Seaspan Insider Buys

[omagh]

<iv,

 

Cole would be proud...thanks for the detailed breakout of your case.  It's quite compelling and I'm doing some further due diligence.  I've had some mixed success with leasing co's.

 

Cheers,

 

-O

Hi O,

 

Here are the Coles Notes …

 

[lessthaniv]

Upgrade this morning from Bank of America. Target moved from $6 to $14. Perhaps explains some the move this morning.

:o

 

http://www.streetinsider.com/Upgrades/Bank+of+America+Upgrades+Seaspan+%28SSW%29+to+Buy/4951093.html

 

<IV

[Myth465]

Congrats guys, I decided to just sit on this one over the last few weeks or so and its up 40%. JEast one day I will realize that I need to just start following you in. At least HRP worked out well. Good Luck going forward, this one is on a tear.

[gaf63]

<IV,  thanks for the link, went looking for any news when I saw it up over $1 this morn, found none, thoughts of take over etc., but this is better news Except that I  have been waiting for a pullback to buy some more

[gaf63]

There is some more info I'd like to add to <IV's post.  Referring to the over capacity of container ships , and the earnings decline of the liners.

Two lines,  CSAV  and HL-USA have asked SSW to review and possibly change their charters.  The asian lines have made no such requests.

 

CSAV which has taken two ships this year and is due to take 2 more, asked for help.  SSW said no  to revisions , and since CSAV has restructured  with German ship owners  and continues to pay on original SSW charter party.   CSAV  has probably delayed the next 2 ships, but that is hard to know because SSW doesnt release who has delayed deliveries.

   HL-USA  has asked for meetings with SSW  to look at contracts also.  They have 9 ships with SSW of which 4 are into 1 yr. renewals and the other 5 will go into the 1 yr. renewal soon.  They must give a 2 yr. notice to cancel these charters or pay a penalty. (The penalty will cover a yrs. revenue on each ship).

It appears ;that Hapaag Lloyd will receive a bailout from the German govt. which should improve HL-USA'S liquidity. Will know in a week or so.

 

 SSW has  taken a charge of 1 mil for delay penalties  for 11 ships, and there are 2 more that have come up since 6-30.  The liners are losing money  and prob. will continue to for the foreseeable future but  are honoring their contracts at this time.  HL-USA could renege on their contracts or some of them but it would cost them a lot.   SSW could lose up to 6.5 mil rev./yr. on each ship.

    So, while the container industry is going thru tough times, SSW appears to be handling the situation.

The next few yrs. are not without risk however , until trade and rates improve.  I'll collect 6% plus on the div. while waiting, and probably add more to my position if it drops back,  GAF

 

[gaf63]

From Bloomberg with a little more on the reason for the upgrade,

 

Seaspan Corp. (SSW US) advanced 3.7 percent to $9.90 after jumping as much as 14 percent, the most intraday since March 4. The Hong-Kong-based shipper was upgraded to “buy” from “underperform” by Bank of America Corp., which cited price increases by peers and a second consecutive monthly increase in shipping volume at the port of Los Angeles.

 

 

[lessthaniv]

Yesterday morning Bloomberg was reporting that HL might not get state aid:

 

http://www.bloomberg.com/apps/news?pid=20601100&sid=aFAAlQ0LkwPk

 

However Lloyd's List reports this morning that parliment in Hamberg unanimously approved the decision to provide aid yesterday. So, now we wait to hear on the Federal Government Decision.

 

http://www.lloydslist.com/ll/news/hamburg-votes-in-favour-of-hapag-lloyd-aid/20017699119.htm;.5fa4e8cc80be35e2653c9f87d8b8be45bf6ba69a

 

<IV

[gaf63]

SSW takes delivery of its 41st  ship 

 

 

Seaspan Takes Delivery of Forty-First Containership on Twelve-Year Time Charter to China Shipping

 

Delivery of CSCL Manzanillo Marks Successful Completion of Series of Eight 2500 TEU Container Ships

 

Press Release

Source: Seaspan Corporation

On Monday September 21, 2009, 9:15 am EDT

 

 

 

HONG KONG, CHINA--(Marketwire - 09/21/09) - Seaspan Corporation (NYSE:SSW - News) announced today that it accepted delivery of the CSCL Manzanillo from Jiangsu Yangzijiang Shipbuilding Co., Ltd., on September 18, 2009. The 2500 TEU containership is Seaspan's sixth newbuilding in 2009 and expands the Company's fleet to 41 vessels. The CSCL Manzanillo is chartered to China Shipping Container Lines (Asia) Co., Ltd., under a twelve-year, fixed-rate time charter that requires CSCL Asia to pay all fuel, cargo-operating and related costs. Upon delivery of Seaspan's full fleet of 68 vessels, the Company's contracted revenue stream is expected to grow to approximately $7 billion and its annual revenue is anticipated to rise to approximately $700 million.

 

 

 

 

 

Gerry Wang, Chief Executive Officer of Seaspan, said, "With the delivery of the CSCL Manzanillo, we have successfully completed the construction and delivery of the series of eight 2500 TEU vessels. We are pleased to have partnered with both Jiangsu Yangzijiang Shipbuilding and CSCL to provide this leading Chinese liner with modern, state-of-the-art vessels that continue to meet high performance standards. We look forward to continuing to grow our fleet and contracted revenue stream as we take delivery of 27 remaining newbuildings."

 

About Seaspan

 

Seaspan owns containerships and charters them pursuant to long-term fixed-rate charters. Seaspan's contracted fleet of 68 containerships consists of 41 containerships in operation and 27 containerships to be delivered over approximately the next three years. Seaspan's operating fleet of 41 vessels has an average age of approximately five years and an average remaining charter period of approximately seven years. All of the 27 vessels to be delivered to Seaspan are already committed to long-term time charters averaging approximately 11 years in duration from delivery. Seaspan's customer base consists of seven of the world's largest liner companies, including China Shipping Container Lines, A.P. Moller-Maersk, Mitsui O.S.K. Lines, Hapag-Lloyd, COSCO Container Lines, K-Line and CSAV.

[JEast]

As the annual meeting was over the weekend, I was looking for an announcement so I guess this was it. In addition, management promised another announcement before the next quarter's report on the delivery schedule. However, I would assume that this may be the end of deliveries for this year. Next year is the real test as the bigger ships with larger cash flows are due to be delivered based on preliminary comments. If so, the dividend should gradually go back to previous levels sometime in 2011.

 

The potential real surprise is if Seaspan uses their close relationships with the Chinese banks, which are flush with cash, to maybe buy a few discounted ships over the next 6 months or so. As their current rate on loans is fixed at approximately 6.1%, better deals/rates may be available for the agile management team.

 

 

Cheers

JEast

[gaf63]

First I want to thank JEast and <IV for your calling attention to SSW and for your excellent write ups/analysis.

 

2nd, there was an article in the FT this weekend on shipping ,dry bulk, but with interesting comments concerning long term charters and

timing on buying ships.  The individual thinks that the beginning of 2010 should be the most opportune time for picking up ships at good value.

 

http://www.ft.com/cms/s/0/ed834a0e-a470-11de-92d4-00144feabdc0.html?nclick_check=1

[Vizi1]

Here is the complete FT article mentioned above

 

http://www.ft.com/cms/s/0/ed834a0e-a470-11de-92d4-00144feabdc0.html

[gaf63]

Rejected new builds  for sale  ,  low bids of $20 mil for a 6500 TEU ship,

SSW is paying $77.3 for 5100 TEU ships, so figure original cost north of $90 mil

So the bargains are out there, wonder if SSW will participate

 

From Lloyd's List:

 

IRISL boxships attract $20m bids from bargain hunters

Janet Porter - Wednesday 23 September 2009

 

BIDS as low as $20m apiece are rumoured to have been offered for three 6,500 teu newbuildings that are up for sale after the original buyer failed to complete the purchase, writes Janet Porter

 

.

 

One of the interested parties is said to be Neptune Orient Lines, although the listed Singapore line declined to comment yesterday.

 

 

[gaf63]

JEast,  looking at SSW buying discounted ships,

While prices are heavily discounted it seems to me that it would be a negative for SSW at this point

Postives:  new ships for <50% of cost, much higher op. margin and cash flow over time

negatives:  with SSW's m.o., need to find liner to operate , and their charter cos. are asking to delay deliveries,

would have to discount day rates to present low rates to attract liners, at least for the next few yrs. with an escalation clause once rates go up again(could be a positive if an escalation clause possible)

They need cash flow to finance ships on order, and the delay options will cost them up to $19 mil for 11 ships

If they keep the equity of ships at 65%, another $10 mil plus, maybe they can get 100% financing at such low prices??

And if they offer new ships at lower rates what would keep liners from continuing delays on ship orders that have much higher day rates

SSW would need to cover the interest on new ships til the market recovers and they need all the cash flow they have at moment.

More financing from the Washington's possibly???  Sure would be a great opportunity long term , but short term difficult

JEast and <IV,

  What are your thoughts  on the above , and if I'm off base in my thinking I'd appreciate correction

 

Thanks, Gary

[JEast]

Thanks for your previous comments.

 

To make my thesis as simple as possible, this is mainly a replacement value play. Even with the depressed prices for assets, the replacement costs to have what SSW already has on the water is above the current selling price. Anyone can make the argument (as the market has) that the liners are going to walkaway from their charters much like ZIM has done to Danaos or that the banks will withdraw credit. However, with respect to the former, Maritime Law is on Danaos' side as I read it as the owner can just keep the cargo for unpaid bills if they want to.

 

The other point is that SSW is really leveraged to China companies and indirectly to the Chinese government which makes me believe that these companies will not walkaway but will maintain the status quo. Also, China is expanding and they want solid partners. If you can obtain a very cheap asset then one does not have to ask for as high a charter rate either to get the same return. Plus many liners want to de-leverage their balance sheets (like COSCO) and that is what SSW is there to do.

 

Whether SSW buys new assets, or not, really just depends on price. I would not suspect any action for the remainder of the year as they are building their surplus, but would not be surprised for some activity in the first six months of next year. Again, I am agnostic if it is a positive or negative as it depends on the price and what they will do with the new asset. Also, this is a long-term investment as it is going to take some time. However, I am of the believe that as one looks back five years, or so, much like FFH, one will think the $5-$8 range was very cheap.

 

As a side note, the previous article about $20M for 6,500TEU appears to have just been a rumor, but we shall see.

 

 

Cheers

JEast

[SharperDingaan]

 

Keep in mind that Seaspan is not is going to buy a cheap ship unless they have an immediate time charter for it. Which means that 1) new ship construction is delayed & the use of the cheap ship is so that both the charterer & Seaspan can benefit from lower rates, lower cargo committments, & financing deferrals; or 2) Seaspan has to offer the ship at a cheaper finance rate than the charterer could get - by simply borowing the $ themselves & putting the ship in its own sub. Assume 1)

 

Most yards will allow construction delays for a price, & the closer the ship is to completion the higher the upfront penalty (int on the higher construction debt, discount on deferred profit recognition, etc.). But as even the minimum penalty on a big ship is sizeable $, to make any money you need big savings on a lot of smaller ships, for some time - & your fixed 'saving' is exposed to the higher costs & uncertainty of running this older 'fleet'. Lot of operator risk.

 

Alternatively Seaspan agrees to mothball an existing big ship charter, for a limited perod, at a high penalty - & replace some of the lost capacity with these cheap ships. The charterer essentially breaks even, cargo capacity comes out of the system, & container rates rise from less competition. Seaspan makes a spread, & defers future capital injection requirements. The 'ghost' fleet gets bigger.

 

Getting interesting, but we're still not there yet.

 

SD

 

 

 

     

 

 

 

 

[gaf63]

SSW closes the next $100 million of preferred shares , few mos. early than original Dec. timing

 

Seaspan Closes Second Tranche of Series A Preferred Shares

 

 

HONG KONG, CHINA, Oct 1, 2009 (Marketwire via COMTEX News Network) -- Seaspan Corporation (NYSE:SSW) (the "Company") announced today the closing of the second and final tranche of $100 million aggregate amount of 12% Cumulative Preferred Shares-Series A, par value $0.01 per share (the "Preferred Shares"), pursuant to a preferred stock purchase agreement dated January 22, 2009 (the "Purchase Agreement") among the Company, Dennis R. Washington, Kevin L. Washington, Kyle R. Washington, who is the Company's chairman, and Graham Porter, through Deep Water Holdings, LLC, CopperLion Capital (KLW) I Limited Partnership, CopperLion Capital (KRW) I Limited Partnership and Tiger Container Shipping Co. Ltd., respectively (collectively, the "Investors"). Under the terms of the Purchase Agreement, the Preferred Shares were to be issued in two equal tranches of $100 million. The first tranche closed on January 30, 2009. At today's closing, the Company issued and sold 100,000 Preferred Shares to the Investors.

 

Gerry Wang, Chief Executive Officer of Seaspan, commented, "We appreciate the strong support our sponsors continue to demonstrate for the Company and its strategy. With the closing of the $200 million preferred issuance, we have further improved Seaspan's capital structure and strengthened its financial flexibility. Importantly, cash retained from operations combined with secured committed financing provide for nearly all of the capital needed to finance our contracted fleet growth."

[gaf63]

Deep Water/Dennis Washington ups holdings in SSW by another 458K shs.

 

http://files.shareholder.com/downloads/SSW/730983687x0xS1193125-09-204081/1332639/1193125-09-204081.pdf

[lessthaniv]

I have been doing a little reading on the concept of "super-slow" steaming. This concept seems to have positive implications for; greenhouse gas emissions; fuel consumption; and the current over-capacity of container ships.  I was intrigued after reading that Maersk recently received an environmental award for their role in developing this concept. As most will be aware, in the summer, the U.S. passed the American Clean Energy and Security Act. This is the first bill related to climate change that has passed the Senate/House. A provision in the Act allows the U.S. to impose tariffs on goods produced by nations that don't commit to reducing greenhouse gases. (We can save the discussion on protectionism for another thread but for now I am interested in how this may motivate the shipping industry on the short term.)

 

The concept of slow steaming has always existed but the concept of "super-slow" steaming is relatively new. Engines in container ships are built for speed by the manufacturers. At 24 knots a ship has roughly 90% engine load however maximum speeds require huge amounts of fuel and consequently CO2 emissions increase exponentially. This is not economically nor environmentally optimal. At 20 knots a ship is running about 60% engine load. Fuel consumption is less and the environmental footprint shrinks. From what I gather, speeds between 20-24 knots would be the norm.  The concept of slow steaming refers to reducing engine speeds to between 18-20 knots. The engine load would range from 40% -60% respectfully.

 

Engine manufacturers have previously shunned the concept of super-slow steaming. The manufacturers suggested that engine loads below 40% could actually be causing damage to the engine. That's where Maersk comes in. In 2007 they challenged this opinion but testing the concept of super slow steaming on 110 vessels in their fleet. Maersk was able to prove that one can actually take the engine load down to 10% if monitored and executed correctly. 10% engine load is roughly 14 knots. The result was a 43% reduction in fuel per vessel and 30% less CO2 emissions.

 

The results of Maersk's study changed the opinions of engine manufacturers and the concept of super-slow steaming now seems doable.

 

Maersk suggests that super-slow steaming will require 1-2 more ships to maintain the current weekly schedule. Capital costs will go up however they expect 30% savings on fuel (including increased #'s of ships) that offset some of those costs.

 

Maersk gave an interesting statistic: 8 ships running at 20 knots will produce 136,000 mt of CO2. 10 ships running at 14 knots will produce 91,000 mt CO2. This is based on a round-trip route from Asia-Europe.

 

If fuel costs rise the motivation to move towards super slow steaming will only increase.

 

Having said all this, the over-capacity issue is not going away anytime soon but the concept of super-slow steaming may help to work off the excesses quicker.

 

Main Sources:

 

http://docs.google.com/gview?a=v&q=cache:eJe5avmrvMIJ:www.toef.dk/files/foredragsholder_slides/Havne2009/S%25C3%25B8ren%2520Andersen.pdf+super+slow+steaming+%2B+maersk&hl=en&gl=ca&pid=bl&srcid=ADGEESgAFVAtrqfg9Uc0P0MAATUIez9X__e5TJs59HQrWyvdESIpYQkDimboV2E_hq-6k4UGvNPKNW9z1rSu95e-Msu9LHa-hjd4tkBeEcEHa2NuiSiWC_kOCETCb9sMD4tt7SC2HbPS&sig=AFQjCNG_nEDCcRDp8ckna8PVW-2QpCIv0w

 

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10588463

 

<IV

 

 

 

 

 

 

[nodnub]

<IV,

 

that is very interesting... thank you for sharing it. 

 

 

[JEast]

Yes, thanks for sharing the Maersk presentation.

 

The slow steaming is helping with the over capacity situation in addition to more vessels going to the scrap yard.

 

With respect to "super slow steaming", the engine manufactures will likely adjust their future instructions. However, I would not expect many liners to actually use the 10% load as stated as a one year test is too short a period to determine causality. At best, 40-50% will be used by most as lower loads will eventually increase maintenance costs and/or breakdowns.

 

As for Seaspan, another very acceptable quarter as all counter parties are performing as contracted. Plus, 2010 looks promising for deliveries based on the recent conference call. If so, the big cash flows will start to flow thru in 3rd and 4th quarters of 2010.

 

 

Cheers

JEast

[gaf63]

Thanks from me as well <IV,  

As to super slow steaming , the phrase that stood out for me is  "if monitored and executed correctly" , referring to a 10% load.  

For the liners , they save in fuel costs but dont have the responsibility for the down time, engine maintenance.  

 If Maersk wishes to put their own ships at risk over a longer time period, fine.  But, if there is a possibility of engine damage, SSW  needs to be very careful about allowing super slow steaming on their ships.

 

GAF

[OracleofCarolina]

Can Seaspan's competitor's do "slow steaming"?

[lessthaniv]

OofC,

 

Slow steaming just refers to the speed of the boat. Anyone can reduce their speed.

 

Gaf63,

 

Agreed, but Gerry made a comment on the CC to the effect "We are all going to hear more about super-slow steaming". I trust they wouldn't be endorsing it if it was against their interests but I have no idea how it all would work?

 

 

[twacowfca]

Slow steaming sounds like "cruising speed" for airliners, subject to possible engine maintenance issues. 

If so, the question would be: how much could a ship save on fuel In a time of over capacity

,compared to extra costs such as higher wages per trip

and especially the time value of the cargo.  Is this the

point of the discussion?

[gaf63]

<IV , yes I'm sure Gerry and co. would monitor closely any activity that could increase dry dock expenses.   Also I didn't get a sense of endorsement from what was said on the CC.  Only that more would be said in coming quarters.  

 

Twacowfca,  from what I gather at super slow steaming there is possibility of engine damage. The problem arises in that the responsibility for maintenance, dry dock exps.(time out of service and costs of repair) is SSW's.  The liners  pay the fuel costs and would receive the  savings of sss.  So it is a positive for the environment, for the liners in fuel costs savings, and in more ships put to work.  

   The point is SSW needs to monitor  sss closely because when the ships are in dry dock and out of service they do not receive their daily fees from the liners.