First Ship Lease Trust

[CY09]

Q1 results are within expectations.

http://infopub.sgx.com/FileOpen/20170503...eID=451914

Based on the loan repayment of US$10.7 mil, FSL is definitely able to keep up with its principal repayment from its cash flow ability.
By end of this year, FSL's debt should be down to US$160 mil with about US$30 mil cash.

Based on this principal repayment rate, FSL will be able to pay down its loans by 2021 (even at a 3%+Libor rate). The question is whther banks want to refinance or otherwise.

[Boon]

@ HitandRun:
 
If approved by SIC, the “whitewash resolution” would still be subjected to a majority approval by independent unit holders by way of a poll.
 
@ yeokiwi:
 
Reit Manager (RM) is for Reits.
Trustee Manager ™ is a single responsible entity accountable to unit holders of a Business Trust (BT).
FSL is the only surviving shipping BT on SGX.
FSLTM is the only surviving TM of the shipping BT.
There is only one shipping TM role available on the SGX.
 
IMO, this Navios deal is a classic example of “exploitation” by TM on non controlling unit holders (NCUH).
 
The proposed Navios deal is structured in a way so that
1)  TM is having a special privilege to “sell out” its stake at USD 13 cents a unit
2)  Non-controlling is not entitled to this special privilege. This is UNFAIR, but it is not the worst part.
3)  The worst part is non-controlling unit holders would suffer losses due to the effects of “dilution”.
4)  GAIN in TM (in getting a special exit price) is at the EXPENSE of non-controlling unit-holders for not getting the special exit price but have to pay a price (losses) through the effect of “dilution”.
 
WIN (NCUH) / WIN ™ => Best and desirable outcome
WIN (NCUH) / NO WIN NO LOSS ™ => TM is putting NCUH interests ABOVE its self interests;
NO WIN NO LOSS (NCUH) / WIN ™ => TM is putting its self interests ABOVE NCUH interests
LOSS (NCUH) / WIN ™ => TM is EXPLOITING NCUH
The funny part is TM would have to seek NCUH’s approval for their willingness to be exploited……………………
I wonder how many NCUH would grant CONSENT to be exploited ? 
Ha-ha!
___________________________________________________________________________________________
 
1Q2017 Results (USD):
 
Outstanding Bank loan (L) = 192 m
VTL ratio  > 100% to 140%
VTL ratio > 125% (a more up to date info from AGM presentation slides)
1.25 L = 1.25 x 192 = 240 m
1.40 L = 1.40 x 192 = 269 m
=> V in FVLCTS is > 240 m but less than 269 m
 
Carrying amount or BV of 22 vessels = 418 m
Recoverable Amount of 22 vessels = the higher of FVLCTS and VIU
=> Carrying Amount or BV of 22 vessels = 418 m = VIU
 
NAV = 39 USD cents per unit
 
So, the TM still believes that USD 39 cents net per unit could be recovered through “use”.
 
How reliable and realistic is this?
 
Based on VIU, this would value its stake of 154,430,600 units in FSL Holdings at USD 60 m.
 
Why is the TM in a hurry to “cash out and get out” by selling them to Navios at USD 20 m ?
 
Why is the TM in a hurry to “cash out and get out” by “exploiting” NCUH interests?

I wondered........................................
_____________________________________________________________________________________________________________________________________

[HitandRun]

@ HitandRun:
 
If approved by SIC, the “whitewash resolution” would still be subjected to a majority approval by independent unit holders by way of a poll.

Boon-san

I did read that portion of the announcement. I was hoping that the SIC is much clever than that and impose a more stringent criteria. IMHO, this is not very different from a scheme of arrangement and therefore, I am suggesting that a 75% majority by independent unit holders is necessary.

I reckon that the main issue here is that HSH Nordbank is rudderless at the moment. It is selling itself out and so, the directive could be that it will sell down its non-core investments with little regard for value (preservation). This, of course, presents both a crisis and an opportunity.

[Boon]

http://infopub.sgx.com/FileOpen/_eFORM1V...eID=452074

Michael Gray (Non Executive and Lead Independent Director) bought 500,000 units @ SGD 0.095 per unit  
_____________________________________________________________________________________________________________________

[CY09]

http://www.hellenicshippingnews.com/tank...rofitable/

From recent transactions, we can roughly value FSL's MR tankers at US15.5mil each using comparable approach. And with 72.8 of contracted revenue from YM, FSL's container ships are probably worth US $75mil now.

[Boon]

@ HitandRun:
 
If approved by SIC, the “whitewash resolution” would still be subjected to a majority approval by independent unit holders by way of a poll.

Boon-san

I did read that portion of the announcement. I was hoping that the SIC is much clever than that and impose a more stringent criteria. IMHO, this is not very different from a scheme of arrangement and therefore, I am suggesting that a 75% majority by independent unit holders is necessary.

I reckon that the main issue here is that HSH Nordbank is rudderless at the moment. It is selling itself out and so, the directive could be that it will sell down its non-core investments with little regard for value (preservation). This, of course, presents both a crisis and an opportunity.

I do agree with you that HSH Nordbank does seem rudderless at the moment.
 
They used to be one of the top shipping financing bank in the world who are trying to sell themselves now.
 
Ship financing used to be their CORE investments.
 
I am not quite sure on what their CORE and non-CORE investments are right now, my guess is they aren’t too sure either. Ha-ha!
__________________________________________________________________________________________________
THE SINGAPORE CODE
 ON TAKE-OVERS AND MERGERS
APPENDIX 1 :WHITEWASH GUIDANCE NOTE
2  Specific grant of waiver required
 
In each case, specific grant of a waiver from the Rule 14 obligation is required. Such grant will be subject to: -
.                     (a)  a majority of holders of voting rights of the offeree company approve at a general meeting, before the issue of new securities to the offeror, a resolution (the 'Whitewash Resolution") by way of a poll to waive their rights to receive a general offer from the offeror and parties acting in concert with the offeror; 

.                     (b)  the Whitewash Resolution is separate from other resolutions; 

.                     © the offeror, parties acting in concert with them and parties not independent of them abstain from voting on the Whitewash Resolution;
  _______________________________________________________________________________________

If approved by SIC, the “whitewash resolution” would still need to be subjected to a majority approval by independent unit holders, by way of a poll.
 
“Majority” is clearly stated in the code, and it is unlikely that SIC would “override” this with a 75% majority, IMO. One could only hope that SIC won’t approve it in the first place.
 
Now that Michael Gray had bought 500,000 units into FSL Trust, he should be eligible to vote on the “whitewash resolution”, IMO.
 
Wondering what his views are on the refinancing issues and the proposed Navios deal ?
______________________________________________________________________________________________________________________

[Boon]

By subjecting unitholders to such a deal, TM is effectively putting its interest above that of unitholders, IMO.

I wonder how SIC will rule on this. I was hoping that they will either not approve the whitewash waiver or at least ask for a 75% approval level. Would they be smart enough to see through the fog? 

CY09

A rights issue will be the last on TM's list because FSL Holdings got no money to pony up and will lose controlling power..... And why can't they sell the ships? Because then Navios won't pay them USD20 million (plus all the premium to be paid for the asset management company)... I suspect the USD20million is for them to retain all the ships AND to  CONvince  er I mean, persuade the non controlling unit holders to subsidise Navios.

Selling 25% of the vessels (by value) make sense to me...........................................  

Bank debt (USD)
FY2016 = 223 m
1Q2017 = 223 m – 20 m (voluntary repayment in 1Q2017) – 10.7 m (quarterly repayment for 1Q2017) = 192 m
3Q2017 = 192 m – 2 x 10.7 m = 171 m  
 
Cash (USD):
FY2016 = 43 m
1Q2017 = 25 m
 
V in FVLCTS (USD) as at 1Q2017 :
Outstanding Bank loan (L) = 192 m
VTL ratio  > 100% to 140%
VTL ratio > 125% (a more up to date info from AGM presentation slides)
1.25 L = 1.25 x 192 = 240 m
1.40 L = 1.40 x 192 = 269 m
=> V in FVLCTS is > 240 m but less than 269 m
 
Sell 25% of vessels by 3Q2017:
Sell 25% of vessels for 60 m ( = 25% x 240m ) by 3Q2017 to further pay down debt.
Make additional 10 m voluntary repayment from cash level
Bank debt at end of 3Q2017 = 192 m – 2 x 10.7 m – 60 m – 10 m= 100 m
Value of security (collateral) left = 75% x 240 m = 180 m
 
Borrow USD 100 m for 4 years against  vessels worth 180 m
ðVTL=180%
ðPrincipal repayment = 25 m each year
ð 100 m loan would be fully repaid by end of 2021
_____________________________________________________________________________________________________________________

[tsc3024]

Given that FSL's loan repayment has been prompt, business is generating profits and positive cash flow with some cash reserve, has not been paying unit holders in the last 4 years (conserving cash for loan repayment, basically the Trust is working for the Banks in the past years), FQ is acceptable, Banks should be able to extend financing. However, if the issue in hand is really the impending change of Sponsor / Borrower, then this issue has to be resolved before any progress can be made. If the Sponsor is not in a position to undertake subscription to its allotment, then Bond issue; right issue may all be infeasible.

[CY09]

Hi Boon,

The issue is that banks are not willing to refinance despite (i) prompt payments, (ii) data from comparable transactions which shows FSL's fleet has the cash to continue servicing the debt and (iii) good valuations. Clearly, something else is stopping/whispering to the banks to finance FSL. We can argue how strong business fundamentals are relative to repayments, but we also know business in the real world is not that straightforward.

Imo as well, it is highly unlikely the SIC in MAS will reject this transaction and the outcome will be down to how many shareholders voting against it

[Boon]

Hi Boon,

The issue is that banks are not willing to refinance despite (i) prompt payments, (ii) data from comparable transactions which shows FSL's fleet has the cash to continue servicing the debt and (iii) good valuations. Clearly, something else is stopping/whispering to the banks to finance FSL. We can argue how strong business fundamentals are relative to repayments, but we also know business in the real world is not that straightforward.

Imo as well, it is highly unlikely the SIC in MAS will reject this transaction and the outcome will be down to how many shareholders voting against it

http://fsltrust.listedcompany.com/newsro...esults.pdf
From 1Q2017 Results

The Board of Directors is committed to improving the structure of the Trust’s balance sheet, and continues to explore as a matter of the highest priority the Trust’s options in respect of securing a refinancing of the Trust’s outstanding debt.
Addressing the refinancing priority, the Board of Directors stated:
“The Board and Management have acted proactively on the refinancing issues to ensure the long-term stability of the Trust amid the volatility and reduction in vessel values. On 28 April 2017, a term sheet was entered into with Navios Maritime Holdings Inc. (“Navios”) for the proposed acquisition of over 154 million units representing approximately 24.23% of issued units in the Trust from FSL Holdings. Under the term sheet, Navios will also extend a US$20 million second priority mortgage convertible loan to the Trust. Navios currently controls a diversified fleet of over 170 vessels, and we believe that this agreement with an established industry player will place the Trust on a stronger footing to secure the refinancing.” 
_________________________________________________________________________________________________________________________________________________________________

It doesn't appears to me that Navios is going to provide the full refinancing. 

To place the Trust on a stronger footing to secure the refinancing, there are many options, but, it all boils down to meeting the security value expectation of lenders.

Why would banks not lent, if their lending criteria (no matter how stringent ) could be met? 
____________________________________________________________________________________________________________________