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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 1079  
Subject: One year done Date: 12/28/2012 8:44 AM
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Almost done with 2012. A tough year, but probably somewhat better than 2011 for the tanker
market. Yes, tanker biggie OSG collapsed. But from what is being discovered now, this was
a company that hid the degree of their rot well. FRO ended 2011 with a major restructuring,
one that split the company into two. As this year winds down and with the way events played out,
it appears FRO will survive. It seems like the restructured FRO will, minus a bunch of vessels, exit
2012 in a similar manner as 2011. By that I mean, an uncertain upcoming year, no bank debt, some
cash and the same types of obligations- capital leases, ITCL bond obligations, and the
convertible bond obligations. But there are some differences.

The OBO category will disappear from the fleet by early 2013. Not sure on the exact revenue
contribution the OBO vessels provided, but my guess is probably less than $100M. Still, the OBOs on
time-charters were a reliable income resource in 2012, one the company will not have most of next year.
Likewise, the SH VLCCs. While not major revenue producers, each vessel exit from the FRO fleet provided,
or, will provide in Q1 2013, a small pile of cash.

FRO made an installment payment on the two Suezmax newbuilds, so it looks like capex spending
will show up in 2013. The FRO CFO suggested the company could get 70% financing on the vessels.
If so, that would be both good and bad. Good because it will reduce FRO's cash burn rate.
I figure, 70% financing would only require another $20M cash on FRO's part. OTOH, bad because
bank financing typically adds restrictions and covenants. Of course, with Fredriksen working
behind-the-scenes, FRO always have a wild card. But since one of the vessels delivers in the
first half of 2013, we will find out soon enough.
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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: 897 of 1079
Subject: Re: One year done Date: 12/29/2012 5:45 PM
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One other related item- the tie-in's between Fredriksen entities. They exist and since they
don't show on a Balance Sheet, it is sometimes easy to overlook (or miss entirely if one doesn't
follow a Fredriksen company closely). With FRO, the 2011 restructuring created two of them.
FRO prepaid SFL $50M in profit-share. That cash went towards paying down SFL's debt on the
tankers and OBO vessels. It is a nice offset that only gets breached when the vessels leased
from SFL cross over the cash-sweep hurdle. That's at a 25% rate too.

There seems to be a second one. This one is between FRO and Frontline 2012 (FRNT). I'm still
trying to figure its implications, but I interpret it as a positive for FRO. Their Q3 financial
statements included this item in the footnotes--

As part of the Restructuring described in Note 3, Frontline 2012 agreed to fully reimburse
and indemnify the Company for all payments made under any guarantees issued by the Company
to the shipyard in connection with the newbuilding contracts acquired and to reimburse the
Company for all costs incurred in connection with these guarantees.


One way to interpret that paragraph is FRNT reimbursing FRO all the capital spent on the
5 VLCCs, which would be around $200M. Since FRNT is currently private equity, that
reimbursement might not have to be cash. It could just as well end up being a future equity
allocation of FRNT. Either way, it seems to be an intangible for FRO.

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Author: TMFHockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 898 of 1079
Subject: Re: One year done Date: 12/29/2012 6:08 PM
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1. From the FRO relationship with VLCCF.

We are provided with general administrative services by ICB Shipping (Bermuda) Limited, or the General Manager. The General Manager is
a wholly owned subsidiary of Frontline.

The General Manager subcontracts the services provided to the Company and its subsidiaries to Frontline Management (Bermuda) Limited, another wholly owned subsidiary of Frontline.

Not sure how this may have changed with the FRO split with FRNT.

2. Why do you think FRO took a nosedive this week?

Bob

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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: 899 of 1079
Subject: Re: One year done Date: 12/29/2012 9:24 PM
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Not sure how this may have changed with the FRO split with FRNT.

For now, the vessel management function has stayed with FRO. The restructuring event was not
really about fleet management. Even the FRNT vessels are managed by FRO. At least from my
perspective, the restructuring was to create an entity that could participate in a tanker
sector recovery.

2. Why do you think FRO took a nosedive this week?

For me, I got to add shares at year-end :)

Seriously though, I have no idea. Most of the US-listed crude tanker shipping companies dipped
a little, so it could just be a sector rotation. For me, I feel FRO's Q4 results will be better
than Q3, and likely better than the analysts (average) expectations, so I am comfortable jumping
in at the price pull-back.

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Author: RWRocksOn Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 900 of 1079
Subject: Re: One year done Date: 12/29/2012 10:28 PM
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One other related item- the tie-in's between Fredriksen entities. They exist and since they
don't show on a Balance Sheet, it is sometimes easy to overlook


This, in my opinion, is the biggest issue in investing with a JF company - is he going to tweak it for the benefit of himself leaving the rest of us ordinary stockholders holding the bag? I think that must be the reason the yields on his companies remain so high - not just the volatility of the tanker market, but - is Frederiksen going to move stuff - debt,equity, tankers etc - from one entity to another?

RWS

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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: 901 of 1079
Subject: Re: One year done Date: 12/30/2012 1:34 AM
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Happy Holidays! Nice to hear from you

I think that must be the reason the yields on his companies remain so high - not just the volatility of the tanker market, but - is Frederiksen going to move stuff - debt,equity, tankers etc - from one entity to another?

RWS



Looking at Fredriksen's history of the last decade or so, it seems the asset or debt movements
seem to be more about unlocking value. This has been the case when FRO grew too big after the
original Golden Ocean (tanker and dry bulk) acquisition. He created two spin-offs, Ship Finance
Intl (SFL)- tankers and OBO, and Golden Ocean - Dry bulk, and had FRO restart as, mostly manager,
of the tanker fleet. The ITCL subsidiary is more an anchor now, but it once was a decent stable
entity that allowed FRO to meet its working capital requirements. The Golar partnership (GMLP)
was about unlocking value from Golar (GLNG). I think in one recent presentation, GLNG mgmt
suggested that the dropdowns had unlocked $900M of value from GLNG. JF accomplished that without
diluting GLNG, and has added a significant newbuild fleet of LNG tankers to GLNG book.
Of course, he now needs a way to pay for those 11 LNG tankers and two FSRUs. If one can
stomach it, that's the risk side of the JF journey. IMHO, the high yield is part of the
trade-off for going on that ride. Again, not for everyone.

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