First Ship Lease Trust

Will this mark the beginning of a new era for FSL given the industry headwinds and rising interest rate environment.


The Board of Directors and the Nominating Committee of the Trustee-Manager has reviewed the qualifications and experience of Mr Michail Chalkias and has approved his appointment as a non-independent non-executive Director.

Mr Michail Chalkias is the Co-Chief Executive Officer of the Prime Group, a leading international ship-owning and management group, headquartered in Athens.

http://infopub.sgx.com/Apps?A=COW_CorpAn...c5fd632126

I am interested to know how the trust can extract the value of the fleet for unitholders.

Nett of Mgmt fee, FSL is generating 40 mil cashflow per year. Post 2021, this is likely to drop until 22 mil cashflow per year. The fleet has another useful life of about 9 years (Year 2027). On the balance sheet front, the debt stands at 132 mil at 5% interest currently with cash of 13mil.

If FSL decides to just renew the loan without lowering the principal now and survive till 2027, unitholders are likely to get US $110mil + scrap value of the vessels (e.g. 20 mil). This means unitholders can expect about SGD 20 cents in returns in 2027. This gives about 8.5% annual returns

However, if mgmt decides to raise cash of SGD $50mil using a rights, FSL can pay back the loan faster by about 1-1.5 years; unitholders will get back about US 150 mil + scrap value. Unitholders can expect about SGD 28 cents in returns in 2027. However as they have pledged more cash, their annualized returns will fall to about 5.2% but with the trust being less at risk to the interest rate environment and bank's demands.

The best option will be that Prime injects its assets without any encumbrances into FSL and be issued shares at the price of FSL's book value ($0.37 per share). However, even i feel this third option is unlikely; it may be possible that Prime injects it assets at current share prices, but such an arrangement is more beneficial to Prime because it gets a larger pile of the lucrative FSL assets.

(10-03-2018, 11:01 AM)CY09 Wrote: I am interested to know how the trust can extract the value of the fleet for unitholders.

Nett of Mgmt fee, FSL is generating 40 mil cashflow per year. Post 2021, this is likely to drop until 22 mil cashflow per year. The fleet has another useful life of about 9 years (Year 2027). On the balance sheet front, the debt stands at 132 mil at 5% interest currently with cash of 13mil.

If FSL decides to just renew the loan without lowering the principal now and survive till 2027, unitholders are likely to get US $110mil + scrap value of the vessels (e.g. 20 mil). This means unitholders can expect about SGD 20 cents in returns in 2027. This gives about 8.5% annual returns

However, if mgmt decides to raise cash of SGD $50mil using a rights, FSL can pay back the loan faster by about 1-1.5 years; unitholders will get back about US 150 mil + scrap value. Unitholders can expect about SGD 28 cents in returns in 2027. However as they have pledged more cash, their annualized returns will fall to about 5.2% but with the trust being less at risk to the interest rate environment and bank's demands.

The best option will be that Prime injects its assets without any encumbrances into FSL and be issued shares at the price of FSL's book value ($0.37 per share). However, even i feel this third option is unlikely; it may be possible that Prime injects it assets at current share prices, but such an arrangement is more beneficial to Prime because it gets a larger pile of the lucrative FSL assets.

Seems that rights to retire debt would be a terrible deal for unitholders - cost of equity should definitely be higher than 5.2%. Though I returns might be somewhat higher if we assume that FSL dividend out the cashflow every year instead of only doing one capital return in 2027.

Suspect that the new management want to run FSL for longer though so scenario 3 (injection of assets) or fleet renewal is quite possible. Recall the earnings
call mentioned that FSL will do a big asset revaluation this month. Expect huge impairments to the asset value - which can allow Prime to inject assets as discussed by CY09.

http://fsltrust.listedcompany.com/newsro...2B32.1.pdf

First Ship Lease Trust's latest annual report is out and 2 points can roughly be deduced.

1. In the Chairman's statement, 6 lenders had agreed to the syndicated loan extension. Given that I can see 9 bank's names under its principal bankers, it seems there are 3 lenders who are not in agreement with the loan. With US libor rates now at 2.36%, FSL's loan are costing 5.1% interest.

2. Current loans as of end Mar 2018 is at US $124.9 million. Assuming cash generation ability of US$12mil a quarter, it seems it is going to take FSL until the mid of 2021 to clear all its debts.

The Board of Directors (the “Board” or “Directors”) of FSL Trust Management Pte. Ltd., as trustee-manager of First Ship Lease Trust (“FSL Trust”) (the “Trustee-Manager”), wishes to announce that it has on 24 April 2018 entered into a bond subscription agreement (the “Bond Subscription Agreement”) with VGO Special Situations I (Luxembourg) S.á r.l. (the “Subscriber”) under which FSL Trust proposes to issue US$7,250,000 in aggregate principal amount of redeemable 7% convertible bonds (the "Bonds") to the Subscriber and/or its affiliates (“Affiliates”) in accordance with the terms and subject to the conditions of the Bond Subscription Agreement (the “Bond Issue”). The Bonds will be issued in a single tranche of an aggregate principal amount of US$7,250,000 which may be convertible into units in FSL Trust (“Units”).

http://infopub.sgx.com/FileOpen/FSL%20-%...eID=500733

Lets hope it is not those toxic type. Where the conversion price can be reset to market price. Can be a death spiral...

Seems pretty clear that the Trustee-Manager cannot be trusted to take care of the interest of unitholders. Now we know what can be worse than an outright rights issue.

(24-04-2018, 09:06 PM)opmi Wrote: Lets hope it is not those toxic type. Where the conversion price can be reset to market price. Can be a death spiral...

How to hope?
The Conversion Price will be subject to adjustment, in accordance with the Terms and Conditions, upon the occurrence of certain adjustment events, including: (a) consolidation, subdivision or reclassification of the number of issued Units; (b) capitalisation of profits or reserves; © capital distributions; (d) rights issues of Units or options over Units; (e) rights issues of other securities; (f) issues of Units at less than the current market price or conversion price; (g) other issues of securities at less than the current market price or conversion price; (h) any modification of rights of conversion attaching to any securities as mentioned in subparagraph (g) above; and (i) issue, sale or distribution of any securities in connection with an offer by or on behalf of FSL Trust pursuant to which offer the unitholders of FSL Trust generally are entitled to participate in arrangements whereby such securities may be acquired by them.

(24-04-2018, 10:50 PM)wonghw12 Wrote:

(24-04-2018, 09:06 PM)opmi Wrote: Lets hope it is not those toxic type. Where the conversion price can be reset to market price. Can be a death spiral...

How to hope?
The Conversion Price will be subject to adjustment, in accordance with the Terms and Conditions, upon the occurrence of certain adjustment events, including: (a) consolidation, subdivision or reclassification of the number of issued Units; (b) capitalisation of profits or reserves; © capital distributions; (d) rights issues of Units or options over Units; (e) rights issues of other securities; (f) issues of Units at less than the current market price or conversion price; (g) other issues of securities at less than the current market price or conversion price; (h) any modification of rights of conversion attaching to any securities as mentioned in subparagraph (g) above; and (i) issue, sale or distribution of any securities in connection with an offer by or on behalf of FSL Trust pursuant to which offer the unitholders of FSL Trust generally are entitled to participate in arrangements whereby such securities may be acquired by them.

 
I think the clauses are pretty standard stuff.
point (f) means - if FSL will to do placement etc to other parties at a lower than market price.

If I were the subscriber , I would demand the same thing.

The verdict is still out because we have to know the details of the 2 new loans are they of lower interest loans?

$124.9 Mil of interest 2.8%+3 month LIBOR=

$50 Mil Term Loan - Of what interest?
$40 Mil term Loan - of what interest?
$7.5 Mil convertible Loan - 7% perpetual.

From my observations, it seems there is also a slight shortfall in cash for the trust to refinance. They only have 10+Mil in cash on current balance sheet.