Ltd. entered into
an agreement to acquire two modern
47,000 deadweight tonne double-hulled
Product tankers from the Stena Group for an aggregate purchase price of $92
million in cash. The new vessels, Stena Contest and Stena Concept, were built
in 2005. Arlington expects to take delivery of the vessels in January 2006.
In conjunction with the purchase, Arlington will enter into fixed rate
charter hire agreements with Stena Bulk AB for both vessels. The charters will
be for an initial period of three years, at a rate commencing at $19,765 per
day for the first year
, $20,043 per day for the second year, and $20,335 per
day for the third year. There is no additional hire provision during the
initial three year period. At the end of the three year period both Arlington
and Stena Bulk will
have the option to extend the charters for an additional
Arlington will also enter into vessel management agreements for both
vessels with Northern Marine Management Ltd. for the term of the charters, at
fixed rates commencing at $5,565 per day and increasing at 5% per year.
Northern Marine Management Ltd. is a wholly-owned subsidiary of Stena Group.
These management agreements will be on substantially similar terms as the
management agreements that Arlington now has in place for its existing six
As of February 10, 2005 Stena Group and related parties owned
approximately 14.4% of Arlington's outstanding shares of common stock.
The completion of the acquisition of the vessels is subject to a number of
customary conditions, including the condition that Arlington receives
necessary financing to pay the cash purchase price. The Company plans to
finance the purchase of the vessels through a new $230 million five-year non-
amortizing term loan facility with The Royal Bank of Scotland. The term loan
facility will be a floating rate facility and will be hedged with a five-year
interest rate swap. The fixed rate of the swap will be set at the closing of
the term loan facility, which Arlington expects will occur by December 15,
2005. The Company expects that the fixed interest rate on the new debt
facility will be higher than the fixed interest rate of 4.76% on the Company's
existing debt facility. As part of the new term loan facility, the Company
will pay off this existing five year $135 million debt facility with Fortis
Bank, HSBC Bank, and Svenska Handelsbanken and terminate a corresponding
interest rate swap with Fortis Bank and HSBC Bank.
The Company expects to incur approximately $3 million in costs to complete
the purchase of the vessels and to establish the new debt facility.
In conjunction with the acquisition of the new Product tankers, the
Company also announced certain amendments to its six existing vessel charter
hire agreements with Stena Bulk and vessel management agreements with Northern
Marine. The existing vessel management agreements will be amended to provide
for more frequent maintenance dry-dockings to be funded by Northern Marine.
This provision will also apply to the two new Product tankers. Further, the
existing charter agreements will
be amended to include certain favorable
adjustments to fuel consumption metrics used in the calculation of additional
hire revenue for the existing Product and Panamax tankers.
As a result of the purchase of the two Product tankers and the amendments
to the existing charter hire and vessel management agreements, the Company now
expects to generate a cash dividend in 2006 of approximately $2.19 per share.
This compares favorably to the estimated 2006 cash dividend
of $1.94 per share
described in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005. This estimate assumes that Arlington will earn no
additional hire revenues on any of its Product or Panamax tankers in 2006.