Ship Finance gets $388 million funding for vessels under construction

By Aleesia Forni

Columbus, Ohio, Nov. 23 - Ship Finance International Ltd. has arranged long-term financing for all the vessels it has under construction, with total commitments of roughly $388 million.

"The leverage is in excess of 75% of contract price for each vessel, with maturities between 10 and 12 years," chief financial officer Eirik Eide said during the company's third-quarter 2011 earnings conference call on Wednesday.

"Part of these facilities have already been drawn subsequent to the quarter end and hence we have no refinancing needs in the near term."

As of the end of the third quarter, Ship Finance was in compliance with all its financial covenants under its loan agreements and has full access to all its credit facilities "despite the recent reduction in tanker values," Eide said.

In dealing with banks while financing its vessels, chief executive officer Ole B. Hjtaker said the terms of these agreements were "essentially similar" to previous years, while on "much lower values."

"So from a bank's perspective, their relative exposure is also lower," Hjtaker said during the call.

"And if we look at also the other deals that we've done recently, the financing relating to the newbuildings, they are typically longer in maturity than we've seen in the past, and they have covenant structure without minimum value clauses and other features and we think there will be good and long-term funding on those assets," Hjtaker added.

'Transparent and predictable'

The company's "significant portfolio" of long-term charters gives it a "very transparent and predictable" cash flow, Hjtaker said.

With respect to the company's cash flow by segment, offshore continues to be largest segment in which the company's cash flow is generated, with around $2.9 billion of the backlog.

The company's tanker segment, where it initially began, now represents roughly 33% or $2.2 billion of its backlog.

The containers segment recently increased to 16% of the company's backlog, while the dry bulk segment stands at 8%.

"Over time we expect to balance these segments, but it's more important for us to do the right transactions than to focus on specific percentage per segment," Hjertaker said.

'Steep' amortization

With the company's "steep" loan amortization, it has reduced its loans to less than 50% of the initial amounts when compared to 2005 and 2006.

"If we continue with the scheduled amortization, we would be down to effectively scrap values in less than three years," Hjertaker said.

The company showed $81 million of cash at the end of the quarter, with $23 million invested in short-term tradable securities as short-term liquidity placement.

The company reported net cash flow from operating activities of $37.8 million for the third quarter.

"In addition on the financing activities, we have drawn down on debt related to some of our newbuildings and one existing container vessel of $44.5 million in total for this quarter," Eide said.

Buybacks and maturities

The company also purchased $6.6 million of its bonds maturing in 2013.

"So as for today, approximately $274 million of the bond maturing in 2013 is now outstanding, which is approximately 8% of our overall total outstanding long-term debt," Eide said.

The company reported $3.5 billion of total long-term debt, of which $2 billion is considered long-term debt and roughly $1.5 billion is long-term debt in Ship Finance's subsidiaries.

"This includes the $82 million of unsecured bonds maturing in 2014, and it includes the $125 million of convertible bonds maturing in 2016, and it also includes the $274 million of unsecured bonds maturing in 2013," Eide said.

The convertible bonds may be repaid in shares in the company's option at maturity, Eide added.

For the upcoming fourth quarter of 2011, the company has $58 million of remaining scheduled payment on its newbuildings.

The company can draw down $120 million of related financing, which means a potential cash positive effect of $62 million, according to Eide.

Payments in 2012 are $78 million, and the company will be able to draw $94 million of related financing.

For 2013, the company will see total installments of $167 million with committed financing of $133 million.

"So overall for the period until 2013, this gives a positive cash effect of $44 million in total and in addition to this, we have drawn down $25 million of available long-term debt on an unfinanced container vessel, which puts the total positive liquidity effect to approximately $87 million in the fourth quarter of 2011," Eide said.

The company has used a "significant" amount of its cash flow to pay down the financing related to its newbuildings.

Frontline's warning

However, the company noted Tuesday's announcement by one of its largest counterparts, Frontline Ltd., may need financial restructuring if the weak tanker market persists.

This is due to their significant capital expenditures relating to newbuildings, combined with negative cash flow relating to the chartered-in vessels, including Ship Finance's vessels.

"This is still at an early stage and while there have been some preliminary discussions with older stakeholders, including Ship Finance, it is too early to speculate on what the potential outcome could be," Hjertaker said.

The company currently has 28 vessels on charter to Frontline, with an average of 10 years remaining.

"As security, we have a $2 million cash deposit per vessel or $56 million in total, effectively pledged in favor of us," Hjertaker said.

Ship Finance is a Bermuda-based owner and operator of vessels, including crude oil tankers, container vessels and drybulk carriers.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.