Narrative
Full Description
Project narrative
Scorpio Tankers Inc. assumed the obligations of a lease financing arrangement with Bank of Communications Finance Leasing Co Ltd. (BCFL) for three LR2 tankers (STI Solace, STI Solidarity, and STI Stability) as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (NPTI). Under the arrangement, each vessel was subject to a 10-year bareboat charter which was scheduled to expire in July 2026. Charterhire under the arrangement was determined in advance, on a quarterly basis and was calculated by determining the payment based off of the then outstanding balance, the time to expiration and an interest rate of the benchmark rate (LIBOR and LIBOR as of June 30, 2023) plus 3.50% per annum. In April 2020, Scorpio Tankers Inc. executed an agreement to increase the borrowing capacity of its lease financing arrangement with Bank of Communications Finance Leasing Co Ltd. (BCFL) by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on the three LR2 tankers (STI Solace, STI Solidarity, and STI Stability). The agreement was for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to principal and interest. In July 2020, Scorpio Tankers Inc. drew $1.9 million to partially finance the purchase and installation of a scrubber on one vessel, and in January 2021, Scorpio Tankers Inc. drew $3.8 million to partially finance the purchase and installation of scrubbers on two vessels. The carrying values of the amounts due under the lease financing arrangement (which reflect fair value adjustments made as part of the initial purchase price allocation of the acquisition) were $67.1 million and $77.6 million as of December 31, 2022 and 2021, respectively. Scorpio Tankers Inc. was in compliance with the financial covenants as of those dates. In December 2023, Scorpio Tankers Inc. exercised the purchase options on all of the vessels under this arrangement and repaid the outstanding indebtedness of $58.4 million as part of these transactions, thus terminating the leases. Additionally, Scorpio Tankers Inc. had an aggregate of $0.8 million on deposit in a deposit account, in accordance with the terms and conditions of this facility, which were not freely available and was recorded as non-current Restricted Cash on the consolidated balance sheets of Scorpio Tankers Inc. as of December 31, 2022. This deposit account was released after the exercise of the purchase options on the vessels in December 2023.
Staff comments
1. Bank of Communications Financial Leasing Co., Ltd. (BoCom Leasing) is a financial leasing company that was founded in December 2007 and is a subsidiary of Bank of Communications (BoComm). BoCom Leasing is registered in Shanghai, China and provides financial leasing services to industries such as aviation, shipping, manufacturing, utilities, and energy equipment. 2. A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. Under a capital lease (a financial arrangement where the lessee/borrower uses an asset and pays regular installments plus interest to the lender/lessor), rental payments are usually classified as interest and obligation payments, similarly to a mortgage (with the interest calculated each rental period on the outstanding obligation balance). AidData codes capital leases as loans. 3. Sale and leaseback (or sale-leaseback) agreements are generally considered to be off-balance-sheet hybrid debt products. 4. A bareboat charter is when the owner of the vessel (in this case, Bank of Communications Finance Leasing Co Ltd. ) leases (or "charters") the vessel to a lessee ("charterer") without any crew or supplies. The charterer assumes full responsibility for the operation of the vessel. 5. Scorpio Tankers Inc. is a company incorporated under the laws of the Republic of the Marshall Islands on July 1, 2019. Its principal executive offices are located at 99 Boulevard du Jardin Exotique Monaco 98000 and its telephone number at that address is +377-9798-5716. It provides seaborne transportation of crude oil and refined petroleum products worldwide. It began its operations in October 2009 with three vessels. In April 2010, it completed its initial public offering, and its common stock commenced trading on the New York Stock Exchange, or NYSE, under the symbol “STNG.” Scorpio Tankers Inc. has since expanded, and as of March 21, 2024, its fleet consisted of 110 wholly owned or leased financed tankers (39 LR2, 57 MR and 14 Handymax) with a weighted average age of approximately 8.1 years. 6. AidData has estimated the all-in interest rate by adding 3.5% to average 6-month LIBOR in September 2017 (1.47322%).