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Edited Transcript of GSL earnings conference call or presentation 5-Mar-20 3:30pm GMT

Q4 2019 Global Ship Lease Inc Earnings Call

MAJURO Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Ship Lease Inc earnings conference call or presentation Thursday, March 5, 2020 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anastasios Psaropoulos

Global Ship Lease, Inc. - CFO & Treasurer

* Georgios Giouroukos

Global Ship Lease, Inc. - Executive Chairman

* Ian J. Webber

Global Ship Lease, Inc. - CEO

* Thomas A. Lister

Global Ship Lease, Inc. - Chief Commercial Officer

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Conference Call Participants

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* Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst

* Konstantin Chinarov

Aptior Capital - Credit Product Analyst

* Liam Dalton Burke

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Global Ship Lease Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ian Webber, CEO of Global Ship Lease. Thank you. Please go ahead, sir.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [2]

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Thank you very much. Good morning, good afternoon, everybody, and welcome to our fourth quarter 2019 earnings conference call. As normal, the slides that accompany today's presentation are available on our website, www.globalshiplease.com.

Slides 1 and 2 of that presentation remind you that today's call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company's control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the safe harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent annual report on Form 20-F, which is for 2018, and which was filed with the SEC on March 29, 2019. You can obtain this via our website or via the SEC's.

All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures, to which we will refer during this call, to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning, which is also available on our website.

I'm joined today by our Executive Chairman, George Giouroukos; our Chief Financial Officer, Tassos Psaropoulos; and our Chief Commercial Officer, Tom Lister. George will begin the call with some high-level market and strategic commentary, and then Tassos, Tom and I will take you through the quarterly and full year results, financials and the current market environment, after which we'll be delighted to answer your questions.

Turning now to Slide 3. I'll pass the call to George.

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [3]

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Thank you, Ian. From beginning to end, 2019 was a year of transformation, execution and profitability for GSL. Having combined GSL and Poseidon Containers in late 2018, we worked throughout 2019 to ensure the total integration and optimization of our business, unlocking the synergies that we're able to access as a significant larger, fully integrated entity. Throughout the year, we pursued opportunistic growth, adding 7 in demand Post-Panamax vessels at attractive prices with charters in place, increasing our fleet TEU capacity by 24%. By adding these vessels and by securing new charters across the fleet for existing charters that expired, we improved our forward charter cover and expanded our total contracted revenue backlog, improving our substantial downside protection and our visibility on future cash flows.

We refinanced all of our significant 2020 debt maturities, proving our access to commercial lenders and, along the way, reducing our cost of debt, which remains a core focus for us in 2020. We also demonstrated our ability to access new capital through our issuance of common equity and unsecured bonds.

Following a great deal of anticipation and preparation, the implementation of IMO 2020 appears to have been smooth, with increased fuel cost of low sulfur fuel strengthening the competitive advantage of our fuel-efficient, low-slot-cost ships. At the same time, our liner operator charters have been success in passing on increased costs to their customers in the form of fuel surcharges.

As you all know, the coronavirus was -- has introduced significant near-term market uncertainty throughout global supply chains. It remains to be seen how this ultimately plays out. And we will, of course, be closely watching and taking all appropriate steps to mitigate the consequences for our business. At the same time, it is important to emphasize that we're insulated to a significant degree by virtue of strong contract cover. Notably, 88% (sic) [89%] of our full year 2020 adjusted EBITDA is covered by contracts already in place and, thus, unaffected by market conditions.

Looking at the broader context, we continue to see supportive supply-demand fundamentals. Particularly, the order book for new containerships remains very low at 10.9% only. Underlying consumer demand remains strong with a near-term fall in cargo volumes primarily a function of disrupted production in Asia, a situation that suggests the likelihood of containerized volumes bouncing back, driven by restocking once coronavirus recedes.

While scrubber installations among containerships are focused on the larger ships, we do see and expect to continue seeing scrubber retrofits absorbing shipping capacity throughout the year. Many of these scrubber installations as well as regular drydockings are completed in Chinese yards that are currently operating at partial capacity at best, resulting in further delays that absorb additional vessel capacity. In this environment, we intend to maximize shareholder value by maintaining a near-term focus on achieving additional reductions in our cost of debt, improving our cash flows, strengthening our balance sheet and ensuring that we're in a position to seize unique and countercyclical growth opportunities as they emerge.

With that, I will now turn to Ian for an update on our fleet and charter portfolio as well as to provide more detail on our recent commercial and financial developments.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [4]

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Thank you, George. On Slide 4, you'll see our charter portfolio, from which I'll highlight a few points. We have $760 million of contracted revenue with the TEU weighted average remaining contract duration of 2.5 years. As you can see, we have very little charter market exposure in the near term, providing us with insulation from the current impacts of coronavirus. In fact, as George mentioned, our fleet's annualized adjusted EBITDA for the entirety of 2020 is already 89% covered by contracts.

The relatively near-term charter expiries are focused on our smaller ships, which command the lowest charter rates in our portfolio and, therefore, contribute least to EBITDA, whilst many of our highest rate charters extend well into the future.

On Slide 5, we've outlined our primary commercial and operational developments in 2019. Market demand for high-specification midsize vessels, particularly in the Post-Panamax segment where we have a focus, remains strong with those segments structurally undersupplied. Given that, the market charter rates for these vessel classes doubled from their Q4 2018 levels over the course of 2019. Demand for low-slot-cost Post-Panamax ships remains particularly firm.

We've made substantial progress in securing long-term profitable employment across our fleet by leveraging our superior commercial management platform. In 2019 and in year-to-date 2020, we've added $159 million of additional adjusted EBITDA over the life of our charter portfolio, and we've increased our total contracted revenues from $727 million at the end of 2018 to $767 million at the end of 2019, having reported $261 million of revenue during 2019. So this is a gross addition of some $300 million of contracted revenue in the last 12 months or so.

In 2019, we've efficiently employed our fleet, achieving a 94.4% vessel utilization despite off-hire which was negatively affected by yard congestion due to scrubber installation for multiple regulatory drydockings and vessel upgrades.

We've also been able to realize important cost savings with the completion of our post-merger integration even with meaningfully increased levels of activity in both chartering and fleet management.

Our average daily OpEx decreased by 4.6% from $6,420 per ownership day in 2018 to $6,128 per ownership day in 2019. Meanwhile, our average daily SG&A was down 49% from $1,201 per ownership day in 2018 to $615 per ownership day in 2019. In absolute terms, SG&A was down $400,000.

We were also active in the sale and purchase market through 2019. As George mentioned, we purchased 7 Post-Panamax vessels that offered robust downside protection as purchase prices were close to scrap and compelling upside potential, whilst also being accretive to and supportive of our refinancing strategy.

A little more detail. We purchased 3 7,849 TEU ships built in 2004 for an aggregate purchase price of $48.5 million, placing those vessels on 3- to 5-year charters with Maersk that are expected to generate aggregate adjusted EBITDA of between $32 million and $47 million, including the option periods. We also purchased 2 6,650 TEU ships built in 2002 for an aggregate premium at a scrap value of only $3 million, while simultaneously securing short-term charters back to the sellers that are expected to generate aggregated adjusted EBITDA of more than $2 million. Those vessels are set to come into the charter market at the time when we believe that demand for Post-Panamax ships will continue to be firm. Finally, we purchased 2 6,080 TEU vessels also 2004-built for an aggregate purchase price of $24.5 million, with 52- to 60-month charters in place upon delivery, and these are expected to generate aggregate adjusted EBITDA of between $19 million and $22 million.

In each of these instances, we focused on well-built, well-specified vessels and have been able to limit our exposure to residual risk, ensuring that the risk profile is skewed heavily to the upside.

Turning to Slide 6. We've also remained very active in strengthening our balance sheet and reducing our cost of capital as we work to put ourselves in a position to fully refinance our outstanding 9.875% senior secured notes. Briefly, we've opportunistically refinanced $268.5 million of senior secured debt during the year and an additional $46 million in February of this year, so just last month, extending all of our significant 2020 maturities through at least 2024. Through this refinancing, we've also released 3 5,900 TEU ships from the collateral package, making them unencumbered to increase our financing flexibility going forward. The one remaining 2020 maturity is of our Citibank facility associated with the senior secured notes with a modest balance at the year-end.

We capitalized on our strong banking relationships to raise $59 million of new senior secured debt at L plus 3.9%, using that capital to partly finance the 5 ships that were delivered to us in 2019.

In October 2019, we completed an equity raise for net proceeds of $50.7 million in an offering that was oversubscribed, upsized to the maximum, and with the greenshoe fully exercised by the underwriters. We're utilizing those proceeds primarily to delever and to provide the equity for our acquisitions. Importantly, the offering trebled the size of our common stock free float and materially enhanced our liquidity in a lasting way.

In December, we tapped the unsecured debt marking -- market, issuing 8% senior unsecured notes which mature in 2024, for net proceeds of $29.6 million, again, with a fully utilized greenshoe. The use of proceeds for -- of these -- of this issue was explicitly for the partial repayment, which we completed last month, of senior secured notes.

We implemented an ATM program for both the 8% unsecured notes and our existing 8.75% perpetual preferred shares, ensuring that we have maximum flexible -- maximum financial flexibility. To date, we've raised net proceeds of $31.9 million under these 2 programs.

Across 2019 and early 2020, we redeemed approximately $63 million of our senior secured notes, the 9.875% notes, reducing the outstanding amount from $340 million to just under $277 million. The complete refinancing of this remaining balance remains a top priority for Global Ship Lease without prejudicing the rest of our balance sheet.

Finally, amidst all of this positive activity that I've just mentioned, our credit rating was upgraded by S&P in the autumn last year to B+ with a stable outlook.

With that, I'll turn the call over to Tom for additional color on the market.

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [5]

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Thank you very much, Ian. The big picture is captured on Slide 8 for the industry. So the takeaways here are, number one, this is an industry in which demand has grown every year since it began about 60 years ago, except one, 2009, during the depths of the Global Financial Crisis. As a general rule, containerized cargo volumes grow faster than GDP, and you can see 20 or so years of demand growth and GDP growth in the chart bottom left. Although current projections show the coronavirus shaving about 1 percentage point off previous demand growth forecast for 2020, volume growth is still expected to be positive at 2.4%.

Two, fundamentally or -- though this is a supply story, scrapping of marginal ships is increasing and, most importantly, the order book is under control. This is the chart at bottom right, where you can see order book-to-fleet ratios are down from 60% back in 2007 to 10.9% at the end of 2019, the lowest levels for about 30 years. Additionally, near-term negative sentiment tends to be helpful to longer-term fundamentals as it keeps a lid on new ordering and catalyzes scrapping.

Third point. As George mentioned earlier, the implementation of IMO 2020 on January 1 of this year has gone fairly smoothly, by and large, with our customers, the liner companies, passing on incremental fuel costs to their customers via fuel surcharges.

And four, although the coronavirus is undoubtedly weighing on sentiment and impacting cargo liftings out of China in the very near term, we would expect this to be followed by a restocking-driven recovery, as the current disruption is primarily production-sided rather than reflective of consumer demand, which remains fairly robust.

Right. Switching to Slide 9. This slide provides more data on demand. The main takeaways here are that, one, over 70% of global containerized trade volumes are in the non-mainlane trades, which tend to show more resilient growth and, crucially, are served by midsized and smaller ships like those in our fleet. And two, fundamentals are improving for our asset class despite the current market disruption with vessel supply growth continuing to slow.

Slide 10 highlights the tremendous commercial and operational flexibility of midsize and smaller containerships. As you can see by the range between the 2 dotted red lines, most trades are primarily or, in some cases, almost exclusively served by 2,000 to 10,000 TEU ships, GSL-sized ships, in other words. In particular, we think the Post-Panamax ships, by which we mean the larger midsize vessels representing most of our fleet capacity, represent a sweet spot, combining supportive supply-demand fundamentals, economies of scale in terms of low-slot-costs and near universal deployment capability.

Slides 11 and 12 illustrate the flexibility point more graphically. Slide 11 shows where the big ships trade, namely the east-west arterial trades that tend to be heavily linked to the Chinese exports. Meanwhile, Slide 12 shows where midsize and smaller ships trade, which is pretty much everywhere.

Slide 13 focuses on the supply side story. As you can see from the chart at top left, idle capacity tends to spike on a seasonal basis. Typically, the low season runs from December through Chinese New Year. This year, the impact of Chinese New Year has been extended by the coronavirus. Also, over 2/3 of the "idle fleet" is, in fact, tied up in yards being retrofitted by scrubbers.

This brings me back to a point George mentioned earlier. Chinese yards, where most of the industry's repair and maintenance and retrofitting work tends to take place, have been affected by the coronavirus in much the same way as Chinese factories. They have faced personnel shortages, which are driving up yard times and delays the drydockings, taking effective shipping capacity out of the market.

At top right, you can see that scrapping activity increased in 2019, and we would expect this to continue in 2020. However, really the key takeaways from this slide are in the top -- in the bottom 2 charts. The first is that net fleet growth in GSL's focus-sized classes has been minimal or even negative over the last 2 years -- a few years. The second is that the order book pipeline through 2022, which is at 30-year lows in percentage terms, remains heavily weighted towards big ships, above 10,000 TEU. For ships smaller than 10,000 TEU, the order book is tiny, almost 0 in fact, for the sizes representing over 80% of our fleet.

Slide 14 wraps this section up. While acknowledging near-term disruption caused by the coronavirus, we also see underlying industry fundamentals improving for the asset sizes we're focused on. This is reflected most clearly in the dramatic earnings recovery observed for Post-Panamax ships in 2019, which you can see more than doubling in the chart at the lower right of the slide.

So to recap. One, demand continues to grow, and we expect near-term impact of the coronavirus to be followed by a restocking-driven recovery. Two, idle capacity is at a seasonal high, compounded by scrubber retrofits and yard congestion, but we expect this to come down significantly as the virus recedes. Three, scrapping is increasing, and additional effective supply is being tied up by yard congestion and delays. Four, fleet growth in our segments has been negligible or negative. And five, the order book pipeline through 2022 is tiny.

And with that, I'll pass the call to Tassos, our CFO. Tassos?

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Anastasios Psaropoulos, Global Ship Lease, Inc. - CFO & Treasurer [6]

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Thank you, Tom. Now Slides 16, 17 and 18 shows unaudited pro forma consolidated statement of operations, consolidated balance sheet and consolidated statements of cash flow based on full year 2019. Rather than going through every line item, let me point out a few key items. We generated revenue of $67.6 million during the fourth quarter at a net profit of $8 million. The $17.5 million increase in revenue year-over-year was principally due to the addition of the 19 Poseidon fleet in November 2018 and the acquisition of 5 further ships in the year. For the whole year 2019, we generated revenue of $261.1 million and a net profit of $36.6 million.

In the fourth quarter of 2019, there were 195 planned off-hire days for 5 regulatory drydockings completed and 2 in progress at the year-end, 75 days of unplanned off-hire and 114 days of idle ballast time for 3 vessels between charters, giving a utilization of 89.9%. For the whole year of 2019, the utilization of the company was 94.4%, performed through the year 10 regular drydockings, 5 reefer upgrades and 2 in progress.

The average operating expenses per ownership day, including management fees in the quarter, was $6,436, down $382 per day year-over-year, and through 2019, the annual average was $6,128, down $292 per year, year-over-year. The average general and administrative expenses per ownership day through 2019 went down from $1,201 in 2018 down to $615 in 2019. Cash general and administrative expenses before the charge for stock-based incentives fell from $9 million to $7.1 million.

Now turning to page -- Slide 19, it shows information on drydockings and upgrade works to assist you in modeling CapEx and off-hire for the year. On the next page, on Slide 20, is our usually illustrative adjusted EBITDA calculator. The latter includes the 2 ships recently delivered to us and takes account of the proposed sale of 1 small ship, Matisse, where the economics of the imminent drydocking, together with our assessment of near charter rates, suggest sale with use of proceeds to pay down the 222 notes (sic) [2022 notes]. The calculator can be used to see how different rate scenarios flow through our adjusted EBITDA.

To assist, we have also provided 10-year historic average charter rates by vessel size as well as the 15 years average. For example, if we apply the 10-year historical average rates to the open days of 2020, deducting 5% for commission, which is a market standard and a further 1% for unplanned off-hire, we would generate adjusted EBITDA of about $176 million. I should emphasize now that this is not a forecast.

I would now like to turn the call back to George for closing remarks.

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [7]

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I will briefly summarize on Slide 22 before moving to your questions. We have the right fleet as we're focused on midsize and smaller fleet segments with supported fundamentals, most notably a negligible to negative multiyear vessel supply growth trajectory. We have a balanced strategy of robust downside protection while maintaining and realizing upside earnings potential. We have an ongoing focus on capital allocation, balance sheet optimization, cost of debt reduction and free cash flow expansion. We've made real progress and fully taken out our 9.875% notes is a clear strategic priority for us.

We've got an experienced, supportive, diverse group of sponsors with closely aligned interests. We are a proven platform for growth through both opportunistic vessel acquisitions and large-scale M&As with a disciplined focus on shareholder value.

Finally, I will note that we deliver stock to be trading at a significant discount to our public peers, representing a strong potential upside.

With that, we'll be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Liam Burke from B. Riley FBR.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [2]

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The coronavirus has created a lot of operational disruption and confusion and uncertainty out there. With that economic uncertainty, is that affecting your efforts to refinance the balance of the 2022 senior notes?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [3]

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Well, I'll take this question, and then I'll ask Ian to join me. The answer is no. We have not seen any change into the climate or the appetite of our financiers into this process of us moving ahead and refinancing our 2022 senior notes.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [4]

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That's right. Liam, if I can add. One of the strengths of Global Ship Lease is contract portfolio. And we have 2 -- $767 million of contracted revenue spread out over 2.5 years. If you use the EBITDA calculator and use the 10-year average rates, then that contracted revenue covers 90% -- 89% of our EBITDA for 2020. The charter expirations that we have in the near term are for our very small ships, which generally are out with Asia. So we're not directly affected by the lower volumes -- the lower export volumes out of China so far. All of that supports Global Ship Lease being a good borrower in the eyes of our financiers. And just to say that, that refinancing remains a clear priority for us, but it is, to a degree, opportunistic. The notes don't mature until 2022. We continue to believe that we'll be able to refinance at a significantly lower average cost, therefore, generating cash savings from lower interest. And also, we have the potential of reducing ongoing amortization. We believe that price is still available to us, and we're working very hard to get that done in the coming months.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [5]

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Great. And on the charter coverage, CMA CGM has made some significant movement towards reducing its debt load. Are you comfortable with the progress that they've made, considering they're a large charter of your fleet?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [6]

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May I start by saying that we are very comfortable with what these guys are doing, and also knowing what is their acquisition of CEVA. CEVA is a company that does the door-to-door logistics, which, as we also have heard from Maersk, it's in their target to get a company like that. So it is really, I think, the concessions between liner companies that they should be expanding more than the sea transportation to a little bit of the land transportation, so they can offer a door-to-door service. So in my view, the future of CMA CGM with CEVA it's -- medium term, is looking very good. If you guys -- Ian, you don't want to add something?

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Ian J. Webber, Global Ship Lease, Inc. - CEO [7]

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Nothing really to add, but CMA created Global Ship Lease in the first place. They remain a significant shareholder of ours. They have Board representation. We have no special insight into their financial position. And let's not forget that their 2019 results, I think, come out tomorrow. And there's a call on Monday, so we wait to see with interest what they say. But we remain very comfortable with them as a strategic partner, a shareholder and as a commercial partner.

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Operator [8]

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Our next question comes from Joseph Farricielli from Cantor Fitzgerald.

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [9]

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First question, bit of housekeeping. Balance sheet cash of $138 million, and you did the 9.875% buyback in February. Was the buyback, the $46 million face buyback, done with cash on hand?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [10]

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Ian, do you want to answer that?

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Ian J. Webber, Global Ship Lease, Inc. - CEO [11]

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Yes, it was. In our minds, we used the net proceeds from issuing the 8% unsecured, which is some $30 million, and part of the ATM program as well.

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [12]

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Okay. Right. All right. Next is on your contracts and thinking of your day rate, and if -- well, I guess, the first question, are any of your ships idled because of customers just not being able to ship goods?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [13]

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No, we have not had that.

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [14]

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I'm sorry, what was that?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [15]

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I said that, no, we did not have that. All our customers have been -- the type of ships we have, it's not really the type of ship that is affected from the reduction in production in China. Our ships are trading a bit in different areas and in different lines. So we haven't had any -- our ships idling, of course, being on charter idling neither.

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [16]

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Okay. But if they were, how do you think of the day rate? Because you don't have -- your costs would go down. Is there a credit that the charterer receives if the vessel is idled? Just trying to understand if you were to have part of your...

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Ian J. Webber, Global Ship Lease, Inc. - CEO [17]

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Yes. In theory, if there is -- if the vessel is explicitly idled by the charterer and there are operating cost savings, then we should pass those on to the charterer. So our net cash flow is unaffected.

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [18]

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Okay. And then last question. Your day rate, it seems -- I thought you were below $6,000 in third quarter. You're just slightly over. Any color there as to what the slight bump is?

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Ian J. Webber, Global Ship Lease, Inc. - CEO [19]

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This is on operating costs?

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Joseph Farricielli;Cantor Fitzgerald & Co., Research Division;Analyst, [20]

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Yes, on operating costs.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [21]

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They're variable through the year. It depends on the exact program of works. When, for example, auxiliary generators, auxiliary engines, the power plants that produce the electricity for the ship are maintained. That's an individually large item. So you have to look at it over a period of time. And the really important thing is that over the full year 2019, at $6,128 per day, we were lower than the equivalent in 2018, which was $6,400 -- $6,420 a day. And 2018 also showed variability between quarters.

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Operator [22]

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Our next question comes from [Andre Coates] from Jefferies.

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Unidentified Analyst, [23]

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One of my questions have been answered on CMA, but just to tag along to that question maybe in a little bit more detail. Your point about being very comfortable with the medium-term outlook, I guess, the question is regarding CMA, whether they have -- will survive in the medium term. So maybe a broader question, just not only on CMA, but just the flexibility of the portfolio. We have ZIM in there as well, which is fairly small, but what is your ability to redeploy the ships should you have a charterer that's facing difficulty and ultimately maybe gets into a filing scenario or something like that, however remote you may think that might be?

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [24]

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Yes. Well, we actually think it is extremely remote, given the fact that we have had a much stronger stress test than today in 2009, when the whole world was in recession. Nevertheless, what insulates us more than anything is the quality of our fleet and the flexibility of our ships. We tend to have some of the best-in-class ships in all their categories for various reasons. Commercially, our ships are superior, they're in the top-tier range, which makes them the ships of first choice to charterers.

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Operator [25]

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Our next question comes from Konstantin Chinarov from Aptior Capital.

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Konstantin Chinarov, Aptior Capital - Credit Product Analyst [26]

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Just sort of coming back to CMA point. Could you please confirm, out of $767 million of contracted revenue, what is the percentage that is exposed to CMA? And the logic behind this question, I understand that sort of the bankruptcy has emerged. But if you look at, let's say, the trading levels of unsecured bonds of CMA, they suggest pretty meaningful sort of probability of bankruptcy. So kind of like trying to understand the exposure to CMA.

And then secondly, in terms of like how your charter contracts work. In the case of the bankruptcy of the counterparty, what are the sort of provisions there? Could you sort of get out of the charter? Or there is no way that the counterparty could cancel on those charters? And whoever -- and if, let's say, CMA ends up in sort of creditor hands, would they continue sort of on those charters? If you could sort of shed some light on that would be helpful.

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [27]

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Tom, do you want to talk about the charter split on our fleet?

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [28]

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Sure. Roughly 2/3 of our contracted revenue is CMA CGM related.

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [29]

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Nevertheless, though, something that we need to add to that, is whether our contracts that are CMA CGM are in the money or out of the money. So in other words, if we were to lose these contracts, whether we will be able to replace them with a higher or lower contract, then I would say, if we make this analysis, we're almost breakeven.

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [30]

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That's right.

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Georgios Giouroukos, Global Ship Lease, Inc. - Executive Chairman [31]

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If I'm not wrong. So in other words, we have some contracts that are above market, some contracts that are below market. So if -- but if we adjust all of the contracts, we would be almost indifferent if we were not having CMA as a charterer. We could get the same cash flow from the market today, more or less.

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Operator [32]

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I'm showing no further questions in the queue at this time. I'd like to turn the call back to Ian Webber, CEO of Global Ship Lease, for closing remarks. Please go ahead.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [33]

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Thank you very much. Thanks for listening. Thank you for your questions, and we look forward to giving you a further update on our progress following the issuance of our Q1 results. Thank you.

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Operator [34]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.