017  

Balance Sheet Data:

     

Total current assets

   $ 22,443      $ 21,371  

Vessels, net

     318,746        177,597  

Total assets

     387,772        266,811  

Total current liabilities

     54,582        49,559  

Long-term financial liability, net of current portion

     55,776        —    

Long-term debt, net of current portion

     94,699        76,534  

Total partners’ capital

   $ 182,715      $ 140,718  

 

     Nine Months
Ended September 30,
2018
    Period from
April 28, 2017
(date of inception) to
September 30, 2017
    Period from
April 28, 2017

(date of inception) to
December 31, 2017
 

Cash Flow Data:

      

Net Cash Provided by/(used in) Operating Activities

   $ 37,874     ($ 1,047   $ 2,623  

Net Cash Used in Investing Activities

   ($ 144,608   ($ 120,070   ($ 249,227

Net Cash Provided by Financing Activities

   $ 106,362     $ 151,518     $ 260,825  

(Decrease)/increase in cash and cash equivalents and restricted cash as applicable

   $ (372 )(1)    $ 30,401 (1)     $ 14,221  

 

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Other Financial and Operating Data:

 

(in thousands of U.S dollars except days and
per day TCE)

  Three Months
Ended
September 30,

2018
    Three Months
Ended
September 30,

2017
    Nine Months
Ended
September 30,

2018
    Period from
April 28, 2017
(date of
inception)

to September 30,
2017
    Period from
April 28, 2017

(date of inception)
to December 31,

2017
 

EBITDA(2)

  $ 19,236     $ 6,511     $ 51,599     $ 8,792     $ 18,709  

Available days(3)

    2,242       862       6,161       977       2,411  

Time Charter Equivalent (TCE) per day(4)

    16,518       16,724       15,733       17,930       15,730  

 

(1)

From January 1, 2018, reflects the adoption of ASU 2016-18.

 

(2)

EBITDA is a non-GAAP financial measure. For a reconciliation of EBITDA from net cash provided by operating activities, the most comparable U.S. GAAP liquidity measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of EBITDA from Net Cash Provided by Operating Activities.”

 

(3)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

 

(4)

TCE is defined as revenues less time charter and voyage expenses during a relevant period divided by the number of available days during the period.

 

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

You should read the following discussion of our financial condition and results of operations in conjunction with the historical consolidated financial statements and related notes included elsewhere in this prospectus giving retroactive effect to our conversion from a corporation to a limited partnership, described in Note 1 to our consolidated financial statements included elsewhere in this prospectus. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. dollars.

Some of the information contained in this discussion includes forward-looking statements that involve risks and uncertainties. Please read “Forward-Looking Statements” for more information. You should also review the “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements. You should also carefully read the following discussion with “Risk Factors,” “Forward-Looking Statements,” and “Selected Historical Financial Data.” We manage our business and analyze and report our results of operations in a single segment.

Business Overview

We are a growth-oriented international owner and operator of containerships. We were formed in April 2017 by Navios Holdings, which owns, operates or manages one of the largest shipping fleets by capacity, to take advantage of acquisition and chartering opportunities in the container shipping sector. We generate our revenues by chartering our vessels to leading liner companies pursuant to fixed-rate time charters. Under the terms of our charters, we provide crewing and technical management, while the charterer is generally responsible for securing cargoes, fuel costs and voyage expenses.

Because we were formed in April 2017, we compare the operating results of the nine months period ended September 30, 2018 with the period from April 28, 2017 (date of inception) to September 30, 2017. We do not have financial results for any historical period that is comparable to the results of our operations for the period from April 28, 2017 (date of inception) to December 31, 2017. We took delivery of our first vessels in our fleet in June 2017 and, we have grown our fleet to 26 vessels with an aggregate carrying capacity of 124,101 TEU and an average fleet age of 10.5 years.

The Navios Group began focusing on a strategy to expand its platform in the container sector in 2013, and in 2017 established its core asset base at a time when it believed values were at attractive levels. We believe this is a favorable time to continue to expand in the containership sector by acquiring quality second-hand vessels for which we see attractive employment opportunities. Containership prices remain at levels that are significantly below their 15-year historical averages and the time charter market for containerships started to show signs of improvement in 2017 and has continued to do so in the first quarter of 2018. Six to twelve month time charter rates for 4,400 TEU vessels increased from $7,300 per day in June 2017 to $12,800 per day by July 2018, while the average rate during the last 15 years was $20,098 per day. Rates for a six to twelve month time charter for 9,000 TEU vessels are at $29,000 per day as of May 2018, and the average rate for a three-year time charter during the last six years was $33,503 per day.

Our fixed-term charters represented an aggregate of approximately $135.2 million of contracted revenue, assuming the redelivery dates set forth in the fleet table above in “Business—Description of Fleet” and 365 revenue days per annum per containership.

The table below provides additional information about the charter coverage of our fleet of 26 vessels as of October 31, 2018, for the fourth quarter of 2018 and for 2019. Except as indicated in the footnotes, it does not reflect events occurring after October 31, 2018, including any charter contract we entered into after that date. The

 

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table assumes the midpoint redelivery dates under our containerships’ charters, unless otherwise indicated in the notes to our fleet table. See “Business—Description of Fleet.”

 

     Q4
2018E
    2019E  

Available Days(1)

     2,351       9,490  

Contracted Days

     2,090       3,250  

Contracted/Available Days

     88.9     34.2

 

(1)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

Trends and Factors Affecting Our Future Results of Operations

We believe the principal factors that will affect our future results of operations are the economic, regulatory, political and governmental conditions that affect the shipping industry generally and that affect conditions in countries and markets in which our vessels engage in business. Other key factors that will be fundamental to our business, future financial condition and results of operations include:

 

   

the demand for seaborne transportation services;

 

   

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

 

   

the effective and efficient technical management of our vessels by our Manager;

 

   

our and our Manager’s ability to comply with governmental regulations, maritime organization regulations, as well as standard environmental, health and safety standards imposed by our charterers applicable to our business; and

 

   

the strength of and growth in the number of our customer relationships, especially with liner companies.

In addition to the factors discussed above, we believe certain specific factors will impact our consolidated results of operations. These factors include:

 

   

the fixed rates earned by our vessels under our charters;

 

   

the length of time of the charters we are able to enter into;

 

   

our access to capital required to acquire additional vessels and/or to implement our business strategy;

 

   

our ability to acquire and sell vessels at prices we deem satisfactory;

 

   

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

 

   

the level of any distributions on and repurchases of our common units.

Components of Our Operating Results

Revenues: We generate our revenues by chartering our vessels to leading liner companies pursuant to fixed-rate time charters. Revenue is recorded when services are rendered, we have a signed charter agreement or other evidence of an arrangement, the price is fixed or determinable, and collection is reasonably assured.

Time charters are available for varying periods, ranging from short-term to long-term charters. In general, a long-term time charter assures the vessel owner of a consistent stream of revenue. Operating the vessel under short-term charters, gives the owner greater market exposure, which may result in benefits from high rates when

 

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vessels are in high demand or low rates when vessel availability exceeds demand. We intend to operate our vessels through a mix of short-term and medium-term time charters, as well as some long-term time charters. Vessel charter rates are affected by world economics, international events, weather conditions, strikes, governmental policies, supply and demand and many other factors that might be beyond our control.

Time charter and voyage expenses: Time charter and voyage expenses comprise all expenses related to each particular voyage, bunkers, port charges, canal tolls, cargo handling, agency fees and brokerage commissions. Also included in time charter and voyage expenses are charterers’ liability insurances, provision for losses on time charters and voyages in progress at year-end and other miscellaneous expenses.

Direct vessel expenses: Direct vessel expenses comprise the amortization related to drydock and special survey costs of certain vessels of our fleet as well as any costs associated with the reactivation of laid-up vessels.

Management fees (entirely through related parties transactions): Pursuant to the Management Agreement, dated June 7, 2017, as amended on November 23, 2017, April 23, 2018 and June 1, 2018, the Manager provides commercial and technical management services to our vessels, including commercial management, maintenance and crewing, purchasing and insurance. The term of this agreement is for an initial period of five years with an automatic extension for five years periods thereafter unless a notice for termination is received by either party. The fee for the ship management services provided by the Manager is a daily fixed fee of $6,100 for containerships from 3,000 TEU up to 5,500 TEU, $6,700 for containerships from 5,500 TEU up to 8,000 TEU and $7,400 for containerships from 8,000 TEU up to 10,000 TEU until June 2019. This fixed daily fee covers all of our vessels’ operating expenses, other than certain extraordinary fees and costs. Drydocking and special survey are paid to the Manager at cost. During the remaining three years of the term of the Management Agreement, we will reimburse the Manager for all of the actual operating costs and expenses it incurs in connection with the management of our fleet.

General & administrative expenses: General and administrative expenses include expenses incurred under the Administrative Services Agreement, dated June 7, 2017, pursuant to which the Manager provides administrative services to us, which include bookkeeping, audit and accounting services, legal and insurance services, administrative and clerical services, banking and financial services, advisory services, client and investor relations and other. The Manager is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. The term of this agreement is for an initial period of five years with an automatic extension for five years periods thereafter unless a notice for termination is received by either party. General and administrative expenses also include legal, accounting and advisory fees. Total general and administrative fees charged are presented under “General and administrative expenses” in the consolidated statements of income. We expect our general and administrative expenses to increase following our listing on the Nasdaq Global Select Market as we incur additional costs as a result of operating as a public company, which will include the preparation of disclosure documents, legal and accounting costs, investor relation costs, incremental director and officer liability insurance costs, director and executive compensation and costs related to compliance with regulations applicable to being a public company, including Sarbanes-Oxley.

Depreciation and amortization: Depreciation is computed using the straight line method over the useful life of the vessels, after considering the estimated residual value. Management estimates the residual values of our containerships based on a scrap value of $340 per lightweight ton, as we believe these levels are common in the shipping industry. We estimate the useful life of our vessels to be 30 years from the vessel’s original construction. We also amortize the value of our favorable or unfavorable leases using a straight line method over the remaining life of the terms of the respective charter. Acquisitions of vessels with existing time charters can result in the recording of these intangible assets or intangible liabilities depending on whether the charter rate on the vessel acquired is higher or lower than market charter rates.

Interest expense and finance cost, net: We incur interest expense on outstanding indebtedness under our existing credit facilities which we include in interest expense and finance cost, net. Interest expense and finance cost, net also include financing and legal costs in connection with establishing and amending those facilities,

 

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which are deferred and amortized during the life of the related debt using the effective interest method. Unamortized fees relating to loans repaid or refinanced, meeting the criteria of debt extinguishment, are expensed in the period the repayment or refinancing is made. We will incur additional interest expense in the future on our outstanding borrowings and under future borrowings.

Other expense, net: Other expense, net primarily includes non-recurring items that are not classified under the other categories of our consolidated income statement.

Operating Results

Because we were formed in April 2017, we compare the operating results for the nine month period ended September 30, 2018 with the period from April 28, 2017 (date of inception) to September 30, 2017. Our fleet has grown significantly during that timeframe, from 14 vessels at the period ending September 30, 2017 to 26 vessels at the period ending September 30, 2018, and this fleet growth is the principal driver of the differences between the periods compared below. We do not have financial results for any historical period that is comparable to the results of our operations for the period from April 28, 2017 (date of inception) to December 31, 2017.

Three Months Ended September 30, 2018 compared to the three months ended September 30, 2017

The following table presents consolidated revenue and expense information for the three months ended September 30, 2018 and September 30, 2017. This information was derived from our unaudited consolidated revenue and expense accounts for the respective periods.

 

     Three Months
Ended

September 30,
2018
    Three Months
Ended

September 30,
2017
 

Statement of Income Data:

    

Revenue

   $ 38,080     $ 14,757  

Time charter and voyage expenses

     (1,048     (343

Direct vessel expenses

     (355     (515

Management fees (entirely through related parties transactions)

     (14,490     (6,576

General and administrative expenses

     (1,847     (870

Listing transaction-related expenses

     (2,396     —    

Depreciation and amortization

     (9,850     (5,351

Interest expense and finance cost, net

     (3,617     (1,007

Other income/(expense), net

     937       (11
  

 

 

   

 

 

 

Net income

   $ 5,414     $ 84  
  

 

 

   

 

 

 

The following table reflects certain key indicators indicative of the performance of our operations and our fleet performance for the three months ended September 30, 2018 and 2017, respectively.

 

     Three Months
Ended September 30,
2018
    Three Months
Ended September 30,
2017
 

Fleet Data

    

Available days(1)

     2,242       862  

Operating days(2)

     2,218       801  

Fleet utilization(3)

     98.9     92.9

Vessels operating at period end

     26       14  

Average Daily Results

    

Time Charter Equivalent (TCE) per day(4)

   $ 16,518     $ 16,724  

 

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1)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

2)

Operating days are the number of available days in the relevant period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a relevant period during which vessels actually generate revenues.

(3)

Fleet utilization is the percentage of time that Navios Containers’ vessels were available for generating revenue, and is determined by dividing the number of operating days during a relevant period by the number of available days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels.

4)

TCE is defined as revenues less time charter and voyage expenses during a relevant period divided by the number of available days during the period.

Revenue: Revenue for the three month period ended September 30, 2018 was $38.1 million as compared to $14.8 million for the comparative period in 2017. The increase of $23.3 million is due to the increase in the number of vessels operating during the three months ended September 30, 2018, reflected in the growth in the number of available days from 862 for the three month period ended September 30, 2017 to 2,242 for the three month period ended September 30, 2018.

Time charter and voyage expenses: Time charter and voyage expenses for the three months ended September 30, 2018 and September 30, 2017 were $1.0 million and $0.3 million, respectively, mainly relating to fuel and brokers’ commissions expenses. The increase in time charter and voyage expenses is due to the increase in the number of vessels in our fleet as described above.

Direct vessel expenses: Direct vessel expenses for the three months ended September 30, 2018 amounted to $0.4 million and were related to the amortization of drydock and special survey costs of certain vessels in our fleet. Direct vessel expenses for the three months ended September 30, 2017 amounted to $0.5 million, out of which $0.4 million was related to the reactivation costs of four laid-up vessels and $0.1 million was related to the amortization of drydock and special survey costs of certain vessels in our fleet.

Management fees (entirely through related parties transactions): Management fees for the three months ended September 30, 2018 amounted to $14.5 million as compared to $6.6 million for the same period in 2017. The increase of $7.9 million is attributable to the increase of operating vessels from 14 as of September 30, 2017 to 26 as of September 30, 2018. Pursuant to the Management Agreement, the Manager, a wholly owned subsidiary of Navios Holdings, provides commercial and technical management services to our vessels for a daily fixed fee of $6,100 for containerships from 3,000 TEU up to 5,500 TEU and $7,400 for containerships from 8,000 TEU up to 10,000 TEU, payable on the last day of each month, covering all of our vessels’ operating expenses, other than certain extraordinary fees and costs.

General and administrative expenses: General and administrative expenses were $1.8 million and $0.9 million for the three months ended September 30, 2018 and September 30, 2017, respectively. Pursuant to the Administrative Services Agreement, the Manager also provides administrative services to us. The Manager is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. The increase of $0.9 million is mainly attributable the increase in the expenses charged by the Manager mainly due to the increase of operating vessels from 14 as of September 30, 2017 to 26 as of September 30, 2018

Listing transaction-related expenses: Listing transaction-related expenses for the three month period ended September 30, 2018 amounted to $2.4 million and related to expenses incurred in connection to our prior efforts to list on a U.S. exchange.

 

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Depreciation and amortization: Depreciation and amortization amounted to $9.9 million and $5.4 million for the three months ended September 30, 2018 and September 30, 2017, respectively. The increase of $4.5 million is mainly attributable to (i) the increase in vessel depreciation by $1.7 million due to the increase in the number of vessels in our fleet and (ii) $2.8 million increase in the amortization of favorable lease terms that were recognized in relation to the acquisition of the rights on the time charter-out contracts of nine containerships. Vessel depreciation is calculated using an estimated useful life of 30 years for containerships, from the date the vessel was originally delivered from the shipyard. The weighted average remaining useful lives are 1.5 years for time charters with favorable terms.

Interest expense and finance cost, net: Interest expense and finance cost, net for the three months ended September 30, 2018 and September 30, 2017 was $3.6 million and $1.0 million, respectively. The increase of $2.6 million is attributable to (i) $2.2 million increase in the interest expense as a result of the increase of the weighted average outstanding debt from $52.0 million for the three month period ended September 30, 2017 to $200.9 million for the three month period ended September 30, 2018; and (ii) a $0.4 million increase in the amortization of the deferred finance fees. The weighted average interest rate under our credit facilities for the period ended September 30, 2017 was 5.19% and for the three month period ended September 30, 2018 was 5.86%.

Other income/(expense), net: Other income for the three month period ended September 30, 2018 was $0.9 million and was mainly attributable to settlement of outstanding claims amounting $1.0 million partially mitigated by $0.1 million relating to miscellaneous expenses. Other expense for the three month period ended September 30, 2017 was $0.1 million and was mainly attributable to miscellaneous expenses.

Net income: Net income for the three months ended September 30, 2018 was $5.4 million compared to $0.1 million for three month period September 30, 2017. The increase in net income of $5.3 million was due to the factors discussed above.

Nine Months Ended September 30, 2018 compared to the period from April 28, 2017 (date of inception) to September 30, 2017.

The following table presents consolidated revenue and expense information for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017. This information was derived from our unaudited consolidated revenue and expense accounts for the respective periods.

 

     Nine Month
Period
Ended
September 30, 2018
     Period from
April 28, 2017
(date of inception)
to September 30, 2017
 

Revenue

   $ 99,505      $ 17,859  

Time charter and voyage expenses

     (2,573      (343

Direct vessel expenses

     (815      (515

Management fees (entirely through related parties transactions)

     (38,578      (7,277

General and administrative expenses

     (5,207      (987

Listing transaction-related expenses

     (2,396      —    

Depreciation and amortization

     (30,287      (6,671

Interest expense and finance cost, net

     (7,555      (1,088

Other income/(expense), net

     848        (13
  

 

 

    

 

 

 

Net income

   $ 12,942      $ 965  
  

 

 

    

 

 

 

 

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The following table reflects certain key indicators indicative of the performance of our operations and our fleet performance for the nine month period ended September 30, 2018 and for the period from which our initial vessels were delivered, June 8, 2017, through September 30, 2017.

 

     Nine month
Period Ended
September 30,
2018
    Period from
June 8, 2017
to September 30,
2017
 
     (unaudited)     (unaudited)  

Available Days(1)

     6,161       977  

Operating Days(2)

     6,075       916  

Fleet Utilization(3)

     98.6     93.8

Vessels operating at period end

     26       14  

TCE(4)

   $ 15,733     $ 17,930  

 

(1)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

(2)

Operating days are the number of available days in the relevant period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a relevant period during which vessels actually generate revenues.

(3)

Fleet utilization is the percentage of time that our vessels were available for generating revenue, and is determined by dividing the number of operating days during a relevant period by the number of available days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels.

(4)

TCE is defined as revenues less time charter and voyage expenses during a relevant period divided by the number of available days during the period.

Revenue: Revenue for the nine month period ended September 30, 2018 was $99.5 million, as compared to $17.9 million for the period from April 28, 2017 (date of inception) to September 30, 2017. The increase is due to the increase in the number of vessels operating during the nine month period ended September 30, 2018, reflected in the growth in the number of available days from 977 for the period from April 28, 2017 (date of inception) to September 30, 2017, to 6,161 for the nine month period ended September 30, 2018.

Time charter and voyage expenses: Time charter and voyage expenses for the nine month period ended September 30, 2018 were $2.6 million and for the period from April 28, 2017 (date of inception) to September 30, 2017 were $0.3 million, mainly relating to fuel expenses and brokers’ commissions. The increase in time charter and voyage expenses is due to the increase in the number of vessels in our fleet as described above.

Direct vessel expenses: Direct vessel expenses for the nine month period ended September 30, 2018 amounted to $0.8 million and are related to the amortization of drydock and special survey costs of certain vessels in our fleet. Direct vessel expenses for the period from April 28, 2017 (date of inception) to September 30, 2017, amounted to $0.5 million, out of which $0.4 million was related to the reactivation costs of four laid-up vessels and $0.1 million was related to the amortization of drydock and special survey costs of certain vessels in our fleet.

Management fees (entirely through related parties transactions): Management fees for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 amounted to $38.6 million and $7.3 million, respectively. The increase of $31.3 million is attributable to the increase of operating vessels from 14 as at September 30, 2017 to 26 as at September 30, 2018 and to the increase of the available days from 977 as of September 30, 2017 to 6,161 as of September 30, 2018. Pursuant to the Management Agreement, the Manager provides commercial and technical management services to our

 

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vessels for a daily fixed fee of $6,100 for containerships from 3,000 TEU up to 5,500 TEU and $7,400 for containerships from 8,000 TEU up to 10,000 TEU, payable on the last day of each month, covering all of our vessels’ operating expenses, other than certain extraordinary fees and costs.

General and administrative expenses: General and administrative expenses increased by $4.2 million to $5.2 million for the nine month period ended September 30, 2018 from $1.0 million for the period from April 28, 2017 (date of inception) to September 30, 2017. Pursuant to the Administrative Services Agreement, the Manager also provides administrative services to us. The Manager is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. The increase of $4.2 million is attributable to (i) a $4.0 million increase in expense charged by the Manager mainly due to the increase of operating vessels from 14 as of September 30, 2017 to 26 as of September 30, 2018 and to the increase of the available days from 977 as of September 30, 2017 to 6,161 as of September 30, 2018; and (ii) a $0.2 million increase in legal and professional fees, as well as audit fees and directors’ fees.

Listing transaction-related expenses: Listing transaction-related expenses for the nine month period ended

September 30, 2018 amounted to $2.4 million and related to expenses incurred in connection to our prior efforts to list on a U.S. exchange.

Depreciation and amortization: Depreciation and amortization amounted to $30.3 million and $6.7 million for the nine month period ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017, respectively. The increase is due to (a) $3.3 million increase in vessel depreciation due to the increase number of vessels in Navios Containers’ fleet and (b) $20.3 million increase in the amortization of favorable lease terms that were recognized in relation to the acquisition of the rights on the time charter-out contracts of nine containerships. Vessel depreciation is calculated using an estimated useful life of 30 years for containerships, from the date the vessel was originally delivered from the shipyard. The weighted average remaining useful lives are 1.5 years for time charters with favorable terms.

Interest expense and finance cost, net: Interest expense and finance cost, net for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017 was $7.6 million and $1.1 million, respectively The increase of $6.5 million is mainly attributable to (i) a $5.6 million increase in the interest expense as a result of the increase of the weighted average outstanding debt from $31.1 million for the period from April 28, 2017 (date of inception) to September 30, 2017, to $148.3 million for the nine month period ended September 30, 2018; and (ii) a $0.9 million increase in the amortization of the deferred finance fees. The weighted average interest rate under our credit facilities for the period from April 28, 2017 (date of inception) to September 30, 2017 was 5.19% and for the nine month period ended September 30, 2018 was 5.73%.

Other income/(expense), net: Other income for the nine month period ended September 30, 2018 amounted to $0.8 million and was mainly attributable to settlement of outstanding claims amounting to $1.0 million partially mitigated by $0.2 million relating to miscellaneous expenses. Other expense for the period from April 28, 2017 (date of inception) to September 30, 2017 was below $0.1 million, mainly attributable to miscellaneous expenses.

Net income: Net income for the nine months ended September 30, 2018 was $12.9 million compared to $1.0 million for the period from April 28, 2017 (date of inception) to September 30, 2017. The increase in net income of $11.9 million was due to the factors discussed above.

Period from April 28, 2017 (date of inception) to December 31, 2017

Because we were formed on April 28, 2017, we do not have financial results for any historical period that is comparable to the results of our operations for the period from April 28, 2017 (date of inception) to December 31, 2017.

 

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The following table presents consolidated revenue and expense information for the period from April 28, 2017 (date of inception) to December 31, 2017. This information was derived from our audited consolidated revenue and expense accounts for the respective period.

 

     Period from
April 28, 2017
(date of
inception) to
December 31,
2017
 

Statement of Income Data:

  

Revenue

   $ 39,188  

Time charter and voyage expenses

     (1,257

Direct vessel expenses

     (672

Management fees (entirely through related parties transactions)

     (16,488

General and administrative expenses

     (2,262

Depreciation and amortization

     (13,578

Interest expense and finance cost, net

     (2,268

Other expense, net

     (25
  

 

 

 

Net income

   $ 2,638  
  

 

 

 

The following table reflects certain key indicators indicative of the performance of our operations and our fleet performance for the period from which our initial vessels were delivered, June 8, 2017, through December 31, 2017.

 

     Period from
June 8, 2017 to
December 31,
2017
 

Fleet Data

  

Available days(1)

     2,411  

Operating days(2)

     2,268  

Fleet utilization(3)

     94.1

Vessels operating at period end

     21  

Average Daily Results

  

Time Charter Equivalent (TCE) per day(4)

   $ 15,730  

 

(1)

Available days for the fleet are total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days associated with major repairs, drydocking or special surveys. The shipping industry uses available days to measure the number of days in a relevant period during which vessels should be capable of generating revenues.

(2)

Operating days are the number of available days in the relevant period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a relevant period during which vessels actually generate revenues.

(3)

Fleet utilization is the percentage of time that our vessels were available for generating revenue, and is determined by dividing the number of operating days during a relevant period by the number of available days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels.

(4)

TCE is defined as revenues less time charter and voyage expenses during a relevant period divided by the number of available days during the period.

Revenues: Revenues for the period from April 28, 2017 (date of inception) to December 31, 2017 amounted to $39.2 million and consisted of time charter revenues. Following our acquisition of 21 vessels and based on the timing of the deliveries of these vessels into our fleet, we had 2,411 available days, with a TCE of $15,730.

 

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Time charter and voyage expenses: Time charter and voyage expenses for the period from April 28, 2017 (date of inception) to December 31, 2017 were $1.3 million, mainly relating to fuel expenses.

Direct vessel expenses: Direct vessel expenses for the period from April 28, 2017 (date of inception) to December 31, 2017 amounted to $0.7 million. The amortization of drydock and special survey costs, of certain vessels in our fleet amounted to $0.3 million and $0.4 million was related to the reactivation costs of four laid-up vessels.

Management fees (entirely through related parties transactions): Management fees for the period from April 28, 2017 (date of inception) to December 31, 2017 amounted to $16.5 million. Pursuant to the Management Agreement, the Manager, a wholly owned subsidiary of Navios Holdings, provides commercial and technical management services to our vessels for a daily fixed fee of $6,100 until June 2019 for containerships up to 5,500 TEU, payable on the last day of each month, covering all of our vessels’ operating expenses, other than certain extraordinary fees and costs.

General and administrative expenses: General and administrative expenses were $2.3 million for the period from April 28, 2017 (date of inception) to December 31, 2017. Pursuant to the Administrative Services Agreement, the Manager also provides administrative services to us. The Manager is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. For the period from April 28, 2017 (date of inception) to December 31, 2017, the expenses charged by the Manager for administrative fees were $1.9 million. The balance of $0.4 million of general and administrative expenses was related to legal and professional fees, as well as audit fees and directors’ fees.

Depreciation and amortization: Depreciation and amortization amounted to $13.6 million for the period from April 28, 2017 (date of inception) to December 31, 2017. Vessel depreciation of $0.6 million is calculated using an estimated useful life of 30 years for containerships, from the date the vessel was originally delivered from the shipyard. Amortization of favorable lease terms that were recognized in relation to the acquisition of the rights on the time charter-out contracts of nine containerships was $13.0 million. The weighted average remaining useful lives are 2.0 years for time charters with favorable terms.

Interest expense and finance cost, net: Interest expense and finance cost, net for the period from April 28, 2017 (date of inception) to December 31, 2017 was $2.3 million. The weighted average interest rate under our credit facilities for the same period was 5.20%.

Other expense, net: Other expense for the period from April 28, 2017 (date of inception) to December 31, 2017 was below $0.1 million, mainly attributable to miscellaneous expenses.

Net income: Net income for the period from April 28, 2017 (date of inception) to December 31, 2017 was $2.6 million.

Liquidity and Cash Sources and Uses

Our primary short-term liquidity needs are to fund general working capital requirements, cash reserve requirements including those under our credit facilities and debt service, while our long-term liquidity needs primarily relate to capital expenditures, relating to vessel acquisitions, maintenance capital expenditures (relating primarily to drydocking expenditures) and debt repayment.

We anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations and borrowings. We have also recently entered into a sale and leaseback transaction which provided us with an additional source of liquidity, and we may enter into similar transactions in the future. On September 30, 2018 and December 31, 2017, our current assets totaled $22.4 million and $21.4 million, respectively, while current liabilities totaled $54.6 million and $49.6 million, respectively, resulting in a negative working capital position of $32.2 million and $28.2 million, respectively.

 

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As of September 30, 2018 and December 31, 2017, our current liabilities included $47.0 million and $42.5 million, respectively, related to installments due under our credit facilities and the financial liability under the sale and leaseback transactions. In May 2018, we entered into a sale and leaseback transaction for an amount of $119.0 million to refinance our outstanding credit facilities on 18 vessels maturing in the fourth quarter of 2019, with a combined balance of $92.4 million outstanding on March 31, 2018. On June 29, 2018, we completed the sale and leaseback of the first six vessels for approximately $37.5 million and, on July 27, 2018 and August 29, 2018, we completed the sale and leaseback of four additional vessels for approximately $26.0 million. We expect to be in a position to meet our loan obligations in part through our contracted revenue of $135.20 million as of October 31, 2018. Generally, our long-term sources of funds derive from cash from operations, long-term bank borrowings and other debt or equity financings to fund acquisitions and expansion and investment capital expenditures, including opportunities we may pursue under the Omnibus Agreement. We cannot assure you that we will be able to raise the size of our credit facilities or obtaining additional funds on favorable terms.

Cash deposits and cash equivalents in excess of amounts covered by government provided insurance are exposed to loss in the event of non-performance by financial institutions. We maintain cash deposits and equivalents in excess of government provided insurance limits. We also minimize exposure to credit risk by dealing with a diversified group of major financial institutions.

On June 8, 2017, Navios Maritime Containers Inc. closed the initial private placement of 10,057,645 shares at a subscription price of $5.00 per share, resulting in gross proceeds of $50.3 million. Navios Partners invested $30.0 million and received 59.7% of the equity, and Navios Holdings invested $5.0 million and received 9.9% of our equity. Each of Navios Partners and Navios Holdings also received warrants, with a five-year term, for 6.8% and 1.7% of the equity, respectively.

On August 29, 2017, Navios Maritime Containers Inc. closed a follow-on private placement of 10,000,000 shares at a subscription price of $5.00 per share, resulting in gross proceeds of $50.0 million. Navios Partners invested $10.0 million and received 2,000,000 shares. Navios Partners and Navios Holdings also received warrants, with a five-year term, for 6.8% and 1.7% of the newly issued equity, respectively.

On November 9, 2017, Navios Maritime Containers Inc. closed a follow-on private placement of 9,090,909 shares at a subscription price of $5.50 per share, resulting in gross proceeds of $50.0 million. Navios Partners invested $10.0 million and received 1,818,182 shares. Navios Partners and Navios Holdings also received warrants, with a five-year term, for 6.8% and 1.7% of the newly issued equity, respectively.

On March 13, 2018, Navios Maritime Containers Inc. closed a follow-on private placement and issued 5,454,546 shares at a subscription price of $5.50 per share, resulting in gross proceeds of $30.0 million. Navios Partners invested $14.5 million and received 2,629,095 shares and Navios Holdings invested $0.5 million and received 90,909 shares. Navios Partners and Navios Holdings also received warrants, with a five-year term, for 6.8% and 1.7% of the newly issued equity, respectively, at an exercise price of $5.50 per share.

As of September 30, 2018, Navios Maritime Containers Inc. had a total of 34,603,100 common shares outstanding and a total of 2,941,264 warrants outstanding. Navios Partners holds 12,447,277 common shares representing 36.0% of the equity and Navios Holdings holds 1,090,909 common shares representing 3.2% of our equity. Each of Navios Partners and Navios Holdings also holds warrants, with a five-year term, for 6.8% and 1.7% of our total equity, respectively.

After giving effect to the Distribution, Navios Partners will own 11,592,227 common units, or approximately 33.5% of the equity and Navios Holding will hold 1,263,287 common units, or approximately 3.7% of the equity. In addition, prior to the Distribution, Navios Maritime Containers Inc. will convert into a limited partnership named Navios Maritime Containers L.P. Upon such conversion, all of the warrants described above issued to Navios Partners and Navios Holdings will expire.

 

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Cash flows for the Nine Months Ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017:

The following table presents cash flow information for the nine months ended September 30, 2018 and for the period from April 28, 2017 (date of inception) to September 30, 2017. This information was derived from our unaudited consolidated statement of cash flows for the respective periods.

 

(in thousands of U.S. dollars)    Nine Months Ended
September 30, 2018
     Period from
April 28, 2017
(date of inception)
to September 30, 2017
 

Net cash provided by/(used in) operating activities

   $ 37,874      $ (1,047

Net cash used in investing activities

     (144,608      (120,070

Net cash provided by financing activities

     106,362        151,518  
  

 

 

    

 

 

 

(Decrease)/increase in cash and cash equivalents and restricted cash

   $ (372    $ 30,401  

Cash provided by operating activities for the Nine Months Ended September 30, 2018 as compared to cash used in operating activities for the period from April 28, 2017 (date of inception) to September 30, 2017:

Net cash provided by operating activities increased by $38.9 million from $1.0 million outflow for the period from April 28, 2017 (date of inception) to September 30, 2017 to $37.9 million inflow for the nine months ended September 30, 2018. Net income increased by $11.9 million from $1.0 million for the period from April 28, 2017 (date of inception) to September 30, 2017 to $12.9 million for the nine month period ended September 30, 2018. In determining net cash provided by operating activities, net income is adjusted for the effects of certain non-cash items which may be analyzed in detail as follows:

 

(in thousands of U.S. dollars)    Nine Months Ended
September 30, 2018
     Period from
April 28, 2017
(date of inception)
to September 30, 2017
 

Net income

   $ 12,942      $ 965  

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

     30,287        6,671  

Amortization of deferred financing costs

     1,144        199  

Amortization of deferred drydock and special survey costs

     815        68  
  

 

 

    

 

 

 

Net income adjusted for non-cash items

   $ 45,188      $ 7,903  
  

 

 

    

 

 

 

Accounts receivable, net, increased by $1.9 million from $0.6 million at December 31, 2017 to $2.5 million at September 30, 2018. The increase is attributable to the increase of amounts due from charterers.

Amounts due from related parties, short-term, decreased by $0.5 million from $5.6 million at December 31, 2017 to $5.1 million as of September 30, 2018. The balance mainly consisted of special survey and drydocking expenses for certain vessels of our fleet, as well as management fees, in accordance with the Management Agreement. Please refer to the relevant discussion below, under “Related Party Transactions.”

Inventories decreased by $0.2 million to $0.3 million as of September 30, 2018 from $0.5 million as of December 31, 2017. The balance consisted of bunkers on board our containerships.

Prepaid and other current assets increased by $0.3 million to $0.4 million as of September 30, 2018 from below $0.1 million for the period from April 28, 2017 (date of inception) to September 30, 2017. Prepaid and other current assets mainly consisted of prepaid transaction costs relating to our listing on the Nasdaq Global Select Market.

 

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Amounts due from related parties, long-term, increased by $1.5 million from $5.8 million as of December 31, 2017 to $7.3 million as of September 30, 2018 and consist of management fees, in accordance with the Management Agreement. Please refer to the relevant discussion below, under “Related Party Transactions.”

Other long term assets increased by $0.8 million to $0.8 million as of September 30, 2018 and are related to cash deposits relating to the sale and lease back of ten vessels.

Accounts payable increased by $1.1 million from $0.6 million as of December 31, 2017 to $1.7 million as of September 30, 2018. The increase is attributable to: (i) $0.2 million increase in broker payables; (ii) $0.1 million increase in port-agent payables (iii) $0.5 million increase in legal and professional fees payables and (iv) $0.3 million increase in payables to other suppliers.

Accrued expenses decreased by $0.9 million from $3.9 million as of December 31, 2017 to $3.0 million as of September 30, 2018. The decrease is attributable to a $1.1 million increase in legal and professional fees mitigated by $0.2 million decrease in other accrued expenses.

Payments for drydock and special survey costs incurred for the nine months ended September 30, 2018 was $4.1 million and related to drydock and special survey costs incurred for certain vessels of the fleet. Payments for drydock and special survey costs incurred for the period from April 28, 2017 (date of inception) to September 30, 2017 amounted to $2.3 million.

Deferred income and cash received in advance increased by $0.4 million from $2.5 million as of December 31, 2017 to $2.9 million inflow as of September 30, 2018. Deferred income primarily reflects charter-out amounts collected on voyages that have not been completed.

Cash used in investing activities for the Nine Months Ended September 30, 2018 as compared cash used in investing activities for the period from April 28, 2017 (date of inception) to September 30, 2017:

Net cash used in investing activities increased by $24.5 million to $144.6 million outflow for the nine month period ended September 30, 2018 as compared to $120.1 million outflow for the period from April 28, 2017 (date of inception) to September 30, 2017. Cash used in investing activities for the nine months ended September 30, 2018 was the result of $144.6 million in payments relating to the acquisition of five containerships which we took delivery during the nine months ended September 30, 2018. Cash used in investing activities for the period from April 28, 2017 (date of inception) to September 30, 2017 was the result of $125.5 million in payments relating to the acquisition of 14 containerships partially offset by the $5.4 million of cash acquired through an asset acquisition transaction.

Cash provided by financing activities for the Nine Months Ended September 30, 2018 as compared to cash provided by financing activities for the period from April 28, 2017 (date of inception) to September 30, 2017:

Cash provided by financing activities decreased by $45.1 million from $151.5 million for the period from April 28, 2017 (date of inception) to September 30, 2017 to $106.4 million for the nine months ended September 30, 2018.

Cash provided by financing activities for the nine months ended September 30, 2018 was the result of (i) $76.0 million of loan proceeds to partially finance the acquisition of five containerships; (ii) $63.5 million from the completion of the sale and lease back of ten vessels in the second and third quarter of 2018 and (iii) $29.1 million proceeds from the issuance of 5,454,546 common shares, net of offering costs, related to the follow-on private placement in March 2018. This overall increase was partially mitigated by (i) $59.7 million of payments performed in connection with our outstanding indebtedness; and (ii) $2.5 million of debt issuance costs.

 

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Cash provided by financing activities for the period from April 28, 2017 (date of inception) to September 30, 2017 was the result of $60.7 million of loan proceeds to partially finance the acquisition of 14 containerships and $95.3 million proceeds from the issuance of 20,057,645 common shares, net of offering costs, related to the private placements in June 2017 and August 2017. The $156.0 million increase was partially offset by i) $3.8 million of payments performed in connection with our outstanding indebtedness; and (ii) $0.7 million of debt issuance costs.

Cash flows for the period from April 28, 2017 (date of inception) to December 31, 2017:

The following table presents cash flow information for the period from April 28, 2017 (date of inception) to December 31, 2017. This information was derived from our audited consolidated statement of cash flows for the respective period.

 

(in thousands of U.S. dollars)    Period from April 28, 2017
(date of inception) to
December 31, 2017
 

Net cash provided by operating activities

   $ 2,623  

Net cash used in investing activities

     (249,227

Net cash provided by financing activities

     260,825  

Increase in cash and cash equivalents

   $ 14,221  

Cash provided by operating activities for the period from April 28, 2017 (date of inception) to December 31, 2017:

Net cash provided by operating activities amounted to $2.6 million for the period from April 28, 2017 (date of inception) to December 31, 2017. In determining net cash provided by operating activities, net income is adjusted for the effects of certain non-cash items which may be analyzed in detail as follows:

 

(in thousands of U.S. dollars)    Period from April 28,
2017 (date of inception)
to December 31, 2017
 

Net income

   $ 2,638  

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation and amortization

     13,578  

Amortization of deferred financing costs

     430  

Amortization of deferred drydock and special survey costs

     225  
  

 

 

 

Net income adjusted for non-cash items

   $ 16,871  
  

 

 

 

Accounts receivable, net, amounted to $0.6 million as of December 31, 2017. The balance consisted of amounts due from charterers.

Amounts due from related parties, short-term, amounted to $5.6 million as of December 31, 2017. The balance mainly consisted of special survey and drydocking expenses for certain vessels of our fleet, as well as management fees. Please refer to the relevant discussion below, under “Certain Relationships and Related Party Transactions.”

Inventories amounted to $0.5 million as of December 31, 2017. The balance consisted of bunkers on board our containerships.

Amounts due from related parties, long-term, amounted to $5.8 million as of December 31, 2017. The balance consisted of management fees. Please refer to the relevant discussion below, under “Certain Relationships and Related Party Transactions.”

Accounts payable increased by $0.5 million at December 31, 2017. The balance mainly consisted of accounts payable relating to brokers and other service providers.

 

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Accrued expenses increased by $2.5 million at December 31, 2017. The balance mainly consisted of: (i) $1.1 million accrued expenses; (ii) $1.2 million of accrued legal and professional fees and (iii) $0.2 million of accrued interest.

Amounts due to related parties, short-term, decreased by $1.7 million as at December 31, 2017. The decrease was primarily due to the repayment of transaction costs related to the acquisition of the five 4,250 TEU containerships from Navios Partners.

Deferred income and cash received in advance increased by $0.3 million at December 31, 2017. Deferred income primarily reflects charter-out amounts collected on voyages that have not been completed.

Payments for drydock and special survey costs incurred at December 31, 2017 was $3.8 million and related to drydock and special survey costs incurred for certain vessels of the fleet.

Cash used in investing activities for the period from April 28, 2017 (date of inception) to December 31, 2017:

Cash used in investing activities was $249.2 million for the period from April 28, 2017 (date of inception) to December 31, 2017.

Cash used in investing activities for the period from April 28, 2017 (date of inception) to December 31, 2017 was the result of $254.7 million in payments relating to the acquisition of 21 containerships in 2017 partially mitigated by $5.5 million of cash acquired through an asset acquisition.

Cash provided by financing activities for the period from April 28, 2017 (date of inception) to December 31, 2017:

Cash provided by financing activities was $260.8 million for the period from April 28, 2017 (date of inception) to December 31, 2017.

Cash provided by financing activities for the period from April 28, 2017 (date of inception) to December 31, 2017 was the result of (i) $126.9 million of loan proceeds (net of $2.1 million loan discounts and debt issuance costs) to partially finance the acquisition of 21 containerships; and (ii) $142.5 million proceeds from the issuance of 29,148,554 common shares, net of offering costs, related to the private placements in June, August and November 2017. Cash provided by financing activities was partially mitigated by (i) $8.3 million of payments performed in connection with our outstanding indebtedness; and (ii) $0.3 million increase in restricted cash related to the amounts held in retention accounts in order to service debt payments, as required by our credit facilities.

 

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Reconciliation of EBITDA from Net Cash Provided by/(Used in) Operating Activities

 

(in thousands of U.S. dollars)   Three Months Ended
September 30, 2018
    Three Months Ended
September 30, 2017
    Nine Months Ended
September 30, 2018
    Period from
April 28, 2017
(date of
inception)

to September 30,
2017
 
   

(unaudited)

   

(unaudited)

    (unaudited)     (unaudited)  

Net cash provided by/(used in) operating activities

  $ 18,261     $ 444     $ 37,874     $ (1,047

Net (decrease)/increase in operating assets

    (4,681     6,747       3,766       10,957  

Net decrease/(increase) in operating liabilities

    217       (3,824     (513     (4,343

Net interest expense and finance cost

    3,617       1,007       7,555       1,088  

Deferred finance charges

    (618     (199     (1,144     (199

Payments for drydock and special survey

    2,440       2,336       4,061       2,336  
 

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA(1)

  $ 19,236     $ 6,511     $ 51,599     $ 8,792  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

 

(in thousands of U.S. dollars)   Three Months Ended
September 30, 2018
    Three Months Ended
September 30, 2017
    Nine Months Ended
September 30, 2018
    Period from
April 28, 2017
(date of
inception)

to September 30,
2017
 
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Net cash provided by/(used in) operating activities

  $ 18,261     $ 444     $ 37,874     $ (1,047

Net cash used in investing activities

  $ (81,434   $ (75,503   $ (144,608   $ (120,070

Net cash provided by financing activities

  $ 36,202     $ 70,524     $ 106,362     $ 151,518  

EBITDA: EBITDA represents net income before interest and finance costs, before depreciation and amortization and before income taxes. We use EBITDA as liquidity measure and reconcile EBITDA to net cash provided by operating activities, the most comparable U.S. GAAP liquidity measure. EBITDA is calculated as follows: net cash provided by operating activities adding back, when applicable and as the case may be, the effect of (i) net increase in operating assets, (ii) net (increase) in operating liabilities, (iii) net interest cost, (iv) deferred finance charges and (v) payments for drydock and special survey costs. We believe that EBITDA is a basis upon which liquidity can be assessed and represents useful information to investors regarding our ability to service and/or incur indebtedness, pay capital expenditures, meet working capital requirements and pay dividends. We also believe that EBITDA is used (i) by prospective and current lessors as well as potential lenders to evaluate potential transactions; (ii) to evaluate and price potential acquisition candidates; and (iii) by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

EBITDA has limitations as an analytical tool, and therefore, should not be considered in isolation or as a substitute for the analysis of our results as reported under U.S. GAAP. Some of these limitations are: (i) EBITDA does not reflect changes in, or cash requirements for, working capital needs; (ii) EBITDA does not reflect the amounts necessary to service interest or principal payments on our debt and other financing arrangements; and (iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future. EBITDA does not reflect any cash requirements for such capital expenditures. Because of these limitations, among others, EBITDA should not be considered as a principal indicator of our performance. Furthermore, our calculation of EBITDA may not be comparable to that reported by other companies due to differences in methods of calculation.

Borrowings

Our long-term third party borrowings are reflected in our balance sheet as “Long-term debt, net of current portion,” “Long-term financial liability, net of current portion”, “Current portion of long-term debt, net” and

 

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“Financial liability short term, net”. As of September 30, 2018 and December 31, 2017, total borrowings, net amounted to $197.5 million and $119.0 million, respectively. The current portion of long-term debt, net amounted to $41.7 million and $42.5 million as of September 30, 2018 and December 31, 2017, respectively. Long-term financial liability, net of current portion amounted to $55.8 million as of September 30, 2018 and the short term portion as of the same date was $5.3 million. There was no financial liability as of December 31, 2017.

On June 29, 2017, we entered into a facility agreement with ABN AMRO BANK N.V. for an amount of up to $40.0 million (divided in three tranches of up to $34.3 million, $3.2 million and $2.5 million, respectively) to finance part of the purchase price of seven containerships. We have drawn the entire amount under this loan in the third quarter of 2017. Pursuant to the supplemental agreement dated June 29, 2018 and following the release of two vessels from the facility, the loan bears interest at a rate of LIBOR plus 400 basis points. As of September 30, 2018 and following the prepayment of $19.5 million on July 27, 2018 and August 29, 2018, and the subsequent release of three vessels from the facility, the outstanding loan amount under this facility was $5.2 million. The outstanding loan amount as of December 31, 2017 was $32.5 million. The facility was repaid in full on November 9, 2018.

On July 27, 2017, we entered into a facility agreement with ABN AMRO BANK N.V. for an amount of up to $21.0 million to finance part of the purchase price of seven containerships. This loan bears interest at a rate of LIBOR plus 400 basis points. We have drawn the entire amount under this loan within the third quarter of 2017, net of the loan’s discount of $0.3 million. On December 1, 2017, we extended the facility dated July 27, 2017, for an additional amount of $50.0 million to finance part of the purchase price of four containerships. Pursuant to the supplemental agreement dated June 29, 2018, the additional loan bears interest at a rate of LIBOR plus 400 basis points. We have drawn the entire amount under the additional loan, within the fourth quarter of 2017, net of the loan’s discount of $0.6 million. As of September 30, 2018, following (a) the prepayment of $4.0 million on June 29, 2018 and the release of four vessels from the facility and (b) the prepayment of $6.2 million on July 27, 2018 and the subsequent release of one vessel, the outstanding loan amount was $44.0 million. The total outstanding loan amount under this facility as of December 31, 2017 was $70.2 million. Pursuant to the supplemental agreement dated June 29, 2018, the prepayment of $21.4 million in November 2018 and the release of two vessels from the facility, the repayment schedule was amended and the outstanding loan amount of $22.6 million is repayable in five installments, each in the amount of $3.8 million, together with a final balloon payment of $3.4 million payable together with the last installment, falling due on December 29, 2019.

On December 20, 2017, we entered into a facility agreement with BNP Paribas for an amount of up to $24.0 million (divided in four tranches of up to $6.0 million each) to finance part of the purchase price of four containerships. This loan bears interest at a rate of LIBOR plus 300 basis points. As of September 30, 2018, we have drawn $24.0 million under this facility, net of the loan’s discount of $0.3 million. As of September 30, 2018, the outstanding loan amount of the three tranches under this facility was $16.1 million and is repayable in 17 equal consecutive quarterly installments, each in the amount of $0.64 million, along with a final balloon payment of $5.14 million, payable together with the last installment, falling due on December 22, 2022. The outstanding loan amount of the fourth tranche is $5.57 million and is repayable in 18 equal consecutive quarterly installments each in the amount of $0.21 million, along with a final balloon payment of $1.71 million, payable together with the last installment falling due on February 28, 2023.

In September 2018, we entered into a facility agreement with BNP Paribas to extend the facility dated December 20, 2017, for an additional amount of $9.0 million to partially finance the purchase price of one containership. This loan bears interest at a rate of LIBOR plus 300 basis points. We drew the entire amount net of the loan’s discount of $0.1 million on September 7, 2018. The additional tranche is repayable in 20 quarterly installments of $0.32 million each plus a balloon payment of $2.6 million payable together with the last installment. The additional tranche matures in September 2023.

 

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On May 25, 2018, we entered into a loan agreement with BNP Paribas, for an amount of up to $25.0 million to partially finance the purchase price of the Navios Unison. The loan bears interest at a rate of LIBOR plus 300 basis points. On May 29, 2018, we drew $25.0 million under this facility, net of the loan’s discount of $0.3 million. As of September 30, 2018, the outstanding loan amount under this facility was $24.3 million and is repayable in 19 equal consecutive quarterly installments each in the amount of $0.7 million, along with a final balloon payment of $11.1 million, payable together with the last installment, falling due in May 29, 2023.

On May 25, 2018, we entered into a $119.0 million sale and leaseback transaction with Minsheng Financial Leasing Co. Ltd. in order to refinance our outstanding credit facilities on 18 vessels maturing in the fourth quarter of 2019. We have a purchase obligation to acquire the vessels at the end of the lease term and, under ASC 842-40, the transfer of the vessels was determined to be a failed sale. In accordance with ASC 842-40, we did not derecognize the respective vessels from our balance sheet and accounted for the amounts received under the sale and leaseback transaction as a financial liability. On June 29, 2018 we completed the sale and leaseback of the first six vessels for approximately $37.5 million. On July 27, 2018 and on August 29, 2018 we completed the sale and leaseback of four additional vessels for approximately $26.0 million. On November 9, 2018 we completed the sale and leaseback of four additional vessels for approximately $26.7 million. We do not intend to proceed with the sale and leaseback transaction of the four remaining vessels. We are obligated to make 60 monthly payments in respect of all 14 vessels of approximately $1.1 million each. We also have an obligation to purchase the vessels at the end of the fifth year for $45.1 million. As of September 30, 2018, the outstanding balance under the sale and leaseback transaction was $62.4 million.

On June 28, 2018, we entered into a facility agreement with HSH Nordbank AG and Alpha Bank A.E. for an amount of up to $36.0 million (divided in two tranches of $18.0 million each) to finance part of the purchase price of two containerships. We have drawn the entire amount, net of the loan’s discount of $0.3 million, on July 2, 2018. The facility bears interest at a rate of LIBOR plus 325 basis points per annum. As of September 30, the outstanding loan amount under this facility was $34.0 million and is repayable in 15 consecutive quarterly installments, the first of which in an amount of $2.0 million, followed by 14 installments each in an amount of $1.2 million plus a final balloon payment of $15.2 million payable together with the last installment. The facility matures on June 30, 2022.

Amounts drawn under the facilities are secured by first priority mortgages on our vessels. The credit facilities and sale and leaseback transaction contain a number of restrictive covenants that limit our and/or our subsidiaries from, among other things: incurring or guaranteeing indebtedness; entering into affiliate transactions other than on arm’s length terms; charging, pledging or encumbering the vessels; changing the flag, class, management or ownership of our vessels; acquiring any vessel or permitting any guarantor to acquire any further assets or make investments; purchasing or otherwise acquiring for value any shares of our capital or declaring or paying any dividends; permitting any guarantor to form or acquire any subsidiaries. The majority of credit facilities and sale and leaseback transaction also require the vessels to comply with the ISM Code and ISPS Code and to maintain safety management certificates and documents of compliance at all times.

Our credit facilities and sale and leaseback transaction also require compliance with a number of financial covenants, including: (i) maintain a loan to value ratio ranging from 77% to 83%; minimum free consolidated liquidity of $13.0 million and $10.5 million as of September 30, 2018 and December 31, 2017 and equal to at least the product of $0.5 million and the total number of vessels wholly owned by us at that time; (iii) maintain a ratio of liabilities-to-assets (as defined in our credit facilities) of less than 0.80 : 1.00; and (iv) maintain a minimum net worth of at least $75.0 million. Among other events, it will be an event of default under our credit facilities and sale and leaseback transaction if the financial covenants are not complied with.

In addition, it is a requirement under certain of our credit facilities that Navios Holdings, Navios Partners, Angeliki Frangou and their respective affiliates collectively own at least 25% of us.

As of September 30, 2018 and December 31, 2017, we were in compliance with all of the covenants under each of our credit facilities and sale and leaseback transaction.

 

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The weighted average interest rate of our total borrowings for the three and nine months ended September 30, 2018 was 5.86% and 5.73%, respectively. The weighted average interest rate for the three month period ended September 30, 2017 and for the period from April 28, 2017 (date of inception) to September 30, 2017 was 5.19% and 5.19%, respectively.

The maturity table below reflects the principal payments for the next five years and thereafter of all of our borrowings outstanding as of September 30, 2018, based on the repayment schedules of the respective loan facilities and sale and leaseback transactions and the outstanding amount due under the debt securities.

 

Payment due by 12 month period ending

   Amount in
millions of
U.S. dollars
 

September 30, 2019

     48.3  

September 30, 2020

     37.9  

September 30, 2021

     18.7  

September 30, 2022

     33.1  

September 30, 2023

     62.5  
  

 

 

 

Total

   $ 200.5  
  

 

 

 

Capital Expenditures

Capital Expenditures Relating to Vessel Acquisitions

In June 2017, we agreed to acquire five 4,250 TEU containerships from Navios Partners for a total purchase price of $64.0 million. These vessels were previously acquired by Navios Partners from Rickmers Maritime Trust Pte. (“Rickmers Trust”) and are employed on charters with a net daily charter rate of $26,850 which expire in 2018 and early 2019.

In addition, we acquired all the rights under the acquisition agreements entered into between Navios Partners and Rickmers Trust to purchase nine additional containerships for a purchase price of $54.0 million plus certain delivery and other operating costs. All the nine containerships were delivered to our owned fleet in July and August 2017.

In September and October 2017, we agreed to acquire two 2009-built 4,250 TEU containerships, for an aggregate acquisition cost of approximately $19.9 million. The vessels were delivered to our owned fleet in November 2017.

In November 2017, we agreed to acquire four 2008-built 4,730 TEU containerships, for an aggregate acquisition cost of approximately $97.2 million. These vessels are employed on charters with a net daily charter rate of $27,156. The vessels were delivered to our owned fleet in November and December 2017.

In December 2017, we agreed to acquire one 2010-built 4,360 TEU containership, for an aggregate acquisition cost of approximately $11.5 million. The vessel was delivered to our owned fleet in December 2017. Refer also to “—Contractual Obligations and Contingencies.”

In March 2018, we acquired a 2010-built, 4,250 TEU containership for $11.78 million. The vessel was delivered to our owned fleet in March 2018.

In March 2018, we agreed to acquire the Navios Unison, a 2010-built 10,000 TEU containership from an unrelated third party, for an aggregate acquisition cost of approximately $50.3 million. We took delivery of the vessel on May 30, 2018.

 

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In April 2018, we agreed to acquire the YM Utmost and the YM Unity, two 2006-built containerships of 8,204 TEU per vessel from Navios Partners for an aggregate acquisition cost of approximately $67.5 million. Both vessels were delivered on July 2, 2018. We assessed this transaction under ASC 805 “Business Combinations” and concluded that the transaction constitutes asset acquisitions.

In July 2018, we agreed to acquire the Navios Miami, a 2009-built 4,563 TEU containership from an unrelated third party, for an aggregate acquisition cost of approximately $14.1 million. We took delivery of the vessel on September 12, 2018.

If, for any reason, the vessels that we acquire do not generate the revenues we anticipate, that could have a material adverse impact on our business, results of operations, financial condition and cash flows, including cash available for distributions to our unit holders or repurchases of common units.

We assess potential acquisition opportunities on a regular basis, including those that may be made in connection with the Omnibus Agreement. See “Business—Overview—Our Relationship with the Navios Group.”

Maintenance Capital Expenditures

Maintenance for our vessels and expenses related to drydocking expenses are reimbursed at cost by us to our Manager under the amended Management Agreement. Pursuant to a Management Agreement dated June 7, 2017 as amended on November 23, 2017, April 23, 2018 and June 1, 2018, the Manager provides commercial and technical management services to our vessels. The fee for the ship management services provided by the Manager is a daily fixed fee of $6,100 for containerships from 3,000 TEU up to 5,500 TEU, $6,700 for containerships from 5,500 TEU up to 8,000 TEU and $7,400 for containerships from 8,000 TEU up to 10,000 TEU until June 2019. This fixed daily fee covers all of our vessels operating expenses, other than certain extraordinary fees and costs. Drydocking and special survey are paid to the Manager at cost.

Trend Information

Our results of operations depend primarily on the charter hire rates that we are able to realize for our vessels, which depend on the demand and supply dynamics characterizing the containership market at any given time. For other trends affecting our business please see other discussions in “—Trends and Factors Affecting Our Future Results of Operations” and “Prospectus Summary—Market Opportunity.”

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Contingencies

The following table summarizes our long-term contractual obligations as of September 30, 2018:

 

     Payments due by period (Unaudited)  
     Less than
1 year
     1-3 years      3-5
years
     More than
5 years
     Total  
     (in thousands of U.S. dollars)  

Loan obligations(1)

   $ 42.6      $ 44.2      $ 51.3      $ —      $ 138.1  

Financial liability(2)

   $ 5.7      $ 12.4      $ 44.3      $ —        $ 62.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 48.3      $ 56.6      $ 95.6      $ —      $ 200.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1)

Represents principal payments on amounts drawn on our credit facilities that bear interest at applicable fixed interest rates ranging from 3.00% to 4.00% plus LIBOR per annum. The amounts in the table exclude expected interest payments of $4.4 million (less than 1 year), $4.5 million (1-3 years) and $2.3 million (3-5 years). Expected interest payments are based on outstanding principal amounts, applicable currently effective interest rates and margins as of September 30, 2018, timing of scheduled payments and the term of the debt obligations.

(2)

Represents principal payments on amounts drawn under the financial liability and excludes interest payments of $3.6 million (less than 1 year), $6.1 million (1-3 years) and $4.1 million (3-5 years).

The following table summarizes our contractual obligations as of September 30, 2018 on a pro forma basis. The pro forma information below has been adjusted to reflect: (i) the drawdown of $26.7 million for the sale and leaseback transaction relating to four of our vessels in November 2018, and (ii) the borrowings repayment of $27.0 million made subsequent to September 30, 2018, of which $26.6 million relate to our secured credit facilities maturing in the fourth quarter of 2019.

 

     Payments due by period (Unaudited)  
     Less than
1 year
     1-3 years      3-5
years
     More than
5 years
     Total  
     (in thousands of U.S. dollars)  

Loan obligations

   $ 28.4      $ 31.8      $ 51.3      $ —        $ 111.5  

Financial liability

   $ 7.2      $ 17.5      $ 50.1      $ 13.9      $ 88.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma contractual obligations

   $ 35.6      $ 49.3      $ 101.4      $ 13.9      $ 200.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes our long-term contractual obligations as of December 31, 2017:

 

     Payments due by period (Unaudited)  
     Less than
1 year
     1-3 years      3-5
years
     More than
5 years
     Total  
     (in thousands of U.S. dollars)  

Loan obligations(1)

   $ 43.4      $ 67.0      $ 10.3      $ —        $ 120.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 43.4      $ 67.0      $ 10.3      $ —        $ 120.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents principal payments on amounts drawn on our credit facilities that bear interest at applicable fixed interest rates ranging from 3.00% to 4.00% plus LIBOR per annum. The amounts in the table exclude expected interest payments of $5.5 million (less than 1 year), $3.9 million (1-3 years) and $0.7 million (3-5 years). Expected interest payments are based on outstanding principal amounts, applicable currently effective interest rates and margins as of December 31, 2017, timing of scheduled payments and the term of the debt obligations.

Reduced Emerging Growth Company Requirements

We are an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies, as described in “Prospectus Summary—Implications of Being an Emerging Growth Company.”

In addition, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an emerging growth company.

 

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Accounting for Vessel Acquisitions

Although vessels are generally acquired free of charter, we have acquired (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent and the buyer’s entering into a separate direct agreement (called a “novation agreement”) with the charterer to assume the charter. Alternatively, the buyer may acquire the vessel-owning subsidiary which holds the charter. The purchase of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner and the charterer.

Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified assets or liabilities at fair value. Fair value is determined by reference to market data. We value any asset or liability arising from the market value of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current fair market value of the charter and the net present value of future contractual cash flows. When the present value of the time charter assumed is greater than the current fair market value of such charter, the difference is recorded as prepaid charter revenue. When the opposite situation occurs, any difference, capped to the vessel’s fair value on a charter-free basis, is recorded as deferred revenue. Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed.

When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps, among others, before the vessel will be ready to commence operations:

 

   

obtain the charterer’s consent to us as the new owner;

 

   

obtain the charterer’s consent to a new technical manager;

 

   

in some cases, obtain the charterer’s consent to a new flag for the vessel;

 

   

arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be approved by the charterer;

 

   

replace all hired equipment on board, such as gas cylinders and communication equipment;

 

   

negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;

 

   

register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;

 

   

implement a new planned maintenance program for the vessel; and

 

   

ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.

When we charter a vessel pursuant to a long-term time charter agreement with varying rates, we recognize revenue on a straight line basis, equal to the average revenue during the term of the charter.

The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.

Our business is mainly comprised of providing, through the Manager or otherwise, the following elements:

 

   

employment and operation of our vessels; and

 

   

management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels.

 

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The employment and operation of our vessels mainly require the following components, which may be provided by the Manager:

 

   

vessel maintenance and repair;

 

   

crew selection and training;

 

   

vessel spares and stores supply;

 

   

contingency response planning;

 

   

onboard safety procedures auditing;

 

   

accounting;

 

   

vessel insurance arrangement;

 

   

vessel chartering;

 

   

vessel security training and security response plans (ISPS);

 

   

obtaining of ISM certification and audit for each vessel within the six months of taking over a vessel;

 

   

vessel hiring management;

 

   

vessel surveying; and

 

   

vessel performance monitoring.

The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels mainly requires the following components, which may be provided by the Manager:

 

   

management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;

 

   

management of our accounting system and records and financial reporting;

 

   

administration of the legal and regulatory requirements affecting our business and assets; and

 

   

management of the relationships with our service providers and customers.

For a discussion of the principal factors that affect our profitability, cash flows and the return on investment for our unit holders, please see “—Trends and Factors Affecting Our Future Results of Operations.”

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates in the application of our accounting policies based on the best assumptions, judgments and opinions of management. Following is a discussion of the accounting policies that involve a higher degree of judgment and the methods of their application that affect the reported amounts 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 potentially result in materially different results under different assumptions and conditions. We have described below what we believe is our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of our significant accounting policies, see Note 2 to the Notes to the consolidated financial statements, included herein.

 

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Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, management evaluates the estimates and judgments, including those related to uncompleted voyages, future drydock dates, the selection of useful lives for tangible assets, expected future cash flows from long-lived assets to support impairment tests, provisions necessary for accounts receivables, provisions for legal disputes and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions and/or conditions.

Vessels, net: Vessels acquired in an asset acquisition or in a business combination are recorded at fair value. Vessels acquired from entities under common control are recorded at historical cost. Subsequent expenditures for major improvements and upgrading are capitalized, provided they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Expenditures for routine maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight line method over the useful life of the vessels, after considering the estimated residual value. Management estimates the residual values of our containerships based on a scrap value of $340 per lightweight ton, as we believe these levels are common in the shipping industry. Residual values are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of residual values affect the depreciable amount of the vessels and affect depreciation expense in the period of the revision and future periods.

Management estimates the useful life of our vessels to be 30 years from the vessel’s original construction. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, its useful life is re-estimated to end at the date such regulations become effective.

Impairment of Long Lived Assets: Vessels, other fixed assets and other long-lived assets held and used by Navios Containers are reviewed periodically for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be fully recoverable. Navios Containers’ management evaluates the carrying amounts and periods over which long-lived assets are depreciated to determine if events or changes in circumstances have occurred that would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, certain indicators of potential impairment are reviewed, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions.

For the period April 28, 2017 (date of inception) to December 31, 2017 and for the nine month period ended September 30, 2018, the management of Navios Containers after considering various indicators, including but not limited to the market price of its long-lived assets, its contracted revenues and cash flows and the economic outlook, concluded that no impairment analysis should be performed on the long-lived assets of Navios Containers.

Although management believes the underlying indicators supporting this conclusion are reasonable, if the circumstances associated with the long-lived assets change or significant events occur that would affect the recoverability of the carrying amount of our long-lived assets, management may be required to perform impairment analysis that could expose Navios Containers to material charges in the future.

 

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The table set forth below indicates the carrying value of each of our owned vessels as of December 31, 2017.

 

Vessel

   TEU      Year
built
     Carrying value
December 31, 2017
(in millions)
 

Navios Vermilion

     4,250        2007      $ 9.3  

Navios Amarillo

     4,250        2007        6.6  

Navios Azure

     4,250        2007        8.2  

Navios Verde

     4,250        2007        7.0  

Navios Indigo

     4,250        2007        6.9  

Navios Amaranth

     4,250        2007        7.2  

Navios Lapis

     4,250        2009        9.6  

Navios Tempo

     4,250        2009        10.2  

Navios Felicitas

     4,360        2010        11.5  

APL Oakland

     4,730        2008        24.0  

APL Los Angeles

     4,730        2008        24.0  

APL Denver

     4,730        2008        23.8  

APL Atlanta

     4,730        2008        23.9  

Navios Domino (ex MOL Dominance)

     4,250        2008        7.7  

Navios Dedication (ex MOL Dedication)

     4,250        2008        8.7  

Navios Delight (ex MOL Delight)

     4,250        2008        9.4  

MOL Destiny

     4,250        2009        10.3  

MOL Devotion

     4,250        2009        11.2  

Navios Summer

     3,450        2006        6.8  

Navios Verano

     3,450        2006        6.7  

Navios Spring

     3,450        2007        6.8  
  

 

 

       

 

 

 

Total

     88,880         $ 239.8  

The estimated fair value of all of our vessels individually exceed their respective carrying value. On a vessel-by-vessel basis, as of December 31, 2017, the estimated fair value of our vessels (including the carrying value of the time charter, if any, on the specified vessel) exceeds the carrying value of those same vessels (including the estimated fair value of the time charter, if any, on the specified vessel) by an aggregate of approximately $81.2 million.

As of September 30, 2018, the estimated fair value of the 26 vessels in our fleet was approximately $460.0 million.

Deferred Drydock and Special Survey Costs: Our vessels are subject to regularly scheduled drydocking and special surveys which are carried out every 30 or 60 months to coincide with the renewal of the related certificates issued by the classification societies, unless a further extension is obtained in rare cases and under certain conditions. The costs of drydocking and special surveys is deferred and amortized over the above periods or to the next drydocking or special survey date if such date has been determined. Unamortized drydocking or special survey costs of vessels sold are written-off to the consolidated statement of operations in the year the vessel is sold.

Costs capitalized as part of the drydocking or special survey consist principally of the actual costs incurred at the yard, spare parts, paints, lubricants and services incurred solely during the drydocking or special survey period.

Time charters at favorable terms: When intangible assets or liabilities associated with the acquisition of a vessel are identified, they are recorded at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where charter rates are higher than market charter rates, an asset is recorded, being the difference between the acquired charter rate and the market charter rate for an equivalent vessel. Where charter rates are less than market charter rates, a liability is recorded, being the

 

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difference between the assumed charter rate and the market charter rate for an equivalent vessel. The determination of the fair value of acquired assets and assumed liabilities requires us to make significant assumptions and estimates of many variables including market charter rates, expected future charter rates, the level of utilization of our vessels and our weighted average cost of capital. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on our financial position and results of operations.

The amortizable value of favorable and unfavorable leases is amortized over the remaining life of the lease term and the amortization expense is included in the statement of income in the depreciation and amortization line item.

Quantitative and Qualitative Disclosures about Market Risks

Foreign Exchange Risk

Our functional and reporting currency is the U.S. dollar. We engage in worldwide commerce with a variety of entities. Although our operations may expose us to certain levels of foreign currency risk, our transactions are predominantly U.S. dollar denominated. Transactions in currencies other than U.S. dollar are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated, are recognized. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase thereby decreasing our income or vice versa if the U.S. dollar increases in value. For example, during the nine months ended September 30, 2018, the value of U.S. dollar increased by approximately 3.2% as compared to the euro.

Interest Rate Risk

Borrowings under our credit facilities bear interest at rate based on a premium over U.S. dollar LIBOR. Therefore, we are exposed to the risk that our interest expense may increase if interest rates rise. For the three months and nine months ended September 30, 2018 we paid interest on our outstanding debt at a weighted average interest rate of 5.86% and 5.73%, respectively. A 1% increase in LIBOR would have increased our interest expense for the three months and nine months ended September 30, 2018 by $0.5 million and $1.1 million, respectively. For the period from April 28, 2017 (date of inception) to September 30, 2017 we paid interest on our outstanding debt at weighted average interest rate of 5.19% and a 1% increase in LIBOR would have increased our interest expense by $0.1 million. For the period from April 28, 2017 (date of inception) to December 31, 2017, we paid interest on our outstanding debt at a weighted average interest rate of 5.20%. A 1% increase in LIBOR would have increased our interest expense for the period from April 28, 2017 (date of inception) to December 31, 2017 by $0.4 million.

Concentration of Credit Risk

Financial instruments, which potentially subject us to significant concentrations of credit risk, consist principally of trade accounts receivable. We closely monitor our exposure to customers for credit risk. We have policies in place to ensure that we trade with customers with an appropriate credit history.

For the nine months ended September 30, 2018, our most significant counterparties were Mitsui O.S.K. Lines Ltd and NOL Liner Pte Ltd, which accounted for approximately 30.7% and 25.0% of total revenues, respectively. For the period from April 28, 2017 (date of inception) to September 30, 2017 our most significant customer was Mitsui O.S.K Lines Ltd, which accounted for 86.7% of our revenue. For the period from April 28, 2017 (date of inception) to December 31, 2017, our most significant counterparty was Mitsui O.S.K. Lines Ltd, which accounted for approximately 71.0%, of total revenues.

 

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Inflation

Inflation has had a minimal impact on vessel operating expenses, drydocking expenses and general and administrative expenses. Our management does not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.

Recent Accounting Pronouncements

For a description of recent FASB accounting pronouncements applicable to Navios Containers, see Note 2 to the consolidated financial statements as of December 31, 2017 and September 30, 2018, included herein.

 

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THE INTERNATIONAL CONTAINER SHIPPING INDUSTRY

All the information and data presented in this section, including the analysis of the international container shipping industry, has been provided by Drewry Shipping Consultants Ltd (“Drewry”). Drewry has advised us that the statistical and graphical information contained herein is drawn from its database and other third party sources. In connection therewith, Drewry has advised us that: (a) certain information in Drewry’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (c) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

Overview

The maritime shipping industry is fundamental to international trade because it is the only practicable and cost-effective way of transporting large volumes of many essential commodities and semi-finished/finished goods over long distances. According to the International Maritime Organization, about 90% of world trade – in terms of volume – is transported by sea, and global seaborne trade has grown every year in the last three decades, except in 2009. Seaborne cargo is broadly categorised as either liquid or dry cargo. Dry cargo includes dry bulk cargo, containerised cargo and non-containerised cargo, which is often referred to as general cargo. Liquid cargo includes crude oil, refined petroleum products, vegetable oils, gases and chemicals.

The demand for shipping is a product of the physical quantity of the cargo to be shipped (measured, depending on the cargo, in terms of standard container sizes, tonnes, barrels, or cubic meters) and the distance the cargo needs to be carried. Generally, demand cycles move broadly in line with developments in the global economy, as well as with other factors, such as changes in regional raw material prices. Volumes on specific trade routes can also be affected by trade disagreements between individual countries and currency exchange rates.

Historically, the relationship between incremental supply and demand for shipping services has varied among different sectors of shipping because the drivers are different with respect to each sector. This means that at any point in time, different sectors of the seaborne transportation industry might be at different stages of their respective supply and demand cycle. We believe this is the case in 2018 – shipping segments are at different points in their business cycle, and we view container shipping as being in the initial phase of recovery, while other shipping industry sectors are experiencing different market conditions. In 2017, the liner industry showed signs of a strong recovery driven primarily by consolidation in the industry, aggressive scrapping, and shipowners continuing to defer new vessel deliveries, as well as improved demand. In 2018, Drewry has upgraded its outlook for container demand although the U.S. trade wars have the potential to destabilize the global economy. Container shipping occupies an increasingly important position in world trade, with containerships constituting the principal channel to transfer finished and semi-finished goods. Container shipping has a direct impact on container ports’ activity.

 

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World Loaded Container Volumes

 

LOGO

Source: Drewry

World Loaded Container Volume and Port Throughput

 

LOGO

Source: Drewry

Global container trade traffic represents close to 17% of seaborne transported cargo by volume, but about 60% by value, as a consequence of being used for high-value-added finished and semi-finished goods. Container trade volumes have increased every year since the introduction of long-haul containerised shipping lanes in the late 1960s, except in 2009. Although container trade fell in terms of volume in 2009, it quickly recovered in 2010 as a result of renewed growth in world economy and inventory re-building. Between 2011 and 2017, container trade traffic grew steadily from 165 million TEU to 208.5 million TEU, respectively. Container traffic grew at a CAGR of 3.9% over the last decade on a TEU basis. Encouragingly, the world container traffic increased by 6.6% in 2017 to about 209 million TEU, compared with a growth of 3.2% in 2016 and 1.0% in 2015. The increase in container traffic buoyed the global throughput at container ports, which increased by 6.3% year-over-year to 746 million TEU in 2017.

The Advantages of Container Shipping

The containers used in maritime transportation are steel boxes of standard dimensions. The standard unit of measure of volume or capacity in container shipping is the 20-foot equivalent unit (“TEU”), representing a

 

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container that is 20 feet long and typically 8.5 feet high and 8 feet wide. In recent years, 40-foot long high cube containers (9.5 feet high), equivalent to two TEU, have increasingly been used by large retailers to move lightweight, fast-moving consumer goods across the globe with less container moves. There are also specialised containers of both sizes to carry refrigerated perishables or frozen products, commonly referred to as reefers, as well as tank containers that carry liquids such as liquefied gases, spirits or chemicals.

A container shipment begins at the shipper’s premises with the delivery of an empty container. Once the container has been filled with cargo, it is transported by truck, rail or barge to a container port, where it is loaded onto a containership. The container is shipped either directly to the destination port or through an intermediate port where it is transferred to another vessel – an activity referred to as transshipment. When the container arrives at its destination port, it is off-loaded and delivered to the receiver’s premises by truck, rail or barge.

Container shipping has a number of advantages compared with other shipping methods, including:

 

   

Less cargo-handling: Containers provide a secure environment for cargo. The contents of a container, once loaded, are not handled directly until they reach their final destination. Using other shipping methods, cargo might be loaded and unloaded several times, resulting in a greater risk of breakage and loss.

 

   

Efficient port turnaround: With specialised cranes and other terminal equipment, containerships can be loaded and unloaded in significantly less time and at a lower cost than other cargo ships.

 

   

Highly developed intermodal network: Onshore movement of containerised cargo, from points of origin, around container ports, to and from staging or storage areas, and to final destinations, benefits from the physical integration of the container with other transportation equipment, such as trucking chassis for road transport, railcars and other means of hauling the standard-sized containers. Sophisticated port and intermodal industries have developed to support container transportation.

 

   

Usage of slow steaming to manage capacity and lower fuel bill: Containerships used to travel at a maximum speed of up to 25 knots, even in rough seas. However, since 2008, due to higher fuel prices and the negative effects of the global recession, most containership operators have reduced speeds to around 18 knots on some major routes and deployed more ships on some voyage strings, primarily in an effort to reduce bunker fuel consumption and reduce oversupply. This has also had a positive environmental effect as slow steaming has helped reduce ship emissions. This strategy, known as slow steaming, has become a new norm, and most ships built since 2011 now have a reduced maximum design speed of 21.5 knots, with optimized hull to reduce fuel consumption and emissions when sailing at or below such speed. In comparison, this strategy is less effective for bulk carriers as they already operate at a low speed. For instance, a loaded tanker or bulk vessel’s maximum speed is around 14 knots while its average speed is close to 10 knots.

Top Ten Liner Companies

The top 10 shipping lines own 43.8% of global TEU ship capacity. The three largest shipping lines are Maersk Line, Cosco and MSC, in terms of current total capacity. Asia-Europe/Med, Transpacific, Transatlantic and North-South are the principal routes on which these liner companies employ their vessels. Below is a list of the top 10 liner companies – in terms of the capacity – as of July 31, 2018.

 

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Table of Contents

Top Ten Liner Companies (Owned Fleet) – Operational Statistics

 

                                                         On order  

Sl. No.

  

Company

  

Country

   < 4,000
TEU
     4,000-7,999
TEU
     8,000-9,999
TEU
     10,000+
TEU
     Total
TEU
     Ave age
(yrs.)
     No.      ’000
TEU
 

1

   Maersk Line    Denmark      202        586        545        1,011        2,343        11        18        119  

2

  

COSCO Shipping

   China      19        559        296