Seaspan Corporation (ATCO) had a problem going into 2016. It had a bold growth plan with several newbuilds under construction, but still had to figure out how to fund that growth. However, after announcing a number of financing transactions which have combined to raise $750 million capital, the company has really shored up its financial situation over the past couple of months.
One of Seaspan's goals this year was to execute on its financing plan to ensure the broad access to capital needed to fund its growth strategy. It has clearly made progress on that plan, undertaking the following financing arrangements:
- In March the company entered into a $110 million lease financing agreement with special-purpose companies on a newbuild vessel which was delivered that month.
- In May the company issued $140 million of 6.95% cumulative convertible perpetual preferred shares to a private investor. The company used those proceeds to redeem $140 million of its 9.5% cumulative redeemable perpetual preferred shares.
- It also announced the renewal of its $150 million revolving loan facility, which can be upsized by up to $30 million if it can secure additional bank commitments.
- The company entered into a $250 million 17-year lease financing agreement with an Asian-based leasing company. That facility is to be used to fund the construction and delivery of three newbuilds that are expected to enter 17-year charters when delivered next year.
- Finally, the company raised $100 million in common stock at the end of May. The company intends to use $85 million of those proceeds to redeem another $85 million of its 9.5% cumulative redeemable perpetual preferred shares.
Add it up, and Seaspan raised $750 million in capital. After using $225 million of that cash to redeem higher-cost preferred shares, it was left with $525 million to fund newbuild commitments. That's almost enough to fund the company's entire remaining newbuild capital expenditures through the end of next year, as noted on the slide below:
In other words, instead of the company facing a potential funding liability for these vessels, the company has secured the bulk of the capital it needs.
Ahead of the curve
The reason Seaspan has focused on securing financing well ahead of time is the growing weakness within the containership market, which could lead to tightening credit. According to recent comments by John Coustas, CEO of rival Danaos Corporation (DAC -1.02%), "the containership market is going through a very challenging period." The Danaos CEO noted that the industry is seeing "record-low average box freight rates, falling volumes and declining load factors." Further, he noted that several liner companies, including two of Danaos's largest customers, have announced their intentions to restructure their balance sheets. Those credit concerns could trickle down to containership owners, which is why Seaspan wanted to lock up as much capital as it could ahead of time, just in case credit conditions grew worse.
As such, it is now a step ahead of rivals like Costamare Inc. (NYSE: CMRE), which as the slide below shows, still needs a very large percentage of its capex commitment to be funded over the next couple of quarters:
While Costamare doesn't anticipate any issues securing this funding, given that it has already paid half of the total yard installments, it does still need its banks to provide the financing at favorable terms so it can pay the balance owed to the shipbuilding yards. That credit uncertainty is something that Seaspan no longer has to worry about, given that it has basically pre-funded the balance of its newbuild fleet.
Seaspan has largely accomplished its goal to shore up its financial situation. It now has almost all the capital it needs to meet its commitments through next year, so there is little risk it would need to use that cash flow to fund those commitments by reducing its dividend.