Global Ship Lease -suspends dividends

Global Ship Lease announced their lenders have waived the loan-to-value test
for a year, and during this time GSL will not pay dividends.

My question is, who are these "lenders", (although perhaps it is buried in the SEC filing somewhere).

Considering CMA CGM was the one who started this company, selling off ships with lease-back agreements, I would guess they might also be one of the lenders.

If you know, please post a comment.

From Reuters

Wed Nov 30, 2011 10:07am EST

* Says lenders to waive loan-to-value test until Nov 30, 2012

* Says will not pay dividends during the waiver period

* Shares up 12 pct

Nov 30 (Reuters) - Global Ship Lease Inc said its lenders have agreed to extend a key requirement under its credit facility by a year, amid a downturn in containership markets.

Shares of London-based Global Ship Lease, which had touched a year-low of $1.62 on Tuesday, were trading up 12 percent at $1.87 on Wednesday on the New York Stock Exchange.

The company had expected its loan-to-value, a ratio of outstanding borrowings to the aggregate charter-free market value of the secured vessels, would exceed the 75 percent limit.

The company, which charters vessels to shipping companies, said it will not be able to pay dividends during the period of the waiver.

Global Ship Lease regulatory filing Dec. 9, 2009

Here's the regulatory filing referred to in the Fairplay article.

GLOBAL SHIP LEASE, INC. filed this 20-F/A on 12/09/2009

This is the part about conflict of interest.

CMA CGM is Global Ship Lease’s initial sole Charterer and its wholly owned subsidiary, CMA Ships, is Global Ship Lease’s initial Ship Manager. CMA CGM’s ability to continue to pay charterhire and CMA Ships’ ability to render ship management services will depend in part on their own financial strength. CMA CGM has guaranteed the performance of CMA Ships under the ship management agreements. As described above, the container shipping sector is suffering a severe cyclical downturn and has been incurring substantial losses. Furthermore, many containership operators, including CMA CGM, have commitments to purchase newbuildings for delivery over the next three to four years which may not be fully funded with committed financing.

Circumstances beyond their control could impair CMA CGM’s and CMA Ships’ financial strength, and because they are privately held companies, information about their financial strength is not publicly available. As a result, Global Ship Lease and an investor in its securities might have little advance warning of financial or other problems affecting CMA CGM or their wholly owned subsidiaries even though their financial or other problems could have a material adverse effect on Global Ship Lease.

CMA CGM and Global Ship Lease’s Ship Manager have conflicts of interest with Global Ship Lease and limited contractual duties, which may make them favor their own interests to Global Ship Lease’s detriment.

Conflicts of interest may arise between Global Ship Lease, on the one hand, and CMA CGM, Global Ship Lease’s initial Charterer, and CMA Ships, its Ship Manager, on the other hand. As a result of these conflicts, Global Ship Lease’s Ship Manager may favor its own or its parent company’s interests over Global Ship Lease’s interests. These conflicts may have unfavorable consequences for Global Ship Lease. For example, Global Ship Lease’s Ship Manager could be encouraged to incur unnecessary costs, for which it would seek reimbursement from Global Ship Lease. Although Global Ship Lease’s ship management agreements expressly prohibit its Ship Manager from giving preferential treatment when performing any of its ship management services to any other vessel that is affiliated with it, or otherwise controlled by CMA CGM, conflicts of interest may arise between Global Ship Lease, and its Ship Manager and its initial Charterer.

Global Ship Lease’s financial reporting is dependent on CMA CGM.

Under the ship management agreement with CMA Ships, the Ship Manager is obligated to provide Global Ship Lease with requisite financial information on a timely basis so that Global Ship Lease can meet its own reporting obligations under U.S. securities laws. CMA Ships and its parent company CMA CGM are privately held French corporations with financial reporting schedules different from Global Ship Lease. If CMA Ships or any of its affiliates is delayed in providing Global Ship Lease with key financial information, Global Ship Lease could fail to meet its financial reporting deadlines.

CMA CGM could compete with Global Ship Lease.

Along with many other vessel-owning companies, CMA CGM, currently Global Ship Lease’s sole Charterer and largest holder of its common shares, could compete with Global Ship Lease in its search to purchase newbuildings and secondhand vessels. Further, CMA CGM is not precluded from acting as an owner in the direct chartering market. While Global Ship Lease understands that CMA CGM currently has no intention of doing so, competition from CMA CGM may potentially harm Global Ship Lease’s ability to grow the business and may decrease its results of operations.

Certain terms in Global Ship Lease’s agreements with CMA CGM and its affiliates may be the result of negotiations that were not conducted at arms-length and may not reflect market standard terms. In addition, they may include terms that may not be obtained from future negotiations with unaffiliated third parties.

The asset purchase agreement, the charters, the ship management agreements and the other contractual agreements Global Ship Lease entered into with CMA CGM and its wholly owned subsidiaries were made in the context of an affiliated relationship and were negotiated in the overall context of the previously contemplated public offering of its Class A common shares in 2007, the Merger in August 2008 and other related transactions. Global Ship Lease’s agreements with CMA CGM may include terms that could not have been obtained from arms-length negotiations with unaffiliated third parties for similar services and assets. As a result, its future operating results may be negatively affected if Global Ship Lease does not receive terms as favorable in future negotiations with unaffiliated third parties or has to enter into lengthy and costly negotiations with third parties in connection with entering into such agreements.

Global Ship Lease’s growth depends on its ability to purchase further vessels, obtain new charters and maintain and potentially expand its relationship with CMA CGM. Global Ship Lease will require additional financing to be able to grow and will face substantial competition.

One of Global Ship Lease’s objectives is to grow by acquiring additional vessels and chartering them out to container shipping companies including potentially CMA CGM. This will be particularly challenging since Global Ship Lease will need to obtain additional financing in order to acquire vessels. Due to the global banking crisis and the severe cyclical downturn in the containership

So, if you are investing in Global Ship Lease stock (which I am not), please keep this in mind.

Payments to Global Ship Lease delayed

This from Lloyd's List

CMA CGM lagging behind on payments

Rajesh Joshi - Wednesday 9 December 2009

GLOBAL Ship Lease has confirmed “increasing delays” in charterhire payments from CMA CGM, and raised doubts over the troubled French company’s ability to keep up with these payments.
GSL has also warned against the possibility that CMA Ships, which serves as GSL’s ship manager, and the rump CMA CGM have “conflicts of ...

That's all I've got. The rest is for paid subscribers, which I am not.
I presume the last sentence reads "conflicts of interest", which I have mentioned all along.

And from Fairplay

GLOBAL Ship Lease confirmed in a filing today that it faces pressures on multiple fronts, including delayed payments from charterer CMA CGM.

All of GSL’s fleet is on hire to CMA CGM, which is exploring restructuring.

Again, the rest is subscription.

It refers to a filing, so maybe there is something with the SEC.

Comments re Global Ship Lease

Apparently I struck a hornets nest amongst investors of Global Ship Lease.

Here are some of the comments posted.

Linda...your post further distributes a mistaken press report as to Global Ship Lease earnings in the current quarter.

GSL did not have a LOSS in the recent quarter. GSL generated actual cash after expenses of $15.4 million in the quarter. As a semantic matter of GAAP accounting, GSL also booked a non-cash loss on interest rate swaps which was larger than the cash generated.

and from another

I shake my head reading your blog today.

Of the three publicly traded long term charter companies that offer containerships - Seaspan, Danaos and Global Ship Lease - GSL is the only one with essentially zero financial exposure to future ship orders.

GSL's total orderbook consists of the two ships you mentioned, both ordered to fulfill an existing long term charter with Zim. If GSL chooses to do so, it is free to refuse delivery of those ships and simply forfeit a relatively small deposit ($15 million) as the only consequence. In all likelihood Zim will ask GSL to to exactly that - gladly reimbursing GSL for the forfeiture rather than honoring the charter expense and losing even more money.
................
To my view, GSL's lack of orderbook risk going forward opens the possibility that GSL may partner with one or more shipowner banks in to take on and stretch out delivery of ships ordered by CMA, Zim and possibly others. Indeed, this very crisis may result in GSL's becoming the dominant player in long term containership charter.

November 21, 2009 2:12 PM

There are many more comments, but I didn't want to bore everyone.

Ok folks, here's my thinking.

First of all, yes I understand all the accounting stuff.

Here's what I am looking at in the future.

1) Both CMA CGM are not in a good financial situation. Yes, the chairman of CMA CGM says they will make money in 2010, but then, people say a lot of things. If everything came true that officials said, we would have eradicated cancer by now.

2) GSL is a very, very small player in the world of containership owners. The KG Houses of Germany probably own the most containerships which go to the charter market. Many of these companies are in financial straights, and who knows what the domino effect might be.

3) What if CMA CGM and Zim both file for bankruptcy protection? Where does that leave GSL in the line of creditors? I would guess quite far down the list.

I don't know what is the future of GSL. I am not attempting to affect the price of their stock, I only write comments based on my experience in international shipping.

If I chose to gamble, I would give money to my b/f and send him to Vegas to play poker.

Good luck to ya'll.

No Dividends for Global Ship Lease stockholders

I just shake my head when I read what Global Ship Lease is doing. I don't know who manages this company, but perhaps whoever it is should read a newspaper once in a while.

It's bad enough they continue to buy ships which they then charter to CMA CGM (who is the largest shareholder), but they still plan to buy ships to charter to Zim.

Why would anyone want to do this? Why would Zim want to do this, assuming they are honoring the original contract agreement. There are so many containerships sitting idle they could charter some in at a cheap rate. Furthermore, what does Zim need more ships for? At this time, if you are a container carrier, the more ships you operate, the more money you will lose.

From The Journal of Commerce

Global Ship Lease, a containership charter owner listed on the New York Stock Exchange, posted a net loss of $3.9 million in the third quarter ended Sept. 30, which was more than triple its loss of $1.2 million in the same quarter a year earlier.

The company’s revenue increased by 57 percent to $37.6 million from $23.9 million a year ago, due to the purchase of four additional vessels in December 2008 and one additional vessel in August 2009.

The company said it earned a normalized net profit of $6.2 million in the quarter, excluding an $8.1 million non-cash interest rate derivative mark-to-market charge and $2 million deferred financing costs written off on an accelerated basis. Normalized net earnings are not defined by accounting principles generally accepted in the United States.

And here's the part about the ships...

The company said it was able to borrow sufficient funds under the credit facility to allow the purchase for $82 million in August of the CMA CGM Berlioz, a 2001-built container vessel with 6,627 20-foot equivalent unit capacity chartered to CMA CGM for 12 years.

With that purchase, Global Ship Lease owns 17 container ships that are all on fixed long-term charters with CMA CGM, with an average remaining term of 9.3 years.

The company, which is domiciled in the Marshall Islands, started as a time charter operator in December 2007 when it purchased 10 container vessels from CMA CGM that it leased back to the French liner company.

Global Ship Lease said its has contracts in place to purchase two new 4,250-TEU ships from German interests for approximately $77 million each that are scheduled to be delivered in the fourth quarter of 2010. It said it has agreements to charter out these new ships to Zim Integrated Shipping Services for periods of seven to eight years.

CMA CMG delays ship deliveries

CMA CGM is delaying ship deliveries

From the Journal of Commerce

CMA CGM wants to delay the delivery of 49 ships it has ordered and is scheduled to receive within the next three years, its CEO Rodolphe Saade said Monday.

"Our first objective is to obtain the delay of the delivery of those ships" and an agreement on a payment schedule, Saade said in an interview in Les Echos, according to Agence France Presse.

I don't know why they aren't just trying to cancel them.

After all, there are so many containerships available sitting idle, one would think they should just bite the bullet and cancel the orders.

Of course, the shipyards have not been very easy to deal with, and who knows what it will cost to cancel the orders.

The heavily-indebted French company now owes $5.6 billion. A steering committee including banks and financial institutions is drafting a plan to return the company to profitability next year and secure its long-term future.

The French carrier has 60 large new container ships on order that are scheduled for delivery through 2012. As part of an effort to conserve cash, CMA CGM said it will continue to try to renegotiate and in some cases cancel “certain ship deliveries.”

CMA CGM has a fleet of 91 owned and 272 chartered ships with a combined capacity of more than 1 billion 20-foot equivalent units.

For anyone holding stock in Global Ship Lease, beware.

CMA CGM to sell assets

Fairplay is reporting CMA CGM will sell assets

CMA CGM plans to sell off assets because of losses expected this year, chairman Jacques Saadé has announced.
But the French container giant expects profits to return in the first quarter of 2010

I don't have a subscription, so I don't know what else they are reporting.

I do find it a little amusing, because, Seeking Alpha did an article on GSL (which was started by CMA CGM as a lease back entity for their ships). Someone posted a comment and linked to my blog, in response to people saying CMA CGM doesn't need to sell assets.....

Well, I hate to say I told you so... We will have to wait and see what they sell, and to whom. If they sell ships to GSL, I doubt GSL would get the better end of the bargain.

Apparently GSL has been trying to entice investors just this last week.

I'd rather spend my money in Vegas.

Global Ship Lease- won't be paying dividends

Global Ship Lease has come to terms with their lenders. Part of the agreement is they won't be paying any dividends, probably until 2011.

They still plan to take on the CMA CGM vessel, as already agreed, which is a huge mistake. There is no mention of the 2 vessels which were ordered for Zim, who will probably cancel, since they have financial problems of their own.

From Lloyd's List

GSL agrees revised terms on $800m facility

Rajesh Joshi, New York - Friday 21 August 2009
GLOBAL Ship Lease has finally stitched together a deal with lenders of its $800m credit facility, which has done away with the loan-to-value covenant of which GSL was in breach until the end of November this year.

Among the concessions made, GSL has suspended dividends and agreed to the cancellation of $200m from the undrawn amount. The company has also issued a transparent hint that it does not expect containership asset values to improve for at least another year-and-a-half. The next loan-to-value “test” has been set for April 30, 2011.

GSL will be able to withdraw money under the facility in the meantime to bankroll its pledged purchase of the 2001-built, 6,627 teu containership CMA CGM Berlioz, which is scheduled to be delivered to GSL next month.

GSL was in discussions with lenders on the covenant breach for several months, but the company had obtained standstill agreements while talks progressed.

While expressing confidence that GSL’s deal would be done, chief executive Ian Webber complained at its quarterly results presentation last week that bankers were getting “tougher” with the shipping industry.

In the amendment agreed, GSL is to pay an amended interest rate of 3.5% over the London interbank offered rate through to November 30, with the margin thereafter fluctuating between 2.5% and 3.5% depending on the prevailing loan-to-value ratio.

GSL has committed to suspending its dividend, since cash flow has been pledged to repay the loan. GSL has also deferred redemption of $48m in preferred shares until the final maturity of the credit facility in 2016.

Dividends may be resumed once GSL’s loan-to-value ratio drops below 75%. From that point, repayment would be fixed at $10m per quarter.

Mr Webber said: “The container shipping industry is facing significant challenges and containership values have experienced substantial declines.

“With this agreement, we have accomplished two important strategic objectives. First, by aggressively paying down debt, we have enhanced our position to emerge from this unprecedented market downturn as a stronger company.

“Second, by waiving the loan-to-value covenant, we have insulated the company through April 2011 against what is likely to be a continuing period of depressed asset prices.”

Global Ship Lease buys time

Lloyd's List reports Global Ships Lease has convinced the banks to postpone (again) the loan-to value tests on their ships.

Janet Porter - Friday 31 July 2009
GLOBAL Ship Lease, the containership owner in which CMA CGM has a sizeable interest, has obtained a further loan waiver from its banks while the two sides discuss amendments to its $800m credit facility.

The existing waiver expires today, but New York listed GSL said it had agreed with its lenders to extend its waiver for loan-to-value tests until the end of August. In the meantime, dividend payments remain suspended.

At issue are ship prices, with bankers concerned about the decline in charter free market values of containerships.

The company had initially been required to submit vessel valuations in April and previously received a waiver from loan-to-value tests until the end of July.

OK, that doesn't bother me too much.

However, when I got down to this comment in the article, I started get that funny feeling.

GSL currently owns 16 vessels and has contracted to purchase an additional three ships. That includes the CMA CGM Berlioz, to be bought from the French line for $82m in September, contingent on financing.

Oh, that's just great. Like something DryShips would do. Sell a ship from CMA CGM to Global Ship Lease, probably for a price much higher than current market value.
I am just guessing. I don't know for sure, but if the price was fixed even 6 months ago, it's more than it's worth today.

And, they have contracts for a couple of more ships, to be chartered out to Zim??!!

The company also has contracts in place to buy two newbuildings from German interests for approximately $77m each, which are scheduled to be delivered in the fourth quarter of 2010 with charters to Zim.

Zim isn't going to need any more ships. They are having financial troubles of their own.

Global Ship Lease update

I did a blog posting about Global Ship Lease back in Feb. 2009

Here's the link. How Independent is Global Ship Lease

Apparently it got picked up this weekend by some people who invest in this stock.

So, I thought I would take a look at what's going on with Global Ship Lease. I do not pretend to be a stock analyst, so if someone can clarify anything I get wrong, feel free.

I had trouble getting the entire recent SEC filings to pull up from their web-site. It named PINE RIVER CAPITAL, but as it was dated July 23, 2009, maybe they have a couple of days to complete the paperwork.


Here's the link to their SEC filings. Perhaps someone smarter than me can figure it out.


They also filed a "safe harbor statement" on June 26, 2009 as part of their "Update on Credit Facility". (click here for link)

In this they list 21 types of "risk and uncertainties".

I haven't read a lot of these types of statements, but this one looks excessively long to me. They did not mention the possibility of a giant meteor hitting the earth, but they covered just about everything else.

These 2 caught my eye.

- Global Ship Lease's ability to enter into long-term, fixed-rate charters;

- the continued performance of existing long-term, fixed-rate charters;

That's enough for now. It's Sunday, and I should get a life.

How independent is Global Ship Lease?

Global Ship Lease, a publically traded company, just declared a dividend for 4th quarter 2008.

Global Ship Lease, Inc. (NYSE: GSL)(NYSE: GSL.U)(NYSE: GSL.WS) a rapidly growing containership charter owner, today announced the Company's Board of Directors has declared a fourth quarter dividend of $0.23 per Class A common share and unit and Class B common share. The dividend is payable on March 5, 2009 to Class A common shareholders and unit holders and Class B common shareholders of record on February 20, 2009.

What I did not know is this company was formed by the French container carrier CMA CGM.

The French carrier (CMA CGM) transferred 17 ships, including new vessels, to Global Ship Lease when it established the company as an independent ship-owning unit in 2007. It retained a 23-percent stake in the firm following its initial public offering in New York last August.

So they declared a dividend to keep their shareholders from running away, because at the same time they realized they were in trouble with their loan covenants.

Global Ship Lease, a leading container ship charter owner, has renegotiated the terms of an $800-million credit facility to avoid defaulting on covenants linked to the value of its fleet of vessels.

The New York-listed company, whose main shareholder is French ocean carrier, CMA CGM, also has agreed to pay a higher interest rate on the existing loan.

This is the official statement from their CEO. I am always suspicious of long explanations.

Ian Webber, Chief Executive Officer of Global Ship Lease, commented, "We are pleased to have declared our fourth quarter dividend, the Company's third $0.23 distribution since going public in August of 2008. In response to the unprecedented volatility in the financial markets and in appraised ship values, we proactively approached our lenders in order to reduce our risk with respect to our loan to value maintenance covenant under the Company's credit facility. Working closely with our bank group, which has significant experience with ship lending, we have favorably amended our credit facility at attractive borrowing rates with modest upfront cost in a very challenging economic and financial environment. With the amended facility in place, Global Ship Lease has significantly reduced its exposure to pressures on ship valuations and enhanced its ability to continue providing shareholders with attractive dividends. The declaration of the fourth quarter distribution and the successful conclusion of our negotiations with our lenders further demonstrate the stability of our business model, which is focused on securing all of our vessels on long-term fixed rate contracts to generate stable and predictable cash flows."

It's going to be a rocky 2009 for container carriers. International shipping is down across the board for all types of carriers. I wouldn't be surprised if CMA CGM doesn't sell their stock in this company, and then renegotiate their charter rates. Well, they would probably sell their stock after they renegotiated. They didn't get to be the 3rd largest container carrier without being rather clever.