Navigator Holdings (NVGS) Risk Analysis

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing we conduct in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any testing conducted by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Ineffective internal control could also cause investors to lose confidence in our reported financial information, limit our ability to access capital markets or require us to incur additional costs to improve our internal control and disclosure control systems and procedures, which could harm our business and have a negative effect on the trading price of our securities.

As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the "Exchange Act," and the Sarbanes-Oxley Act of 2002, or the "Sarbanes-Oxley Act," the listing requirements of the NYSE and other applicable securities rules and regulations. The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and operating results. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we continue to take may not be sufficient to satisfy our obligations as a public company. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative costs and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, operating results and cash flow could be adversely affected.

The risk factors summarized and detailed below could materially and adversely affect our business, our financial condition, our operating results and the trading price of our common stock. These material risks include, but are not limited to, those relating to: - Charter rates for liquefied gas carriers are cyclical with attendant volatility. - Future growth in the demand for our services will depend on changes in supply and demand, economic growth in the world economy and demand for petrochemical and liquefied petroleum gas transportation relative to changes in worldwide fleet capacity. Adverse economic, political, or social developments or other global financial turmoil, could have a material adverse effect on world economic growth and thus on our business, financial condition and operating results. - We are partially dependent on voyage charters in the spot market, and any decrease in spot charter rates in the future may adversely affect our earnings. - We operate several of our vessels through the Luna Pool and the Unigas Pool. Failure by the Luna Pool or the Unigas Pool to find profitable employment for these vessels could adversely affect us. - We may be unable to charter our vessels at profitable rates. - A significant portion of our revenues are generated from a limited number of customers. - The demand for liquefied gases and the seaborne transportation of liquefied gases may not grow and could shrink. - The expected growth in the supply of petrochemical gases, including ethane and ethylene, available for seaborne transport may not materialize, which would deprive us of the opportunity to obtain attractive charters and charter rates. - The market values of our vessels may decline if market conditions deteriorate. This could cause us to incur impairment charges, which could cause us to breach covenants in our debt facilities. - Over the long-term, we will be required to make substantial capital expenditures to preserve the operating capacity of and to grow our fleet. - We may be unable to make or realize the expected benefits from acquisitions and the failure to successfully implement our growth strategy through acquisitions could adversely affect us. - From time to time, we may selectively pursue new strategic acquisitions or ventures we believe to be complementary to our seaborne transportation services and any strategic transactions that are a departure from our historical operations could present unforeseen challenges and result in a competitive disadvantage relative to our more-established competitors. - We may be unable to realize the expected benefits from our investment in the Ethylene Export Terminal including the Terminal Expansion Project. - Conflicts between countries, such as the conflict between Russia and Ukraine and the conflict in Gaza could restrict or prohibit our vessels from calling at certain ports or from trading with some of our customers. - We operate in countries that can expose us to political, governmental and economic instability. - If our vessels call at ports located in countries that are subject to trade restrictions, or perform ship to ship transfers of cargoes to other vessels that may call at ports located in countries that are subject to trade restrictions our reputation and the market for our securities could be adversely affected. - Operating our vessels in sanctioned areas or chartering our vessels to sanctioned persons may harm us. - We provide in-house technical management for certain vessels in our fleet which may impose significant additional responsibilities on our management and staff. - A fluctuation in fuel prices may adversely affect our charter rates for time charters and our cost structure for voyage charters and contracts of affreightment ("COAs"). - The required drydocking of our vessels may have a more adverse impact on revenues than anticipated. - Our operating costs are likely to increase in the future as our vessels age. - Marine transportation is inherently risky. An incident involving significant loss of product or environmental contamination by any of our vessels, the possibility of marine disasters including damage or destruction of the vessel due to natural disasters, accidents, the loss of a vessel due to piracy or terrorism, damage or destruction of cargo or similar events could adversely affect us. - The loss of or inability to operate any of our vessels would result in a loss of revenues and cash flow. - Adverse global economic conditions or disease outbreaks could have a material adverse effect on us. - Due to our lack of vessel diversification, adverse developments in the seaborne liquefied gas transportation business could adversely affect our business, financial condition and operating results. - If in the future our business activities involve countries, entities or individuals that are subject to restrictions imposed by the U.S. or other governments, we could be subject to enforcement action and our reputation and the market for our common stock could be adversely affected. - Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery laws could result in fines, criminal penalties and contract termination which can adversely effect us. - We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could disrupt our business and adversely affect our results of operations. - Our business is subject to laws and regulations regarding privacy and data protection. - Maritime claimants could arrest our vessels, which could interrupt our cash flow. - A shortage of qualified officers or seafarers would make it more difficult to crew our vessels and increase our operating costs. If a shortage were to develop, it could impair our ability to operate. - Compliance with safety and other vessel requirements imposed by classification societies may be costly. - Delays in deliveries of newbuildings or acquired vessels, or deliveries of vessels with significant defects, could harm our operating results and lead to the termination of any related charters. - Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition. - The marine transportation industry is subject to substantial environmental and other regulations. - Climate change concerns, greenhouse gas emissions and other environmental schemes may adversely impact us. - Increased scrutiny from stakeholders and others regarding climate change, as well as our ESG practices and reporting responsibilities, could result in additional costs or risks and adversely impact our business and reputation. - Changes in the law and regulations relating to the use of, or a decrease in the demand for, single use plastics and increased concerns or restrictions relating to waste plastics could adversely impact us. - Competition from more technologically advanced liquefied gas carriers could reduce our charter hire income and the value of our vessels. - Acts of piracy on any of our vessels could adversely affect us. - Terrorist attacks, increased hostilities, piracy on ocean-going vessels, political change or war could lead to further economic instability, increased costs and disruption of business. - Exposure to currency exchange rate fluctuations results in fluctuations in cash flows and our results. - Our insurance may be insufficient to cover losses. - Restrictive covenants in our secured term loan facilities and revolving credit facilities and in our unsecured bonds and our Terminal Facility impose, and any future debt facilities may impose, restrictions on us. - The secured term loan facilities and the Terminal Facility are reducing facilities. The required repayments under the secured term loan facilities and the Terminal Facility may adversely affect us. - Our consolidated variable interest entity may enter into different financing arrangements. - Interest rate increases affect the interest rates under our credit facilities, which adversely affects our operating results. - The derivative contracts we have or may enter into to hedge our exposure to fluctuations in interest rates could result in higher interest rates and reductions in our shareholders' equity, as well as charges against our income. - Our continuing ability to finance and refinance our debts and the availability and access to the debt and equity capital markets. - Our business depends upon certain key employees. - We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us. - We may issue additional equity securities without your approval, which would dilute your ownership. - Future sales of our common stock could cause the market price of our common stock to decline. - BW Group and Ultranav, collectively, own an aggregate of approximately 58.9% of our common stock. Each may exert considerable influence on, and together they could control, actions requiring a shareholder vote, and they could acquire additional shares of our common stock, further reducing liquidity in the market. - We have declared dividends in the past but we can give no assurance that dividends will be paid in the future in any amount or at all. - The obligations of being and remaining a public company require resources and management attention. - If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud, and shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. - We may lose our foreign private issuer status in the future, which could result in additional costs. - Our operations may be subject to economic substance requirements. - We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law. - Because we are a Marshall Islands corporation, it may be difficult to serve us with legal processes or enforce judgments against us, our directors, or our management. - Provisions of our articles of incorporation and bylaws may have anti-takeover effects. - We may be subject to additional taxes, which could adversely impact us. - U.S. tax authorities could treat us as a "passive foreign investment company," which could have adverse U.S. federal income tax consequences for our U.S. shareholders. - We may have to pay tax on U.S. source income for the operation of our vessels, and business conducted within the United States, which would reduce our cash flow. In addition, risks not presently known to us or risks that we currently deem immaterial could materially and adversely affect our business, financial condition, results of operations and the trading price of our common shares.

Amounts borrowed under our existing credit facilities bear interest at an annual rate ranging from 1.90% to 2.76% above the Secured Overnight Financing Rate ("SOFR") and loans under our Terminal Facility bear interest at an annual rate of 2.75% to 3.00% above SOFR. SOFR rates have increased in recent years which has affected the amount of interest payable on amounts that we borrow under our credit facilities, and may increase further, which could have an adverse effect on our operating results. During 2023, we refinanced certain of our credit facilities and in connection therewith, also amended the reference rates in those credit facilities from LIBOR to SOFR. The effects of switching the reference rates in our other indebtedness from LIBOR to SOFR could include an increase in the cost of our variable rate indebtedness and obligations, which could adversely affect our results of operations and ability to service our applicable indebtedness and financial lease obligations or pay dividends to our shareholders.

In October 2019, we entered into a sale and leaseback transaction with respect to one of our vessels, Navigator Aurora¸ with a lessor, OCY Aurora Ltd, which is a special purpose vehicle ("SPV") and wholly owned subsidiary of Ocean Yield Malta Limited. The SPV was determined to be a variable interest entity ("VIE"). We are deemed to be the primary beneficiary of the VIE, and, as a result, we are required by U.S. GAAP to consolidate the SPV into our results. Although consolidated into our results, we have no control over the funding arrangements negotiated by the SPV, such as interest rates, maturity and repayment profiles. In consolidating the SPV, we must make certain assumptions regarding the debt amortization profile and the interest rate to be applied against the SPV's debt principal. For additional information, refer to "Note 8. Variable Interest Entities " to our consolidated financial statements. For a description of our current financing arrangements including those of the VIE, please read "Item 5-Operating and Financial Review and Prospects-Liquidity and Capital Resources." The funding arrangements negotiated by the VIE could adversely affect our financial results.

Loans under the secured term loan facilities and the Terminal Facility are subject to quarterly repayments. If at such time we have not generated sufficient cash flows, any such repayments, together with a reduced ability to borrow, could have a material adverse effect on our business, financial condition and operating results.

The secured term loan facilities and revolving credit facilities and unsecured bonds impose, and any future debt facility may impose, operating and financial restrictions on us. The restrictions in the existing secured term loan facilities and revolving credit facilities and the unsecured bonds may limit our ability to, among other things: - pay dividends out of operating revenues generated by the vessels securing indebtedness under the facility, redeem or repurchase any of our shares or pay dividends or make any other payment to our equity holders, if there is a default under any secured term loan facility, revolving credit facility or secured term loan and revolving credit facility;- incur additional indebtedness, including through the issuance of guarantees;- create liens on our assets;- sell our vessels;- merge or consolidate with, or transfer all or substantially all our assets to, another person;- change the flag, class or management of our vessels; and - enter into a new line of business. The secured term loan facilities and revolving credit facilities require us to maintain various financial ratios. These include requirements that we maintain minimum liquidity levels and maintain specified maximum ratios of net debt to total capitalization. Under our secured term loan facilities, if at any time the aggregate fair market value of (i) the vessels subject to a mortgage in favor of our lenders and (ii) the value of any additional collateral we grant to the lenders is less than 125% to 135%, as applicable, of the outstanding principal amount under the secured term loan facilities and any commitments to borrow additional funds, our lenders may require us to provide additional collateral. See "Item 5-Operating and Financial Review and Prospects-Liquidity and Capital Resources-Secured Term Loan Facilities and Revolving Credit Facilities", and "2020 Senior Unsecured Bonds" The failure to comply with such covenants would likely cause an event of default that could materially adversely affect our business, financial condition and operating results. In addition, our wholly-owned subsidiary, Navigator Ethylene Terminals LLC is the borrower under our Terminal Facility (as defined in "Item 5-Operating and Financial Review and Prospects-Liquidity and Capital Resources-Terminal Facility"), can only pay dividends to us if it satisfies certain customary conditions to paying a dividend, including maintaining a debt service coverage ratio of not less than 1.20 to 1.00 and no default or event of default has occurred or is continuing. The Terminal Facility also limits our subsidiary, Navigator Ethylene Terminals LLC from, among other things, incurring indebtedness or entering into acquisitions and divestitures. The Terminal Facility also contains general covenants that will require Navigator Ethylene Terminals LLC to vote its interest in the Export Terminal Joint Venture to cause the Export Terminal Joint Venture to maintain adequate insurance coverage and maintain its property (but only to the extent Navigator Ethylene Terminals LLC has the power under the organizational documents of the Export Terminal Joint Venture to cause such actions). Further, the loans under the Terminal Facility are secured by first priority liens on the rights to Navigator Ethylene Terminals LLC's distributions from the Export Terminal Joint Venture and our equity interests in the Marine Terminal Borrower (as defined below). Certain of our secured term loan facilities and revolving credit facilities, bonds, and lease obligations prohibit a change of control (as defined in the agreements governing such facilities, bonds, and lease obligations) of the Company as well as require us to remain as a listed entity on the New York Stock Exchange ("NYSE") or another recognized stock exchange. If we breach any of these restrictions, our obligations become immediately repayable, which could have a material adverse effect on our business, financial condition and operating results. Because of these covenants, we may need to seek permission from our lenders to engage in some corporate actions. Our lenders' interests may be different from ours, and we may not be able to obtain our lenders' permission when needed. This may limit our ability to finance our future operations and make acquisitions or pursue business opportunities. See "Item 5-Operating and Financial Review and Prospects-Liquidity and Capital Resources-Secured Term Loan Facilities and Revolving Credit Facility" and "Terminal Facility."

The Company is reliant on our continuing ability to finance and refinance our debts and the availability and access to the debt and equity capital markets. In the event that the Company is unable to secure financing or refinancing in a timely manner it could adversely affect our business, financial condition and operating results.

Our growth strategy may include selectively acquiring existing liquefied gas carriers or newbuildings and investing in complementary assets. Factors such as competition from other companies, many of which have significantly greater financial resources than we do, could reduce our acquisition and investment opportunities or cause us to pay higher prices. Any existing vessel or newbuilding we acquire may not be profitable at or after the time of acquisition or delivery and may not generate cash flow sufficient to cover the cost of acquisition. Market conditions at the time of delivery of any newbuildings may be such that charter rates are not favorable and the revenue generated by such vessels is not sufficient to provide satisfactory returns relative to their purchase prices. In addition, our acquisition and investment growth strategy exposes us to risks that could adversely affect our business, financial condition and operating results, including risks that we may: - fail to realize anticipated benefits of acquisitions, such as new customer relationships, cost savings or increased cash flow;- not be able to obtain charters at favorable rates or at all;- be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;- fail to integrate investments of complementary assets or vessels in capacity ranges outside our current operations profitably - not have adequate operating and financial systems in place as we implement our expansion plan;- decrease our liquidity through the use of 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; or - incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired. Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we inspect existing vessels before 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 existing 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 flow and reduce our liquidity.