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VESSELS UNDER FINANCE LEASE, NET | 12 Months Ended
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Dec. 31, 2019
Leases, Capital [Abstract] |
VESSELS UNDER FINANCE LEASE, NET |
19. | VESSELS UNDER FINANCE LEASE, NET
Movements in the three years ended December 31, 2019 are summarized as follows:
(in thousands of $) |  | Cost |  |  | Accumulated Depreciation |  |  | Net Carrying Value |
Balance at December 31, 2016 |  | 607,449 |  |  | (71,016 | ) |  | 536,433 |
Impairment loss |  | (187,379 | ) |  | 4,727 |  |  |
Lease termination |  | (61,075 | ) |  | 23,192 |  |  |
Depreciation |  | — |  |  | (64,200 | ) |  |
Balance at December 31, 2017 |  | 358,995 |  |  | (107,297 | ) |  | 251,698 |
Lease termination |  | (218,494 | ) |  | 83,601 |  |  |
Depreciation |  | — |  |  | (26,129 | ) |  |
Balance at December 31, 2018 |  | 140,501 |  |  | (49,825 | ) |  | 90,676 |
Additions |  | 343,564 |  |  | — |  |  |
Depreciation |  | — |  |  | (15,850 | ) |  |
Balance at December 31, 2019 |  | 484,065 |  |  | (65,675 | ) |  | 418,390 |
The outstanding obligations under finance leases as of December 31, 2019 are payable as follows:
(in thousands of $) |  |
2020 |  | 291,964 |
2021 |  | 17,557 |
2022 |  | 16,419 |
2023 |  | 17,557 |
2024 |  | 16,468 |
Thereafter |  | 25,920 |
Minimum lease payments |  | 385,885 |
Less: imputed interest |  | (25,975 | )
Present value of obligations under finance leases |  | 359,910 |
In August 2019, the Company recognized additional right-of-use assets and finance lease obligations in relation to five vessels chartered in from Trafigura in connections with the SPA. See Note 5. for full details of the accounting for this transaction. In May 2015, the Company and SFL agreed to amendments to the leases on 12 VLCCs and five Suezmax tankers, the related management agreements and further amendments to the charter ancillary agreements for the remainder of the charter periods. As a result of the amendments to the charter ancillary agreements, which took effect on July 1, 2015, the daily hire payable to SFL was reduced to $20,000 per day and $15,000 per day for VLCCs and Suezmax tankers, respectively. The fee due from SFL for operating costs was increased from $6,500 per day per vessel to $9,000 per day per vessel. In return, the Company issued 11.0 million new shares (as adjusted for the 1-for-5 reverse share split in February 2016) to SFL and the profit share above the new daily hire rates was increased from 25% to 50%. The Company was released from its guarantee obligation and in exchange FSL, a wholly owned subsidiary of the Company and the chartering counterparty with SFL, has agreed to certain dividend restrictions. In order to make or pay any dividend or other distribution to the Company, FSL shall demonstrate a cash buffer of $2.0 million per vessel both prior to and following such payment, and following payment of the next monthly hire due plus any profit share accrued under the agreement. As at December 31, 2019, the cash held by FSL of $13.1 million (2018: $3.5 million) may solely be used for vessel operations, payment of hire to SFL or other amounts incurred under the charters and Charter Ancillary Agreement and any other amounts incurred in the ordinary course of business. As the Merger has been accounted for as a reverse business acquisition in which Frontline 2012 is treated as the accounting acquirer, all of the Company's assets and liabilities were recorded at fair value on November 30, 2015 such that estimated profit share over the remaining terms of the leases has been recorded in the balance sheet obligations. Consequently, the Company will only record profit share expense following the Merger when the actual expense is different to that estimated at the date of the Merger. As of December 31, 2019, the Company has recorded total obligations under these finance leases of $87.9 million of which $52.9 million is in respect of the minimum contractual payments and $35.0 million is in respect of contingent rental expense. Profit share arising in the year ended December 31, 2019 was $4.8 million, which was $2.2 million less than the amount accrued in the lease obligations payable when the leases were recorded at fair value at the time of the merger with Frontline 2012. Profit share arising in the year ended December 31, 2018 was $1.5 million, which was $19.7 million less than the amount accrued in the lease obligations payable when the leases were recorded at fair value at the time of the merger with Frontline 2012. Profit share arising in the year ended December 31, 2017 was $5.6 million, which was $26.1 million less than the amount accrued in the lease obligations payable when the leases were recorded at fair value at the time of the merger with Frontline 2012. The following table sets forth certain details of vessel lease terminations in the years ended December 31, 2018 and December 31, 2017. There were no lease terminations in the year ended December 31, 2019:
(in thousands of $) |  |  |  |  |  |  |  |  |  |
Vessel |  | Year |  | Termination agreed |  | Termination date |  | Termination (payment)/ receipt |  | Gain/ (loss) on termination
Front Circassia |  | 2018 |  | February 2018 |  | February 2018 |  | (8,891 | ) |  | (5,811 | )
Front Page |  | 2018 |  | June 2018 |  | July 2018 |  | (3,375 | ) |  | 2,638 |
Front Stratus |  | 2018 |  | June 2018 |  | August 2018 |  | (3,375 | ) |  | 2,144 |
Front Serenade |  | 2018 |  | June 2018 |  | September 2018 |  | (3,375 | ) |  | 2,426 |
Front Ariake |  | 2018 |  | October 2018 |  | October 2018 |  | (3,375 | ) |  | 3,523 |
Front Falcon |  | 2018 |  | November 2018 |  | December 2018 |  | — |  |  | 5,404 |
Vessels terminated in 2018 |  |  |  |  |  |  |  | (22,391 | ) |  | 10,324 |
Front Ardenne |  | 2017 |  | July 2017 |  | August 2017 |  | (4,853 | ) |  | (5,824 | )
Front Scilla |  | 2017 |  | May 2017 |  | June 2017 |  | (6,465 | ) |  | (7,341 | )
Front Brabant |  | 2017 |  | May 2017 |  | May 2017 |  | (3,578 | ) |  | (5,021 | )
Front Century |  | 2017 |  | November 2016 |  | March 2017 |  | (4,110 | ) |  | 20,565 |
Vessels terminated in 2017 |  |  |  |  |  |  |  | (19,006 | ) |  | 2,379 |
In March 2017, the Company recorded an impairment loss of $21.2 million with respect to four vessels leased in from SFL - the 1997-built Front Ardenne, the 1998-built Front Brabant, the 2000-built Front Scilla and the 1999-built Front Circassia - based on a 25% probability assumption of terminating the vessel's lease before the next drydock. In December 2017, the Company has recognized an impairment loss of $142.9 million on the remaining nine VLCCs chartered in from SFL. The leasehold interest in these finance leased assets was recorded at fair value at the time of the Merger based on the discounted value of the expected cash flows from the vessels. Based on the deterioration in forecast rates since the Merger, and the reduced remaining useful economic life of the vessels as they approach the end of their leases, the Company recognized an impairment loss on all of these leased vessels, calculated as the difference between the discounted value of the expected cash flows from the vessels as at December 31, 2017 and the carrying value of the vessels under finance lease at that time. In February 2018, the Company agreed with SFL to terminate the long-term charter for the 1998-built VLCC Front Circassia upon the sale and delivery of the vessel by SFL to an unrelated third party. The charter with SFL terminated in February and the charter counter party FSL, a non recourse subsidiary of Frontline, has agreed to make a compensation payment of approximately $8.9 million for the termination of the charter to SFL, which has been recorded as an interest-bearing note payable by FSL. The note is due for repayment in 2021 and carries interest of 7.5% per annum. The termination reduced obligations under finance leases by approximately $20.6 million. The Company recorded a loss on termination, including this termination payment, of $5.8 million in the year ended December 31, 2018. In July 2018, the Company agreed with SFL to terminate the long-term charter for the VLCCs Front Page, Front Stratus and Front Serenade upon the sale and delivery of the vessels by SFL to an unrelated third party. The charters with SFL terminated in July, August and September 2018, respectively, and Frontline agreed to make a compensation payment of approximately $10.1 million for the termination of the three charters to SFL, which was recorded as interest-bearing notes payable by Frontline. The notes are to be repaid using the same repayment profile as the original leases and carry an interest of 7.5% per annum. The notes will be fully repaid in 2025, 2025 and 2024, respectively. These terminations reduced obligations under finance leases by approximately $92.1 million. The Company recorded a gain on termination, including the termination payment, of $7.2 million in the year ended December 31, 2018. In October 2018, the Company agreed with SFL to terminate the long-term charter for the 2001-built VLCC, Front Ariake, upon the sale and delivery of the vessel by SFL to an unrelated third party. The charter terminated in October and Frontline has agreed to a total compensation payment to SFL of $3.4 million for the termination of the charter, which has been recorded as an interest bearing note payable by Frontline. The note carries interest of 7.5% per annum and will be fully repaid in 2023. In December 2018, the Company agreed with SFL to terminate the long-term charter for the 2002-built VLCC, Front Falcon, upon the sale and delivery of the vessel by SFL to an unrelated third party. The charter terminated in December. No compensation is payable on termination of the charter. These terminations reduced obligations under finance leases by approximately $55.2 million. The Company recorded a gain on termination, including the termination payment, of $8.9 million in the year ended December 31, 2018. As of December 31, 2019, the Company leased in three vessels on long-term charter from SFL (2018: three vessels) and five vessels from Trafigura, all of which are classified as finance leases. The remaining periods on these leases at December 31, 2019 range from zero to 7 years. The Company recognized finance lease interest expense in the year ended December 31, 2019 of $10.7 million (2018: $16.4 million). None of these vessels have been subleased under non-cancellable operating leases.

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- Definition The entire disclosure for capital leasing arrangements including, but not limited to, the following: a) the basis on which contingent rental payments are determined; (b) the existence and terms of renewal or purchase options and escalation clauses; (c) restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -SubTopic 30 -URI http://asc.fasb.org/subtopic&trid=2209026 + Details
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