Business Context and Reporting Period
Company: Global Ship Lease, Inc. (GSL)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Jurisdiction: Republic of the Marshall Islands (Listed on NYSE)
Business Model: GSL owns a fleet of containerships and charters them under long-term, fixed-rate time charters. As of December 31, 2009, the fleet consisted of 17 vessels, all chartered to a single customer, CMA CGM S.A. The company operates as a holding company with vessel-owning subsidiaries.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | Value (USD) |
|---|---|
| Operating Revenue | $148.7 million |
| Operating Expenses | $87.0 million |
| Operating Income | $61.7 million |
| Net Income | $42.4 million |
| Net Income Per Share (Class A) | $0.91 (Basic & Diluted) |
| Operating Cash Flow | $72.9 million |
| Total Assets | $1,027.4 million |
| Total Debt (Long-term + Current) | $588.2 million |
| Stockholders' Equity | $327.6 million |
| Cash and Cash Equivalents | $30.8 million |
Note: Financial data reflects the "Successor" period post-merger. Comparisons to 2008 are limited due to the merger on August 14, 2008, which split the 2008 year into Predecessor and Successor periods.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased significantly to $148.7 million in 2009 from $95.0 million in 2008 (combined Predecessor and Successor time charter revenue). This increase is primarily due to the full-year contribution of four vessels acquired in December 2008 and one vessel acquired in August 2009.
- Profitability: Net income for 2009 was $42.4 million, a substantial improvement over the net loss of $44.0 million recorded in the Successor period of 2008 (Aug-Dec). The 2008 loss was heavily impacted by a $55.3 million unrealized loss on interest rate derivatives.
- Derivative Gains: In 2009, GSL recorded a $4.8 million gain on interest rate derivatives, contrasting with the significant loss in the prior year. This was driven by upward movement in LIBOR rates affecting the fair value of swaps.
- Debt Levels: Total debt increased to $588.2 million from $542.1 million at year-end 2008, reflecting additional borrowings to finance the purchase of the vessel CMA CGM Berlioz.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook
Management expects stable cash flows from fixed-rate charters to cover operating costs and debt service. However, the company faces significant liquidity constraints regarding future growth. GSL has contracted to purchase two newbuildings (Hull 789 and 790) for delivery in late 2010, with a remaining balance of approximately $139.3 million due. The company currently has no undrawn capacity under its credit facility to fund this purchase and must secure alternative financing.
Material Risks and Contingencies
- Single Customer Concentration: 100% of revenue is derived from CMA CGM. CMA CGM announced a potential financial restructuring in September 2009. GSL has experienced delays in charterhire payments (1-3 installments outstanding at times). Failure of CMA CGM to perform would materially adversely affect GSL.
- Credit Facility Covenants: A Credit Facility Amendment (effective Aug 2009) suspended the 75% leverage ratio test until April 30, 2011. If the ratio exceeds 75% at that time, or if scheduled prepayments are missed, lenders may demand immediate prepayment, potentially causing a default.
- Dividend Suspension: Common dividends are prohibited until November 30, 2010, or until the leverage ratio falls to 75% or below, whichever is later.
- Going Concern Uncertainty: The auditor's report includes an emphasis of matter regarding the uncertainty of CMA CGM's financial situation, which raises substantial doubt about GSL's ability to continue as a going concern if the charterer fails to perform.
- Market Conditions: The container shipping industry is in a severe cyclical downturn with excess capacity, leading to declining vessel values and charter rates, which impacts the company's leverage ratio and asset valuation.
Key Facts for Investor Verification
- CMA CGM Financial Health: Verify the status of CMA CGM's financial restructuring and its ability to meet charterhire obligations, as GSL has no other revenue source.
- Financing for Newbuildings: Confirm whether GSL has secured alternative financing for the $139.3 million balance due for the two contracted newbuildings scheduled for delivery in Q4 2010.
- Leverage Ratio Compliance: Monitor the upcoming leverage ratio test scheduled for April 30, 2011, and the company's ability to meet mandatory prepayment schedules to avoid default.
- Charterhire Receivables: Review the aging of receivables from CMA CGM, noting that payments were outstanding at the reporting date and shortly thereafter.
- Asset Valuation: Assess the risk of impairment on the vessel fleet given the significant decline in second-hand container ship market values since mid-2008.