First Ship Lease Trust

[ksir]

Rickmers got EGM approval 31 oct to wind up the trust if no alternative

Ehm then no shareholders would want to approve right? Logically? Bcos nothing on the table for them?!

[specuvestor]

I mean last year 31 October 2016

https://www.valuebuddies.com/thread-156-...#pid138701

Even if shareholders don't approve voluntary winding up, there is creditors' winding up

That's why in distressed asset scenario, it is the creditors that call the shots

[ksir]

I mean last year 31 October 2016

https://www.valuebuddies.com/thread-156-...#pid138701

Even if shareholders don't approve voluntary winding up, there is creditors' winding up

That's why in distressed asset scenario, it is the creditors that call the shots

Oic. Got it. In this case, similar scenario might happen here, except probably with more room for nego.

[CY09]

That's why fsl has an advantage in which it's assets are generating significant cash flow which can pay the interest+ principal

[Boon]

That's why fsl has an advantage in which it's assets are generating significant cash flow which can pay the interest+ principal

https://www.valuebuddies.com/thread-156-...#pid136923

Given this scale of impairment, 360m out of 499m, would we expect something similar for first ship lease trust?

Ability to continue as a going concern is critical for FSL. This is dependent on ability to get refinancing of loans.

For Rickmers:
(b) Impairment of vessels
"The Group’s management follows its accounting policy in determining when vessels are considered impaired. Impairment is recognised when events and circumstances indicate that these assets may be impaired and the carrying amounts of these assets exceed the recoverable amounts. The recoverable amounts of vessels have been determined based on value-in-use calculations using the going concern assumption. The carrying amount of vessels as at 31 December 2016 was US$499.6 million (2015: US$706.0 million).
If the Group is unable to continue as a going concern, a further impairment of approximately US$360 million may be necessary. "___________________________________________________________________________________________________________________

[CY09]

Hi Boon,

What is your opnion on the value of FSL's vessels if they are unable to continue as a going concern?

We know the aframax market value is 17 mil and its 3 container ships have a fixed BBCE revenue until mid 2020

[ZZF]

and another thought - it seems that the accounting lifespan of the ship and corresponding depreciation is based on the charter contract length.

For example, a new ship is contracted with 10 years charter. Say the charterer default halfway at 5 years, and the TM redeploy the ship to a pool - the useful life (for depre figures) will be revised from initial 10 years to 25 years.

am I right?

Useful life of a vessel is an estimate of the average number of years the vessel is considered useable before its value is fully depreciated.
 
Useful life of a modern vessel is about 25 to 30 years.
 
Depreciation is the systematic allocation of the acquisition cost of the vessel, less its estimated residual value or (or salvage value) over the vessel’s estimated useful life.”

It has nothing to do with charter contract length.
___________________________________________________________________________________________________________________

hi boon,

on page 57 of AR16, under 2.5 Vessels:
'Vessels leased on a long-term bareboat charter basis under operating lease agreements are depreciated on a straight-line basis down to the estimated residual value at the end of the base lease term of twelve years. The estimated residual values for vessels on a long-term bareboat charter are based on values obtained from third party sources'

That is why i was wondering. It seems that FSL depreciate the vesssel according to the charter contract. So I guess this is pretty conservative? But then again, it has no bearing on the value if they dont have any more charter at the end of the lease and decide to scrap say the 3 YM ships (built 2008) after 12 years.

[ZZF]

http://infopub.sgx.com/FileOpen/First%20...eID=446902

FSL has released its annual report with a few highlights:

1) The chairman is concerned on the values of the vessel. As of now FSL has made impairments to " 5 container ship,2 crude oil tanker (FSL Shanghai & Hong Kong) & 1 product tanker" . In my opinion, there may be more impairments from the other product tankers because of declining MR rates. So expect net profit to be zero this FY; no need pay tax to agencies like IRAS again . If i was smart, I would space out my impairments over a few years to match the lease expiry, so that my net profit will always be zero with positive cash flow

2) This leads to the issue of loan valuations. As of 31 March 17, outstanding loan is US$190, one question i will ask is what is the current LTV ratio? This may shed light on the actual value of all its 22 vessels. Also, it seems last year's talk on getting a loan renewal was untrue as FSL mgmt is still trying to get debt refinancing.

<vested>

Hi CY09,
 
Impairment should be made when carrying amount exceed recoverable amount (the higher of fvlcts and viu). I don’t think one could control the timing of making an impairment loss.
 
Besides, it serves no purpose to “tweak” net profit, as FSL's shipping related income is tax exempt anyway. 
 
Accounting profit is not important, but positive cash generation is.
 
Rights issues is being considered by the board.
_______________________________________________________________________
 
page 75 of AR2016:
 
The lease income derived by the Group’s entities from the respective bareboat charter and time charter agreements qualifies for tax exemption under the Maritime Sector Incentive (“MSI”) scheme (previously known as the Maritime Finance Incentive scheme), with effect from 19 March 2007. This tax exemption on the qualifying income will be granted for the remaining useful life of any vessel that is acquired by the Trust during the initial period of 10 years from the effective date subject to further extension. The distributions made out of the tax exempt income less allowable expenses will also be exempt from Singapore income tax in the hands of the unitholders. The freight income and pool income derived by the Group is also exempted from tax under Section 13A of the Singapore Income Tax Act (“SITA”), Chapter 134.
 
The Group is subject to tax on its non-tax exempt income such as interest income at the prevailing corporate tax rate, after adjusting for allowable expenses. 
 
Page 63 of AR2016:
 
3.3  Impairment Assessment of Vessels 
Impairment loss is recognised when events and circumstances indicate that the vessel may be impaired and the carrying amount of the vessel exceeds the recoverable amount. The recoverable amount for each vessel is determined based on the higher of the fair value of the vessel less the estimated costs of disposal and the carrying value of the vessels based on “value-in-use” methodology. 
In determining the fair value less costs of disposal, the Group has obtained valuation reports from third parties sources in December 2016. The valuation of the vessels was prepared assuming a sale between a willing seller and a willing buyer on a charter-free basis. 
For the value-in-use calculations, the Group determined the cash flows based on past performance and their expectation of market development. The Group prepared the value-in-use calculation based on projected cash flows over the remaining useful life of each vessel and its projected residual value. 
The projected cash inflows are based on existing charter contracts rates and/or inflation-adjusted daily rates from observable historical trends of five to 20 years. Management has adjusted the projected cash flows with management’s assessment of the achievable cash flows based on recent performance of the vessels and the age of the vessels. If the Group were to project cash flows based on the current average rates, the carrying values of the vessels will decrease by approximately 8% (2015: 5%). 
The projected cash outflows take into consideration each vessel’s inflation-adjusted actual and budgeted operating expenses. The pre-tax discount rates range from 6.39% to 7.76% (2015: 6.39% to 7.76%) and take into account the time value of money and the risks specific to the vessels’ estimated cash flows. If the pre-tax discount rates increase by 1%, the carrying values of the vessels will decrease by approximately 3% (2015: 1%). 
During the financial year ended 31 December 2016, the Group recognised an impairment loss on vessels amounting to US$44,137,000 (2015: US$971,000). As at 31 December 2016, the carrying amount of the vessels was US$427,508,000 (2015: US$526,516,000). 

 
Page 5 of AR2016:
 
“The highest priority for the Board is to secure a refinancing of the outstanding debt, and to this end we are considering a variety of strategies. as a Board, we are committed to improving the structure of the Trust’s balance sheet in a manner that enables unitholders to benefit. This will require the balance sheet to be strengthened and we are considering various options in this regard. as part of these considerations we are requesting unitholders to approve a general mandate to issue pro-rata renounceable rights of up to 100% of the Trust’s capital.“
___________________________________________________________________________________________
hi boon,
re: stated in AR
  If the Group were to project cash flows based on the current average rates, the carrying values of the vessels will decrease by approximately 8% (2015: 5%).

Are they saying if they construct the VIU using rates based on prevailing market charter rates (not the existing contracted ones), the VIU will drop by 8%?

And since they are using higher of FVLCS and VIU, the book value reported is using VIU (since FVLCS is lower and banks r looking at that) that is based on EXISTING contracted rates right?
 

[Boon]

and another thought - it seems that the accounting lifespan of the ship and corresponding depreciation is based on the charter contract length.

For example, a new ship is contracted with 10 years charter. Say the charterer default halfway at 5 years, and the TM redeploy the ship to a pool - the useful life (for depre figures) will be revised from initial 10 years to 25 years.

am I right?

Useful life of a vessel is an estimate of the average number of years the vessel is considered useable before its value is fully depreciated.
 
Useful life of a modern vessel is about 25 to 30 years.
 
Depreciation is the systematic allocation of the acquisition cost of the vessel, less its estimated residual value or (or salvage value) over the vessel’s estimated useful life.”

It has nothing to do with charter contract length.
___________________________________________________________________________________________________________________

hi boon,

on page 57 of AR16, under 2.5 Vessels:
'Vessels leased on a long-term bareboat charter basis under operating lease agreements are depreciated on a straight-line basis down to the estimated residual value at the end of the base lease term of twelve years. The estimated residual values for vessels on a long-term bareboat charter are based on values obtained from third party sources'

That is why i was wondering. It seems that FSL depreciate the vesssel according to the charter contract. So I guess this is pretty conservative? But then again, it has no bearing on the value if they dont have any more charter at the end of the lease and decide to scrap say the 3 YM ships (built 2008) after 12 years.

“Vessels leased on a long-term bareboat charter basis under operating lease agreements are depreciated on a straight-line basis down to the estimated residual value at the end of the base lease term of twelve years. The estimated residual values for vessels on a long-term bareboat charter are based on values obtained from third party sources.“
 
Of course, different depreciation rates could be allocated over different periods of estimated useful life of a vessel, if these better track the lost of useful value over different periods.
 
D = Total depreciation over 25 years = Cost less scrap value  
 
D could be allocated over 2 periods: Say D1 over Period 1 (P1) and D2 over period 2 (P2).
 
Where
 
D = D1 + D2 = Cost less scrap value
 
P= P1 + P2 = 25 years.
 
For the 3 Yang Ming vessels:
 
P1 = 12 years = Contract period
 
What is D1?
 
RV@12 = Residual Value at end of year 12
 
D1 = Cost - RV@12
  
WHAT I am saying is value of D is not dependent on the length of P1
 
Also, we do not know RV@12, do we?
______________________________________________________________________________________________________________________

[ZZF]

and another thought - it seems that the accounting lifespan of the ship and corresponding depreciation is based on the charter contract length.

For example, a new ship is contracted with 10 years charter. Say the charterer default halfway at 5 years, and the TM redeploy the ship to a pool - the useful life (for depre figures) will be revised from initial 10 years to 25 years.

am I right?

Useful life of a vessel is an estimate of the average number of years the vessel is considered useable before its value is fully depreciated.
 
Useful life of a modern vessel is about 25 to 30 years.
 
Depreciation is the systematic allocation of the acquisition cost of the vessel, less its estimated residual value or (or salvage value) over the vessel’s estimated useful life.”

It has nothing to do with charter contract length.
___________________________________________________________________________________________________________________

hi boon,

on page 57 of AR16, under 2.5 Vessels:
'Vessels leased on a long-term bareboat charter basis under operating lease agreements are depreciated on a straight-line basis down to the estimated residual value at the end of the base lease term of twelve years. The estimated residual values for vessels on a long-term bareboat charter are based on values obtained from third party sources'

That is why i was wondering. It seems that FSL depreciate the vesssel according to the charter contract. So I guess this is pretty conservative? But then again, it has no bearing on the value if they dont have any more charter at the end of the lease and decide to scrap say the 3 YM ships (built 2008) after 12 years.

“Vessels leased on a long-term bareboat charter basis under operating lease agreements are depreciated on a straight-line basis down to the estimated residual value at the end of the base lease term of twelve years. The estimated residual values for vessels on a long-term bareboat charter are based on values obtained from third party sources.“
 
Of course, different depreciation rates could be allocated over different periods of estimated useful life of a vessel, if these better track the lost of useful value over different periods.
 
D = Total depreciation over 25 years = Cost less scrap value  
 
D could be allocated over 2 periods: Say D1 over Period 1 (P1) and D2 over period 2 (P2).
 
Where
 
D = D1 + D2 = Cost less scrap value
 
P= P1 + P2 = 25 years.
 
For the 3 Yang Ming vessels:
 
P1 = 12 years = Contract period
 
What is D1?
 
RV@12 = Residual Value at end of year 12
 
D1 = Cost - RV@12
  
WHAT I am saying is value of D is not dependent on the length of P1
 
Also, we do not know RV@12, do we?
______________________________________________________________________________________________________________________

boon, finally i see your point. sorry, me stupid lol.
the impt part i think is like u said - the RV@12.
based on the AR, for the YM ship, RV@12 is probably FVLCS or VIU (based on rates then) at year 12.
so the total D on a ship that trades on spot = cost less SCRAP. instead of in the case of the bareboat YM where it is total D= cost less FVLCS or VIU . and the FVLCS or VIU at year 12 is the D2.
still trying to figure out the dynamics of the shipping industry.
thks for replying!