Global Ship Lease, Inc. — 2012 Form 20-F Summary
Business context and reporting period
This is an annual report for the fiscal year ended December 31, 2012, not a standalone fourth-quarter report. Global Ship Lease owns and charters containerships under fixed-rate time charters. At year-end, its fleet comprised 17 vessels with capacity of 66,349 TEU; every vessel was chartered to CMA CGM, its sole customer and source of operating revenue. The weighted-average remaining charter term was 7.4 years, although two vessels had near-term expirations in 2013.
Key financial metrics
Amounts below are in U.S. dollars; financial figures are in millions unless otherwise noted.
| Metric | 2012 | 2011 | Change / note |
|---|---|---|---|
| Time charter revenue | $153.2 | $156.3 | Down 2%; principally due to two renewed charters at materially lower daily rates. |
| Operating income | $61.8 | $49.9 | Operating margin 40% versus 32%; 2011 included a $13.6 impairment charge. |
| Net income | $31.9 | $9.1 | Class A earnings per share were $0.67 versus $0.19. |
| Cash from operations | $83.7 | $74.9 | Cash generation rose despite lower revenue. |
| Cash and cash equivalents | $26.1 | $25.8 | Year-end 2012; restricted cash was approximately zero after preferred-share redemption. |
| Credit-facility debt | $425.7 | $483.6 | Current portion was $50.6; total debt fell $57.9 during 2012. |
| Preferred shares classified as liabilities | $45.0 | $48.0 | Mandatorily redeemable; redemption installments begin in 2016. |
Operating expenses were $91.4 million, or 60% of revenue, compared with $106.3 million, or 68%, in 2011; the prior year included the impairment charge. Vessel operating expenses were $45.6 million, and depreciation was $40.3 million. Interest expense was $21.2 million. Interest-rate derivatives generated an $18.4 million realized loss and a $9.7 million unrealized gain; the derivative liability was $35.6 million at year-end.
Cash used in investing activities was $24.3 million, mainly reflecting derivative settlements and $5.9 million of drydocking expenditures. Cash used in financing was $59.1 million, including $57.9 million of debt repayments. The reported current assets of $44.0 million were below current liabilities of $75.7 million; the company reported no undrawn capacity under its credit facility.
Material changes versus comparable periods
- Revenue declined from $156.3 million in 2011 as two vessels moved from $28,500 daily charter rates to renewed rates of $9,962 per vessel per day. Their new charters ran only to May 2013, subject to charterer options.
- Net income improved to $31.9 million from $9.1 million in 2011. The improvement reflected the absence of the $13.6 million impairment charge recognized in 2011 and a $10.6 million year-over-year improvement in unrealized derivative results.
- Cash from operations increased by $8.8 million. Debt declined by $57.9 million, while stockholders’ equity rose to $366.6 million from $334.2 million.
- Six vessels underwent drydocking in 2012, compared with six in 2011; drydock-related off-hire was 82 days versus 95 days. Unplanned off-hire increased to 16 days from 11.
- No vessel impairment was recorded in 2012. However, management’s discounted cash-flow analysis indicated that 11 vessels’ estimated market values were below carrying value by approximately $72.4 million in aggregate; the company concluded undiscounted expected cash flows exceeded carrying amounts.
Outlook, commentary, risks and unusual items
- Charterer and collection risk: CMA CGM was the sole charterer, and the filing reports recurring delays in hire payments. Two installments totaling $12.2 million were overdue at December 31, 2012 and were received in January 2013. One installment of $5.9 million was again outstanding on April 11, 2013. CMA CGM announced completion of a financial restructuring in February 2013, including new financing and proposed convertible bond investments; these developments post-date the reporting period.
- Debt covenant and dividend restrictions: The company obtained a waiver suspending leverage-ratio testing until December 1, 2014, after anticipating the ratio would exceed the 75% limit. The waiver raised the facility margin to 3.75% over LIBOR and bars common dividends during the waiver period; the filing says dividends cannot resume until the specified date and leverage condition are satisfied. The secured facility matures August 14, 2016, when remaining principal is due.
- Refinancing and liquidity: The credit facility has no undrawn commitments. Cash sweeps and scheduled amortization continue, and the company expects to need new borrowing, equity or other capital for acquisitions and may need further funding to meet repayment obligations. Contractual-obligation estimates total $564.0 million, including debt, interest, swaps, ship management and preferred-share obligations.
- Industry and rechartering: Management described continued excess containership capacity and weak charter markets, with industry performance improved in 2012 but remaining under pressure. Lower replacement charter rates or an inability to recharter vessels could reduce revenue, particularly as the two short-term charters expire in 2013.
- Interest-rate and accounting volatility: $327 million of debt remained swapped to fixed rates at a weighted rate of 3.74% after $253 million of swaps expired in March 2013. Derivatives do not qualify for hedge accounting, so fair-value movements affect reported earnings. A hypothetical 1% LIBOR increase, before swaps, would reduce pretax income by approximately $4.7 million.
- Other exposures: Risks include vessel-value declines, operating and drydocking costs, environmental and regulatory requirements, and dependence on CMA CGM-affiliated ship management. The company reported no material pending or threatened legal proceedings. Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective as of year-end.
- No quantitative earnings guidance: The filing does not provide a specific revenue, earnings or cash-flow forecast. Management characterized operating cash flow as expected to be reasonably predictable based on contracted charters, while noting that this depends heavily on CMA CGM’s performance.
Most important facts for investors to verify
- Whether CMA CGM is paying charterhire on time and its restructuring has improved its capacity to meet obligations.
- The status and terms of the leverage-ratio waiver, covenant compliance, required cash sweeps and the 2014 leverage test.
- Funding and repayment plans for the $425.7 million facility, including the August 2016 maturity and lack of undrawn credit capacity.
- Rechartering terms and resulting cash flows for the two vessels whose charters expired in 2013, and the market values of the fleet relative to book values.
- Future cash available after debt service, derivative settlements, drydockings and preferred-share obligations; common dividends were restricted under the waiver.