Closes innovative $1 billion portfolio financing program, and finishes the quarter with over $868 million of liquidity
Revising guidance upward on stronger than expected first half performance
Seaspan Corporation (“Seaspan”) (NYSE: SSW) has announced its financial results for the three and six months ended June 30, 2019.
Highlights for the Second Quarter and First Half of 2019:
Closed innovative new $1.0 billion portfolio financing program
Achieved vessel utilization of 98.7% for the second quarter and 98.4% for the first half
Operating earnings of $110.4 million for the second quarter and $454.5 million for the first half
Earnings per diluted share of $0.10 for the second quarter and $1.34 for the first half; changes in fair value of financial instruments contributed a loss of $0.07 per diluted share for the second quarter and a loss of $0.07 per diluted share for the first half
Cash flow from operations of $369.9 million for the second quarter and $499.2 million for the first half
Mid-Year Guidance Update for Full Year 2019:
Revenue in the range of $1,115.0 million to $1,120.0 million; lower end of range raised by $15.0 million from $1,100.0 million
Ship Operating Expense in the range of $240.0 million to $245.0 million; higher end of range reduced by $5.0 million from $250.0 million
Operating Lease Expense in the range of $155.0 million to $160.0 million; higher end of range reduced by $5.0 million from $165.0 million
General and Administrative Expense in the range of $30.0 million to $35.0 million; guidance range reaffirmed
Comments from Management
Bing Chen, President and Chief Executive Officer, commented, “I’m proud of our team for delivering another stronger than expected second quarter operating results. Our continued drive for operational excellence allowed us to deliver better than anticipated operating earnings, while investing in and building on our integrated platform to consistently enhance our customer centric approach. In particular, we’ve continued to sign multi-year contracts with customers, maintaining our industry leading utilization rate of 98.7%. Our team is building a solid track record for executing on the promises we have made to our customers, employees, financing partners and our shareholders.”
Ryan Courson, Chief Financial Officer, said, “The closing of our innovative $1 billion portfolio financing program this quarter marked an important step toward reshaping our capital structure. Beyond an improved cost of debt and maturity profile, this structure provides us with significant financial flexibility to optimize Seaspan’s capital structure going forward, while simplifying and consolidating our credit facilities. With the foundation now laid for growth, we intend to continue executing on capital allocation opportunities to drive shareholder value.”
Significant Developments During the Quarter Ended June 30, 2019
$1 Billion Portfolio Financing Program
On May 15, 2019, Seaspan entered into a credit agreement with a syndicate of lenders for a $1.0 billion secured credit facility (the “Program”), which consists of a $200.0 million revolving credit facility and an $800.0 million term loan facility. The Program is secured by a portfolio of vessels (the “Collateral Pool”) and bears interest at LIBOR plus 2.25% per annum. The revolving credit facility is available for three years, after which it converts to, and forms part of, the term loan facility, which matures on May 15, 2024. The Program can be increased to an aggregate amount of up to $2.0 billion through additional commitments from lenders, execution of additional secured loan agreements and/or issuing private placement notes, in each case with a corresponding expansion of the Collateral Pool.
Under the Program, Seaspan may add, substitute and remove vessels from the Collateral Pool during the term, subject to a borrowing base, portfolio concentration limits, absence of defaults and compliance with financial covenants and certain negative covenants.
As of June 30, 2019, Seaspan had drawn $874.0 million under the Program and used the proceeds to prepay, in full or in part, credit facilities and for general corporate purposes.
Ownership Days, Operating Days and Vessel Utilization
Ownership days are the number of days a vessel is owned and available for charter. Operating days are the number of days a vessel is available to the charterer for use.
The primary driver of ownership days are the increases or decreases in the number of vessels owned, while the drivers of operating days are ownership days and the number of days the vessels are off-hire.
Ownership days increased by 191 days and 1,791 days for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The increase for the three months ended June 30, 2019 was due to the 2018 vessel deliveries. The increase for the six months ended June 30, 2019 was primarily due to the period contribution from the addition of 16 vessels acquired through the acquisition of Greater China Intermodal Investments LLC (“GCI”), which contributed 1,152 days, with the remainder due to the 2018 vessel deliveries.
Vessel utilization increased for the three and six months ended June 30, 2019, compared with the same period in 2018. The increase for the six months ended June 30, 2019 was primarily due to a decrease in the number of unscheduled off-hire days and scheduled off-hire days for dry-docking.
During the six months ended June 30, 2019, Seaspan completed dry-docking for one 10000 TEU vessel, one 9600 TEU vessel, two 5100 TEU vessels, one 4250 TEU vessel, and one 2500 TEU vessel.
Revenue decreased by 2.2% to $275.4 million and increased by 10.7% to $560.7 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease in revenue for the three months ended June 30, 2019 was primarily due to the changes in the daily charter hire rates of seven rechartered vessels. In the first quarter, these time charters were modified and Seaspan recognized $227.0 million of income from modification of time charters, which was received on April 1, 2019. These seven charters have been rechartered to other customers, pursuant to new time charters at market rate. The increase in revenue for the six months ended June 30, 2019 was primarily due to the period contribution of additional operating days from the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.
Ship Operating Expense
Ship operating expense decreased by 4.8% to $55.9 million and increased by 4.9% to $113.6 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease for the three months ended June 30, 2019 is primarily due to cost saving initiatives. The increase for the six months ended June 30, 2019 was primarily due to an increase in ownership days from the period contribution of the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.
Operating Lease Expense
Operating lease expense increased by 20.0% to $38.8 million and by 22.8% to $78.0 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The increase was primarily due to the amortization of deferred gains related to Seaspan’s vessel sale-leaseback transactions, which are no longer recognized through operating leases. Upon adoption of Accounting Standards Update 2016-02 “Leases” on January 1, 2019, the remaining balance of these deferred gains were recognized through opening deficit as a cumulative adjustment.
Liquidity and Unencumbered Vessels
As of June 30, 2019, Seaspan had total liquidity of $868.4 million, consisting of $592.4 million of cash and cash equivalents and $276.0 million available under its revolving credit facilities. Additionally, as of August 7, 2019, Seaspan’s unencumbered asset pool included 43 vessels, four of which are pending completion of collateral release documentation.
Sea News, August 13