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Seaspan Corporation Message Board

  • patroutman patroutman Feb 19, 2008 9:53 AM Flag

    You can sleep well owning SSW

    Anyone ever go to any of the meetings and actually meet Gerry?
    I think I'd like to. You have to love Vancouver.
    This thing is a cash machine.

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    • Excellent post. Thanks for making this swap thing clear :-).

    • jdfunnell@sbcglobal.net jdfunnell Feb 22, 2008 2:25 AM Flag

      Sure, "fluctuate" is a similar word, but not the same as "fibrillate." The former has something of a sanguine feel, while the latter is a bit more manic, and that is what I was trying to convey, because I thought it was more descriptive of current market conditions.

      Let's say you are going to lend me a million bucks for 12 years. (And if you'd like to, let's meet next week and do the deal.) And you want an interest rate, reset monthly, at LIBOR plus 2.5%. I sit down and say to myself, "so what happens if seven years from now LIBOR, for some reason, goes to 8% and stays there for a while? Can I afford those payments to that number-cruncher?

      But I can eliminate the uncertainty of the interest I have to pay to you if I can find someome else to exchange my fluctuating (your word) interest rate for a fixed rate. Now I can sit down, with my 12-year million-buck loan from you and know exactly how much interest I'm going to pay. I've now substituted an uncertainty in financing cost with a certainty in financing cost. And I can plug that certainty of cost into my financial models going 12 years out. I can then eliminate a big uncertainty in my planning!

      So then I have to do a balance sheet. And I have to comply with GAAP. And I'm giving you LIBOR (which is, say, 3.5%) plus that 2.5% and I've swapped the interest payments to 5.5%. So I'd be paying you 6% (LIBOR plus 2.5%), but I've swapped it for a fixed 5.5%. And it's a 12-year loan. I MUST, on by balance sheet, show an asset of circa $60,000 as the value I am saving over 12 YEARS because my SWAP is a half-point below current rates.

      Is this any REAL money? Or is this just a book entry?


      This is just a Balance Sheet adjustment of the long-term interest I'm going to pay out versus the long-term interest you will receive.

      You still get your LIBOR+2.5%, I still pay 5.5%.

      Five years from now, LIBOR goes to (heaven forbid!) 8%, you get 10.5%, but not all from me.

      Because I've swapped to a fixed rate of 5.5%. So now on my balance sheet, I have to show this huge asset, the difference between 10.5% you get and the 5.5% I pay for the balance of the loan term.

      But that's not an asset! That's an accounting artifice! (Should I get my dictionary out again?)

      And then LIBOR goes to 1.5%! And I owe you 4% annually, but I've swapped it for 5.5%. Now I have to show, on my Balance Sheet, a LOSS on the SWAP!

      Over all of this time, because I've swapped to fixed from fluctuating (your word) interest rates, I've always been able to look out over years and know how much money I'm going to make. And my business model is all about knowing how much money I'm going to make.

      That's Seaspan. Eliminate as much uncertainty as you can. Give investors as much certainty as possible. The swaps are an essential portion of that certainty.

      Please do not disregard the world-class long-term intelligence of this organization based on the short-term fibrillation (my word) of LIBOR..............Dave

    • jdfunnell@sbcglobal.net jdfunnell Feb 22, 2008 12:44 AM Flag

      It cost SSW no more than they expected it to. SSW paid, and the counterparty received, exactly what each of them expected.

      But you are avoiding my question, wise number-cruncher.........Dave

    • The swap loss is "book entry"? What does that mean? You think it doesn't actually cost the company? I bet the entity on the other side of the swap will be surprised to hear that...

    • IOW, you meant "fluctuate"?

      OK, that still leaves the question I asked before: "What good does it do to hedge your interest rates when you are losing twice as much money doing that as you are making in your business?"

    • jdfunnell@sbcglobal.net jdfunnell Feb 21, 2008 5:55 PM Flag

      Sorry. I'll bring my dictionary next time. "Fibrillate." And it would apply to an interest rate jumping around just as it would apply medically.........Dave

    • There is no medical term "fibrulation". There is a medical term "fibrillation", presumably what you mean. However, given that the message did not appear to be discussing heart disease, my question stands.

    • no, but there were alot of formulas and financial words that i certanly don't know the meaning of, so i'm not placing a ton of assurance in this, only hoping someone on this board could help decipher...john

    • Why do you think fully diluted shares are not an accurate indicator?

    • By any chance, did this analyst give you a more accurate indicator?

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