NEW YORK (AP) — Oil tanker owner Frontline Ltd. said Tuesday it will shed some of its fleet to deal with heavy debts and a decline in contract rates.
The Bermuda company, which faces nearly $1 billion in bank debts and other payments related to new tanker orders, will sell those tankers and a portion of its existing fleet to a new company that was established with the help of Frontline Board Chairman John Fredriksen.
The new company, named Frontline 2012, will buy 11 very-large crude carriers and four other tankers from Frontline Ltd. The value of those tankers is appraised at $1.12 billion. Frontline 2012 also will take on Frontline Ltd.'s $666 million in bank debt and another $325.5 million in payments for new tankers.
Frontline Ltd. shares jumped 86 cents, or 24 percent, to $4.40 in midday trading. Since hitting a 52-week peak of $27.76 in January, shares have slid 84 percent.
Frontline 2012 plans to raise $250 million in stock to get the company running. Frontline will buy 10 percent while Hemen Holding Ltd., a company indirectly controlled by Fredriksen through his family trusts, will underwrite the remainder. Hemen Holding will guarantee $505.5 million toward restructuring Frontline. The guarantee is valid until Dec. 31.
The restructuring deal will cut Frontline's fleet by about 20 percent in exchange for taking massive debts off its books.
CEO Jens Martin Jensen said it will allow the company to deal with a sharp drop in contract rates for oil tankers: "Frontline will be extremely well positioned to meet the challenges the current oversupply of tankers has created."
Contract rates for very-large crude carriers have dropped for Frontline from about $96,500 per day in the third quarter of 2008 to $12,000 per day in the same period this year.