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Vessels & Leases

If you have specific question which is not found in this FAQ, please email us at investors@firstshiplease.com

Vessels & Leases
  1. Please explain the terms of the purchase options available for vessels' lessees at the end of a base lease term. Are the vessel purchase options available to lessees pegged to market price or fixed in value?
  2. How are the lease rates for FSL Trust determined? Are lease rates subject to any adjustments?
  3. Are vessel lessees allowed to re-negotiate lease rates before expiry of lease terms?
  4. Please explain the 'Hell & High Water' clause in your lease contracts.
  5. How does the Trustee-Manager make sure vessels are kept in good condition by the lessees?
  6. What happens to a vessel at the end of the base lease term?
  7. Who are FSL Trust's lessees?
  1. Please explain the terms of the purchase options available for vessels' lessees at the end of a base lease term. Are the vessel purchase options available to lessees pegged to market price or fixed in value?
    • All of FSL Trust's lease agreements include purchase options, which can be exercised at the end of the base lease terms. All but four leases of vessels in the portfolio incorporate a residual upside sharing mechanism in their purchase options.

      An example of the residual upside sharing mechanism is the vessel Pertiwi leased to Berlian Laju Tanker for a term of 12 years. At the end of the base lease term, the lessee may purchase the vessel at the residual value of US$22.5m plus 50% of any excess of Fair Market Value over US$22.5m.

      Please refer to "Lease Portfolio Terms" on page 80-83 of FSL Trust Annual Report 2010.
  2. How are the lease rates for FSL Trust determined? Are lease rates subject to any adjustments?
    • The lease rates of FSL Trust are a function of, among other factors, prevailing interest rates, the lease tenure and the age of the vessel.

      Generally once set, the lease rates are fixed throughout the tenure of the base lease terms.
  3. Are vessel lessees allowed to re-negotiate lease rates before expiry of lease terms?
    • The terms of the leases once contracted are non-negotiable.
  4. Please explain the 'Hell & High Water' clause in your lease contracts.
    • FSL Trust's leases are structured as "Hell and High Water" leases using its proprietary form of lease agreements. This is the tightest contractual standard in the shipping industry. In general, the lease hire in such an agreement remains payable irrespective of the vessels undergoing repair, maintenance, off-hire, dry-docking, and generally, irrespective of any claims or rights the relevant lessee may have against the relevant ship owner.
  5. How does the Trustee-Manager make sure vessels are kept in good condition by the lessees?
    • Each lessee is responsible for the operation and maintenance of the vessels under the terms of its bareboat charters. However, to monitor the condition of the vessels, the Trustee-Manager:

      • appoints Columbia Shipmanagement or other specialist third parties to carry out annual inspections on the vessels.
      • requires the lessees to comply with certain vessel maintenance standards, which will be set out in the lease agreements. In particular, the vessels must be in full compliance with all applicable national and international statutes, conventions and safety regulations.
      • requires vessels to be "in class" at all times. Such a certification is provided by an independent Classification Society and signifies that a vessel has been built and maintained in accordance with the rules of the Classification Society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which the country is a member.
      • requires vessels to be redelivered to FSL Trust upon expiry of a lease in the condition stipulated in the lease agreement. Generally this requires the vessels to be "in class" and this will be certified by the classification society by way of an inspection at redelivery
  6. What happens to a vessel at the end of the base lease term?
    • The vessel is either returned to FSL Trust for resale or leased to another party, purchased by the lessee who exercises the purchase option, or if the lease agreement provides, the lease term may be extended.
  7. Who are FSL Trust's lessees?
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Important Notes:

These FAQs may contain forward-looking statements that involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from other companies, changes in operating expenses, trust expenses and governmental and public policy changes and the continued availability of financing in the amounts and the terms necessary to support future business. Investors are cautioned not to place undue reliance on these forward-looking statements, which are based on current view of management on future events.