Business Context and Reporting Period
This Form 6-K filing by Ship Finance International Limited (SFL Corp Ltd.) covers the period of September 2017, specifically dated September 13, 2017. The filing serves to disclose a material event: the signing of a restructuring agreement with Seadrill Limited, a major lessee of SFL's offshore drilling rigs.
Key Financial Metrics and Material Changes
The filing does not provide consolidated revenue, profit, or cash flow statements for the period. However, it details specific financial impacts related to the Seadrill restructuring:
- Charter Hire Reduction: SFL agreed to reduce contractual charter hire by approximately 30% for a 5-year period starting in 2018. Reduced amounts will be added back in the period thereafter.
- Lease Extensions: Leases for the rigs West Hercules and West Taurus are extended for 13 months until December 2024.
- Debt Restructuring: Banks financing the three rigs (West Linus, West Hercules, West Taurus) agreed to extend loan periods by approximately four years with reduced amortization during the extension.
- Estimated Cash Flow: Net cash flow from the three rigs during the extension period is estimated at approximately $29 million per year, or approximately $0.08 per share per quarter, net of loan interest and amortization.
Guidance, Outlook, and Management Commentary
Management views the restructuring as a comprehensive solution that resolves uncertainty regarding lease timing and impact. CEO Ole B. Hjertaker noted that the agreement facilitates continued cash flow from the three rigs. The Board has already adjusted the dividend in the August quarterly report. Management intends to focus on new asset acquisitions to build distribution capacity going forward. The restructuring is expected to provide Seadrill with a five-year runway and a bridge to industry recovery.
Risks and Contingencies
The filing includes a cautionary statement regarding forward-looking statements, noting that actual results may differ due to various factors including:
- Strength of world economies and currencies.
- Fluctuations in charter hire rates and vessel values.
- Changes in demand in the tanker market and OPEC production levels.
- Operating expenses including bunker prices, dry-docking, and insurance costs.
- Regulatory changes and potential liability from litigation.
Important Facts for Investor Verification
- Verify the specific terms of the 30% charter hire reduction and the mechanism for "add-back" payments post-2023.
- Confirm the impact of the $0.08 per share quarterly cash flow estimate on SFL's overall dividend policy and payout ratio.
- Monitor the progress of Seadrill's Chapter 11 filing and the confirmation of the restructuring plan by the court.
- Review the August quarterly report for details on the dividend adjustment mentioned by the CEO.
- Assess the credit risk exposure to Seadrill given the extension of lease terms and the lessee's bankruptcy status.