Seaspan Corporation (NYSE:ATCO) is at it again. Last week the containership leasing company announced its intention to raise another $100 million in cash, this time via a new series of redeemable preferred shares. It's cash that the company plans to initially keep in the bank, though it may use it in the future to fund acquisitions, capex on existing newbuild vessels, or debt repayment.
Details on the deal
Seaspan Corporation's latest offering is for Series G Cumulative Perpetual Preferred Shares, which was priced at 8.2%. The company plans to raise $100 million via this offering, though underwriters have the option to purchase another $15 million in shares. One thing that is worth noting is that the dividend rate is slightly below the 9.5% Series C preferreds that the company just redeemed, though it is quite a bit above the 6.95% Series F it recently sold to a third party investor in Asia. That said, the Series F did contain an escalation feature that could bring its yield up to 10.5% as early as 2018.
The bottom line here is that Seaspan Corporation continues to have open access to the capital market, which is something it's taking full advantage of in order to secure the capital it needs.
Reshuffling the capital decks
For those keeping score, Seaspan Corporation has now raised more than $850 million in capital this year through a myriad of transactions. This capital has been raised for a variety of uses, including to strengthen its balance sheet, take out higher cost capital, and pre-fund future capital needs. Though, for the most part the company is taking advantage of its open access to the capital markets to ensure it has the cash it needs to meet some upcoming capital requirements.
One of the most pressing needs is funding the remaining capex requirements on its newbuild fleet. With two newbuilds scheduled to be delivered this year the company had $165 million in shipyard payments due over the next two quarters. Further, it's expecting six more newbuild deliveries next year, which will require another $400 million in capex.
In addition to that, Seaspan Corporation had the aforementioned Series C Preferred shares that were going to get much more expensive starting next year. Because of that it made the move to complete the redemption of those shares well ahead of time. This enabled the company to avoid the risk of not being able to access the capital market just before this particular series of perferreds became more expensive. It's that preferred stock redemption that likely partially drove this recent offering, with the company initially using its cash on hand to complete the redemption, which was subsequently replenished via this offering giving the company the cash it needs to capture growth opportunities.
Restocked and ready to grow
One of the main drivers of Seaspan Corporation's growth over the past few years has been its investment in newbuilds. However, the growth of the containership sector is slowing, which is causing stress on shipping lines. This stress was noted by container leasing company Textainer Group Holdings (NYSE:TGH) last quarter, which pointed out in its earnings release that, "historically low freight rates have led to increased credit risk and two major Asian shipping lines have entered into restructuring negotiations with their creditors." Because of this financial stress on shipping lines, Seapsan Corporation has stopped ordering additional newbuilds, which means that after its last newbuild is delivered next year, its growth will also cease for the time being.
That's unless of course the company starts making vessel acquisitions, which is becoming increasingly more likely. First of all, Seaspan Corporation appears to be positioning itself to buy out Carlisle Group's (NASDAQ:CG) stake in their Greater China Intermodal joint venture. That's clear by the fact that the escalation feature on the recent Series F preferred shares can be kept at bay for five years if Seaspan Corporation completes the acquisition of Carlisle Group's stake by the end of next year.
Further, other financial investors are likely to be exiting the sector given its challenges over the past year, which opens up opportunities for Seaspan Corporation to make vessel acquisitions. This was something that Textainer Group Holdings was recently able to do, with the company noting that a third of its capex investment last quarter was spent to purchase the "outstanding leases and containers from a financial investor that decided to exit container leasing." As additional financial investors like this one and the Carlisle Group decide to exit the sector, it should open the door for Seapan Corporation to make even more vessel acquisitions.
Seapan Corporation is taking full advantage of its open access to the capital market to raise as much cash as possible given the current storm in the containership market. It wants to make sure it not only has the cash to meet its future needs, but to make acquisitions if additional opportunities arise.