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

First Ship Lease Trust

18/06/2013 13:06

(The following statement was released by the rating agency)

SINGAPORE, June 18 (Fitch) 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

Contact:

Primary Analyst

Nandini Vijayaraghavan, CFA

Director

+65 67967216

Fitch Ratings Singapore Pte Ltd

6 Temasek Boulevard

#35-05 Suntec Tower Four

Singapore 038986

Secondary Analyst

Shahim Zubair, CFA

Associate Director

+66 67967227

Committee Chairperson

Vicky Melbourne

Senior Director

+61 2 8256 0325

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are 
available at

www.fitchratings.com.

Applicable Criteria and Related Research: 

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793866

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