First Ship Lease Trust

[CY09]

The most stringent criteria banks can use is hull value valuation(scrap value) - This is something which FSL cant meet as it will value the fleet at only about US$140mil. During the AGM, Mr. Tim Reid, highlighted this as a problem and an approach banks can use to re tabulate the loan.

You are correct to say that Navios is not providing the full refinancing. From my point of view, I think Navios struck a deal with financiers by taking the white knight role armed with an army of financiers ready to back it.

We must be aware of the situation FSL is in now. Banks are fully aware that given FSL's strong cashflow and assets, they can recover their principal from FSL one way or another. And they are aware FSL desperately needs them for survival. So naturally, banks will find the best way to maximize their profits. This is a classic case where "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem"; FSL's loan is now too small and easily recoverable in the bank's eyes.

[Boon]

The most stringent criteria banks can use is hull value valuation(scrap value) - This is something which FSL cant meet as it will value the fleet at only about US$140mil. During the AGM, Mr. Tim Reid, highlighted this as a problem and an approach banks can use to re tabulate the loan.

You are correct to say that Navios is not providing the full refinancing. From my point of view, I think Navios struck a deal with financiers by taking the white knight role armed with an army of financiers ready to back it.

We must be aware of the situation FSL is in now. Banks are fully aware that given FSL's strong cashflow and assets, they can recover their principal from FSL one way or another. And they are aware FSL desperately needs them for survival. So naturally, banks will find the best way to maximize their profits. This is a classic case where "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem"; FSL's loan is now too small and easily recoverable in the bank's eyes.

Lending criteria of Bank A:
V of 22 vessels = USD 240 m, based on current market value
VTL ratio = 125% 
L = Loan amount = USD 192 m.
 
Lending criteria of Bank B:
V of 22 vessels = USD 140 m, based on Scrap Value (SV)
VTL ratio = 125% 
L = Loan amount = USD 112 m.
 
Lending criteria of Bank C:
V of 22 vessels = USD 140 m, based on Scrap Value (SV)
VTL ratio = 140% 
L = Loan amount = USD 100 m.
 
Bank C could impose the most stringent lending criteria, but if these lending criteria could be met, they would still lend. That is exactly my point.
 
But whether FSL could obtain FULL refinancing for its outstanding debt is a another separate issue.
 
Which banks are in a position to maximize their profits? Don’t they have to compete among themselves for the job?
 
Navios might be able to “CONvince” a lender or two to lend but would it be able to “CONvince” others for not competing for the job?
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[weijian]

The most stringent criteria banks can use is hull value valuation(scrap value) - This is something which FSL cant meet as it will value the fleet at only about US$140mil. During the AGM, Mr. Tim Reid, highlighted this as a problem and an approach banks can use to re tabulate the loan.

You are correct to say that Navios is not providing the full refinancing. From my point of view, I think Navios struck a deal with financiers by taking the white knight role armed with an army of financiers ready to back it.

We must be aware of the situation FSL is in now. Banks are fully aware that given FSL's strong cashflow and assets, they can recover their principal from FSL one way or another. And they are aware FSL desperately needs them for survival. So naturally, banks will find the best way to maximize their profits. This is a classic case where "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem"; FSL's loan is now too small and easily recoverable in the bank's eyes.

Lending criteria of Bank A:
V of 22 vessels = USD 240 m, based on current market value
VTL ratio = 125% 
L = Loan amount = USD 192 m.
 
Lending criteria of Bank B:
V of 22 vessels = USD 140 m, based on Scrap Value (SV)
VTL ratio = 125% 
L = Loan amount = USD 112 m.
 
Lending criteria of Bank C:
V of 22 vessels = USD 140 m, based on Scrap Value (SV)
VTL ratio = 140% 
L = Loan amount = USD 100 m.
 
Bank C could impose the most stringent lending criteria, but if these lending criteria could be met, they would still lend. That is exactly my point.
 
But whether FSL could obtain FULL refinancing for its outstanding debt is a another separate issue.
 
Which banks are in a position to maximize their profits? Don’t they have to compete among themselves for the job?
 
Navios might be able to “CONvince” a lender or two to lend but would it be able to “CONvince” others for not competing for the job?
_____________________________________________________________________________________________________________________

Banks are ran by humans too, so there is the human element in this. Outsiders may have the outside view and see this clearly but it is never so clear cut for the insiders, especially those with the principal-agent issue and think more about their bonuses and own job security than anything else.

A lot of people (investors, bankers alike) have been burnt by this long enduring downturn. Jobs have been lost and bonuses been clawed back. On the upturn, people are scared of lost opportunities and compete for every job. On the downturn, they have seen how these jobs take a piece of meat (off them) and are more scared of losses than lost opportunities.

[Boon]

Bear in mind that we are talking in the context of:
 
“Banks are fully aware that given FSL's strong cashflow and assets, they can recover their principal from FSL one way or another. And they are aware FSL desperately needs them for survival. So naturally, banks will find the best way to maximize their profits.” 
 
In a monopolistic situation in which there is only one bank, that bank could lend to FSL and maximize its profit by charging the highest interest that FSL could afford.
 
In an oligopolistic situation in which there are only a handful of banks that could lend to FSL.  Collectively, the banks could collude among themselves to maximize “their” profits by charging the same highest interest that FSL could afford, no matter which bank FSL eventually decided to go with.
 
In a competitive situation, if FSL really has the strong cash flow and assets to service and fulfill its loans repayment obligations, who wouldn’t want to lend?
 
 Most banks would be eager to clinch the deal with FSL before someone else did it - but would have to compete competitively in order to win the deal.
 
Those who are more scared of losses than lost opportunities would not lend.
 
Some of those who are still willing to lend may set more stringent lending criteria.
 
But at the end of the day, only those who are willing to offer the most competitive deal would likely to win the job.
 
In short, I believe ship financing is still a fairly competitive industry – competitive enough for FSL to get MOST if not ALL of its outstanding debt refinanced, with or without Navios.
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[Boon]

Market cap of FSL ~ USD 43 m
 
The aggregate value of convertible loan in the proposed Navios deal is USD 20 m, which is more than 20% of the market cap of the Trust, hence, shareholders approval is required for the transaction, according to Chapter 10 of the listing rules.
 
The “whitewash resolution” is a separate resolution.
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[CY09]

Hi Boon,

Finally see your point that scrap value can also be used to validate a partial refinancing. in this sense, will there be a case to make to SIC (MAS) about this resolution and how it should be considered as independent to FSL's survival because FSL can actually do a partial refinancing and rights to salvage the situation. And how to enable OPMI voices be heard

[weijian]

Hi Boon,

Finally see your point that scrap value can also be used to validate a partial refinancing. in this sense, will there be a case to make to SIC (MAS) about this resolution and how it should be considered as independent to FSL's survival because FSL can actually do a partial refinancing and rights to salvage the situation. And how to enable OPMI voices be heard

Somehow i don't think banks will want to spend their resources to re-possess the ships in a default scenario and then try to become a "ship"lord by collecting rental payments from the charterers. If they have to recover through scrap, they will most probably dispose it at a loss to someone else, and again it becomes a fire sale. The best scenario for banks is to be a passive funding partner for industry insiders or controlling (current or future) shareholder, in which they lower their default chances and also have a better way to retrieve their money if things go wrong.

If existing Mgt is "friendly" with Navios, then it is hard for outsiders to get in now. As forumer yeokiwi mentioned earlier in the thread, there IS money on the table but anyone to jostle with Navios?

As for making OPMI voices to be heard, could probably consult Jerry Low of Sabana fame?

[Boon]

Hi Boon,

Finally see your point that scrap value can also be used to validate a partial refinancing. in this sense, will there be a case to make to SIC (MAS) about this resolution and how it should be considered as independent to FSL's survival because FSL can actually do a partial refinancing and rights to salvage the situation. And how to enable OPMI voices be heard

IMO,
 
1)  If NO bank loan (zero) is available for refinancing, the entire outstanding debt would have to be funded with
a)   Equity (Renounceable Rights Issue, Placement)
b)  Debt (Bond Issuance, Shareholders Loan, Shareholders Convertible Loan)
c) Proceeds from selling part of the fleet
d)   Or a combination of a), b) & c)
2)  If  LIMITED bank loan (L ) is available - NOT enough to refinance the entire outstanding debt (D) - the short fall (D – L) would have to be funded with
a)   Equity (Renounceable Rights Issue, Placement)
b)  Debt (Bond Issuance, Shareholders Loan or Shareholders Convertible Loan)
c)   Proceeds from selling part of the fleet.
d)  Or a combination of a), b) & c)
 
The refinancing of outstanding debt has to be satisfactorily dealt with BEFORE December 2017, regardless of who the controlling unit holders/TM is.
 
There is no certainty or assurance that the proposed agreements with Navios will be entered into, or that the Proposed Transaction will be completed. 

 
If SIC refused to  grant waiver to the “whitewash resolution” , the Navios deal will be off.
 
If SIC approves it BUT “majority” of independent unit holders voted AGAINST it, the Navios deal will still be off.
 
The Navios USD 20 m convertible loan needs unit holders approval as well. If majority of unitholders voted “NO”, the Navios deal will be off 
 
Ultimately, unit holders would have the FINAL say, I reckon.
 
Given that unit holders has given a general mandate to TM to issue renounceable rights, if unit holders prefer this option over the Navios deal, they should exercise their votes accordingly.
 
If banks are willing to lend USD 100 m (L) based on scrap value of USD 140 m and VTL ratio of 1.4, then equity amount needs to be raised = USD (D – 100)  m, if this is the preferred option.
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[CY09]

I am not banking for the majority of unit holders to turn up and vote. Over my history of monitoring, there hasn't been a well documented case of an army of shareholders turning up to disprove of a major resolution; perhaps some old timer can advise on a success story.

Sabana was the closest ever.

[ZZF]

We only need those who appear to vote no right ? Since it is majority of those who bother to vote. And tm cannot vote. I say got chance