Frontline to restructure, lower debt through formation of new company

By Angela McDaniels

Tacoma, Wash., Dec. 6 - Frontline Ltd. plans to pursue a restructuring that will split the company and decrease its debt, according to a company news release.

The restructuring is expected to be completed by the end of the year. It has been approved by the company's board and will be presented to the company's creditors and counterparties for approval in the next few days.

Frontline believes it will have "significant strength" to honor its obligations if the proposed restructuring is approved.

The company's bank debt will be reduced to $13 million from $679 million, its cash will be increased by about $125 million, and its sailing fleet will be reduced to 40 units from 50 units.

In a Nov. 22 news release, the company warned that there were "significant uncertainties" regarding its ability to comply with some of its financial covenants at the end of the fourth quarter.

New company

A new company, Frontline 2012, will be formed. It will acquire vessels and newbuilding contracts with a value of $1.12 billion from Frontline and assume $666 million of related bank debt and a further $325.5 million of newbuilding commitments.

Frontline said its major counterparties have agreed to reduce the rates in its existing chartering arrangements in 2012 through 2015. This includes a rate reduction in the existing agreements with Ship Finance International Ltd. of $6,500 per day for all vessels. Frontline will pay Ship Finance $106 million of upfront compensation.

In a separate news release, Ship Finance International said it plans to use the payment plus an additional $50 million to prepay bank financing.

Equity raise

Frontline 2012 plans to raise $250 million of new equity. Frontline will subscribe for 10%, and major shareholder Hemen Holding Ltd. will underwrite the remaining 90%.

The proceeds will be used to finance the acquisition of the vessels and newbuilding contracts from Frontline, pay for working capital, prepay senior secured debt, capitalize Frontline 2012 with cash and for general corporate purposes.

Hemen is giving total guarantees of $505.5 million in order to restructure Frontline and establish Frontline 2012. These guarantees are valid until Dec. 31.

Frontline owns and operates oil tankers and oil/bulk/ore carriers. Ship Finance International owns and operates vessels and offshore related assets. Both are based in Hamilton, Bermuda.

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