Business Context and Reporting Period
This Form 6-K filing by Ship Finance International Limited (SFL Corp Ltd.) covers the month of September 2008. The report primarily disseminates a press release dated September 16, 2008, announcing a major strategic acquisition and a dividend increase. SFL is a Bermuda-based ship owning company listed on the NYSE with a diversified fleet of 73 vessels and rigs.
Key Financial Metrics and Transaction Details
- Acquisition Cost: Approximately $1.7 billion for two newbuilding ultra-deepwater semi-submersible drilling rigs (West Hercules and West Taurus).
- Financing Structure: $1.4 billion loan facility from a syndicate of international banks; approximately $300 million equity investment sourced from available liquidity and existing asset refinancing.
- Debt Repayment: The $1.4 billion facility is scheduled to be paid down to approximately $730 million over a 5-year term, with average annual repayments of $134 million.
- Guarantee Exposure: Limited to $100 million per rig ($200 million total) on the new loan facility.
- Projected Cash Flow: Estimated average annual net cash contribution of $46.5 million over the first five years after interest and debt repayment.
- Dividend: Quarterly dividend increased from $0.58 to $0.60 per share for the third quarter.
- Charter Revenue: Aggregate net charter payments from Seadrill are approximately $1.4 billion for the first 78 months and $900 million for the remaining lease period.
Material Changes and Strategic Moves
The filing details a record-breaking sale/leaseback transaction in the maritime industry. SFL is acquiring two rigs from Seadrill Limited subsidiaries with immediate 15-year bareboat charters back to Seadrill. The West Hercules is sub-chartered to Husky Oil China Ltd. at approximately $524,000 per day for the first three years. The West Taurus is sub-chartered to Petrobras for six years at approximately $630,000 per day following mobilization. This transaction increases SFL's total investment in the offshore segment to approximately $3.4 billion.
Outlook, Risks, and Accounting Treatment
Management Commentary: CEO Lars Solbakken described the transaction as highly accretive and indicative of the company's commitment to portfolio diversification and growth. The company intends to continue increasing dividends based on new accretive transactions.
Accounting Treatment: Due to purchase obligations at the end of the 15-year charters, the rigs will be accounted for as "investment in associates" under US GAAP rather than as standard fixed assets.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Key risks include fluctuations in charter hire rates and vessel values, changes in global oil consumption and OPEC production levels, interest rate volatility (though interest rate exposure is largely transferred to Seadrill via charter rate adjustments), and geopolitical disruptions to shipping routes.
Investor Verification Checklist
- Verify the closing date and delivery status of the West Hercules (expected early October 2008) and West Taurus (expected December 2008).
- Confirm the final terms of the $1.4 billion loan facility and the specific interest rate adjustments tied to LIBOR.
- Monitor the execution of the dividend increase to $0.60 per share for the third quarter.
- Review the impact of the "investment in associates" accounting treatment on future balance sheet leverage ratios.
- Assess the creditworthiness of the sub-charterers (Husky Oil China Ltd. and Petrobras) given the long-term nature of the sub-charters.