Rickmers – BT

Rickmers incurs additional US$26,000 interest cost

This is due to a lending bank raising interest rate on a US$46.31m loan

RICKMERS Maritime said a lending bank has invoked the market disruption clause once again on a US$46.31 million loan, resulting in higher interest cost.

The bank’s move meant that an alternative interest rate higher than US$ Libor (London Inter-Bank Offered Rate) will be levied on the loan, causing an increase of about US$26,000 in interest cost for the current fixing period ending Feb 26, 2010, said the trust.

The invocation arose as US$ Libor does not accurately reflect the lender’s cost of funds, the trust’s manager explained, adding that it is ‘not a reflection of the trust’s credit worthiness’.

The last time that the clause was invoked by the same lending bank was in August.

The trustee-manager said yesterday that Rickmers has also taken a marked-to-market loss of US$3.24 million as at Sept 30 due to the ineffectiveness of cashflow hedge under International Accounting Standard 39 (IAS 39) for this loan.

Based on the current Libor rate, there will be minimal impact to the trust’s net profits for the fourth quarter of FY09 and no cash impact on the trust’s financial performance.

The trust-manager also reiterated that the lender’s move will not have an impact on the trust’s position in its ongoing discussions with banks on the waiver of value-to-loan covenants, the refinancing of a US$130 million loan facility and the funding of its existing orderbook.

As the discussions with the banks are ongoing, Rickmers did not take delivery of the vessel Hanjin Milano in September as previously intended and this has resulted in a swap arrangement – which was entered into for the pre-arranged loan – being rendered ineffective under IAS39 as the loan was not drawn down.

The floating-to-fixed interest rate swap which extends from Nov 30, 2009, to Nov 30, 2012, was earlier entered into to fix the interest cost of the loan that was to have been drawn down for the acquisition of Hanjin Milano.

As the swap arrangement now exists without a related loan, it has been rendered ineffective as a cashflow hedge and marked-to-market losses on this swap arrangement, currently estimated at US$2.63 million, will have to be taken into the trust’s profit and loss in Q409.

The final impact on Q409’s net profits will depend on the movement of US$ Libor.