Global Ship Lease, Inc. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; quarter-specific results are not clearly provided in the supplied text. Financial statements are prepared under U.S. GAAP. The audit opinion on the 2019 and 2018 financial statements was unqualified.
Business context
Global Ship Lease owns containerships and leases them to liner companies under fixed-rate time charters. At year-end, it owned 43 vessels; including two vessels delivered in early 2020, the fleet comprised 45 ships with capacity of 248,968 TEU. The Poseidon Containers acquisition, completed in November 2018, substantially expanded the fleet and affected year-over-year comparisons.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Time charter revenue | $261.1 million | $157.1 million |
| Operating income (loss) | $111.6 million | $(10.3) million |
| Net income (loss) | $39.8 million | $(57.4) million |
| Net income (loss) available to common shareholders | $36.8 million | $(60.4) million |
| Diluted earnings (loss) per Class A share | $1.48 | $(7.42) |
| Net cash provided by operating activities | $93.3 million | $47.7 million |
| Net cash used in investing activities | $(99.9) million | Net cash provided: $24.3 million |
| Net cash provided by (used in) financing activities | $64.1 million | $(55.2) million |
| Cash and restricted cash at year-end | $147.6 million | $90.1 million |
| Total assets | $1,351.8 million | $1,233.5 million |
| Gross debt outstanding | $912.8 million | $889.2 million |
| Stockholders’ equity | $406.4 million | $316.4 million |
Operating margin was approximately 42.7% of revenue in 2019, versus a loss in 2018; net margin was approximately 15.3%. These are calculations from reported figures, not company-reported margin measures. Year-end current assets were $161.9 million and current liabilities were $129.6 million. Cash and cash equivalents excluding restricted cash were $138.0 million; restricted cash was $9.6 million.
Debt included $322.7 million of 9.875% secured notes due 2022, $39.8 million of 8.00% unsecured notes due 2024, $38.5 million of 10.00% junior debt, and $511.8 million of floating-rate borrowings. The filing’s selected financial data also reports debt, net, of $896.9 million; this differs from the $912.8 million gross debt amount reported in the debt discussion. Floating-rate debt was exposed to LIBOR; the company estimated a 1 percentage-point LIBOR increase would reduce annual pretax income by about $5.1 million, before amortization effects.
No common-share dividend was paid in 2019. Series B preferred dividends were paid, totaling $3.1 million. The preferred shares carry an 8.75% rate, subject to declaration and applicable restrictions.
Material changes versus 2018
- Revenue rose 66.2%, mainly reflecting a full year of Poseidon fleet operations and five additional vessel acquisitions in 2019. Ownership days increased 86.7% to 14,326.
- Utilization fell to 94.4% from 98.7%. The company reported 806 off-hire days, including 537 days associated with vessel upgrades and regulatory drydockings; shipyard congestion contributed to longer work periods.
- Operating expenses were $149.5 million, versus $167.4 million in 2018. The prior year included a non-cash vessel impairment charge of $71.8 million; no vessel impairment was recorded in 2019. Excluding that charge, 2018 operating expenses were $95.6 million.
- Interest and other finance expenses increased to $75.0 million from $48.7 million, primarily due to the full-year effect of Poseidon-related debt and borrowings for vessel acquisitions.
- Operating cash flow increased by $45.6 million to $93.3 million. Investing outflows reflected vessel purchases and drydockings; financing included new debt and equity issuance, refinancing, and debt repayments.
- The company completed a $50.7 million net common-share offering and issued 2024 Notes. It also refinanced several facilities through a new syndicated facility.
Outlook, risks, contingencies and unusual items
- Near-term liquidity: Management stated that retained business cash flows were expected to cover operating needs, working capital, drydockings, interest, and debt repayments for the 12 months following filing. At December 31, 2019, scheduled debt amortization for 2020 was $87.5 million, with estimated debt interest of $63.7 million. These figures predate subsequent refinancing and debt redemption activity.
- Charter expirations and market risk: Nine of 45 vessels had charters that had expired or could expire by the end of the first half of 2020, with a further 12 potentially expiring in the second half. Replacement rates and employment were uncertain. The company reported an average remaining charter term of 2.5 years on a TEU-weighted basis, including options under its control.
- Customer concentration: CMA CGM accounted for 57.18% of 2019 time charter revenue; 17 of the 43 year-end vessels were chartered to CMA CGM. No charterhire was outstanding at year-end, though the company disclosed historical payment delays. CMA CGM is also a significant shareholder and has board nominees.
- COVID-19: The company warned that pandemic-related reductions in economic activity and manufacturing could materially adversely affect 2020 earnings, cash flows, and financial condition. It said the impact could not then be estimated.
- Impairment sensitivity: Although no 2019 impairment was recorded, management’s sensitivity analysis indicated that a 10% reduction in assumed post-charter rates could result in a theoretical impairment charge of about $30.3 million; a 5% reduction could result in about $12.6 million. These are sensitivities, not recorded charges.
- Related parties and governance: Technomar, owned in significant part by the Executive Chairman, technically managed the fleet; Conchart, wholly owned by him, provided commercial management. The filing identifies potential conflicts and management-fee obligations. Technomar also provided accounting and financial reporting support.
- Ownership and dilution: Kelso-affiliated holders controlled approximately 36.1% of voting power through Series C preferred shares and a voting agreement. The Series C shares are convertible in certain circumstances into approximately 13.0 million Class A shares. The company also had 1,359,375 unvested management share awards at year-end.
- Tax: The company stated it did not believe it qualified for the U.S. Section 883 publicly traded exemption in 2019 and consequently was not exempt from U.S. tax on U.S.-source gross transportation income. Charterers had agreed to reimburse such taxes, but reimbursement was not assured.
- Regulatory and operating costs: IMO 2020 sulfur rules took effect January 1, 2020, and ballast-water treatment requirements were expected to require further spending. The company disclosed that 15 vessels had ballast-water systems fitted and 30 did not at the time described.
- Subsequent events: In February 2020, the company redeemed $46.0 million principal amount of 2022 Notes, leaving approximately $276.7 million outstanding, and refinanced the DVB facility. COVID-19 impacts remained unquantified. Management reported no material legal proceedings and stated debt covenants were met at year-end.
Most important facts for investors to verify
- Current charter coverage, renewal rates and actual employment for the vessels whose charters expired or could expire in 2020.
- CMA CGM’s credit condition, payment performance and continuing share of revenue and fleet employment.
- Cash available for debt service after restricted cash, scheduled amortization, interest, drydockings and regulatory capital spending; confirm the effect of post-year-end refinancing and redemptions.
- Debt covenant headroom, collateral values and refinancing requirements, particularly large maturities and balloon payments.
- COVID-19’s realized effects on utilization, charter collections, drydock schedules and 2020 cash flow.
- Assumptions behind vessel valuations and impairment tests, including charter-rate forecasts and the disclosed sensitivity to lower rates.
- Related-party management fees, termination provisions and conflict-of-interest oversight.
- The extent of potential dilution from Series C conversion and outstanding equity awards, and the conditions for any common dividend resumption.
- The tax treatment and actual reimbursement of U.S.-source transportation taxes following loss of the Section 883 exemption for 2019.