First Ship Lease Trust

[wonghw12]

I didn't dial in to the actual call. I listened to the replay @ http://fsltrust.listedcompany.com/financ...sults.html

I didn't pick up other nuggets of info other than the refinancing part

[CY09]

Just listened to the audio.

One thing mgmt mentioned is that the current book value of the 6 impaired ships is now 125 mil. Previously, it was 147 mil; FSL took a 15% impairment on the previous book value.

As compared to Wonghw12 agaration:

FSL Hamburg - USD13mn
FSL Singapore - USD13mn
FSL Osaka - USD13mn

Chemical Tankers (Subtotal: USD54mn)
FSL New York - USD18mn
FSL London - USD18mn
FSL Tokyo - USD18mn

Lastly, judging from the spread FSL is paying, it seems banks are valuing its fleet at a current value of US$250-280mil. So there is about a USD$70-100mil difference between what is on FSL's book and what bank's think they are worth.
At current level, it seems the cashflow of FSL trust is just about enough to repay the loans if the interes for the loan spread remains the same. A higher spread between that of LIBOR may force FSL to take drastic actions.

[CY09]

http://infopub.sgx.com/FileOpen/20171211...eID=481618

FSL has sold a feeder container ship at approximately US $6.1mil. As the entire proceeds will be used to pay debts, the expected end of FY debt is now approximately US $154million.

Considering that the feeder container ship is generating BBCE of about US$0.5 mil each per year, it means FSL will be losing an asset which generates a cash yield of 8.2%. On the flip side, FSL is getting a cash boost with no outflow due to the special survey and an inflow of 6.1 mil to pay off debts. It will also provide interest savings of 4-5% of this s$6.1mil per annum.

Not a great deal to me. Still waiting to know the outcome of its loan facility

[wonghw12]

I thought the management was merely providing template answers (see below for the email answers I received from management). However, from today's announcement it seems that they did consider asset disposals - hopefully more will come. Once debt is pared down sufficiently, dividends ought to be resumed.

Questions to management:
-------------------
I heard the audio cast replay for the latest earnings and am happy that management is confident of refinancing. A few questions:

1. Would this entail private placement, rights?
Ans: All financing options are under consideration – any refinancing agreed, which could include either private placement or rights issue, will be announced via SGX.

2. Is management contemplating sale of vessels?
Ans: Yes, management considers the sale of vessels in the ordinary course of business as there is a need to refresh the fleet due to age. Any announcement relating to the sale of a vessel would be announced via SGX.

3. Would FSL look to resume dividends assuming refinancing is successful?
Ans: This would be at the decision of the Board, but the Trust’s ultimate aim is to do so once refinancing is in place and when cash flows are sustainable and can accommodate distributions. The recommencement would of course be subject to ongoing continued prudent balance sheet management, which must ensure that cash is available to cover bank debt, vessel dry-docking, repairs, ongoing trust expenditure and a safety net for any unexpected expenditure.

[holymage]

A piece of good news for FSL, due to their lucrative contract with Yangming during the shipping boom.
Nonetheless, FSL shareholders are still taking on multiple high risks in a protracted shipping downturn and a hawkish environment.


Yangming Marine Transport Corp last week succeeded in raising NT$10.3 billion (US$343 million) of capital, which would help the firm further expand its operations in Southeast Asian nations, the Ministry of Transportation and Communications said on Tuesday.

The firm raised its capital again in December last year and in June to NT$10.3 billion.
The move was made possible after state-run Taiwan International Port Corp (TIPC) converted the debt owed by Yangming into an investment and changed its role from a creditor to a shareholder, Minister of Transportation and Communications Hochen Tan (賀陳旦) said.

http://www.taipeitimes.com/News/taiwan/a...2003683953

[wonghw12]

Announcement from SGX. Several key points copied and pasted below:

1. As at the date of this announcement, US$165.6 million remains...
2. negotiations with the lenders...an extension of the maturity date by one-year (“Extension”) to allow for the refinancing of the Syndicated Loan Facility.
3. A majority of the lenders under the Syndicated Loan Facility have indicated their support for the Extension to the Trustee-Manager. However, as the Extension requires the consensus of all lenders under the Syndicated Loan Facility, the Trustee-Manager has applied to the High Court of Singapore to propose a scheme of arrangement under section 210 of the Companies Act (Cap. 50) with regards only to its obligations under the Syndicated Loan Facility (the “Scheme”).
4. In connection with the proposed Scheme, the Trustee-Manager has also made an application to the Singapore High Court under Sections 211B and 211C of the Companies Act for moratoria with respect to the Trust’s assets.

Questions in my mind:
1. Why can't FSL refinance already but need to wait one year?
2. How likely is it for the moratoria to be approved? If it were not approved, would there be upside risks if the lenders seek a liquidation?
3. Seems that most lenders are willing to rollover. However, FSL might not be able to pay out substantial dividends if the repayment rate is still USD10mn a quarter.
As such, on the whole, is this a piece of good or bad news?

[CY09]

As said in their announcement: "the Extension requires the consensus of all lenders under the Syndicated Loan Facility", hence it is likely one or two of the lenders are not agreeable and therefore the new loan cannot be refinanced.

In addition, i think there are a few more things that can be intrepreted
1) The lenders who agreed to the extension are not willing to increase their loan commitment to FSL to replace those who are in disagree
2) The amount that the lenders who agree to refinance is less than the amount FSL needs to rollover.

It is highly likely that equity raising may be part of the deal in the scheme of arrangement. This is to reduce the loan quantum that has to be rolled over. In fact, I don't think FSL should give dividends, they should focus entirely on paying back the loan and then earn BBCE revenue and then gradually scrap it off (something like K Green trust). The Yangming contract will earn FSL 60mil in cashflow until 2021. From a few more years of using it at low container charter rates and then scrapping the 3 ships will yield another 20 mil in cashflow

[holymage]

Same thoughts with CY with regards to interpretation of the announcement.

As expected, FSL encountered difficulties refinancing due to the shipping industry in the doldrums. This has been dragged for way too long, in 2016Q4, FSL's debt shifted to current liabilities. Almost a year later, FSL has yet to refinance their debts. Case in point, Geo Energy's debt shifted to current liabilities in 2017Q1, and they successfully refinance in 2017Q3.

Investing based on banks valuation of FSL assets is rather risky.
Firstly, there is the risk of fire sale of assets should FSL is unable to refinance successfully.
Secondly, if I am a ship owner and is looking to acquire vessels, would I pay at NAV? I would demand a decent discount to NAV in order to make a profit, given the uncertainty of the shipping industry whereby supply > demand (look at the record low prices of new builds). This is different from during the shipping supercycle where everyone is pouring into the shipping industry and it may be possible to sell above NAV (eg. King Wan).

To get a better feel of the real asset value of FSL's ships, one should compare to recent transaction values of vessels, taking into account of vessel age as well. Or demand a very steep discount to the banks' valuation of FSL assets.

Regarding rights, FSL's sponsor is FSL Holdings (24.23%) which is solely owned by HSH Nordbank. From what I know, Nordbank is overexposed to the shipping industry and is in deep trouble. They are preoccupied with offloading their own shipping NPLs, much less afford capital to subscribe for equity (rights) in shipping companies. That is probably why they attempted to broker a placement with Navios Maritime. But somehow the arrangement broke down. Would be interesting to know why.

https://www.hsh-nordbank.de/en/presse/pr...e-9245568/
http://www.ifre.com/day-of-reckoning-dra...ullarticle

Just to share, I took a quick look at the giants of shipping firms. They typically focus on one type of vessel. For example, Frontline focuses on VLCC, Ardmore shipping focuses on MRs etc. I suspect this is to build long-term strategic customer relationship with the big lessees. Alan Hatton the ex-CEO probably has good connections which is why FSL managed to lease to Tesoro and Trafigura. Or it could be that there is a temporary shortage in available vessels due to the Saudis flooding the oil market in 2015-2016. From the short term leases back then, it is a leasee's market.

Good luck.

[wonghw12]

As said in their announcement: "the Extension requires the consensus of all lenders under the Syndicated Loan Facility", hence it is likely one or two of the lenders are not agreeable and therefore the new loan cannot be refinanced.

In addition, i think there are a few more things that can be intrepreted
1) The lenders who agreed to the extension are not willing to increase their loan commitment to FSL to replace those who are in disagree
2) The amount that the lenders who agree to refinance is less than the amount FSL needs to rollover.

It is highly likely that equity raising may be part of the deal in the scheme of arrangement. This is to reduce the loan quantum that has to be rolled over. In fact, I don't think FSL should give dividends, they should focus entirely on paying back the loan and then earn BBCE revenue and then gradually scrap it off (something like K Green trust). The Yangming contract will earn FSL 60mil in cashflow until 2021. From a few more years of using it at low container charter rates and then scrapping the 3 ships will yield another 20 mil in cashflow

One or two of the lenders are not agreeable to the extension (My interpretation of extension is different from refinancing). Nothing is said if most of the lenders are agreeable to refinance (for the longer term). The announcement doesn't really answer why FSL can't refinance with other bankers, though it suggests that CY09's interpretation might be right that 1) the lenders who agreed to the extension are not willing to increase their loan commitment to FSL to replace those who disagree.

Perhaps no one really want to finance small vessel owners without a strong sponsor. Or perhaps the current terms are too good for FSL so they are trying to extend. This is possible as floating rate + 3% doesn't appear too onerous for a company deemed to be highly risky, in comparison to EuroNAV's bonds which are priced at 7.5%. Wonder which is more possible, or if there are other possibilities.

[yeokiwi]

I suppose it is fine if they do this every year end to rollover for another year. No lender is willing to take on everything and every lender is also unwilling to liquidate FSL. So, I suppose status quo is the best?

Given the current state of shipping industry, FSL may not get a better loan deal than this. So, FSL is also interested to keep status quo?

The FSL sponsor is also currently trying to sell itself. So, they may not be in a hurry to decide the fate of FSL trust at this stage.