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RPT-Fitch Affirms Singapore's First Ship Lease Trust at 'B'/Negative
June 18, 2013 / 12:17 PM / 4 years ago

RPT-Fitch Affirms Singapore's First Ship Lease Trust at 'B'/Negative

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June 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Singapore-based First Ship Lease Trust's (FSLT) Long-Term Issuer Default Rating (IDR) at 'B' with Negative Outlook.

The ratings reflect FSLT's weakening asset quality, which in turn is a reflection of the cyclical downturn the global shipping industry is facing. However, Fitch expects FSLT to meet its contractual loan repayment of USD44m in 2013, funded by positive free cash flows (FCF) and cash and bank balances of USD36.9m as of 31 March 2013. FSLT will also be voluntarily prepaying another USD10m in Q313

KEY RATING DRIVERS

Weak portfolio quality: The cyclical downturn the global shipping industry is currently facing has adversely impacted the credit profile of FSLT's lessees. FSLT recently announced the default of Geden Lines that accounted for 15% of FY12 lease revenues. The default of Berlian Laju Tanker (BLT), which accounted for 12.8% of FSLT's FY11 revenues, and the restructuring of the lease rentals payable by Denmark-based TORM A/S in 2012, coupled with the Geden default, will sustain the declining trend in lease revenues and operating EBITDA through 2013.

Covenant relaxation period extended: FSLT has successfully negotiated with its bankers to extend the covenant relaxation period up to 31 December 2013 from the previous deadline of 30 June 2013. The covenants are a minimum security value-to-loan (VTL) ratio of 100% and debt service coverage of 1.0x, which were lowered in June 2012 from 125% and 1.1x. FSLT will also be voluntarily prepaying USD10m debt in Q313. FSLT continues to be in compliance with the revised bank covenant thresholds.

Limited liquidity: The weaknesses in FSLT's financial profile are partially mitigated by a cash balance of USD36.9m as of 31 March 2013 (prior to the USD10m voluntary loan prepayment), which is equivalent to 84% of the FY13 contractual loan repayment. As FSLT's projected expansionary capex and unit distributions are minimal, Fitch expects the company to generate positive FCF in FY13. This, coupled with FSLT's cash balance, should enable the company to meet its contractual debt servicing commitments. FSLT's total debt outstanding as of 31 March 2013 was USD419.55m, all of which was secured bank debt repayable in equal quarterly instalments of USD11m. The company is exposed to low refinancing risk.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include

-FSLT's free cash flow (FCF)-adjusted debt service coverage, i.e., (FCF + interest expense)/ (interest expense + contractual principal repayment of USD44m), falling below 1.0x on a sustained basis, and

- FSLT's cash balance falling below USD20m

Positive: Future developments that may, individually or collectively, lead to revision of the rating to Stable

-FSLT's FCF-adjusted debt service coverage improving to over 1.2x on a sustained basis without a material reduction in the cash balance below USD20m

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