Agreement for the Construction of Two Additional Tankers at Aker Philadelphia Shipyard Successfully Closed

Aker Philadelphia Shipyard, Inc. (APSI), the sole operating subsidiary of Aker Philadelphia Shipyard ASA (Oslo: AKPS), announced today that yesterday the transactions contemplated by the agreement signed in mid-December 2010 between APSI and the Philadelphia Shipyard Development Corporation (PSDC), which agreement was disclosed in AKPS’s releases on January 2, 2011 and February 18, 2011, were formally closed. The closing of the transactions secures the yard’s ability to finance the construction of two product tankers, Ships 17 and 18.
Pursuant to the agreement, PSDC purchased certain shipyard assets from APSI for a purchase price of USD 42 million, payable in two equal tranches, with funds provided by the Commonwealth of Pennsylvania. APSI will lease back those same assets from PSDC subject to the terms of its shipyard lease and its agreement with PSDC. APSI will use the sale proceeds, in combination with construction period financing with private lenders and its own available funds, to construct Ships 17 and 18.

In conjunction with the closing, Aker ASA, which indirectly owns 71.2% of the shares of AKPS, has agreed to make a USD 30 million subordinated construction loan to APSI with funding to be in two tranches of USD 15 million each. The loan is subject to customary disbursement conditions. Interest will be paid at maturity and the interest rate is on market terms. The loan is secured by a lien on Ships 17 and 18. The loan can be repaid no sooner than upon sale and delivery of both Ships 17 and 18 and full repayment can be delayed further if certain sales price thresholds are not met.

Additionally, in conjunction with the transaction, PIDC Regional Center, XV LP (the Welcome Fund) agreed to restructure its USD 20 million loan to, among other things, extend its maturity and secure it with a lien on Ships 17 and 18. As restructured, USD 5 million will be paid at the original maturity date of March 27, 2012; a minimum of USD 5 million and a maximum of USD 15 million (subject to certain sales price thresholds being met) will be repaid upon the sale and delivery of Ship 17; and any remaining loan balance will be repaid upon the sale and delivery of Ship 18.

APSI has also received a commitment letter for up to USD 80 million in construction financing from a third party lender and anticipates the closing of this transaction to occur within Q2 2011.

In connection with the closing, the City of Philadelphia agreed to temporarily defer USD 8 million in tax payments due from APSI over the next three years.

Under the agreement with PSDC, APSI is obligated to construct Ships 17 and 18 in accordance with their current production schedules. If those ships are not completed before certain agreed-upon deadlines, as extended for events of force majeure, then PSDC may require APSI to pay liquidated damages of up to USD 70 million (reduced to USD 35 million if Ship 17 is completed). APSI’s obligation to pay the liquidated damages is guaranteed to PSDC by Aker ASA. As part of the transaction PSDC has released APSI and Aker ASA from the existing USD 20 million “employment guarantee”, provided to guarantee a minimum employment level at the shipyard through the end of 2014. In addition, APSI agreed to modifications to its lease with PSDC as described in the AKPS 2010 Annual Report.

Production activities on Ship 17 are currently underway and production activities on Ship 18 are expected to begin during the summer. Ship 17 is scheduled for delivery in Q3 2012, and Ship 18 is scheduled for delivery in Q1 2013.

Based upon the Company’s preliminary assessment of the structure and terms of the transactions, the primary accounting effects of the sale are that the proceeds will be proportionately recognized over the construction of Ships 17 and 18.
Source: Philadelphia