I posted a topic with respect to Seaspan nearly three weeks ago without much interest, but glad a few brought it back up again. Maybe our savvy board members were quietly adding to their positions :) The original post from November 11th at bottom in italics.
After reading the very good comments above, I am of the belief that all the key items have been discussed by "uccmal2" and "lessthanIV" and are fairly accurate and not too much to squabble with based on my DD. What I would add that has not been mentioned directly is that Seaspan is much like a REIT but that which is structured and incentivized like a MLP. Therefore, the likelihood that equity financing will be used is of a low probability at this point and most likely the very last option of several options currently available. Also, at the most recent presentation management indicated that they could have raised the dividend if they wanted to do so, but thought it prudent not to at this time as the market would not have rewarded them anyway.
As "agatesystems" also mentions, there is an off balance sheet item of a $414M Special Purpose Entity for five (5) ships. This is the most likely option available to purchase additional ships going forward if the credit issues remain as bad as they say or lasts as long as they say. However, the big credit draws for Seaspan are not really until the second half of 2009 and into 2010 based on deliveries, so the next six (6) months should be manageable.
The key items over the next six months (as I see them) are as follows:
1) New 3-year maintenance contract to be signed this month. If any signed agreement which is below a 19.99% increase, should be seen as a sign of good news and a positive for the company.
2) If no issues with the scheduled delivery of the CSCL San Jose in the next few weeks should also be a seen as a sign of good news.
3) Since, no further deliveries are scheduled for nearly 4 months, which means no balloon payments until around the end of March and beginning of April, should provide for some working room.
4) The company also has two (2) ships which are unencumbered and could be used for collateral for approximately $100M in available credit if needed.
The overall risks have been stated fairly clearly above with a few others added:
a) counterparty risk < low given that the cargo is usually more valuable than the ship meaning no LOC like bulk >
b) financing risk < real, but seems manageable over the next 6-9 months >
c) share dilution < low probability with several other options available, at least for now, review again in 3 months >
d) potential dividend cuts < who cares at these price levels >
e) increasing costs < a given, but fuel costs are excluded and are not part of time charters >
f) other types of dilution < higher probability with use SPE or SPV >
g) management leaving < low, but huge impact if so as some contracts are up for renewal >
h) charter renegotiation < medium, but most likely on the smaller ships >
At current prices, I view this strictly as replacement value as I would a REIT with buildings in high value metropolitan areas. This thesis has several reasons, but one of the bigger reasons is that the liners would much prefer a new ship over an old ship due to the fuel costs associated with or without slow steaming.
The attaction at these price levels are:
1) Sells under replacement value < I use a much lower replacement value than Irwin Michael's calculation >
2) REIT qualities with incentives like an MLP < could be a really long-term holding >
3) Income producing vehicles should gain attraction 3-5 years hence < Demographic play >
4) Head's I win, Tails I don't loose that much < Straight Monish >
From November 11th:
A question for some of our BC board members or others. As FFH has been buying many dividend entities of late, I am curious to why they have not picked up any of the shipping carriers and especially the leasing companies similar to the GATX model. Is it they think things will only get worse? Irrespective, it seems that Seaspan in the BC area is of a very unique quality with some long-term synergies and comparative advantages. This once story stock has fallen with all the shipping enterprises. However, their story still appears to be true unlike many story stocks.
The thesis is quite simple (warning Will Robinson) with one of replacement value and one based on relationships. Toss out the dividend and the asset value still looks appealing given the current price in the $5-$8 range. Also, with the long-term contracts already on the books this is primarily the relationship enterprise. As for the Risks, the risks again appear to be somewhat straight forward with bank arrangements drying up (and puff there goes part of the company) and/or management decides to leave and there goes the relationship. Is this a Heads we win, Tails we do not loss that much? Also, Neuberger & Berman are the largest shareholders.
Any BC or west coast board members care to comment? Disclosure: I am currently long at current prices.
Cheers