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Ship Finance International (NYSE:SFL)
Q3 2020 Earnings Call
Nov 12, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by, and welcome to the Q3 2020 SFL corporation earnings conference call. [Operator instructions] I must advise you that the conference is being recorded today, Thursday, the 12th of November 2020. I would now like to hand over to first speaker today, Mr. Ole Hjertaker, CEO.

Please go ahead, sir.

Ole Hjertaker -- Chief Executive Officer

Thank you, and welcome all to SFL's third-quarter conference call. I would start the call by briefly going through the highlights of the quarter. And following that, our CFO, Aksel Olesen, will take us through the financials, and the call will be concluded by opening up for questions. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping, offshore and credit markets. You should, therefore, not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for more detailed discussions of risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. The announced dividend of $0.15 per share represents a dividend yield of around 8% based on closing price yesterday, and this is our 67th consecutive quarter with dividends.

In light of the continued uncertainty surrounding Seadrill and outcome of their pending financial restructuring, the Board decided to adjust the dividend down to $0.15 and thereby effectively exclude all contribution from offshore rigs for the time being. We believe that the market has already discounted this in the SFL share price as we, prior to this dividend adjustment, were trading at more than 13% yield based on the prior dividend, which is a very high number in the current low interest rate environment. When the Seadrill situation is resolved, the Board will reassess the situation and possibly reinstate contribution from the rigs and the dividend again. And our focus will be on building the portfolio with accretive transactions in order to build the distribution capacity also by adding new assets going forward.

Over the years, we have paid more than $27 per share in dividends or $2.3 billion in total, and we have a significant and fixed rate charter backlog, supporting continued dividend capacity in the future. The total charter revenues of $157 million in the quarter was in line with the previous quarter, with more than 90% of this from vessels on long-term charters and less than 10% from vessels employed on short-term charters and in the spot market. The EBITDA equivalent cash flow in the quarter was approximately $117 million. And last 12 months, the EBITDA equivalent has been approximately $481 million, similar to the situation the last 12 months in the prior quarter.

Excluding cash in the rig owning subsidiaries, the consolidated cash position at quarter end was more than $200 million, up from around $150 million at the end of the second quarter. In addition, we had $33 million in marketable securities at quarter end. And after quarter end, we have used some of the cash to take out the financing of the drilling rig West Taurus, but we still have a strong cash position with more than $100 million remaining. Our fixed rate backlog stands at approximately $3.2 billion after recent charter extensions and vessel sales, providing significant cash flow visibility going forward.

Of this, $2.4 billion relates to shipping assets alone and excludes revenues from 16 vessels trading in the short-term market and also excludes future profit share optionality. The profit share contribution, which I mentioned, adds optionality value was around $6 million in the third quarter. This was primarily from the two VLCCs on charter to Frontline, but also from fuel savings from container vessels with scrubbers and a small contribution from bulkers. Following the immediate impact of COVID-19, some trades, including the car carrier market came to a virtual halt.

We have two vessels in this market, and they were due to come off charters in May and in August this year. And consequently, we put them in lay-up in order to save costs as we believed at the time that it would take some quarters before the market would recover again. We are very happy to see that it happened much quicker than anyone anticipated and both vessels are now trading out chartered out again on one on 100-day charter and one for 11 months. And the charter rates are essentially back to pre-COVID-19 levels already.

While the Seadrill restructuring is pending, we have already addressed the bank structures on two of the rigs. We have repurchased all the debt on the idle rig West Taurus at the discount essentially limited to the $83 million corporate guarantee, the cash in the rig owning subsidiary, which was already pledged to the banks anyway for some margin. We have also agreed to guarantee the financing on West Linus in exchange for more flexible financing terms. And with a large fleet of assets, it will always be acquisitions and disposals, and the remaining vessel on charter to the Hunter Group has been repurchased by them and delivered earlier this month.

The Hunter deal was designed to give us a very high return on a low-risk profile in exchange for flexibility on Hunter's part. This is a good example of cost of capital arbitrage, where we could utilize our premium access to low-cost funding, and at the same time, give flexibility that Hunter was willing to pay for. The delivery took place yesterday and net cash to us is more than $10 million after repayment of the associated financing, and the proceeds are expected to be reinvested in new accretive transactions. Excluding the drilling rigs, which I will cover on the next page, the backlog from shipping assets was $2.4 billion at the end of the quarter.

Over the years, we have changed both fleet composition and structure, and we now have 81 shipping assets in our portfolio and no vessels remaining from the initial fleet in 2004. We have gone from a single asset class chartered to one single customer to a diversified fleet and multiple counterparties. And over time, the mix of the charter backlog has varied from 100% tankers to nearly 60% offshore at one stage to container market being the largest right now. In addition, we have 16 vessels traded in the short-term market, which we define as up to 12-month charters and also from time to time, as I mentioned earlier, significant contributions from profit shares on assets.

We do not have a set mix in the portfolio. Focus is on evaluating deal opportunities across the segments and try to do the right transactions from a risk-reward perspective. Over time, we believe this will balance itself out, but we try to be careful and conservative in our investments and not invest just because money is burning in our pocket. Our strategy has been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the Seatankers group.

This gives us the ability to offer a wider range of services to our customers, from structured financings to full serve risk time charters, which is the bigger part of our portfolio. But more importantly, we also believe it gives us unique access to deal flow in our core segments. And with full control over vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels through the life of the assets and not only be passively owning vessels employed on bareboat where the customers may not always have an incentive to make such improvements. So unlike most of the companies with a financing profile in the maritime world, more than three-fourths of our shipping charters revenues comes from vessels on time charter and a smaller proportion from bareboat chartered assets.

And even if we include the drilling rigs, which are all on bareboat charters, the time charter portion is still more than two-thirds. SFL owns three drilling rigs chartered to subsidiaries of Seadrill. All three rigs were employed on bareboat charters of Seadrill and generated approximately $24 million in charter hire in the third quarter. Net of interest and amortization, the contribution was approximately $8 million or around $0.07 per share.

The harsh-environment jack-up rig West Linus has been subchartered to ConocoPhillips until the end of 2028, while the harsh-environment semisubmersible rig West Hercules is employed on consecutive subcharters to Equinor in the North Sea. The semisubmersible rig West Taurus has been stacked since 2015. Seadrill has disclosed that it is currently engaged in discussions with its financial stakeholders with regard to a comprehensive restructuring of its balance sheet and that such a restructuring may involve the use of a court supervised process similar to the 2017 restructuring. At that time, the loan balance on the rigs was much higher and we have reduced leverage by more than 50% in this three-year period as we illustrate on this slide.

At the end of the second quarter, Seadrill reported a cash position of $1 billion, and while Seadrill did pay full charter hire in the third quarter, no charter hire has been received so far in the fourth quarter. Seadrill has also not paid interest on its bank debt recently and announced a forbearance agreement with its financial banks and some other stakeholders in mid-September, which was subsequently extended through October. The nonpayment of charter hire by Seadrill does constitute an event of default under the leases and in certain of the corresponding financing agreements. Unless cured away, this could result in enforcement of such default provisions.

From the start of the transaction with Seadrill all the way back from 2008, all the revenues from the subcharters of these assets, and in this instance, more importantly here now from the two drilling rigs that are working, the West Linus and West Hercules, the revenues from the subcharter have been paid into accounts pledged to SFL's rig owning entities and refinancing banks. As a result of the current event of default situation caused by Seadrill, Seadrill will need prior approval to access these funds to pay for operating expenses and other expenses, and we'll have to source this from their cost cash position until the situation is resolved. The gross hire is significantly higher than the bareboat hire to us and keep accumulating on the pledged account for now. We can, unfortunately, not make any further comments relating to the pending restructuring.

But our objective is, as always, to maximize long-term value for our shareholders. In the meantime, we have adjusted the quarterly distribution to exclude all distribution from these offshore assets. And when the Seadrill situation is resolved, the Board will reassess the situation and possibly reinstate contribution from the rigs in the future. And with that, I will give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.

Aksel Olesen -- Chief Financial Officer

Thank you, Mr. Hjertaker. On this slide, we have shown a pro forma illustration of cash flows for the third quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S.

GAAP and also net of extraordinary and noncash items. The company generated gross charter hire of approximately $157 million in the third quarter, with more than 90% of the revenue coming from our fixed charter rate backlog, which currently stands at $3.2 billion. And while the current charter backlog relating to our offshore assets may be impacted by the pending Seadrill restructuring, the backlog from our shipping portfolio stands at a solid $2.4 billion, providing us a strong visibility on our cash flow going forward. At quarter end, SFL has a liner fleet of 48 container vessels and two car carriers.

The liner fleet generated gross charter hire of approximately $80 million. Of this amount, approximately 98% was derived from our vessels on long-term charters. At quarter end, SFL's liner fleet backlog was approximately $1.8 billion, with an average remaining charter term for approximately four and a half years or approximately seven years if weighted by charter revenue. Approximately 84% of the liner backlog is the world's largest liner operators, Maersk Line and MSC, with a balance of approximately 16% to Evergreen.

Our tanker fleet generated approximately $24 million in gross charter hire during the quarter, including $4.8 million in profit split contribution from our two VLCCs on charters to Frontline. The vessels are fixed on profitable subcharters until the end of the quarter, ensuring stability on a quarterly profit split also for the fourth quarter. The net contribution from the company's two Suezmax tankers was approximately $3.3 million in the third quarter, and the vessels are traded in the short-term market for the time being. On November 11, the company redelivered the last VLCC to the Hunter Group after declaration of a purchase option.

After repayment of associated financing, the transaction increased SFL's cash balance by approximately $10.7 million. In the third quarter, our dry bulk fleet generated approximately $28.4 million in gross charter hire. Of this amount, approximately 70% was derived from our vessels on long-term charters. During the quarter, the company had 10 Handysize vessels employed in spot and short-term markets.

The vessels generated approximately $7 million in net charter hire compared to $2.4 million in the previous quarter. At the end of the third quarter, SFL owned three drilling rigs. All of our drilling rigs are long-term bareboat charters to fully guaranteed affiliates of Seadrill Limited and generated approximately $24.4 million in charter hire during the quarter. This summarizes to an adjusted EBITDA of approximately $170 million for the third quarter or $1.08 per share.

We then move on to the profit and loss statement as reported under U.S. GAAP. As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. And as our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing.

As a result, significant portions of our charter revenues are excluded from U.S. GAAP operating revenues and instead booked as revenues classified as repayment of investments in finance leases and vessel loans, results in associate and long-term investments and interest income from associates. So for the third quarter, we report total operating revenues according to U.S. GAAP, approximately $160 million, which is less than approximately $157 million of charter hire actually received for the reasons just mentioned.

In the quarter, the company reported profit split income of $4.8 million from our tanker vessels on charter to Frontline and $800,000 from profit split arrangements related to fuel savings on some of our large container vessels. Beginning in 2020, assets classified as financial assets, including several of SFL's vessels and rigs on long-term leases, are subject to general credit loss provisions similar to those requirements for banks and financial institutions. The net change in such provisions is recorded in the income statement each quarter. In the third quarter, the credit loss provisions increased by approximately $6.2 million, primarily in wholly owned nonconsolidated subsidiaries.

Furthermore, the company recorded nonrecurring and noncash items, including negative mark-to-market effects relating to interest hedging, currency swaps and equity investments of $600,000 and amortization of deferred charges of $2.3 million. So overall, and according to U.S. GAAP, the company reported a net profit of $16 million or $0.15 per share. Moving on to the balance sheet.

At quarter end, SFL had approximately $206 million of cash and cash equivalents, excluding $22 million of cash held in wholly owned nonconsolidated subsidiaries. Furthermore, the company had marketable securities of approximately $33 million, based on market prices at the end of the quarter. This included 1.4 million shares in Frontline, four million shares in ADS Crude Carriers and other investments in marketable securities, in connection with the sale of 3 older VLCCs to ADS Crude Carriers back in 2018 as well to shares in the company as part payment. ADS has now sold all the vessels at attractive prices.

And it's expected that the net proceeds from the vessel sales will be returned to investors. When including the dividend received, the value is estimated approximately $12 million illustrating how SFL, from time to time, takes steps to maximize value for our shareholders. At quarter end SFL had five debt-free vessels with a combined charter value of approximately $40 million based on average broker appraisals. So based on Q3 2020 figures, the company had a book equity ratio of approximately 26%.

Then to summarize, the Board has declared a cash dividend of $0.15 per share for the quarter. This represents a dividend yield of approximately 8% based on the closing share price yesterday. This is the 67th consecutive quarterly dividend, and since inception of the company in 2004, more than $27 per share or $2.3 billion in aggregate have been returned to shareholders through dividends. And while we continue to collect revenue from our fixed charter rate backlog, we also have upside from profit split arrangements from our VLCCs in addition to profit split arrangements related to fuel savings on some of the large container vessels.

Despite a relatively volatile market in 2020, we have added more than $250 million per fixed charter rate backlog over the last 12 months. And we actively continue to explore new business opportunities. And while risk premiums on energy and shipping investments have increased with the recent volatility in financial markets, SFL has, at the same time, with new attractive financing, has expanded its group of lending banks, especially in the Far East to now represent more than 40% of our lending volume. SFL's business model has been continuously tested throughout its 16 years of existence and has previously been highly successful in navigating periods of volatility.

And with that, I give a word back to the operator, who will open the line for questions.

Questions & Answers:


Operator

[Operator instructions] You have the first question coming from the line of Chris Wetherbee. Please go ahead.

Chris Wetherbee -- Citi -- Analyst

Yes. Hi. Thanks. It's Chris Wetherbee from Citi.

I appreciate you taking the question. I guess I wanted to start on the offshore side. And could you give us a sense of, from a cash perspective, how far in arrears we are with the payments here in 4Q? And sort of what are the quarterly cash? Maybe give us a little bit more clarity on sort of the quarterly cash impacts of not paying the charters?

Ole Hjertaker -- Chief Executive Officer

Yes. And thanks for calling in. We were paid in full in the third quarter, around $24 million. The charter rate is in the region of around $90,000 per day on average for these vessels.

And of course, that hire has not been paid in October and has so far not been paid in November. While but importantly here, two of the rigs are employed on profitable subcharters, as I mentioned, and as part of the, call it, chartering structure we agreed from the outset that all the charter hire is being paid into pledged accounts that is pledged in favor of us. So all the revenues they get in from their respective subcharters, be it ConocoPhillips for one of the rigs and Equinor and the other, everything goes into an account where Seadrill cannot use that money unless we give our prior consent. So there is an amount much bigger than the charter hire due to us that is accumulating on those bank accounts right now that cannot -- that is really sort of -- that's what we say, sitting there.

Right now, you can say status quo, there is more money accumulating. But of course, over time, I mean, some of this money is -- should be used for operating expenses. So Seadrill needs to fund that from other sources right now. So -- but I guess, again, this is what we say, we continue our discussions and negotiations and Seadrill, of course, has similar discussions and negotiations with other stakeholders.

So we cannot give any comments on the details of that or exactly how this could play out over time.

Chris Wetherbee -- Citi -- Analyst

OK. OK. Understood. But that's very helpful information, so I appreciate that.

And then when you think about what that assuming that nonpayment continues through the quarter, how that impacts your thought process around dividends and distributions as you go forward?

Ole Hjertaker -- Chief Executive Officer

Yes. So in order to, I would say, eliminate sort of questions around that, the board took the step to reduce the dividend to $0.15, which is more than covered from the shipping side alone. So by that we hope that at least given the uncertainty right now relating to those rigs and the charters to Seadrill and how that restructuring is playing out, we have some significant contribution from those other assets. And while there are financing right now on two of the three vessels have financing agreements attached, one with a more flexible, call it, structure and the other with more regular payments.

Of course, the one rig with the financing with a limited guarantee, what we say our liability is limited to that guarantee unless we agree to do something else. So I think we have 81 vessels and rigs and all outside of the drilling rigs here. And we have significant cash flow from all of them. And importantly, even if there could be issues in one, you can say, box here, on the offshore side on each of those rigs, that has no impact on contribution and cash flow from the other assets.

Chris Wetherbee -- Citi -- Analyst

OK. That's helpful. And one final, if you allow me, would just be on the West Linus. Can you talk a little bit any of the specific terms that you were able to get in terms of the amended financing there, the terms around that?

Ole Hjertaker -- Chief Executive Officer

Unfortunately, I cannot give you any specific comments on that right now. We will get back to that in due course. But we have agreed more flexible terms in exchange for increasing the guarantee. This is also the rig that has a subcharter that runs through 2028.

So what we say it's there is a lot of visibility on the underlying cash flow coming from that asset. And that's also why we, for now, has increased the guarantee on that one.

Chris Wetherbee -- Citi -- Analyst

All right. Well, thanks very much for the time. I appreciate it. Thank you.

Operator

The next question comes from the line of Randy Giveans from Jefferies. Please ask your question.

Randy Giveans -- Jefferies -- Analyst

Gentlemen, how's it going?

Ole Hjertaker -- Chief Executive Officer

Good. Thank you. How are you?

Randy Giveans -- Jefferies -- Analyst

Great. Great play. So yes, in the past, you've touted your strategy, your balance sheet as having the ability to buy when other shipowners in other sectors cannot, right? So with that, how do you view kind of your fleet today? What asset classes are most attractive? Clearly, dry bulk and tanker asset values remain depressed. So has there been any interest from dry bulk owners for sale and leasebacks to SFL? And then last time we talked, you wanted to expand your tanker exposure, but asset values were too high.

Clearly, those have come in as well. So how do you view both dry bulk and tankers in terms of acquisitions at these levels?

Ole Hjertaker -- Chief Executive Officer

Yes. Thanks. We, of course, continuously evaluate opportunities in multiple sectors. And we are looking at opportunities in all the sectors right now.

It's what we're saying. But we typically never comment on transactions that we don't do. So we will notify when we do it. And in the meantime, we are screening a lot.

We are going further than that on other deals. And hopefully, with last 12 months concluded, we have added $250 million to the backlog. And of course, we have ambitions to grow the business also without going forward, certainly outside the offshore side for now, until the whole Seadrill situation is sorted. You are correct.

I mean, we try to time transactions and we try to be mindful of cycles, and we typically try to be careful if segments are peaking. I would say, generally, this year, there was good activity, good volume at the beginning of the year. And then for a period, I think most operators out there were more or less paralyzed, I think, by COVID-19 and uncertainty surrounding that. I sense that the market is picking up more now.

What we have seen on the financing side is that we are now concluding financings at better, I would say, all-in cost, if you add margin and underlying interest. We are financing ourselves cheaper than we have seen earlier. So that at least is positive. There is good access to capital.

But we have to be mindful of course, of the asset risk we take on. But we can do many things. I mean, we can do straight operating type charters where we run the vessels, time charter but we also do deals like we did with the Hunter vessels. We structured that it was more like a structured financing, you can say.

It was really a cost of capital arbitrage, where we could utilize our access to very attractive funding. And they were willing to pay up for that because they needed the flexibility in the deal. So we got, like, a risk-adjusted return of more than 20% on effectively sort of around 60% leverage on the assets. So we're looking at both those sort of types of deals across the sectors.

But we typically will not tell you how much we will do in any single one. It's really all about trying to do the right deals and be open for opportunities across the board.

Randy Giveans -- Jefferies -- Analyst

OK. And then I guess, following up on the dividend. You cut it from $0.35 to $0.25 just two quarters ago. And I think the reasoning behind that was twofold.

One, it brought the yield closer in line to maybe 10% when your shares were trading at $10 a share. But also, it was kind of getting in front of any possible risks with the drilling rigs, right, and kind of getting in front of that to reduce it to $0.25. Now again, you reduced it to $0.15. Is that solely due to the drilling rigs? Or were there other reasons around that? So just trying to figure out why a secondary cut, and what the risks are from here?

Ole Hjertaker -- Chief Executive Officer

Yes. Thanks. I think when we reduced it from $0.35, it was, I would say, more relating to general risks, call it, caused by the whole COVID-19 situation, where we saw some assets where we saw charter rates come down sharply in some segments. And we also had the car like -- assets like the car carriers that came off charter and where we put them in lay-up.

So instead of generating revenues, you can say, you have a negative, call it, cash flow because you're paying for lay-up costs, while they don't earn the money. So that was really a factor more relating to that. And as we have seen, I would say, the offshore and the rig side, and this is, of course, linked also to the oil price, but it's been deteriorating, I would say, over the last few months. We believe -- and this is the Board's decision, of course, but we believe that it would be appropriate to effectively eliminate all, call it, the cash flows that has previously been in there from the drilling rigs from the distribution capacity and show that it's with a good margin to cash flow generating from the other assets.

And of course, depending on the outcome of the Seadrill, call it, restructuring, when we're on the other side of that, of course, it's easier for the board then to look at the distribution capacity and possibly reinstate some of that reduction that has been taken out. So also as we used some cash to buy back the loan on the drilling rig. Of course, you can argue that if that hadn't been bought back, you could have reinvested that in other assets, which could have generated some contribution. So that is really, call it, the reasoning around this latest adjustment.

Randy Giveans -- Jefferies -- Analyst

All right. All right. Well, I'll leave it at that. Thanks so much.

Ole Hjertaker -- Chief Executive Officer

Thank you. Bye.

Operator

The next question comes from the line of Liam Burke. Please ask your question.

Liam Burke -- B. Riley FBR -- Analyst

Yes. Thank you. On the container side of the business, you mentioned potentially acquiring assets not specifically in the container space, but the rates are pretty strong and you're benefiting there. What does it look like in terms of adding assets in containers with rates so strong?

Ole Hjertaker -- Chief Executive Officer

We also look at the container market, obviously. When we look at opportunities, we look at it from a long-term perspective, of course, right now, and certainly, in the short term, we see booming container rates, and we see the liner operators generating a lot of cash flow now from the market. It's -- I would say, it's very reassuring to see. And of course, given that we have a lot of container ships on the portfolio to the larger container operators, we are very happy to see that there has been a very good discipline in the market and where they have been building buffers amid uncertainty and the disruption caused by COVID-19.

So yes, we are also looking at containership assets, and would be happy to add more also in that sector if we find the right asset at the right price and where we can structure the financing around it, so it gives us a good risk-adjusted return. So yes, absolutely.

Liam Burke -- B. Riley FBR -- Analyst

And looking at your fleet, some of the smaller bulkers and tanker vessels that are not on longer-term charters. Is that consistent? Or will, let's say, consistency in your overall strategy where it's matched the financing to the contract? Or how does that work out in the long term?

Ole Hjertaker -- Chief Executive Officer

Our reasoning for having vessels that are not deployed on long-term charters, it's not because we have sort of acquired them to keep them in the spot market. Typically, vessels that we trade in the short-term market has been assets that has been on longer-term charters and that have come off those charters. And because we have an operating platform where we can manage those vessels, if we had been a pure, call it, financial profile, we would have to either recharter at what we think as at the bottom of the market or sell those assets. Instead, we can trade them in the market.

And of course, our ambition is to find longer-term charters as the market improves. So that is really the reasoning behind it. We also have, call it, variable, call it, cash flow from profit share arrangements, which you can say, to a certain degree is similar. You agree to maybe a little lower base rates in exchange for getting optionality linked to profit share, which is a way for us to also capitalize on our strengthening market.

But over time, I think, generally, if you look at it over the years, it's been roughly 10% of the cash flow, on average, from, I would say, short-term charters or the spot market. And the predominant volume of cash flows in SFL has been driven by the longer term.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you very much.

Operator

The next question comes from the line of Greg Lewis. Ask your question.

Greg Lewis -- BTIG -- Analyst

Yes. I thank you and good afternoon everybody. Ole, in realizing you can't talk much about the Seadrill restructuring. Just curious -- you mentioned the cash account that's building.

When -- post the last -- if we were to look back, the last time Seadrill came out of restructuring how long after that -- their reemergence from restructuring, was Ship Finance able to access that capital? Or did you still receive that payment?

Ole Hjertaker -- Chief Executive Officer

Yes. I'm not sure if I got you right, there was some noise on the line here. But if I read you correct, are you asking me how long a time it took for Seadrill to emerge from bankruptcy? Or did you [inaudible] charter rate?

Greg Lewis -- BTIG -- Analyst

Yes, yes. Correct. Not how long because we won't know that. But as I think about the process and maybe it's differing or being very similar to what it was last time.

Post the reemergence, how long was it before Ship Finance received that cash in that account?

Ole Hjertaker -- Chief Executive Officer

OK. Yes. So sorry, I did not understand. Well, at that time, this is back in 2017, the charter rates at that time was higher.

We also had a lot more financing at the time back then. And we did receive full charter hire all the way through the Chapter 11 process. And that was part of, what we say, the pre agreement between the stakeholders at the time that we would be paid full charter higher. So the adjustment in the charter hire took effect when Seadrill emerged out of Chapter 11.

Greg Lewis -- BTIG -- Analyst

OK. OK. And then just one other one for me around this. Realizing that it's a much smaller piece of the portfolio this time around.

But really, as we think about this, the last time this happened, despite maybe there being opportunities in the market, Ship Finance, my recollection was really stayed out of the market in terms of acquiring assets. Is there any reason to think that this time that could potentially be different?

Ole Hjertaker -- Chief Executive Officer

No. I would say that was more coincidental. We have no intentions of staying away from the market. We took out the financing on one rig, and we have -- we still have good capacity to do new deals.

So it's not -- that is certainly not our intention. But of course, it all boils down to finding the right deals and doing them. And of course, we want them to be truly accretive to distribution capacity.

Greg Lewis -- BTIG -- Analyst

OK. Thank you.

Operator

There are no other questions at this time. Sir, please continue.

Ole Hjertaker -- Chief Executive Officer

Then I would like to thank everyone for participating in our third quarter conference call and also thank the SFL team for their tremendous efforts in a challenging time with disruption caused by COVID-19 situation, both on board the vessels and onshore. Situation around the drilling rigs does remain unresolved, as we've discussed today, but at least the two of the harsh-environment rigs are producing significant cash flows for Seadrill, which is very positive in the circumstances. And we will remain very focused on the situation in order to create the best possible outcome for SFL and our stakeholders. But our rigs are only part of the puzzle there, so we cannot control the timing for resolution.

But we'll, of course, notify you all when there are developments. If you do have follow-up questions, there are contact details in the press release or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Ole Hjertaker -- Chief Executive Officer

Aksel Olesen -- Chief Financial Officer

Chris Wetherbee -- Citi -- Analyst

Randy Giveans -- Jefferies -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

Greg Lewis -- BTIG -- Analyst

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