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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 20012  
Subject: JF and a White Dwarf? Date: 3/6/2013 10:40 PM
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JF is John Fredriksen.

White Dwarf, as in a celestial body?? Well, kinda, sorta.

Let me say, normally, this thread would have been titled "FRO in 2013". Although Frontline is trying
its darndest to prove me wrong today (3/6/13), it has spent a few days below $2/sh. Q4 2012
results might have been okay if the tanker rates trend had kept its upward trajectory into
Q1. But it didn't in January, and the tanker market outlook for Q1 doesn't appear too
uplifting for the VLCC and Suezmax tanker categories (the FRO fleet's two vessel categories).

So we step back in time for a moment. After the Q3 2011 results, FRO worked out a restructuring
plan that involved carving off the new assets, and placing them into a separate entity named
Frontline 2012 (FRNT on the Oslo exchange). I understood from the onset that this was a
strategic move on JF/Frontline management's part. Basically, if things got really, really,
really bad, one of JF's Frontline tanker plays would fall out of the race. But again, market
conditions would have to be really, really, really bad for that to happen. Then again,
things could just be really, really bad for an extended period of time to have the same effect
as really, really, really bad.

So where are we at? I think we are currently in the third consecutive quarter of really,
really bad. The crux of the issue is that, while Fredriksen helped alleviate some of FRO's
debt issues, there are still a lot of debt obligations. The issue is made more complicated by
the fact that a majority of the remaining debt obligations are lease payments owed to another
Fredriksen-backed entity, Ship Finance International (SFL). In the past, the SFL CEO has
indicated these lease payments cannot just be terminated. Then again, if FRO totally run out
of gas, there won't really be an easy way to enforce repayment. That's a White Dwarf- a star that
has burnt out.

In FRO's Q4 2012 earnings call, there is a really funny (at least to me) Q & A exchange
between the Frontline Chief Financial Officer (CFO) and an analyst, Jonathan Chappell.
Mr Chappell recreates the first restructuring- selling newer assets to Frontline 2012, selling off
older vessels, reworking charters terms. He asks, "What else can FRO do?" The FRO CFO responds,
"We can always restructure the company again" Now, I understand the analyst's angle, and how he
was viewing things. Excluding the Frontline 2012 vessels, FRO's fleet consists of 38 vessels and
2 newbuilds. But, of all those vessels, SFL owns 22 of them, 9 are secured by bond obligations,
and 7 are owned by other parties. What's left? 2 newbuild vessels and the tie-in's between
Fredriksen's corporate structures.

Is FRO a White Dwarf? Currently, ... Yes. No idea what JF's thinking is with regards to
somehow breathing life into this bright former star. Or whether he intends to let it slowly
consume itself up, and just start things afresh with the new star, Frontline 2012.

Small positions in both FRO & SFL
HoHum
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