Groda Reneges on FSL

The true risk in shipping trusts is the creditworthiness or counterparty risk. On Tuesday, First Ship Lease (“FSL”) announced that Groda Shipping has requested to re-deliver two product tankers, each currently under a seven year base term bareboat charter contract with FSL until November 2014. Employed under long term COAs with Russian energy firm Rosneft Oil Company, the two vessels contribute 15% out of FSL’s annualised revenue of USD 101 million and the pre-mature termination of the contracts will impact cash flow and distributions negatively.

FSL disclosed that Groda Shipping is required to pay lease rental on a monthly basis in advance and has made payment for only one vessel in May. Groda Shipping will no longer make full payments for either vessel from June 2010 onwards. On the brighter side, FSL pointed out that it has the assignment of the long term COAs between Groda Shipping and Rosneft and a cash security deposit of USD 3 million per vessel, which works out to be close to 5 months of charter hire. All eyes are now on the approach the trustee manager will be adopting towards the lessee who had made a clear intention to renege on the contracts. FSL says it is currently in discussions with Groda Shipping and exploring available legal and commercial options.

This is only an excerpt of Groda Reneges on FSL

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