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Ship Finance International Limited Message Board

  • ujok_wehu ujok_wehu Jan 12, 2007 8:17 AM Flag

    West Prospero

    If I guess that West Prospero is purchased with 8.5% 15 year loan, then I figure it costs SFL ~$70k/day. The first 3 years lease works out to $110k/d, so it seems like we've just picked up an extra $0.2/sh/yr starting in October, depending on how the op ex work out. SDRL has the rig leased out to Exxon at $205k/day for a year.

    I'd appreciate any corrections from the finance geeks.

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    • Kudos� to all the respondents to this Board... I read MANY Boards EVERYDAY that I have a vested interest in, and read this Board because I have an interest in SFL.. I DO NOT own SFL, but I'm performing DD. I'm impressed with the sense of CIVILITY that all of your responses perpetuate. I want to compliment all of you for the interesting, substantive (financial analysis, risk/reward, etc.), and HELPFUL dialogue you've shared with those who read this Board. I'm sure your all aware that most other Boards exhibit a dearth of CIVILITY and many are filled with offerings of banal, vulgar, epithets, and have become the forums for the demented, for the most part. Kind Regards to all,....Maverick

    • Another instance.
      SFL and FRO cancel lease of SH ship.
      SFL sells it for substantial profit.
      Most of profit is paid to lessee, FRO.
      What kind of nonsense is this? Get a real CEO at SFL.
      SFL does not exist to feed FRO and lessen its risk.

    • SDRL deal puts SFL balls in vice.

      Rig value goes up, SDRL buys back rig, SFL contract returns on SDRL deal goes way south. Not worth the deal.

      Rig value goes flat, same story.

      Rig value goes south, SFL gets good SDRL deal return, but maybe has asset worth below deal expectations.

      But what have most posters missed? SDRL has SFL balls in a vice in all negotiations now. They can threaten to buy back rig. Then demand unrealistic rehabs or low ball renewal lease rates, at SFL expense, BECAUSE they can threaten to buy back rig.

      This looks like what happened with SH ships. SFL has lost control of their assets. Handed the rewards to their customers while assuming risk. Utterly stupid.

      Who is making SFL deals with JF entities that leaves SFL balls in a vice?

      SFL should switch to car leasing. There are reference books guiding independent value/risk appraisal. Cookie cutter oversight. Here, SFL is over their head.

    • SFL should lease cars with JF.
      They assume potential high risks with JF ships and rigs. Don't get the return for doing so. Give it to JF.
      Cars would work. Better return than the SDRL rig too.
      Asset value can be confidently looked up in a book.
      If valuations go flat, this SDRL contract sucks as rig will be bought back.
      mtennenbaum, you see this now, yes?

    • mt didn't say that. He said it could be as little as:

      >>>If SDRL elects to repurchase then for $142MM, SFL books a loss of $68MM, basically wiping out 2/3 of its return.<<<

      That doesn't look so good. In fact, I would ask why risk the capital for this trap door not to be controlled by the financier, SFL? Surely there must be better, and less risky, deals out there for our capital.

    • mtennenbaum

      Thanks for your analysis. 12-14% is pretty good when compared to a risk free return of 5% or lower for longer term investments. Each investor should determine for him or herself whether the risk justifies the increased return. My opinion is that it is easily worth the risk. Pt-barnum's opinion may differ, in which case, I would recommend that he looks into T-bills. At any rate, the probable rate of return analysis is a crucial piece of information required to evaluate any investment.

    • mtennebaum, no slight to accountants. Just the analyses presented take no account of risk/reward, including yours.
      ...and GE would not have put in the SDRL rewarding rig buy back clause. Not for that return rate. That clause is the crux of the issue, missing from all business analysis of the deal. Shame on you for presenting GE leasing as just as niave.

      Circle jerk? no. All SFL shareholders should be served equally. That clause doesn't.

    • I am not an accountant, my training is finance, risk and analysis.

      You say 12-14% is nothing to crow about and then acknowledge GE leasing, one of the saviest lenders in the world, would expect that rate. It's not as though the price of the rig is tremendously inflated and GE would probably make a similar deal.

      Finally, how can it be good for JF and bad for SFL when JF owns such a large percentage of SFL? He's not in this to transfer wealth around companies so much as to unlock wealth among the various companies.

      What you describe is more like a JF circle jerk which forces one to ask just how has this investor succeeded with actions that add no value to his various holdings?

      I would really appreciate it if you went deeper in your thinking about risk and return. You claim SDRL gets all the upside while SFL bears all the downside. That simply makes no sense. SDRL is paying for the right to recapture some upside (remember there is also some level of profit sharing I have not included because we have sketchy details) while bearing the downside risk that if rig prices plummet. In a down market, SDRL would stuck with an above market lease it cannot shake off unless the company goes belly up.

      I don't mind people asking questions and being critical, but criticism without real answers is nothing more than complaining. We should not use this board simply to complain, but rather, IMHO, as a forum to really hash throught he issues to achieve a better understanding of the various risks and returns.

    • hmmmm... good question. I will answer not as an accountant, but a businessperson.

      Oil biz goes through bubble.
      JF buys early, watches assets inflate. Then dumps inflated assets into his OPM bank, SFL.
      JF makes sure if asset values increase, bank gives back asset for him to prosper.
      If asset value decreases, SFL, OPM, is stuck with it.
      Excellent JF deal. Poor SFL deal.

      SDRL is not a blue chip borrower. 12-14% is nothing to crow about. It is a fairly normal rate of return for this. Look at GE leasing to understand.
      SFL should not take the asset risk without a reward.
      Simple concept. Why you ignored this is beyond me.

    • I'm not a geek, but I did stay at a Holiday Inn Express last night.

      Here are my assumptions in case anyone wishes to check my work:

      1. 365 day year (sometimes 360 is used);
      2. SFL finances 50% of the rig, which is their normal capital structure;
      3. SFL borrows based on Libor and swaps into 6% fixed rate; and
      4. SFL doesn't pay down principle on the loan, but refi's annually as they have done every year so far.

      On that basis, you are correct SFL receives about $110,000 per day. It's debt cost however, is only about $19,800 per day, generating an annual cash flow beofre overhead and other costs of about $32.8MM per year.

      Put that against the $210MM purchase price and SFL generates a 15.6% return on its equity over the early years. If SDRL elects to repurchase then for $142MM, SFL books a loss of $68MM, basically wiping out 2/3 of its return. In that case, SFL would be left, after repaying the $120MM in debt, with $22MM plus another $30MM in operating profit for an average return of about 14% on equity.

      Over years 4-7, SFL receives about $12MM in operating profit per year, or about 10% on equity.

      And over the final 8 years, the return falls to about 5%.

      I've done all this without present valuing all the numbers which would change things a bit here and there.

      Now if I run a present valued adjusted return, assuming the full 15 years and a $60MM residual value, the leveraged return on equity I get is 14% for the entire deal.

      • 3 Replies to mtennenbaum2001
      • << I'm not a geek, but I did stay at a Holiday Inn Express last night.>>

        No offense intended: you're the finance geek whose opinion I most value, and I don't use "geek" in a disparaging way. Thanks for your much more careful analysis.

      • Hi Tennenbaum
        I am glad you are around to analyze the numbers because at my first look I thoght it was a bad deal. My kindergarden calculation was 306MM in lease payments received with 96MM left after the cost of 210MM for the rig, not including interest.96mm/15yrs is an average return of 6.4MM per yr or a return of 3.3% per year. Boy am I a simpleton.
        By the way the monkey is patrolling thre ACAS Yahoo board.
        Happy New Year

      • Maybe I should have stayed another night.

        If Seadrill repurchases after 3 years, SFL realizes virtually no profit. So that is a downside scenario since we will have received only a $400K profit ofr 3 years financing the rig.

        There are other repurchase options on which I have not detail, but I assume the 3 year option is the second worst outcome for us (a wipeout due to BK or other unforeseeable events is our worst outcome).

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