Ship Finance, Frontline Amend Terms
Bermuda’s Ship Finance International Limited today [Jan. 3] announced that it has successfully completed previously announced amendments to its chartering agreements with oil tanker firm Frontline Ltd.
Also headquartered in Bermuda, Frontline — one of the world’s largest oil tanker shipping companies — announced the completion of a major corporate restructuring yesterday.
Ship Finance has agreed to temporarily reduce the charter rates by $6,500 per day per vessel from 2012 through 2015, and thereafter revert to previous charter rate levels.
Frontline has paid a cash compensation of $106 million to Ship Finance.
In addition there will be a cash sweep feature, whereby Ship Finance will receive 100 percent of vessel earning up to the old base rates.
The old profit share arrangement has been improved from 20 percent to 25 percent, and will be calculated from the old threshold levels. Of the $106 million upfront payment, $50 million is a non-refundable, early payment of profit split for revenues above the old threshold levels. The cash sweep and the profit split will be payable on an annual basis, as before.
Following the agreement with Frontline, Ship Finance has prepaid $156 million of related bank financing, of which $106 million represents the cash compensation from Frontline.
Consequently, the bank financing relating to the vessels has been reduced from approximately $740 million to approximately $584 million at year-end 2011.The net effect of this significant debt reduction is considerably lower debt service payments for Ship Finance going forward, and for 2012 alone we estimate debt service to be reduced by approximately $40 million.
If Frontline generates market revenues in line with the previous base rates, the cash sweep payments alone may give a positive net effect of approximately $0.20 per share per quarter, or double the previous net contribution from Frontline.
Bermuda-based Ship Finance is a major ship owning company listed on the New York Stock Exchange. Including newbuildings, the Company has a fleet of 69 vessels, including 25 crude oil tankers, two chemical tankers, five oil/bulk/ore vessels, 11 drybulk carriers including six newbuildings, 15 container vessels including four newbuildings, six offshore supply vessels, one jack-up drilling rig, one ultra-deepwater drillship and two ultra-deepwater semi-submersible drilling rigs.
The fleet is one of the largest in the world and most of the vessels are employed on long-term charters.
