ATCO - Atlas Corp

[tengen]

Give management and Irwin Michael their due.  :)

 

I stand corrected!

[Uccmal]

Gerry is the Prem Watsa of the shipping industry.  But up ships during downturns so your strong during the upturn.  They check credit worthiness of their customers over the long term.  Buy back shares when they are cheap. 

 

http://seekingalpha.com/article/1251251-seaspan-corporation-ceo-discusses-q4-2012-results-earnings-call-transcript?page=6&p=qanda&l=last

[tripleoptician]

What happened here? On my watch list from almost a year ago and now down almost 20% in a few days after news of Common share dilution and convertible notes offering for corporate purposes. Haven't followed for a while so is there a perception of a change to Seaspan's business model with this offering?

 

Thanks in advance

[JEast]

What happened here?

The market has been trained over the years to recognize, then react, that a share offering is a sign of weakness.  On occasion, a share offering is in the best interest of the company.  Take for example an insurance company after a major catastrophe.  Would it be wise of the company to raise capital to go write more policies?  A big yes for some companies.  Is it wise to raise capital to go buy very cheap, brand new, ships to lease under 6-12 year contractual agreements?  I think yes presently as your bankers will be happy, you suppliers will be happy, your counter parities will be happy, and in time the shareholders will be happy.

 

But then again, if the market really, really hates it -- you punt.

 

Cheers

JEast

[no_free_lunch]

Seaspan Corporation (NYSE:SSW) announced today that it will no longer proceed with its previously announced public offerings of common shares and convertible notes as it would not be in the best interests of our shareholders.

 

http://www.4-traders.com/SEASPAN-CORPORATION-14483/news/Seaspan-Corporation--Seaspan-Announces-Termination-of-Public-Offerings-of-Common-Shares-and-Convert-17342189/

 

 

Damn!  Stock is back up to $23 after hours.  Too bad, I was thinking this would have been a good entry.

[Uccmal]

I had been selling some into the rally.  Then I was buying down to 19.61 yesterday. 

 

I guess I'll be selling into today.  I am guessing that Gerry has decided to find a better way to finance the new boats. 

 

It looked like he wanted to try to get cheaper financing than the Preferreds.

[MYDemaray]

I had been selling some into the rally.  Then I was buying down to 19.61 yesterday. 

 

I guess I'll be selling into today.  I am guessing that Gerry has decided to find a better way to finance the new boats. 

 

It looked like he wanted to try to get cheaper financing than the Preferreds.

 

Good for them.  I love to see management teams act rationally.  I've watched secondaries where management crams down the offering, regardless of price just to do their expansion plans.  Wang et. al didn't do that.  Says something about them.  I have no position.

[VAL9000]

I've had my doubts about SSW lately.  I sold my entire position about a month ago.  It was an excellent return all in, but I think the business model is flawed.  A couple years ago the only model was "long term charter", I now see the following breakout:

- 71 operating vessels

- 3 vessels no charter

- 5 vessels < 3 year charter (plus options)

- 4 vessels bareboat / 5 years

 

From 0% to 15% dilution of the model..  but the really concerning thing for me is that I haven't seen a single long-term recharter of any vessels.  All vessels that have come off of a long term charter have been redeployed in short term capacity.

 

I'm sure many vessels will get taken up on longer charters once there is an under-supply situation, but meanwhile SSW is left holding the bag.  The long term charters are set at mid-cycle rates, so SSW will miss the cyclical shipping boom but will be left chartering/day rating during bust cycles.  This will result in an earnings drag.

 

One other thing that is concerning to me.  SSW tends to negotiate initial contracts and charters during shipping booms (not always, but mostly because of when their customers are willing to enter into long term charters).  This means they are paying top dollar for the vessel, but are chartering out at generally competitive rates because the charters are so long.  This is a different type of earnings drag because the cost of the vessel is fixed and usually ordered in boom times but the charters are variable and not always negotiated in boom times.

 

[JEast]

I think the business model is flawed

Maybe the business model was never understood.  There has never been a plan to recharter 10-12 year old ships to another 10-12 year charter.  No major liner wants to lock themselves into a 10 year contract with an old asset, too expensive on the bunker costs.  Would you want to lease a 10 year old truck/car for another 10 years? 

 

The plan has always been to attempt to recharter those ships coming off long-term charters for another 3-4 years, then sell them. Rinse and repeat.

 

Cheers

JEast

[VAL9000]

I think the business model is flawed

Maybe the business model was never understood.  There has never been a plan to recharter 10-12 year old ships to another 10-12 year charter.  No major liner wants to lock themselves into a 10 year contract with an old asset, too expensive on the bunker costs.  Would you want to lease a 10 year old truck/car for another 10 years? 

 

The plan has always been to attempt to recharter those ships coming off long-term charters for another 3-4 years, then sell them. Rinse and repeat.

 

Cheers

JEast

 

Okay that makes more sense.  Not sure where that's ever been spelled out on earnings calls or in the shareholder materials.  All I ever hear about is "long term charters" and "financial strength".  Never anything about rolling over the fleet, although they do talk about having a young fleet.

 

It's weird to me that there would be no interest in 10 year charters on 10 year old boats, but there would be sufficient interest in buying 10 year old boats.  Or is SSW waiting until boom times to sell out their older vessels?

 

[Uccmal]

Val,

 

SSW was a small company in the shipping business until more recently.  As such they didn't have the leverage with the shipping yards.  They are now able to buy vessels more strategically.

 

Over all, They have done a fantastic job so far.  I see no reason they wont continue to do well. I expect the dividend will be raised another 25 cents per share in the new year.

 

I first bought the stock 4 years ago.  Over that time I have come to respect the Washingtons and Gerry Wang, more and more.  They are the best managed company in the shipping industry, bar none. 

 

This cancellation of the offering only demonstrates to me the ability of management to adapt and change with conditions, and learn from their mistakes. 

 

SSW is my largest common stock position.

 

Edit:  Wang reminds me of Buffett.  He is trying to lower the debt cost, buy vessels when they are cheapest, and keep the cash flow positive and coming through the door.

[zippy1]

To sell common stock.

HONG KONG, CHINA--(Marketwired - Nov 20, 2013) -  Seaspan Corporation ("Seaspan") (SSW) announced today that it has priced its previously announced public offering of 3,500,000 Class A common shares (the "Common Shares") at $22.00 per share. Seaspan has granted the underwriters of the offering a 30-day option to purchase up to an additional 525,000 Common Shares. The offering is expected to close on November 25, 2013.

http://finance.yahoo.com/news/seaspan-announces-pricing-3-500-133335813.html

[LongTerm]

Interesting wording in the announcement, "previously announced public offering". Wasn't the prior offering cancelled as a result of the market reaction to the prior announcement? Did I miss something? I consider management quite savvy but today's announcement has me scratching my head. Shares are down 10% today in reaction to this new announcement on over 10x normal volume. I have to conclude that management is either looking at some fabulous shipbuilding deals or??? I'm not quite sure what.  In fact I'm a bit surprised that the underwriters even agreed to this new offering and the offering price given what happened last time. Anyone else find this strange?

[MYDemaray]

I do find this strange.  Thought they were acting rationally before by pulling the offering.  By reference, GSL CEO said they were seeing "mid to high teen unlevered IRRs" in used tonnage. No idea about newbuilds.

[Uccmal]

I too am scratching my head.  I am guessing they need the money for newbuilds.  I will give them the benefit of the doubt. The stock was off 10% on a 5% dilution.  I took the opportunity to buy some more shares at a 6% dividend yield. 

[JEast]

Two points:  First, they must have some strong interest from the brokers to come back so soon after the earlier attempt, and second, I would not characterize the float as a total dilution as the capital will be adding strength and future returns to existing share owners as referenced in my earlier 10/10/13 comment.

 

Cheers

JEast

[Uccmal]

Two points:  First, they must have some strong interest from the brokers to come back so soon after the earlier attempt, and second, I would not characterize the float as a total dilution as the capital will be adding strength and future returns to existing share owners as referenced in my earlier 10/10/13 comment.

 

Cheers

JEast

 

Seems like it.  The stock is tightly held.  The volume yesterday was around 5 million, with 3.5 million shares hitting the market, and a bit of churn.  No argument regarding the dilution.  I was just noting that the stock went down more than the immediate dilution factor. 

[no_free_lunch]

Found this writeup/history on Seapan.  It is an investment thesis, written originally in 2006 and then updated over the past 7 years.  With the various updates you get a nice history of seaspan before, during and after the GFC.  Definitely worth a read.  Thanks to writser for posting the link.

 

http://www.valueinvestigator.com/en/valuefavourites/ssw.php

 

[Uccmal]

First quarter earnings were released this week. 

 

http://ir.seaspancorp.com/releasedetail.cfm?ReleaseID=843195

 

Nothing unusual.  In the conference call they explained the lower than usual dividend increase - only 10% - being due to building capital to pay for the big new builds. 

 

Still my largest common stock holding.  I would make it my entire portfolio if I could but that would be dumb.  5.5 years and holding.

 

 

[xtreeq]

The P3 Network is rejected by China

http://online.wsj.com/articles/shipping-alliance-blocked-by-china-1403001240

[Uccmal]

Big time sale for those who like big fat growing dividends. 

 

My guessing is it is selling off in sympathy with oil, and China even though the business is mostly immune to these effects. 

[xtreeq]

Mr. Market thinks that with low oil prices there's no more need for the fuel efficient Saver ships.

Still one of my largest holdings.

[Uccmal]

Mr. Market thinks that with low oil prices there's no more need for the fuel efficient Saver ships.

Still one of my largest holdings.

 

This completely baffles me.  There are years in most of these charters.  The price of oil is of no relevance to Seaspan over the next few years.  A slowdown in China is of no relevance.  A global recession is of no relevance at least for a few yrs. 

[yadayada]

so i got the share structure right, thing is roughly trading at 5-7x earnings of between the next few years? Why is it trading on chronic discount?

 

which shares are best to buy here? Im always at losss when there are preferred shares involved.

[Uccmal]

so i got the share structure right, thing is roughly trading at 5-7x earnings of between the next few years? Why is it trading on chronic discount?

 

which shares are best to buy here? Im always at losss when there are preferred shares involved.

 

You really need to look at the proxy statements to appreciate this business.  The Washington Family of Vancouver are the largest shareholders and the company founders.  Kyle Washington and Gerry Wang (CEO) went to school together in Canada.  Seaspan was originally started as an off shoot of Seaspan Marine Corp, a ship building company in BC, owned by the Washington Family.  During the liquidity crisis in early 2009 Seaspan was having trouble meeting its covenants and Kyle Washington injected 200 million to see them through.  So they have a very interested owner. 

 

It trades low because it is not well understood.  SSW is not a shipping company.  It is a leasing company.  It has more akin to Ge Capital's car leasing business, or AIGs former plane leasing business.  SSW leases container ships to an assortment of shipping companies on long term leases. 

 

50 % of their clientele is two Chinese shipping companies. This looks risky because its China, but it isn't really risky.  One of the Chinese companies tried to pay SSW less per ship during the recession but Gerry held firm. 

 

The other apparent risk is their debt.  On a consolidated basis it looks high but it is segmented per ship.  This is not well understood. 

 

The other apparent risk is the shipping spot rates.  These have been low for a few years.  Spot rates are of little relevance to Seaspan.  SSW doesn't work to the spot rates. 

 

Whether it gets recognized one day is totally beyond my ability to forecast, and not part of my thesis.  It pays a great dividend that it increases each year, so the stock will rise with the dividend increase.  I think the company may eventually trade higher as it matures.  When I first bought the stock they had less than 20 ships if I recall correctly.

 

As to the preferred or common.  The Cs are around 9% right now with no stock upside.  If interest rates rose significantly there might be capital loss.  The common is yielding over 7.5% on purchase price today with stock and dividend upside.  My money is on the common.  Obviously, more volatile.