Global Ship Lease Surges After Plans to Issue $400 Million in Priority Notes

What: Global Ship Lease (NYSE: GSL  ) is a company that owns a fleet of high quality containerships that are leased out under fixed-rate time charters. The stock price shot up nearly 12% yesterday, and surged another 6% today before settling down with a 2% gain.

The surge came after yesterday's announcement that Global Ship Lease plans to issue an aggregate principal amount of up to $400 million of first priority secured notes due 2021.

So what: The company will use the net proceeds from the offering, along with cash on hand, to repay all outstanding borrowings under its existing credit facility, and will terminate the company's existing interest rate swap agreements, according to the company's press release.

Now what: Most times when companies issue more debt, it isn't in investors' best interests, and the stock price tends to sink lower. However, the company's move to repay outstanding borrowings and terminate its existing interest rate swap agreements, should benefit Global Ship Lease in the long run. In addition, with shipping companies, there's sometimes a need for extra liquidity and capital, which could be one reason investors apparently cheered the decision.

If the company ends up using up to the full $400 million, its debt level will be something investors must keep an eye on going forward. Consider the fact that, since the fourth quarter of 2009, Global Ship Lease has paid down debt to a total of $214.8 million – just over half of what it will issue now.

During its third quarter, Ian Webber, Chief Executive Officer of Global Ship Lease, stated: "With a full time chartered fleet and nearly $1 billion in contracted revenues and a de-levered balance sheet, we remain in a strong position to generate stable cash flow for shareholders and further strengthen our balance sheet."

While it's nice to hear the cash flows will be stable enough to continue paying down debt, I'll stay on the sidelines, and keep this stock on my watch list for now.

The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2763393, ~/Articles/ArticleHandler.aspx, 4/17/2014 6:59:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement