2Q 2009 Results

First Ship Lease Trust, FSLT announced its 2Q 2009 quarter results on 21st July, 2009. Forward DPU forecast came in at 1.5 USD cents, much lower than the 3.08 USD cents ever announced. Rather then feeling disappointed, I felt reassured of my investment instead. The forecast of 1.5 USD cents DPU was arrived at by setting aside 50% of free cash flow to pay off debt, rather than distribute to shareholders. This, in itself, is more prudent and sustainable in keeping FSLT afloat.

Impact on FSLT

The following table illustrates the impact of DPU cut and the increased voluntary debt payment will have on FSLT:

Assuming 50% of operating cash flow is used to pay off debt totally, the amount of outstanding debt by 1Q 2012 (first bullet payment becomes due) is reduced by 20.62% to 395m USD. The value-to-loan ratio will have been 175%. Interestingly, the current loan-to-value ratio is 176%. Against the value-to-loan covenant of 145%, seems to me 30% is the comfortable margin the management intends to maintain.

If so, unless FSLT is slabbed with higher interest rates by the lenders, chances for further cut in DPU is unlikely. Read more…