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Obligations of $1bn could force restructuring at Frontline

Obligations of $1bn could force restructuring at Frontline
Frontline has reported a loss of $78.2m in the second quarter, as vessel impairment losses of $56.2m across three VLCCs hit the owner's bottom line.

The second quarter results brings the company's first half loss to $90.3m. Excluding losses on vessel sales and impairment losses, Frontline's loss was $18.4m.

In July Frontline and Ship Finance agreed to terminate the charter parties for the same three VLCCs recording the impairment loss, Front Opalia, Front Comanche and Front Commerce. The ships have been sold by Ship Finance and the charters are expected to end in the last quarter of 2014.

Average second quarter time charter equivalent (TCE) earnings for the tanker owner's VLCCs and suezmaxes were $13,900 and $12,400 respectively, down from $14,100 and $13,800 in the same period last year. Spot market earnings were $12,500 and $12,400 for VLCCs and suezmaxes, compared to $11,200 and $13,800 in the same period 2013.

A new suezmax joined the Frontline fleet in May after an agreement was struck with Rongsheng shipyard to swap to newbuildings on order for two similar ships at a reduced price. Frontline paid a final installment of $41.5m for the Front Ull, and is committed to spend $41.5m for the second ship which is due for delivery in the fourth quarter.

In its outlook, Frontline warned that despite an improved market its debt and lease obligations of $1bn mean it is unlikely to be able to repay a $190m convertible bond loan with cash.

"A full restructuring of the company, including lease obligations and debt agreements might be the only alternative," the company's earnings release stated.

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