Business Context and Reporting Period
This Form 6-K filing by Ship Finance International Limited (SFL Corp Ltd.) covers the month of March 2007. The report discloses a strategic acquisition announced on March 20, 2007, involving three newbuilding seismic vessels and associated 12-year charters with SCAN Geophysical ASA.
Key Financial Metrics and Transaction Details
- Total Acquisition Cost: $210 million ($70 million per vessel), including complete seismic equipment.
- Financing Structure:
- Senior loan facility: $120 million ($40 million per vessel).
- Equity contribution: $30 million ($10 million per vessel).
- Seller's credit (non-interest bearing): $60 million ($20 million per vessel).
- Net Investment: $50 million per vessel.
- Charter Rates (per vessel):
- Years 1-3: $26,500 per day.
- Years 4-6: $24,500 per day.
- Years 7-12: $10,000 per day.
- Projected Cash Flow: Estimated average annual net cash contribution of approximately $0.12 per share after interest and debt repayment during the first 6 years.
- Debt Repayment: Approximately $13.7 million annually for the three vessels during the first 6 years.
- Guarantee Obligation: $16.3 million per vessel prior to delivery, reducing to $10 million per vessel post-delivery.
Material Changes and Strategic Outlook
The acquisition represents a material expansion of the company's asset base, increasing the total fleet to 60 vessels (including newbuildings and adjusted for announced sales), with essentially all vessels on medium to long-term charters. The vessels are scheduled for delivery in January, April, and July 2008. The transaction diversifies the customer portfolio and leverages the strong market for modern 3D seismic vessels.
Management anticipates further growth opportunities in the offshore segment due to high activity levels and positive market outlooks. SCAN Geophysical ASA, the charterer, is expected to list on the Oslo Stock Exchange in 2007.
Risks and Contingencies
- Construction Risk: Vessels are under construction at ABG Shipyard in India with delivery scheduled for 2008.
- Counterparty Risk: Reliance on SCAN Geophysical ASA for charter payments and potential future exercise of purchase options.
- Market Risk: While the current market is strong, future charter rates for Years 7-12 are significantly lower ($10,000/day) compared to the initial period.
- Guarantee Exposure: The company maintains a guarantee obligation of $10 million per vessel after delivery.
Investor Verification Checklist
- Verify the construction progress and delivery schedule of the three vessels at ABG Shipyard in India.
- Confirm the financial stability and listing status of SCAN Geophysical ASA on the Oslo Stock Exchange.
- Review the specific terms of the senior loan facility regarding interest rates and covenants.
- Assess the impact of the $0.12 per share net cash contribution on overall earnings per share.
- Monitor the exercise of fixed price purchase options by SCAN at years 6, 10, and 12.