Performance Shipping Inc. Secures Sale and Leaseback Agreement for Previously Announced Newbuild LR2 Aframax Tanker
Performance Shipping Inc. (NASDAQ: PSHG) has secured a sale and leaseback agreement for its previously announced newbuild LR2 Aframax tanker. The bareboat financing totals $44.25 million for an eight-year period, with a daily rate of $7,132 and a balloon payment of $23.7 million. The implied interest rate is Term SOFR plus 2.425% per annum.
The vessel, expected to be delivered in Q4 2025, has been chartered to Clearlake Shipping Pte for five years at $31,000 per day. CEO Andreas Michalopoulos highlighted the attractive financing terms and the vessel's appreciated value since its order at $63.25 million. The company's remaining capital expenditures for the vessel are $19 million before delivery and $34.8 million upon delivery.
- Secured sale and leaseback agreement for newbuild LR2 Aframax tanker with $44.25 million financing
- Vessel chartered for 5 years at $31,000 per day, significantly above the estimated $25,000 daily cashflow breakeven
- Attractive financing terms with implied interest rate of Term SOFR plus 2.425% per annum
- Option to repurchase the vessel after the second anniversary at predetermined rates
- Vessel's value has appreciated considerably since initial order at $63.25 million
- Significant remaining capital expenditures: $19 million before delivery and $34.8 million upon delivery
- Long-term financial commitment with eight-year bareboat charter and $23.7 million balloon payment
Insights
The sale and leaseback agreement for the newbuild LR2 Aframax tanker is a significant move for Performance Shipping Inc. From a financial perspective, this agreement helps the company achieve a high advance rate at an attractive cost while securing liquidity without immediate equity dilution. The bareboat charter arrangement spreads the cost over eight years, offering
The most critical aspect here is the difference between the daily cashflow breakeven and the charter rate. The estimated breakeven of
Moreover, the company retains the option to repurchase the vessel, which adds potential flexibility and future asset value control. This financial move could be seen as a prudent strategy to manage cash flow and leverage while mitigating the risks associated with outright ownership and market volatility.
The context surrounding this agreement suggests a positive outlook for the tanker market. This type of vessel—the LR2 Aframax—is designed for flexibility in both crude oil and product trades. Given the ongoing demand for energy transportation and the adaptability of such tankers, Performance Shipping Inc. is strategically positioning itself to benefit from market trends.
The agreement with Clearlake Shipping Pte Ltd. for a five-year charter at
Moreover, the potential for profit-sharing in the extended period indicates the company's confidence in market conditions. It allows the company to capitalize on favorable market shifts while maintaining a base rate to cushion against downturns.
The terms of the sale and leaseback agreement provide a structured legal framework that ensures Performance Shipping Inc. retains control over the vessel while benefiting from the financial arrangement. The continuous repurchase options offer flexibility and mitigate long-term risk. This structure is particularly advantageous in volatile markets, as it provides an exit strategy while maintaining operational control.
The agreement's provision of a balloon payment and predetermined repurchase rates post the second anniversary safeguards the company's interests by making the financial obligations predictable and manageable. Furthermore, the leasing agreement with a 'highly reputable Japanese leasing house' likely involves stringent contractual protections, which significantly reduces counterparty risk.
ATHENS, Greece, July 16, 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 Japanese third party for a previously announced newbuild LR2 Aframax tanker vessel (the “Vessel”). As announced on March 8, 2023, the newbuilding LNG-ready, scrubber-fitted, Tier III LR2 Vessel of approximately 114,000 dwt is expected to be delivered to the Company in the fourth quarter of 2025.
The bareboat financing amount totals US
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
Andreas Michalopoulos, the Company’s Chief Executive Officer, stated:
“We are very pleased to have started a relationship with this highly reputable Japanese leasing house, which opens up valuable new financing opportunities for us in Asian markets. We have secured very attractive terms to finance our first newbuilding vessel, ordered at a price of US
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
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