Ship Finance enters purchase lease back of two drill rigs

Posted by Tim

September 17, 2008

Ship Finance International Ltd. (SFL: 12.49 0.00 0.00%) has entered into a purchase then lease back of two deep water drill rigs with Seadrill Ltd. The total purchase price of the rigs is $1.7 billion with SFL contributing $300 million and obtaining financing for the $1.4 billion balance. Of the $1.4 billion note, Ship Finance will only be liable for $100 million. The leases to Seadrill will be 15 year bareboat charters.

As a result of this deal, Ship Finance will be increasing the quarterly dividend to 60¢, pushing the yield on the current stock price to over 11%. SFL has paid a steady, growing dividend throughout its 5 year existance.

It is impressive that Ship Finance can put together a deal of this magnitude in the current financial environment. This is a record breaking deal for the maritime industry and SFL has now invested $3.4 billion in offshore equipment. The dividend increase will be the 3rd in 2008, increasing the annual payout by approximately 10% over 2007. The recent market down turn has made strong dividend payers like SFL tremendous values. Ship Finance’s historical yield has been between 7.5% and 8.5%, indicating the stock should be at least $28 once the market becomes rational again. SFL is a component of this site’s Income Portfolio and I will be increasing the position in the portfolio.

Note: I have a long position in SFL.

Press release: Ship Finance International Ltd..

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