Performance Shipping Inc. Secures Sale and Leaseback Agreement for Second Newbuild LR2 Aframax Tanker

Rhea-AI Summary

Performance Shipping (NASDAQ: PSHG) has secured a sale and leaseback agreement for its second newbuild LR2 Aframax tanker. The bareboat financing amounts to $45.39 million for a vessel with a contract price of $64.85 million. The agreement includes a 10-year bareboat charter with monthly installments of $211,500 plus variable rate at SOFR plus 2.1%, and a $20 million balloon payment. The vessel, expected for delivery in Q1 2026, has been pre-chartered to Clearlake Shipping for 5 years at $31,000 per day, with extension options. The daily cashflow breakeven is estimated at $24,390.

Positive

• Secured $45.39M financing at 70% of vessel's contract price
• Pre-chartered vessel for 5 years at $31,000/day, well above breakeven rate of $24,390/day
• Competitive financing terms with SOFR + 2.1% interest rate

Negative

• $20M balloon payment due at end of lease term

Insights

Financial Analyst

The sale and leaseback agreement for the LR2 Aframax tanker represents a strategic financing move with positive implications. The $45.39 million financing at 70% loan-to-value demonstrates conservative leverage, while the fixed charter rate of $31,000 per day provides stable cash flow well above the $24,390 daily breakeven point. This $6,610 daily margin creates approximately $2.4 million annual operating profit potential per vessel.

The financing structure, combining fixed monthly payments with SOFR plus 2.1% variable component, provides flexibility while maintaining predictable costs. The 5-year charter commitment to Clearlake Shipping aligns perfectly with current market strength in the tanker sector, while extension options offer additional upside potential. The $20 million balloon payment appears manageable given the expected asset appreciation and strong cash flow generation.

ATHENS, Greece, Oct. 24, 2024 (GLOBE NEWSWIRE) -- Performance Shipping Inc. (NASDAQ: PSHG) (“we” or the “Company”), a global shipping company specializing in the ownership of tanker vessels, today announced that, through a separate wholly-owned subsidiary, it has entered into a sale and leaseback agreement with an unaffiliated third party for a previously announced newbuild LR2 Aframax tanker vessel (the “Vessel”). As announced on December 20, 2023, this vessel is one of two newbuilding LNG-ready, scrubber-fitted LR2 product/crude oil tanker vessels of approximately 114,000 dwt expected to be delivered to the Company in the first quarter of 2026.

The bareboat financing amount totals approximately US$45.39 million. As part of this agreement, the Vessel will be sold and then chartered back to the Company on a bareboat basis for a ten-year period starting from delivery from the shipyard. The bareboat charter includes 120 monthly installments at a fixed rate of US$211,500.00 plus a variable rate calculated monthly at an implied interest rate of SOFR plus 2.1% per annum. Additionally, a balloon payment of approximately US$20 million will be due together with the last installment for the repurchase of the Vessel. The Company has continuous options to repurchase the Vessel at predetermined rates following the second anniversary of the bareboat charter.

As previously announced on March 12, 2024, the Vessel has been chartered to Clearlake Shipping Pte Ltd. for a period of five years, upon delivery of the Vessel, at a rate of US$31,000 per day and an option to extend for a 6th and 7th year at a base rate plus profit sharing if declared at that time by the charterer.

Andreas Michalopoulos, the Company’s Chief Executive Officer, stated:

“This sale and leaseback agreement showcases our ability to secure attractive funding for our newbuilding program, by expanding our partnerships with reputable leasing companies in Asia. We consider our financing strategy to be conservative, with the bareboat financing amount of US$45.39 million representing 70% of the Vessel’s shipbuilding contract price of US$64.85 million, and an even lower leverage percentage considering the Vessel’s highly appreciated current market value. The financing terms are competitive, resulting in an estimated daily cashflow breakeven of approximately US$24,390 per day. This is comfortably covered by the secured daily charter rate of US$31,000 for the initial 5-year operating period of the Vessel. We believe that our strong relationships with international shipping lenders and our strategic partnerships with top-tier charterers enable us to execute our business strategy, focusing on growth through selective acquisitions, lucrative fleet employment and our commitment to prudent financial policies.”

About the Company

Performance Shipping Inc. is a global provider of shipping transportation services through its ownership of tanker vessels. The Company employs its fleet on spot voyages, through pool arrangements, and on time charters.

Cautionary Statement Regarding Forward-Looking Statements

Matters discussed in this press release may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include, but are not limited to, statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts, including with respect to the delivery of the vessels we have agreed to acquire, future market conditions and the prospective financing and employment of our vessels. The words “believe," “anticipate," “intends," “estimate," “forecast," “project," “plan," “potential," “will," “may," “should," “expect," “targets," “likely," “would," “could," “seeks," “continue," “possible," “might," “pending” and similar expressions, terms or phrases may identify forward-looking statements.

The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, our management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs, or projections.

In addition to these important factors, other important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to: the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charter rates and vessel values, changes in demand in the tanker shipping industry, changes in the supply of vessels, changes in worldwide oil production and consumption and storage, changes in our operating expenses, including bunker prices, crew costs, drydocking and insurance costs, our future operating or financial results, availability of financing and refinancing including with respect to vessels we agree to acquire, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, the length and severity of epidemics and pandemics, including COVID-19, and their impact on the demand for seaborne transportation of petroleum and other types of products, changes in governmental rules and regulations or actions taken by regulatory authorities, general domestic and international political conditions or events, including “trade wars”, armed conflicts including the war in Ukraine and the war between Israel and Hamas, the imposition of new international sanctions, acts by terrorists or acts of piracy on ocean-going vessels, potential disruption of shipping routes due to accidents, labor disputes or political events, vessel breakdowns and instances of off-hires and other important factors. Please see our filings with the US Securities and Exchange Commission for a more complete discussion of these and other risks and uncertainties.

FAQ

What is the financing amount secured by Performance Shipping (PSHG) for its new LR2 Aframax tanker?

Performance Shipping secured a bareboat financing of $45.39 million, representing 70% of the vessel's shipbuilding contract price of $64.85 million.

What are the charter terms for PSHG's new LR2 Aframax tanker with Clearlake Shipping?

The vessel is chartered to Clearlake Shipping for 5 years at $31,000 per day, with options to extend for a 6th and 7th year at a base rate plus profit sharing.

When is the expected delivery date of PSHG's new LR2 Aframax tanker?

The LR2 Aframax tanker is expected to be delivered in the first quarter of 2026.

What are the sale and leaseback terms for PSHG's new tanker?

The agreement includes a 10-year bareboat charter with monthly payments of $211,500 plus variable rate (SOFR + 2.1%), and a $20 million balloon payment at the end.