First Ship Lease Trust

[Nick]

No 3Q 2011 DPU guidance ? I thought they were going to give guidance ? Perhaps they will do so post-refinancing. I noticed in the press release that they are working towards extending the loans maturity (for all 3 tranches) to at least 2016 and changing the loan from a revolving credit facility to an amortizing one. I think this is a step in the right direction though it would certainly be too late for unit-holders who purchased their shares pre-crisis !

(Not Vested)

[Musicwhiz]

Business Times - 07 Feb 2012

Defaulting lessees to impact NTA of FSL Trust

By CARINE LEE

First Ship Lease Trust on Tuesday said that it has issued written notice to the three lessees of three chemical tankers who have defaulted on their lease payments under their respective lease agreements in February.

First Ship has demanded payment to be made no later than March 8.

The vessels, Pertiwi, Prita Dewi and Pujawati, were leased to wholly-owned subsidiaries of PT Berlian Laju Tanker Tbk (BLT).

Each lessee is obliged to pay the relevant charter hire due under the relevant lease agreement on the first day of each calendar month, and the obligations of the lessees under the lease agreements are guaranteed by BLT.

The lessees' contribution to FSL Trust's total revenue for FY2011 was 12.8 per cent and the default would have a material impact on the net tangible assets (NTA) per unit of FSL Trust.

Based on the financial statements announced for the year ended December 31, 2011, the NTA per unit is expected to decrease by US$0.03 from US$0.53 to US$0.50.

However, the default will not cause First Ship to be unable to continue to service the debt obligations under its loan agreement.

[sgd]

as a sidetrack there is a very interesting book called "seized" about the experiences of a sea captain about battling modern day scoundrels and pirates while recovering stolen ships. isbn: 978-0-7679-3138-0

this book explains the maritime law is complicated and industry is fraught with danger for the unwary and riddled with all kinds of modern day crooks dishonest businessmen out to steal other people's ships. Anybody interested in investing in maritime industry or interest in maritime law I think ought to read this.

There are 4 entities normally involved in a cargo shipment. the shipowner, the charterer, the shipper and the receiver. The charterer rents the ship from the owner and looks for cargoes to carry. The shipper is the company with the cargo that contracts with the charterer to carry it. The receiver is the company buying the cargo from the shipper.

When ships are seized by port authorities usually the reason behind it are unpaid debts. Debts from any one of these parties could result in ships being seized.

example:
A dishonest charterer can run up charterers debts like fuel, stevedoring costs, wharfage, light dues and get the ship out of port without paying them. Then at the end of the charter, the charterer disappears and let the unpaid creditors seize the ship for outstanding amounts. Sometimes even law enforcement, creditors and dishonest charterers could be working together in third world countries.

or sometimes a dishonest shipyard could greatly inflate ship repair cost bills and when the unwary shipowner fail to pay the ship is seized.

<no vested interest in any of the shipping trust after reading this book>

http://www.maxhardberger.com/

[egghead]

However, the default will not cause First Ship to be unable to continue to service the debt obligations under its loan agreement.

For now, that is.

[KopiKat]

However, the default will not cause First Ship to be unable to continue to service the debt obligations under its loan agreement.

For now, that is.

The headline 'Defaulting lessees to impact NTA of FSL Trust' and the article mentioned 'NTA per unit is expected to decrease by US$0.03 from US$0.53 to US$0.50'. Seems like no big deal!

But, I prefer to focus on 'The lessees' contribution to FSL Trust's total revenue for FY2011 was 12.8 per cent.' It was also mentioned in their SGX Annc that FSL would be unable to get similar rates even if they were able to find new lessees for the 3 Chemical Tankers.

Better safe than sorry, I concur with 'egghead' and made a 'heart-pain' decision to divest my entire holdings.

[Nick]

FSLTM incurred 3 major errors in its early years and unitholders are paying the price for it:

1) Maintaining a 100% cash payout policy
2) Taking on debts with LTV covenants and refusing to pay it down regularly
3) Doing sale and lease-back with non blue chip companies.

They learned the mistake for no 1 very quickly in 1H 2009 but took some time to settle no 2 with the 6 year amortizing loan. But clearly didn't learn about no 3 judging by the Torm transaction in June. The funny thing is that it started the crisis as one of the more promising shipping trust with a diversified fleet and quick LTV waiver. But since then, it has just been a downhill ride. I wonder will they maintain the 0.4 US cent div for FY 2012 ie 2.6% yield haha

[PeterSoh]

and now it all comes down to the now biggest shipping trust in Singapore "Rickmers Maritime"

[Nick]

RMT fleet is backed by 5 relatively stronger counter-party but their leases start to expire from late next year onwards. If the shipping recession doesn't end in 24 months time, the lease revenue will drop and its ability to service the very large debt might be impaired. It also have a ship charter expiring in 2 months time. If the recession ends by 2014, then it would be much healthier with the possibility of DPU cap being lifted (but convertible bonds might be converted). I guess the shipping trust in Singapore never developed properly and failed to attain the size needed for it to be successful like Seaspan in the West. I guess some may speculate Rickmers doing a PIL by delisting the Trust hmm.

[Musicwhiz]

Interestingly, when I was attending the AGM back then in 2008 (before the crisis), the Directors were then talking about yield compression and pointing to Shipping Trusts trading in the USA as evidence that share price would rise to compress the yield. At the time, the yield was about 9-10% with share price hovering around $1.20. That was, of course, based on 100% payout and an unsustainable loan repayment schedule (with bullet repayment originally scheduled for 2012).

How times have changed. Now, instead of yield compression, FSL Trust is fighting to ensure their lessees pay up, the fleet can be deployed on useful charters at all times and that their LTV covenants do not blow up.....

[dzwm87]

Interestingly, when I was attending the AGM back then in 2008 (before the crisis), the Directors were then talking about yield compression and pointing to Shipping Trusts trading in the USA as evidence that share price would rise to compress the yield. At the time, the yield was about 9-10% with share price hovering around $1.20. That was, of course, based on 100% payout and an unsustainable loan repayment schedule (with bullet repayment originally scheduled for 2012).

How times have changed. Now, instead of yield compression, FSL Trust is fighting to ensure their lessees pay up, the fleet can be deployed on useful charters at all times and that their LTV covenants do not blow up.....

That's also why I prefer to meet up with management during bearish times. At least you know they are more honest and less optimistic.

Given bullish times, almost every dart thrown will bound to be profitable investment. More importantly, it is to apply strong margin of safety.