Must-know: Ship Finance chartering strategy, part one

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Ship Finance International Limited (SFL) took delivery of 12 vessels and rigs in 2014, all with long-term charters. This supports the company’s long-term distribution capacity, giving them investment opportunities in multiple segments and capital for new investments.

Here are the chartering strategies for different vessel categories and the current status of each.

Revenues segment

 

Dry bulk charters

Effective June 30, 2014, four of Ship Finance’s Handysize dry-bulk carriers are chartered out on shorter-term charters with a fixed-base rate and a 50% profit share. The profit share generated approximately $0.3 million in additional earnings in the second quarter. The company intends to continue employing these four vessels in the short-term charter market until it sees long-term rates improve.

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In July 2014 and August 2014, the company took delivery of two 82,000 DWT (deadweight tonnage) Kamsarmax dry-bulk carriers, combined with 8-year long-term charters to a state-owned Chinese charterer. Forecasts reveal that the estimated aggregate EBITDA contribution from the vessels stands at an average ~$7 million per year during the charter period.

Drilling units

Ship Finance has five drilling units on long-term fixed-rate bareboat contracts. The rigs generated approximately $80 million in aggregate EBITDA in 2Q2014. Based on the fixed-rate charter structure for the drilling rigs, Ship Finance is not directly affected by short-term fluctuations in the drilling market. While Ship Finance dipped 10.6%, peers Teekay Offshore Partners L.P. (TOO) dropped 11.9%, and Teekay Corp (TK) increased 5.1% in the past three months. The Guggenheim Shipping ETF (SEA) provides a broader industry base for comparison.

Bareboat charters

Ship Finance secured long-term bareboat charters of between five and six years for all its container vessels. The charters are with Mediterranean Shipping Company, the second largest liner in the world. At the end of the charter periods, there will be purchase options with profits-based features. Ship Finance also has an expansion option if the purchase options are not exercised.

The vessels are expected to generate approximately $15.5 million in aggregate EBITDA per year, with full cash flow in effect by the third quarter.

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