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

Rhea-AI Summary

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.

Positive

• 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

Negative

• 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

Financial Analyst

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 US$44.25 million in financing at an interest rate of Term SOFR plus 2.425%. This is a reasonable rate in the current interest rate environment.

The most critical aspect here is the difference between the daily cashflow breakeven and the charter rate. The estimated breakeven of US$25,000 per day compares favorably with the secured charter rate of US$31,000 per day, suggesting a daily profit cushion of US$6,000. This indicates that the company has some buffer against operational costs and market fluctuations.

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.

Market Research Analyst

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 US$31,000 per day is quite substantial. Clearlake Shipping is known for its robust market presence, which adds credibility and stability to the future revenue streams for Performance Shipping Inc. This fixed rate for the initial five years provides predictable cash flows, which is a key consideration for investors.

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.

Legal Expert

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$44.25 million and as part of this agreement, the Vessel will be sold and chartered back on a bareboat basis for an eight-year period from delivery at bareboat charter rates equivalent to 96 monthly installments of US$7,132 per day and a balloon payment of approximately US$23.7 million payable together with the last installment, with an implied interest rate of Term SOFR plus 2.425% per annum. 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 by the charterer.

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$63.25 million, whose value has since appreciated considerably. This agreement provides the Company with a high advance rate at a very attractive cost, while retaining the option to repurchase the Vessel at any time after the second anniversary. Our remaining capital expenditures for the Vessel are US$19.0 million prior to delivery, with a final payment of US$34.8 million upon delivery. The daily cashflow breakeven, including lease payments, is estimated at about US$25,000 based on current expenses, which compares favorably with the US$31,000 daily charter rate secured for the first five years. We are also in advanced discussions with lessors for our other newbuild LR2 Aframax tankers.”

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 sale and leaseback agreement Performance Shipping Inc. (PSHG) secured for its newbuild LR2 Aframax tanker?

Performance Shipping Inc. secured a sale and leaseback agreement for $44.25 million over an eight-year period, with daily payments of $7,132 and a $23.7 million balloon payment. The agreement includes an option to repurchase the vessel after the second anniversary.

What are the charter details for Performance Shipping Inc.'s (PSHG) newbuild LR2 Aframax tanker?

The vessel has been chartered to Clearlake Shipping Pte for five years at a rate of $31,000 per day, with an option to extend for a 6th and 7th year at a base rate plus profit sharing.

When is Performance Shipping Inc.'s (PSHG) newbuild LR2 Aframax tanker expected to be delivered?

The newbuild LR2 Aframax tanker is expected to be delivered to Performance Shipping Inc. in the fourth quarter of 2025.

What are the remaining capital expenditures for Performance Shipping Inc. (PSHG) on the newbuild LR2 Aframax tanker?

Performance Shipping Inc. has remaining capital expenditures of $19 million prior to delivery and a final payment of $34.8 million upon delivery of the newbuild LR2 Aframax tanker.