Is This Shipper the Next Titanic?

• Report this Comment On January 22, 2011, at 10:02 AM, psl8er wrote:

  You are absolutely right. This company was formed in the last days of a SPAC by an ex Apollo executive with no shipping experience. It rushed to do any deal before the SPAC time ran out and did a sale and lease back at the top of the market with CMA which itself was and still is in serious trouble.

  CMA has already discussed lowering all of its charters-in and if the GSL charters were brought in line with today's market they are bust.

  Worse still the market value of its without charter is way below its current debt and it still hasnt financed 2 ships. This company has no equity value.

• Report this Comment On January 22, 2011, at 4:00 PM, rousseau11 wrote:

  Two days ago The Motley Fool declared GSL one of the stocks approaching greatness, and now they have decided to call it the titanic when it isn't even sinking. Thanks Fools for providing misleading information, you should have mentioned the negatives in the article released on the 19th "Stocks approaching Greatness."

• Report this Comment On January 22, 2011, at 4:04 PM, EdgeTrader2001 wrote:

  First off, this article shows a complete lack of understanding both of GSL and this business. Asset intensive businesses often carry a permanent level of debt.

  Second, the commenter is off base with his "this company has no equity value" remark. Equity is not simply assets minus liabilities. The intrinsic value of a company is the net present value of its future cash flows PLUS the value of non-operating assets minus liabilities. Treating GSL's ships at their liquidation value ignores that they are operating assets which generate a positive NPV greater than the liabilities of the company.

  Third, if the commenter had done their due diligence they would have known that CMA does not need to break any leases, particularly with GSL. This is because a majority of their fleet is chartered on a short term basis. They adjusted these leases down during late 2009 and early 2010 and as a result posted a record profit in 2010. The industry as a whole has only shown a small number of instances of long-term leases being renegotiated such as with CSAV, and companies that renegotiated with them like Danaos received interest and/or equity in return.

  Clearly the author and the commenter have not done their homework....

• Report this Comment On January 22, 2011, at 4:08 PM, rousseau11 wrote:

  By the way, I think the worst thing you can do as an investor is follow the news/noise.

• Report this Comment On January 22, 2011, at 6:59 PM, ByTheNumbers wrote:

  Not having any credible financial information on CMA makes this a very speculative situation.

• Report this Comment On January 22, 2011, at 8:54 PM, EdgeTrader2001 wrote:

  You can get CMA's financials....they do have publicly traded bonds in Ireland (Vega Bonds, more like an asset backed security bond), Germany (traded on Deutsche Bourse) and Luxembourg after all. But then again, I wouldn't expect people who haven't done their due diligence to know that.

• Report this Comment On January 22, 2011, at 8:58 PM, EdgeTrader2001 wrote:

  For those without access to private financials, at least you can look at 1H 2010 results for CMA CGM here: http://www.cma-cgm.com/AboutUs/PressRoom/Press-Release_CMA-C...

• Report this Comment On January 22, 2011, at 9:00 PM, EdgeTrader2001 wrote:

  And here are Q3 2010 figures, in this press release: http://www.cma-cgm.com/AboutUs/PressRoom/Press-Release_Agree...

• Report this Comment On January 22, 2011, at 9:20 PM, EdgeTrader2001 wrote:

  Here is CMA CGM's fleet.

  http://www.alphaliner.com/top100/index.php

  You'll notice that 63% of their fleet is chartered. Why would they cut the lease rates on the company they own 45%+ (GSL). Anyone following this saga knows that a majority of CMA's charters were on short-term leases many of which expired in late 2009 and 2010 and, depsite the downturn, they renewed these leases to make record profits in 2010 (see press releases above).

  Not only that, but CMA just received an equity injection (which it didn't need), and has reorganized its management at the behest of its creditors....again, it's private company, but there is lots that you can find out if you simply look (and/or pick up the phone and call them like I have)

• Report this Comment On January 23, 2011, at 2:35 AM, watcher713 wrote:

  > [GSL] managed to lose money while its derivative hedging instruments, which it uses to hedge its interest rate exposure, have cost the company $39 million in realized and unrealized losses so far in fiscal 2010.

  Unrealized (aka mark-to-market) losses are not a "cost" until they are realized. And I can't believe I actually have to explain this to the author, but gains and losses on "hedging instruments" are typically offset by losses and gains on the underlying security being hedged, resulting in a wash. However, strict GAAP accounting on hedges prevents many companies from recording hedge results in this more intuitive way.

  When you exclude this accounting noise, GSL has earned $21.8 million thru 3Q2010.

  This unhelpful article creates a misleading and confused picture of GSL for the casual reader -- the interest-rate hedge issue being just one of many flaws in its analysis, as Edge and other commenters have pointed out. But really, that this defective article was published at all should comes as no great surprise to those who have witnessed the continuing deterioration of quality analysis at the Fool in recent years.

• Report this Comment On January 23, 2011, at 7:38 AM, jzteam wrote:

  Sean,

  Your article is an embarrassment. You should seriously consider learning about interest rate hedge accounting and then retracting your article. As the other comments have pointed out, the "losses" for the changes in fair value of the interest rate hedges are meaningless and do not affect cash flow. Taking the charge on the income statement is required under GAPP accounting because the duration of the hedges are not the same as the length of the actual financing. But those "losses" never have and never will cost GSL actual money.

  And, before assessing the counter party risk, you really ought to take a peek at CMA CGM's financials, which had you done any real due diligence, you would have found are publicly available.

  Seriously, Sean, educate yourself about some of these issues before posting articles like this one.

• Report this Comment On January 23, 2011, at 1:30 PM, shippingman wrote:

  Would be most interested in hearing further comments from Sean Williams in response to the serious criticism of his background research and knowledge of some fo the key elements of his Titanic argument.

• Report this Comment On January 24, 2011, at 12:21 PM, TMFUltraLong wrote:

  I'd address one question at a time, but it might be best to attack them all in one lump.

  Clearly the longs have a case behind their positions and as I noted above, not everything is bad news for GSL. It's key that they maintain a fully chartered fleet with guaranteed cash flow which they DO have. But just like any stock, good to bad a case can be made for the long and short side.

  There was just about nothing that I used "factually" that couldn't be found in their quarterly report. Right now its debtors have GSL by its thumbs because its carrying far too much debt to value which means no dividend. Would the dividend have been pulled if the company was healthy? My guess no.

  Its parent, CMA CGM... you CAN find information, but a private company will never be as transparent as a public company. They ARE the third largest shipping company but they are far from healthy as well. If cash flow is so strong, what would force them in November from seeking a $500M investment and the need to restructure $5 billion in debt?

  GSL's losses.... yes it produced an operating profit from its charters, but its hedging instruments have cost it over $56 million since inception. And if you noticed above I DID say realized and unrealized losses, so its not as if I lumped the losses together to make it seem like they had taken a $39 million dollar hit.

  And despite popular opinion, I have zero financial positions in GSL, my family/relatives have zero financial positions in GSL, and not a single friend to my knowledge has a position in GSL, so insinuations of wrongdoing can be thrown out the window.

  This is a case of my opinion based on the facts as I see them and the longs have presented theirs. We should chcek back in a year and see where GSL is at. If it's up I'll gladly announce I am wrong.

  Fool on!

  Sean (TMFUltraLong)

• Report this Comment On January 24, 2011, at 2:53 PM, clrodrick wrote:

  Sean,

  It's true that CMA CGM was in trouble 2 years ago leading into half of 2010. The Saade family was pressured to find financial help through an outside infusion of cash, but they didn't want to relinquish any control of their company. Luckily for them (and GSL), things turned around for the industry and their company, and they started turning a healthy profit again. Even still, they eventually worked out a satisfactory deal for a cash infusion. If you were to check the bonds (that EdgeTrader was so kind to post info on), you would see that they are all trading at or over par value. CMA CGM is in a healthy position once again.

  Another thing your article failed to mention (but which I find salient) is that CMA CGM owns close to 50% of GSL's common shares. These two companies are tied at the hip, and that is important to know when doing analysis on GSL. There are strategies that CMA CGL would resort to using with other charter companies that they would not do with GSL.

  I also think you're off base with your analysis of the interest rate hedging, but you are entitled to your opinion. This is a non-issue to me.

  I'm long GSL (have been since they were $1.3 - $1.5), and it has been my most profitable stock the past few years. Be greedy when others are fearful and fearful when others are greedy, yes? You are correct in saying that no healthy company suspends their dividend. GSL was not healthy the past 2 years, which is why the stock was priced so low. Now they are looking much better, and they should be paying a dividend again this year when they meet the covenant restrictions that the bank imposed on restoring the dividend.

  Like you say, we'll look at where GSL is trading a year from now. Assuming the dividend gets restored and the industry doesn't take another nose dive like in 2008, I'm guessing over $8 with a $0.10 quarterly dividend.

• Report this Comment On January 24, 2011, at 3:54 PM, jzteam wrote:

  Sean,

  "Realized" and "unrealized" losses have nothing to do with actually taking a cash charge.

  GSL manages the risk of fluctuating LIBOR by entering into swaps. For example, let's say they swap $100m over two years. The swap counterparty agrees to pay GSL interest on the $100m at the floating rate (let's say currently 3%), and GSL pays the counterparty a fixed rate (let's assume 5%).

  So in the first three months, GSL receives $750k from the swap counterparty and pays it to its original lender. GSL pays the swap counterparty the 5%, or $1,250k. The difference between the two, $500k, is booked as a REALIZED loss. But, it is not a cash charge! GSL still only paid the $1,250k! It takes a realized "loss" because it was "wrong" on the swap bet.

  Now, at the same time, the remaining balance of the swap agreement has a value. Each reporting period, GSL is required to account for the change in fair value of the remainder of the swap instrument and book this as an UNREALIZED gain (loss).

  Neither case is an actual charge paid by GSL. So, you can COMPLETELY ignore both the realized and unrealized gains/losses booked.

  The only thing you could say is that GSL would have made MORE CASH had it not entered into a swap at all. However, in such a case GSL would be taking too great a risk.

  Sean, I hope that helps. This is swap accounting 101. Regardless of your opinion of GSL's business model, it is not appropriate to cloud it with an inaccurate understanding of this accounting.

• Report this Comment On February 12, 2011, at 11:19 AM, gwhitebeard wrote:

  You have absolutely NO IDEA what you are talking about. Seaspan locks in leases for the long term and is as much a finance organization as a shipper. Basically shared risk/reward operation guarantees a stable revenue flow independent of volatile shipping indices. Also Seaspan maintains a dividend payout which is rare for shipping companies. Why you even wrote an article like this is questionable at best and possibly and incentive laden market timing attempt at satisfying a short interest position. The "Fool" needs to be more careful with it's articles.

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