FSL – BT

FSL Trust secures 2-year loan-covenant waiver

But interest margin raised 50 to 70basis points during waiver period

SHIPPING trust First Ship Lease Trust (FSLT) has announced some relief amid the sector’s finance woes by securing a two-year waiver from the loan-to-value covenant for its credit facility, although it comes at a higher price of a 50 to 70 basis point increase in the interest margin for the duration of the waiver period.

During the waiver period, which will extend until the end of the second quarter in 2011, the minimum coverage ratio of the charter-free fair market value of FSLT’s vessel portfolio over its outstanding indebtedness will be cut from 145 per cent to 100 per cent.

FSLT will also make quarterly loan repayments of US$8 million during this period, which will progressively reduce its outstanding loan balance and lower its refinancing risk at the respective loan maturities in 2012 and 2014. To date, FSLT has already voluntarily pre-paid US$12 million of its loans.

‘We are very pleased to secure this arrangement with our lenders, which addresses a key concern for investors in relation to any potential LTV covenant breach,’ said FSLT trustee-manager FSL Trust Management CEO Philip Clausius. ‘With our voluntary pre-payments and now agreed amortisation on these loans, we have established a clear framework for FSLT’s balance sheet going forward. We are now able to affirm with confidence our quarterly DPU guidance of 1.5 US cents from Q3 FY2009 onwards,’ he added.

Based on FSLT’s closing price of 60 Singapore cents yesterday, this represents a prospective annualised yield of approximately 14 per cent.

In connection with the waiver arrangement, however, all loan tranches under FSLT’s credit facility will bear a higher interest margin of 1.7 per cent over the three-month US dollar Libor on the outstanding loan amount during the waiver period. The margin increase will be reduced to 25 basis points after the expiry of the waiver period.

The extra interest expense arising from the higher interest margin during the waiver period averages US$700,000 per quarter and will not affect FSLT’s DPU guidance of 1.5 US cents per quarter.

As the credit facility is revolving in nature, FSLT will be able to re-draw on the committed but undrawn portion of its credit facility after the waiver period.

FSLT’s current portfolio comprises 23 vessels which are all leased on long-term bareboat charters. These are all fully financed and there is no committed capital expenditure or requirement for additional funding.

FSLT also reiterated that it has been receiving prompt lease rental payments from its lessees and there has been no request by any of its lessees to re-negotiate lease terms.