November 16, 2005
Arlington Tankers adds product tankers
Arlington Tankers Ltd. (NYSE: ATB) has entered into an agreement to acquire two 47,000 deadweight tonne double-hulled product tankers from the Stena Group for an aggregate purchase price of $92 million in cash.
The new vessels, Stena Contest and Stena Concept, were built in 2005. Arlington expects to take delivery of the vessels in January 2006.
In conjunction with the purchase, Arlington will enter into fixed rate charter hire agreements with Stena Bulk AB for both vessels. The charters will be for an initial period of three years, at a rate commencing at $19,765 per day for the first year, $20,043 per day for the second year, and $20,335 per day for the third year. There is no additional hire provision during the initial three year period. At the end of the three year period both Arlington and Stena Bulk will have the option to extend the charters for an additional 30 months.
Arlington will also enter into vessel management agreements for both vessels with Northern Marine Management Ltd. for the term of the charters, at fixed rates commencing at $5,565 per day and increasing at 5% per year. Northern Marine Management Ltd. is a wholly-owned subsidiary of Stena Group. These management agreements will be on substantially similar terms as the management agreements that Arlington now has in place for its existing six vessels.
As of February 10, 2005 Stena Group and related parties owned approximately 14.4% of Arlington's outstanding shares of common stock.
Arlington plans to finance the purchase of the vessels through a new $230 million five-year non- amortizing term loan facility with the Royal Bank of Scotland. The term loan facility will be a floating rate facility and will be hedged with a five-year interest rate swap. The fixed rate of the swap will be set at the closing of the term loan facility, which Arlington expects will occur by December 15, 2005. Arlington says it expects that the fixed interest rate on the new debt facility will be higher than the fixed interest rate of 4.76% on the company's existing debt facility.
As part of the new term loan facility, Arlington will pay off this existing five year $135 million debt facility with Fortis Bank, HSBC Bank, and Svenska Handelsbanken and terminate a corresponding interest rate swap with Fortis Bank and HSBC Bank.
Arlington expects to incur approximately $3 million in costs to complete the purchase of the vessels and to establish the new debt facility.
In conjunction with the acquisition of the new tankers, Arlington also announced certain amendments to its six existing vessel charter hire agreements with Stena Bulk and vessel management agreements with Northern Marine.
The existing vessel management agreements will be amended to provide for more frequent maintenance dry-dockings to be funded by Northern Marine . This provision will also apply to the two new tankers. The existing charter agreements will be amended to include what Arlington describes as "certain favorable adjustments to fuel consumption metrics used in the calculation of additional hire revenue for the existing product and panamax tankers."
As a result of the purchase of the two product tankers and the amendments to the existing charter hire and vessel management agreements, Arlington now expects to generate a cash dividend in 2006 of approximately $2.19 per share. This compares favorably to the estimated 2006 cash dividend of $1.94 per share described in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2005. This estimate assumes that Arlington will earn no additional hire revenues on any of its Product or Panamax tankers in 2006.
Arlington says the acquisition and its related commercial terms, together with the new term debt facility with the Royal Bank of Scotland, represent important developments. Consistent with its long-term strategy, the company has succeeded in adding two high quality vessels with fixed long- term charters and vessel management arrangements that the company anticipates will produce both revenue and cash dividend growth.