Despite a caveat by auditors as to whether FSL Trust may continue as a going concern, due to the conditions of a loan covenant, the ship-owning trust has continued to ensure that its vessels have generated a return in the third quarter of 2013.
The Trust suffered a 3QFY13 loss of US$8.9 million. This was partly due to recognition of an impairment loss of US$3.6 million caused by the lease defaults for two dry bulk carriers.
Bareboat charter revenue fell 23.6% YoY to US$13.9 million from US$18.3 million due to the payment default of US$3.0 million for two crude oil tankers, FSL Hong Kong and FSL Shanghai, and of US$1.5 million for two dry bulk carriers, Stella Fomalhaut and FSL Durban, which were redelivered to the Trust in October 2013.
The Trust remains cashflow positive with 3QFY13 net cash generated from operations of US$7.6 million. As at 30 September 2013, cash and cash equivalents stood at US$18.1 million. No distributions have been declared for 3QFY13.
Regarding a possible breach of financial covenants
The report states that as of 30 September 2013, the Trust may be in breach of the financial covenants under its loan agreement and management is still in ongoing discussions with the lenders to clarify the position and to seek a longer and deeper covenant relaxation.
Accordingly, the Trust’s loan balance has been reclassified from long term to current liabilities, resulting in the deficiency in net current assets amounting to US$373.0 million as at 30 September 2013. Barring unforeseen circumstances, the Trust’s portfolio of vessels continues to generate sufficient cash flows to meet the scheduled debt and interest repayments.
Alan Hatton CEO of FSLTM commented:
“The third quarter has been challenging, primarily due to the defaults in relation to two aframax oil tankers and two handymax dry bulk carriers. The Trust has ensured that despite these defaults, the vessels have continued to generate a return. The defaults affect both revenues and costs, as it has been expensive to change technical management and upgrade the vessels to our standard. These costs will also impact the fourth quarter due to the timing of expenditures.
The short term focus is to address the ongoing issues and clarify the position of the lenders following the first covenant relaxation in June 2012 and to optimise earnings on the nine vessels that FSL Trust now has operational control over. Going forward, there is scope to improve cash generation and the Trust remains able to service its scheduled debt and interest payments.”