OSG Floats Novel Boat Securitization


Asset securitization continues to branch out into new areas with the completion of an $170 million financing by Overseas Shipholding Group Inc.

The off-balance sheet financing by OSG represents the securitization of receivables arising from the bareboat charter of its five U.S. flag crude carriers to Alaska Tanker Co., a company official said.

The non-recourse financing carries a seven-year final maturity and bears annual interest at the rate of 7%, according to OSG. However, the official declined to provide further details or reveal the names of the underwriter or advisor. He said the notes are unrated.

Alaska Tanker manages the vessels that carry BP Amoco crude oil from the ventures' giant North Slope oil field. The official noted that the shipper is the beneficiary of the Jones Act that bars oil producers from owning their own transportation tonnage. Accordingly, they entered into the long-term contract with OSG.

The company owns a number of other oil cargo ships, but these are foreign registered and operate under spot time or voyage charters. The official would not discuss whether Alaska Tanker might be in a position to securitize any of its foreign vessels, and would not comment on other options the company might consider.

The official said the company was using proceeds of the financing to pay down bank debt which will have the net effect of reducing its interest expense. According to the company, this innovative financing will materially increase its financial strength and flexibility and reduce long term debt to $650 million. The official also said OSG would amortize the gain realized from this financing, (the proceeds in excess of book value), over the life of the loan.

OSG is currently building two new VLCCs, crude carriers with capacity in excess of 308,000 tons, and four Aframaxes, carriers with 100,000 tons capacity. The official said these vessels will be part of its foreign flag fleet under time charter and therefore not subject to asset-backed financings.

More than half the cost of these new carriers has been prepaid, the official added.