Has anybody here even attempted to do a proper analysis of what is going on?
SFL has made concessions of $265.7 MM spread equally over 4 years ($66.4 MM/year). It has been paid unrefundable lump sum of $106MM and will save on interest and debt installment costs, so it has more or less been made whole for years 1&2 of the four year agreement. If the tanker market NEVER comes back, the NPV (disc rate 10%) of their downside is @$90 MM as they will not recoup revenue losses in years 3&4. The mkt cap losses from mid Nov have been @$400 MM on a maximum nov loss of $90 MM!
Due to 100% profit-share b/t old rates and new rates, they start making it all back if vlcc rates >$25,000 and smax >$20,000. In theory, they are ALREADY earning back some of the concessions they have made with smax rates currently @$30K. If rates straight-line back to their modern era (1990-2004) averages by 2014 and hold there until the vessels are ready for scrap, they recoup ALL the concessions AND have pocketed the $56MM of the $106MM that is pure compensation for the restructure AND gain an incremental 5% of profit-sharing above the old rates. The NPV of this scenario is likely over $200MM.
So, $90MM worst case scenario exposure if tanker market stays at historical trough levels vs. +$200MM NPV upside if tankers experience reversion to the mean. It hasn't lost ANY cash flows permanently, just made a small amount of cash flow subject to more risk. SFL hasn't LOST any economic value...yet...it has only traveled slightly on the risk/reward continuum. And theoretically, you WANT to ramp up exposure to the spot market at the bottom of the cycle. this was NOT the way to do it, but it is what it is and, post-restructuring, SFL is arguably MORE valuable than it was on Nov 18th.
I do recognize the risk. Quantitatively, the risk of having FRO as a counterparty is less than it was two months ago, when the risk is much higher. As I mentioned in my analysis, SFL has - in a roundabout and forced way - "risked up" via this whole episode, but the risk comes not from exposure to FRO or loss of irrelevant assets to FRO2012, but from its increased exposure to the spot tanker market. It just so happens that brokers are reporting VLCCs are now getting $38,000/day from AG to east, so SFL is making back every dollar of concession and then some if FRO is getting such bookings.
I am well aware that SFL is an equity and I am well aware of the JF related parties. I have owned SFL since its spinoff from FRO in 2004 and owned FRO prior to that. Arguably, I know this stock better than any analyst out there. JF has been a boon to this company since its formation, his track record in business and in dealing fairly with shareholders has been remarkable. This FRO episode has been the only blemish and it is the FRO shareholders who should have the most regret. SFL shareholders have in effect levered up for a tanker recovery with minimal capital investment, much less than if they were to go out and buy tankers. And is the tanker recovery here, not two weeks into the new year? Probably not but you never know, maybe.
pdnnyc, your analysis failed at the get go. SFL is a finance outfit, not a shipping company.
Worse, it finances related parties. You ignore this added risk.
SFL sticks with FRO because JF controls both.
How can you say that risk no longer exists, and that there is no relevant calculation for risk? You invested in an equity - who is dealing predominately with related parties. Yet you are not a related party.
Open your eyes. Smell the coffee. At least recognize there is risk - after all, in December that risk just spanked you big time.
I don't mean this as insulting, truly...but you appear to be new to analyzing shipping stocks. A company's growth prospects are ALL a function of their own assets, not anything to do with a counterparty's assets. All a counterparty has to do is PAY THEIR BILLS. On the margin, it's nice to have healthy growing counterparties because doing business with a known quantity is better than not, but cargoes don't disappear because counterparties stagnate/disappear. A certain amount of oil moves around the world regardless of whether it is in tankers chartered by FRO or somebody else, and SFL could charter out its tankers to anybody. It stuck with FRO because the charters in place have value, a restructured FRO is likely yo pay its bills, and they were able to secure a nice profit-sharing agreement. Yes, it still "exposed" to FRO which doesn't strike me as a problem, FRO is now virtually debt free and FRO remains what it always was, a spread business (spread b/t charter in and hire out). Growth prospects embedded in the newbuildings sent off to FRO 2012 remain mostly irrelevant. There is NO relevant calculation to factor in "exposure" to FRO into valuation IMHO but you could argue that the calculation is now more in favor of SFL since FRO is significantly more liquid now.
So you have written off growth in financing tanker business. That is your perogative and may very well be correct.
So let's return to your stock valuation analysis.
SFL remains terribly exposed to FRO, who just gave up its growth prospects to FRO 2012. Worse, it gave up its most efficient ships to FRO 2012 (now a competitor) - something one doesn't want to do in a down market.
Now... how did you analyze the exposure risk to FRO in valuing SFL?
SFL most certainly has exactly the same growth prospects as before. It has grown substantially and exclusively away from tankers since 2004. It can chase ANY maritime asset and do business with ANY counterparty it likes. The opportunity set is enormous, why on earth do 10 vlccs/smaxs that they never showed interest in hold the key to their future? Pure poppycock.
Board members...maybe these links will help some investors on this message board understand what JF and his family is all about...what is good for JF can be great for us as investors...
Please remember, that JF did not get where he is today by ridding in to town on a head of cabbage (lol)...! $tagg...!
jf did ride into town in a wagon full of turnip greens,but he did not fall off this wagon on his head.
hestarted out cleaning out ships in port. thats pretty good for the owner of the largest fleet in the world.
i'm going to sink or swim with jf. the rig part of sfl is looking pretty good. hope they make some more aqusitions to the rig fleet.
good investing to all
Board members...SFL has ten off-shore drilling rigs leased out and only three of them are leased out to SDRL (another JF company)...
Please remember that the three off-shore drilling rigs that are leased out to SDRL are probably released out to another oil company...
That said, SFL's off-shore drilling rig leases are very secure and profitable...! $tagg...!
stagg, I'll assign it to laziness and not to disengenuity. Would you do a bit more homework please? JF has more than one interest in a company in offshore drilling that does business with SFL.
Are you sure you know what you invested in here at SFL?
Actually SFL has 4 offshore rigs and 6 supply vessels (PSV and AHTS). The supply vessels are leased to Deep Sea which is a JF company. Supply vessel rates, like dry bulk have been hurting for a while and look like they may for a while longer.
Two of the three rigs that SFL is leasing to SDRL are on long term contracts 2015/16. The third is off contract in 2012. Rates still seem strong for the offshore segment, so I expect the rig coming off contract to do well, but that is uncertain.
Even with it just being 3 offshore rigs, the revenue per rig is so high it adds up to a lot (43% of their charter backlog per last quarters presentation).
If it was really 10 offshore rigs, SFL would be rolling in cash.
Board members...investors need to remember that off-shore drilling rigs is now a major part of SFL current business...SFL business is not just about ships or FRO...
Off-shore drilling is very hot business at this time and that business is in a high growth and very strong income producing mode...
Anybody that is a current holder of SDRL knows that I am correct on this (SDRL is now my leading capital gainer)...one of the reasons that SFL is leasing out off-shore drilling rigs is because the is where the money is at this time...FRO is no longer the major factor that it once was with SFL...! $tagg...!
just curious, stagg...
Is SFL leasing to the offshore drilling market, or to JF's offshore drilling businesses?
One is a true independent business activity - the other a related party transaction that an independent shareholder has to include in an investment analysis.
Have you done so?
As a follow-up to my last posting, please note that JF has now ordained FRO 2012 as his tanker growth vehicle.
What is SFL's relationship? none?
It is now declared so by JF.
It has the most efficient ships to ride out the depression in tanker rates.
It would seem to me that SFL should be doing business with FRO 2012. If not, why hasn't JF cut SFL independent shareholders into the kitty?
pdnnyc...very outstanding post (good for you), please keep up the good work...I also agree with exrctvyb...
Investors that feel uncomfortable with SFL should probably put their funds to work elsewhere...SFL has started making a nice rally and there is a reason for that, a lot of investors are now seeking value and they seem to know where to find it...! $tagg...!