Fearnley Finans AS

1
Fearnley Finans AS

• New developments in the KS system in Norway
• Third City of London Biennial Meeting
• 4th-5th November 2003

2
The KS model
Bank financing
Limited Partners (investors Persons / companies)
90
Equity financing
100
General Partner (company with unlimited liability)
Limited Partnership KS
Disponent owner Corporate manager (Technical
manager) (Commercial manager)
10
100
The vessel(s)
3
New developments

• KS projects in the 1980s
• -Asset play
• Tax driven
• No sellers credit
• Liquid tonnage (tankers and bulkers)
• Broad syndication to a high number of investors

• KS projects today
• -Mainly with long term contracts (TC or BB
  charter)
• -Sellers credit
• -Limited tax advantage
• More specialized tonnage
• Fewer and more dedicated investors

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The KS financing
Project price

• Equity financing
• Paid in capital 10-25
• (Uncalled capital 5-20)
• Sellers Credit
• 5-20
• 2nd mortgage
• Bank financing
• 60-80
• 1st mortgage

100 90 80 70 60 50 40 30 20 10 0
Euity financing
Paid in capital
Sellers credit

Uncalled capital (reserved for bank financing)
Bank financing 1,5-2,5 margin
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Why KS ?

• Off balance sheet financing
• No age limit on the vessel(s)
• No restriction on the type of vessel(s)
• The purchase price can be adjusted reflecting
  the availability of a sellers credit
• Can do both bareboat and time charter back to
  seller or related company
• Flexibility with regard to charter period,
  charter options, purchase options and profit
  splits
• Can do several vessels in a packege with
  different charter back periods for each vessel
• The KS company is willing to take a residual
  value risk at the end of the charter period

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Focus on good cashflow and short payback period

• Most shipping KS projects have an average
  payback period of 4-7 years based on paid in
  capital by means of annual distributions to
  investors
• Annual ditributions to the investors normally
  start after 12 months at an average rate of
  10-25 of paid in capital

Payback period
150 125 100 75 50 25
Distributions in of paid in capital
Paid in capital
Year 1 2 3
4 5 6 7 8
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The typical KS deal

• Purchase of two bulkers (purchase price USD
  20-25 million)
• 10 sellers credit
• Average age 10 - 14 years
• 5 years bareboat charter back purchase option
  from year 3 onwards
• Charterers option to extend the charter with
  11 year

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Fearnley Finans acts as the commercial manager
for 19 KS companies owning a total of 28 vessels

• abt. 825 000 dwt
• USD 380 mill in total assets