Wire: Dow Jones News Service (DJN) Date: Jul 23 2012 16:15:13
PRESS RELEASE: Global Ship Lease Announces New Time Charters for Two Containerships
Global Ship Lease Announces New Time Charters for Two Containerships
Maintains Fully Chartered Fleet on Fixed Rate Contracts
LONDON, July 23, 2012 (GLOBE NEWSWIRE) -- Global Ship Lease, Inc. (NYSE:GSL),
a containership charter owner, today announced it has signed new time charters
with CMA CGM for two 4,113 TEU containerships, the 1996-built Ville d'Aquarius
and the 1997-built Ville d'Orion. The vessels will be chartered for
approximately eight months at a rate of $9,962 per vessel per day, commencing
upon expiration of the current time charters on September 20 and 21, 2012,
Ian Webber, Chief Executive Officer of Global Ship Lease, said, "We are
pleased to have signed new time charters for these two ships with CMA CGM.
These agreements are consistent with our strategy of operating our fleet of 17
vessels on fixed rate contracts in order to continue to generate predictable
and stable results. With these two new contracts, our fleet continues to be
fully time chartered until at least May next year with an average remaining
term of 6.6 years, or 7.9 years weighted by TEU capacity, representing $1.1
billion of contracted revenue."
Mr. Webber continued, "During a challenging market, we are pleased to have
secured ongoing employment for these vessels into the second quarter of 2013.
This period typically represents the high season for chartering activity and
enhances the subsequent remarketing prospects for the two vessels. The seamless
transition from current to new charters with CMA CGM ensures that we will not
experience any offhire days, incur any costs associated with repositioning
these vessels or pay any third party brokerage fees."
The time charters for the Ville d'Aquarius and the Ville d'Orion were
executed under an agreement entered into with CMA CGM, providing Global Ship
Lease with the option to obligate CMA CGM to charter the vessels at an
index-linked rate, with a floor of $8,500 per day. As part of this agreement,
the Company will accelerate the redemption of 63 Series A Preferred Shares of
$48,000 each from CMA CGM for $3,024,000. The redemption is to be funded by
restricted cash, which can only be used for this purpose, since the proceeds
resulted from the exercise of warrants in 2008. These 63 Preferred Shares were
originally scheduled for redemption on August 14, 2016.
Now that the 8-K is filed with the charter renewal agreements, a few things have become clearer.
First, the charters were renewed under an "owner's option" whereby the owner (GSL) could exercise the option to renew the charter at CONTEX index (for 4200 TEU vessel, 12 month charter) at the index less 15%. Another analyst pointed out that the discount was due to the age of the vessels and the amount of reefer plugs. The "price" of the option, was the redemption of the preferreds. Second, as this other analyst also pointed, the redeemed preferreds will save us a nominal amount in dividends annually.
If GSL had not offered to redeem 63 pref shares, do you think CMA would have renewed the charters at any price?
Of course this was cash frozen in our restricted cash and frozen on CMA's balance sheet, likely under "investments".....but that's not the point, or points.
The first point is that this symbiotic relationship goes on without regard to the stock price.
The second point is that CMA jettisoned the two oldest vessels in the fleet and were only brought back into continuing their operation with, basically, a bribe. But in a good negotiation, everybody wins, and this was a good negotiation.
We shall see what happens eight months from September. I'll be quite interested and will hope Ian has some solutions............Dave
These were basically chartered at fair market. I don't think it's accurate to net out the preferred redemption in the calculation. If you remember the original registration statement, exercise of the original Marathon Acquisition / GSL warrants were slated to redeem the preferred shares from CMA CGM. Some of those warrants were exercised, and the proceeds were being held in restricted cash. They would have been redeemed in 2016, but essentially the cash was spoken for. What GSL did was basically give them the cash early. What does GSL really forego? Interest earned on the $3M. In today's markets that amounts to very little. Yet, it is clear that CMA could use cash from wherever. GSL basically accelerated an eventuality and it's not like GSL could have used the cash for other purposes. To me it's a "meh" event.
The charter rates were pretty much baked into the equation as have been discussed here and on the conference calls. Not really much that was surprising in the release, IMO.
Thanks for the post.
It seems rather disappointing that we have to buy back our preferred stock in order to let these vessels at these rates.
I could be wrong, but I don't see how retiring our equity will help with the LTV tests. Seems like GSL is putting CMA CGM first in line and us last in line, as usual.
Am I wrong?