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Rating Action: Moody's upgrades Global Ship Lease's CFR to B2; outlook positive
Global Credit Research - 12 Jan 2021
London, 12 January 2021 -- Moody's Investors Service (Moody's) has today upgraded the corporate family rating (CFR) of Global Ship Lease, Inc. (GSL, the company) to B2 from B3, and its probability of default rating (PDR) to B2-PD from B3-PD. Concurrently, Moody's upgraded the instrument rating for the first priority senior secured notes due 2022 to B2 from B3, which Moody's expects to withdraw once the notes have been fully repaid. The outlook is positive.
The upgrade reflects the improved debt maturity profile following the refinancing of the 2022 notes with a new secured loan facility due 2026 , the continued resilient performance of both the company and its end markets and achievement of Moody's-adjusted debt/EBITDA commensurate with the B2 rating.
GSL leases out container ships to liner companies typically on longer-term contracts and as a result has significant contract cover with 2020 EBITDA largely contracted, and 92% of 2021 and 71% of 2022. While some contracts include option periods this nevertheless provides for meaningful forward visibility and Moody's expects the company's Moody's-adjusted debt/EBITDA to remain below 5.0x, which Moody's estimates the company achieved in Q4 2020. The container market has been more resilient in 2020, particularly compared with past economic downturns, and current freight and charter rates are on a positive trajectory with supportive underlying industry fundamentals including on the supply side. While this may change in a relatively volatile industry, it nevertheless also supports the rating because of GSL's need to recharter part of its fleet in 2021 and 2022. Overall recharter risk is currently limited to mostly smaller vessels.
Following the refinancing, Moody's expects the company to return its focus on growth through vessel acquisitions or M&A, but also to remain disciplined in using debt to fund growth so that Moody's leverage will at least remain below 5.0x. In addition to the considerations mentioned above, the rating continues to reflect (1) its modern and diverse fleet of medium-sized and smaller container ships that benefit from good market demand and lesser supply than bigger vessels; (2) the consistent historical positive free cash flow generation, which is expected to continue; and (3) its strong asset base of a wholly owned fleet with some above-market charters. The ratings also continue to take into account (1) GSL's scale, niche focus and degree of historically driven customer concentration; (2) the market risk associated with rechartering vessels, particularly related to GSL's above-market charter contracts; and (3) continued material leverage.
Moody's views the company's liquidity profile as adequate. The company had $71 million of unrestricted cash as of September 2020 (net of a $28 million notes prepayment in December 2020). Moody's expects the company to continue to generate solid free cash flow, supported by the long-term charters for most of its fleet. However, GSL also has ongoing required debt repayments related to the various vessel financings and some larger maturities in 2022 and 2024 that Moody's expects the company to address well in advance. There are also a range of covenants related to its debt under which Moody's expects the company to retain sufficient headroom.
The positive outlook reflects Moody's expectation of continued deleveraging helped by currently supportive underlying industry fundamentals and ongoing debt amortization.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure could arise if debt/EBITDA falls well below 4.5x, (funds from operations + interest)/interest rises well above 3x, free cash flow remains visibly positive, rechartering risks remains limited and the maturity profile manageable. Conversely, negative pressure could develop if the company's (funds from operations + interest)/interest falls below 2.5x, debt/EBITDA exceeds 5.5x or free cash flow weakens. Downward pressure on the ratings could also result if GSL experiences strained liquidity and difficulties in terms of the rechartering of vessels when contracts expire.
The principal methodology used in these ratings was Shipping Methodology published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243200. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Global Ship Lease, Inc. is a Republic of the Marshall Islands corporation, with administrative offices in London. GSL owns a fleet of 43 container vessels with a combined capacity of 245,280 twenty-foot equivalent units (TEU) and a TEU-weighted average age of 13.4 years.
GSL has been publicly traded on the New York Stock Exchange since 15 August 2008. Its largest shareholders include Kelso, a US private equity firm, with 42.5% and CMA CGM S.A., a top five global container liner. GSL generated revenue of $280 million and EBITDA of $161 million for the LTM period to September 2020.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
 6-K filing regarding refinancing 08-Jan-2021
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Tobias Wagner, CFA VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Peter Firth Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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