Frontline Ltd. (NYSE/OSE: FRO) (the “Company” or “Frontline”) today announced that the Company has entered into a heads of agreement to amend the terms of the long term charter agreements with Ship Finance International Limited (“Ship Finance”) for the remainder of the charter period.
A subsidiary of Frontline has 17 vessels on charter from Ship Finance with an average remaining charter period of 7.7 years. The new agreement will take effect from July 1, 2015 and will reflect a combination of reduced long-term base rates, increased profit split to Ship Finance, increased operating expenses payable by Ship Finance, release of Frontline’s guarantee for the charters and an ownership interest in Frontline for Ship Finance.
New time charter rates for VLCCs: $20,000/day
New time charter rates for Suezmax tankers: $15,000/day
New opex for all vessels: $9,000/day payable by Ship Finance (previously $6,500/day)
New profit split: 50%/50% above new time charter rates
55 million Frontline shares will be issued to Ship Finance
The chartering counterparty will continue to be a subsidiary of Frontline, and in exchange for releasing Frontline from the current guarantee obligation on the charters, a cash buffer of $34 million ($2 million per vessel) will be built up in the chartering counterparty.
Accrued cash sweep by Ship Finance from January through June 2015 based on the existing agreement, estimated to be approximately $20 million, will be paid to Ship Finance in July, 2015.
In the current charter arrangement, Ship Finance is entitled to a 25% profit split above an average of $26,737/day for the VLCCs and an average of $21,100/day for the Suezmax tankers, calculated and payable on an annual basis. Frontline prepaid $50 million in profit split in December 2011 and no additional profit split has so far accrued in excess of this amount.
The new profit split arrangement will start accruing from July 1 and will be calculated and payable on a quarterly basis. Going forward, profit split payments will not be subject to the previous $50 million threshold.
The estimated reduction in fixed charter payments to Ship Finance under the amendments to the charter agreements is approximately $283 million. In addition, the new agreement significantly strengthens Frontline’s balance sheet and reduces its financial risk.
Based on closing share price on May 28, 2015, of $3.06 per share, the market value of the Frontline shares to be issued to Ship Finance is approximately $168 million, and based on the volume-weighted share price last 3 months of $2.64 per share, the value is $145 million.
The shares to Ship Finance will be issued concurrently with completion of the new agreement, representing approximately 27.7% per cent of the shares and votes in Frontline following completion of the share issue. Frontline has agreed to register those shares for resale with the US Securities and Exchange Commission.
In addition, Ship Finance owns approximately $116 million of senior unsecured amortizing notes in Frontline, which will remain unchanged.
CEO of Frontline Management AS, Robert Hvide Macleod said in a comment: “The new structure will reduce Frontlines cash break-even rates significantly and ensure a more sustainable long-term structure. This agreement significantly strengthens Frontline’s balance sheet and reduces its financial risk. The board and management can now shift the focus from balance sheet restructuring to business development and growth. This represents a major milestone for the company.”
Forward Looking Statements
This press release contains forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including Frontline management’s examination of historical operating trends. Although Frontline believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, Frontline cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.
Important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in this press release include the strength of world economies and currencies, general market conditions including fluctuations in charter hire rates and vessel values, changes in demand in the tanker market as a result of changes in OPEC’s petroleum production levels and world wide oil consumption and storage, changes in the Company’s operating expenses including bunker prices, dry-docking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, and other important factors described from time to time in the reports filed by the Company with the United States Securities and Exchange Commission.
May 28, 2015
The Board of Directors
Questions should be directed to:
Robert Hvide Macleod: Chief Executive Officer, Frontline Management AS
+47 23 11 40 00
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 00