First Ship Lease Trust

[slowandsteady]

I was at the AGM on Friday, and the bulk of the discussion was about the Navios deal, and how unfair it is to minority shareholders. For me, this still requires some digesting, but my key takeaway is that Navios (one of the more shrewd maritime companies out there) is willing to pay an effective price of 11.5c per FSL Trust share. This is before taking into account the consideration for FSLAM which the CEO confirmed there will be an additional undisclosed payment for.

Another key takeaway for me was the situation with the Yang Ming contracts. This has been one of my bigger worries about the Trust. However it was assuring to hear that all 3 vessels were upgraded by Yang Ming last year on their own cost (around a million per vessel for some Eco Belt upgrade), and a further drydocking this year for an additional one million per vessel, also at Yang Ming's own cost. Basically the argument goes that if Yang Ming is willing to invest into the ships, they probably see longer term work for these vessels.

[wonghw12]

As suspected, fsl has trouble getting refinancing. This dragged for way too long. My best guess is the global environment is different from before. With the majority of the shipping and O&G industry doing badly, bank need to strengthen their balance sheet.

The other alternative would be dilution of shareholders stake. I suspect that even the recently announcrd convertible loan interest rates may not be favourable.

Lastly, shareholders counting on the balance sheet value of vessels should take note that the record value is based on discounted cash flow projected by fsl. This was mentioned by the ceo during one of the calls. That's why there are impairments when their clients defaults at higher rates. In addition, should someone else buy vessels, they will buy at a discount to projected cash flow in order to profit and mitigate risk. With poor refinancing available and unfavourable shipping rates, one would expect rather substantial discount to fsl asset value.

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Was there a discussion about the sale of vessels in the scenario that FSL is unable to obtain financing? Seems quite drastic that minority shareholders would be diluted very heavily.

[CY09]

Yes, Mgmt discussed about plan b which sounds like every academic paper. Dispose off vessels with high market value but delivering low cashflow. I am just curious if the Mgmt can consider issuing 3 rights for every 1 share then dispose off some feeder containerships. Maybe there is chance to survive without outsider help

[weijian]

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If existing loans could be restructured (through refinancing and/or via rights issues) who needs the USD 20 m convertible loan?
 
If the loans can’t be restructured, what is the significance of the USD 20 m convertible?
 
The quantum of convertible loan is only USD 20m, but it is structured in such a way of having a huge “diluting effect” on shares of unitholders (other than the Sponsor/TM), as if it is the only lifeline available, which doesn’t make sense to me.
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Is it because both the 20mil convertible loan (to strengthen the capital structure) and the eventual restructuring of financing items (extending the lifeline to the capital structure) are interactive, ie. dependent on each other to survive?

It seems like although the asset and business of this Trust are turning better, the OPMIs may not be able to take advantage. Rather a bigger player with more resources, is able to take advantage of the structure instead.

[mon]

My 2c on my take home from attending the AGM (please feel free to add/correct if I misunderstood some of the discussion):

1) Unable to refinance mainly because the parent company is not in good shape. Parent company is in trouble and will be sold sometime early next year.  Unfortunately, loan is due end of this year.  Bank do not want to refinance because they do not know who is the eventual controlling party.
2) Because of item 1, selling some ships and reducing loan amount by itself will not be enough. FSL will still be unable to get loan for the remaining amount.
3) Navios has been increasing its AP assets and looking for an AP vehicle sees controlling FSL being useful to them.  As part of this deal, Navios will assist to arrange the refinancing deal and bankers will feel reassured that there is a new controlling party.  In return, Navios wants control and huge discount.

Would be interesting to hear from Navios what is in store for FSL assuming the deal goes through.

[wonghw12]

Wonder which will fetch shareholders the highest value.

1) Liquidation of FSL (potentially selling at market lows while not taking advantage of the profitable Yang Ming contracts)
2) Navios taking a controlling stake (which dilutes minority shareholders considerably)
3) Shareholders financing, can be in various forms such as rights or issue of bonds with detachable warrants like what KrisEnergy did (though this requires shareholders to double or triple down on their investment in a volatile shipping market)

Or as CY09 mentioned, it can be a mix of #1 and #3 by funding the debt through asset sale and rights. Did management provide any insights to FSL's liquidation value?

[Greenhorns]

My 2c on my take home from attending the AGM (please feel free to add/correct if I misunderstood some of the discussion):

1) Unable to refinance mainly because the parent company is not in good shape. Parent company is in trouble and will be sold sometime early next year.  Unfortunately, loan is due end of this year.  Bank do not want to refinance because they do not know who is the eventual controlling party.
2) Because of item 1, selling some ships and reducing loan amount by itself will not be enough. FSL will still be unable to get loan for the remaining amount.
3) Navios has been increasing its AP assets and looking for an AP vehicle sees controlling FSL being useful to them.  As part of this deal, Navios will assist to arrange the refinancing deal and bankers will feel reassured that there is a new controlling party.  In return, Navios wants control and huge discount.

Would be interesting to hear from Navios what is in store for FSL assuming the deal goes through.

The overall winner is Navios, which will get fsl at a good discount with a lucarative and good generating ships charter with the blue chip companies. 

In this case, did the management mentioned about the internal dispute with previous ceo, hatten? Rem that last yr, he was saying that they have a few offers and were reviewing them and currently, with lower value of the ships and no banks are willingly to refinance. Will the ex ceo be liable for all this mess??

[CY09]

My 2c on my take home from attending the AGM (please feel free to add/correct if I misunderstood some of the discussion):

1) Unable to refinance mainly because the parent company is not in good shape. Parent company is in trouble and will be sold sometime early next year.  Unfortunately, loan is due end of this year.  Bank do not want to refinance because they do not know who is the eventual controlling party.
2) Because of item 1, selling some ships and reducing loan amount by itself will not be enough. FSL will still be unable to get loan for the remaining amount.
3) Navios has been increasing its AP assets and looking for an AP vehicle sees controlling FSL being useful to them.  As part of this deal, Navios will assist to arrange the refinancing deal and bankers will feel reassured that there is a new controlling party.  In return, Navios wants control and huge discount.

Would be interesting to hear from Navios what is in store for FSL assuming the deal goes through.

1 thing mgmt also mentioned is the presence of vulture funds circling FSL's assets talking to FSL lenders

What I am inferring from this is that these vulture funds are trying to persuade FSL lenders to let the trust default. After which these vulture funds will buy the assets at a lower rate. Since selling FSL's cash generating assets at a low rate still means bank recover their full principal; vulture funds can also strike a deal with banks to finance their purchase with loan deals beneficial to both lender and vulture fund.

[Drizzt]

with regards to the 20 mil convertible loan, it might look like they are vulturing and getting FSL on the cheap. However, i think of it this way.

Without the refinancing, FSL trust becomes a going concern. the minority shareholders are in an even worse position. however, if that is a catalyst of restructuring, and even with the dilution, the minority shareholders get to realize the longer term undervalued scenario, would that be consider a winner?

[CY09]

Yup. It was conveyed that navios involvement to improve FSL trust chances to refinance.

This made me think if debt is now not a way to continue, pherhaps a heavy equity dilution (rights raising) seems to be the only way. And therefore why not ask shareholders to give the money. I don't mind navios buying over nordbank stake and participating in the rights and subscribing to any excess which is not applied.

Lastly, I did the effects of dilution according to current navios plan with my own estimation of the vessel values.

Current Vessel Value based on "VIU" methodology = $427 million
My own discount (30%) on the VIU = $299 million
New book value of FSL = $119.8 million
Estimated value per share before Navios Dilution = 18.8 US cents per share

Add Navios US $20 million loan, revised book value = $139.8 million
Estimated value per share after Navios Dilution = 14.4 US cents per share ( 20 Sing cents per share)