Out-on-a-limb SFL nibble

Investment Analysis Clubs Hohum's RollerCoaster Ride
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When SFL mgmt announced Q2 2025 results, the results included the event of a dividend cut. While share price fell on the news of the cut, I didn’t think it was done falling. SFL has bobbed up-and-down since, but generally trending lower. I initially set my possible entry price @ $7.50/sh, but ended up lowering it to $7.25/sh. Well, shares traded lower, and I nibbled on SFL today.

So why is there “out-on-a-limb” in the title? It sounds like a risky move. But, it isn’t as bad as it sounds. Even with no position, I do follow developments at SFL. In 2025, probably not as closely as in prior years. From a SeekingAlpha post about two weeks ago, if one scrolls down to the comments section, I added a comment

https://seekingalpha.com/article/4826155-sfl-is-the-above-10-percent-yield-worth-chasing-post-cut

So I am quite aware the harsh environment (HE) rig Hercules not currently employed is a challenge. The rig is warm-stacked because, while cold stacking is cheaper, the cost of validating the capability of rig after a cold-stack is quite high, and ultimately, would cost more in the short and medium term. As my comment noted, SFL have a more immediate challenge - debt due in less than a year is over $800M.

The quickest way to explain the “out-on-a-limb” aspect is to just say, I have not skimmed SFL’s 2024 Annual Report. Note that I say “skimmed”, because if I read the 200-or-so pages in the entirety, my head would hurt and I probably would not invest in SFL. Had I skimmed the 2024 Annual Report, I would have a better sense on whether that $800M of ST debt is a medium challenge, or a big, big challenge.

What swayed the decision to nibble was the near term fleet clean-up announced in the Q2 2025 report. This includes subsequent events e.g. proceeds from the delivery of the Cape vessels to Golden Ocean (now CMBT), and additional vessel monetization.

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Some level of skimming of the 2024 Annual Report (or 20F) is done. A couple of helpful takeaways.

Now, I am less out-on-a-limb. But, I would still like the less-than-a-year debt to go down to $400M - $500M.

  • It appears SFL have changed some aspects of their transaction reporting. Pluses and minuses to this.
  • JOLCO (Japanese) financing of $100M is due in 2025 (LT < 1 yr). It covers 4 container vessels + all 7 car carriers (+ for the summary, gets better with a Q2 2025 item)
  • SFL received an assessment of their two drilling assets from two independent brokers. The brokers think Hercules is worth $280M. If it was working - maybe. It is somewhat of an anchor otherwise. (- debt summary does not allow me to isolate the drilling assets debt)
  • Fredriksen trusts are still the largest shareholder - around 17% (down considerably from prior years). One of the daughters is on SFL’s board, so I don’t think the family is bailing out. Fredriksen interests could alternatively transfer assets into SFL in exchange for more equity.
  • SFL usually has “cascading year” bonds - due 2026 thru 2029 about $520M

From the Q2 2025 Press release vs the presentation deck I usually parse.

  • The Supramax bulkers and eight Cape vessels (transferred to CMBT in Q3) were all debt-free at the end of Q2 2025. Thus, a huge net cash to work with in Q3 and Q4 2025.
  • Update on the JOLCO financed assets. The two oldest car carriers (SFL Conductor and SFL Composer) have received separate financing of $84M. That should make the remaining assets financed by JOLCO easier to address.
  • The two Kamsarmax bulkers are now debt free.
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