ATCO - Atlas Corp

[kab60]

Hanjin prevailed? Seaspan cut the rates - http://english.yonhapnews.co.kr/business/2016/08/28/39/0501000000AEN20160828000352320F.html

[Uccmal]

I am underwhelmed with Seaspan at the moment.  My plan is to shrink the relative size of my SSW position by redeploying the dividends into other stocks or to pay debt. 

 

The balance sheet and what is going on are hard to follow at the moment.  They have scrapped two relatively new smaller ships in the past couple of weeks for far less than the purchase price minus accumulated depreciation. 

 

Now, they have had to capitulate to Hanjin.  On a cost benefit analysis it was obviously better to reduce rates for Hanjin for the 8 or so ships chartered than to try to recharter or scrap them.  Lets hope their bigger customers dont see this as an opportunity.  No details were given on what kind of deal was reached - probably a deal to charter for longer and add newer ships.

 

Layering onto this had been several preferred share issues at rates from 7 to 8.5%  to pay for ships.  I am guessing the plan is to buy in the Carlisle Group partnership which will give them more ships which to my mind is a dubious objective.  As they have grown in size they have become more and more at the mercy of the industry dynamics as a whole. 

 

Not saying that they are badly run.  I just think it is a partial pyramid scheme that only works properly if container shipping demand grows over time.  Of course I knew this and have indicated it a few times on the board.  So, in summary, shareholders are totally at the mercy of the shipping cycle now, amd I womt be adding any shares.

[Uccmal]

Hanjin prevailed? Seaspan cut the rates - http://english.yonhapnews.co.kr/business/2016/08/28/39/0501000000AEN20160828000352320F.html

 

Okay, well apparently not.  Gerry Wang says they will not ever cut rates:

 

https://www.lloydslist.com/ll/sector/containers/article535131.ece

[kab60]

Strange. I was surprised I couldn't find a statement debunking the story yesterday. Rate cuts or not, I don't like this part;

However, Seaspan is willing to help in other ways, said Mr Wang. That could involve, for example, investing in a revamped Hanjin Shipping should a new ownership structure take shape, or ordering ships on behalf of the South Korean line.

But nothing could be decided until the outcome of the current crisis is known, said Mr Wang.

[gurpaul88]

Any thoughts on Tsakos Energy Navigation Ltd  (TNP) (oil and gas shipper) been hit pretty hard this year, preferred's have rallied quite a bit while common continues to slide.

[kab60]

Don't know that one. In this space I prefer SFL, but I have no position. They have drybulk, containers, drilling rigs and crude carriers - but most of all they seem to have good management. But not without hair.

[argonaut]

I owned SFL (not currently) for several years starting after 2008... It paid a nice div and the CEO seemed to manage the down turn well (and continues too)...I sold out recently when it hit 18-19 because I had other stocks with more upside the STL at that level... Just my .02

[lessthaniv]

http://www.bloomberg.com/news/articles/2016-09-13/hanjin-s-fall-is-lehman-moment-for-shipping-seaspan-ceo-says

 

 

[Uccmal]

http://www.bloomberg.com/news/articles/2016-09-13/hanjin-s-fall-is-lehman-moment-for-shipping-seaspan-ceo-says

 

 

 

Thanks <IV.  I am hoping the pricing for the Carlisle group buy in reflects the loss of ships under contract to Hanjin via CGI.  Otherwise, over the long term this bodes well for Seaspan through higher prices.  It amazes me how much supply each of these ships carries ( billions of dollars). 

[Uccmal]

3rd Q earnings out.  I should have dumped the whole posiiton when it was plus $20.00.  Hindsight is 20/20. 

 

200 Million writedown on older ships.  I dumped more than 50% of my position after the earnings.  The rest I will leave alone for now.  Management is trying to talk the stock up by diverting the focus on the capacity that is being scrapped worldwide, while they keep ordering > 10000 TEU ships.  The problem is that SSW makes up a good portion of the capacity.  So, they will have more writedowns coming. 

 

It was good while it lasted. 

[xtreeq]

3rd Q earnings out.  I should have dumped the whole posiiton when it was plus $20.00.  Hindsight is 20/20. 

 

200 Million writedown on older ships.  I dumped more than 50% of my position after the earnings.  The rest I will leave alone for now.  Management is trying to talk the stock up by diverting the focus on the capacity that is being scrapped worldwide, while they keep ordering > 10000 TEU ships.  The problem is that SSW makes up a good portion of the capacity.  So, they will have more writedowns coming. 

 

It was good while it lasted. 

 

The dividend yield on the common looks crazy, do you think it's sustainable?

[Uccmal]

3rd Q earnings out.  I should have dumped the whole posiiton when it was plus $20.00.  Hindsight is 20/20. 

 

200 Million writedown on older ships.  I dumped more than 50% of my position after the earnings.  The rest I will leave alone for now.  Management is trying to talk the stock up by diverting the focus on the capacity that is being scrapped worldwide, while they keep ordering > 10000 TEU ships.  The problem is that SSW makes up a good portion of the capacity.  So, they will have more writedowns coming. 

 

It was good while it lasted. 

 

The dividend yield on the common looks crazy, do you think it's sustainable?

 

Interesting question.  I dont know.  But that is obviously my worry or I would have kept all of my shares.  The company has always looked a bit like a pyramid scheme, something I have mentioned going back years on this thread. 

[doc75]

They were asked about the dividend on the CC.  CFO's response:

 

"So I think what we've said is that we've sort of reaffirmed the dividend for the fourth quarter. The Company has had a very standard policy for a number of years that we sort of look at things in February for the year, at sort of next Board meeting and that's the time where the Board will set the dividend for the next year. I think when we kind of look at sort of the financial situation we're in, we're sitting on a lot of cash, there's other liquidity, we don't have a lot of CapEx that's sort of unfunded ahead of us. We do have some vessels, which are unencumbered that we would expect to sort of finance. And the cash flow that we're showing, cash flow to common shareholders for the quarter was around sort of $19 million. And obviously we've given guidance, line-item guidance for the next quarter. But we understand the importance of dividends, but I think we're going to follow the same policies that the Company has followed for many years as far as the protocol with the dividends in the February meeting."

 

He's sort of non-committal and kind of talking around the issue, but it sort of seems that he's sort of telling us they'll think about the dividend in February and it sort of depends but they could kind of fund it for a while via the balance sheet. Sort of. Maybe. Obviously.

 

[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.

 

I think this counts as calling it.

 

A quick count shows about 25 of 87 vessels are now either on no charter or are up for renewal in the next 2 years.  That's way up from my account of 8/71 from 3 years ago.  Based on the $208mm impairment charge for 10 vessels, you could see an additional $300mm+ write-down for the remaining 15.  Keep in mind, this is for a company with a 1bn market cap.

 

I'll reiterate - I think the business model is broken.  What we're seeing here is a few people getting rich because massive leverage is being used.  When you're dealing with billions, what does it matter that the CEO is taking home 50 million?

 

[obtuse_investor]

I think the key question is that with the current market price of 10.55, is the risk premium high enough?

 

As long SSW can sail through the current storm in one piece, the current risk premium may by justified. I am not calling the bottom (I have no clue where that is), but current premium sounds more in the right vicinity.

 

I'd love to know JEast's (thread's OP) opinion on the matter.

[Uccmal]

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.

 

I think this counts as calling it.

 

A quick count shows about 25 of 87 vessels are now either on no charter or are up for renewal in the next 2 years.  That's way up from my account of 8/71 from 3 years ago.  Based on the $208mm impairment charge for 10 vessels, you could see an additional $300mm+ write-down for the remaining 15.  Keep in mind, this is for a company with a 1bn market cap.

 

I'll reiterate - I think the business model is broken.  What we're seeing here is a few people getting rich because massive leverage is being used.  When you're dealing with billions, what does it matter that the CEO is taking home 50 million?

 

You were definitely on the right track.... and still are.  One thing that has always bothered me is the pref. share issues.  The interest rates in todays environment are nuts.  Without digging much deeper this seems to be the way that the Washington family and associates are paying themselves. 

 

The business model is flawed because it is a pyramid scheme.  They need to constantly grow bigger to cover the ever growing write downs.  So, now they have reached a limit to growth. 

 

Personally, I have made some money since 2008 on this stock but it is not really what I intended to be the outcome.  The money I have made has been on the dividends and the currency arbitrage - buying the stock when the CDN. dollar was high and selling it when the dollar is low. 

 

I think the key question is that with the current market price of 10.55, is the risk premium high enough?

 

As long SSW can sail through the current storm in one piece, the current risk premium may by justified. I am not calling the bottom (I have no clue where that is), but current premium sounds more in the right vicinity.

 

I'd love to know JEast's (thread's OP) opinion on the matter.

 

Again I cant answer that.  I find the balance sheet and the income statements hard to follow.  The sale/leasebacks, ship writedowns, and constant capital raises make tracking what is actually going on difficult.  If there is anything I have relearned here is that a balance sheet with all this confusion is probably not healthy.  SSW has always used all sorts of 'other' measures, that are not gaap.  This may be appropriate for an oil company, or a reit, where there are legitimate tax reasons to report other than gaap. 

 

I dont think anything is a fraud.  I just think it is really just a crappy business caught in a crappy commodity cycle. 

 

 

[DooDiligence]

Doesn't really add anything but I towed the Boa Barge 10 back & forth multiple times from here to Lake Maracaibo in the early/mid 90's (fun times...)

 

Probably ought to clarify that Seaspan owned a fleet of semi submersible barges back then & the Boa Barge 10 was one of them (don't know if they still do...)

[Uccmal]

Finally, and I will wash my hands of this mistake, hoping I learned something.  Munger might look at this company and comment on their metrics: distributable cash; ebit; etc, as problems with the actual business model.  They have seldom been EPS profitable. 

 

The capital raises this year indicate that SSW is burning cash to stand still.  Whether this rights itself in the alleged capacity rebalance is anyones guess.  I am keeping a small amount if shares as a place holder. 

[xtreeq]

Finally, and I will wash my hands of this mistake, hoping I learned something.  Munger might look at this company and comment on their metrics: distributable cash; ebit; etc, as problems with the actual business model.  They have seldom been EPS profitable. 

 

The capital raises this year indicate that SSW is burning cash to stand still.  Whether this rights itself in the alleged capacity rebalance is anyones guess.  I am keeping a small amount if shares as a place holder. 

 

Had the exact same feeling earlier this year when I dumped my shares

[VAL9000]

I think the key question is that with the current market price of 10.55, is the risk premium high enough?

 

I think it's pretty easy to figure out - it's a discounted cashflow model that takes into account +contract profit, +vessel value at close of contracts, -debt, -preferreds, -overhead costs.

 

The major unknown is - what's the value of the vessel at the close of contracts?  This is overwhelmingly the variable that will impact your risk premium.  I'm not going to do any of the above the math, because I'm pretty sure that the $6-8bn in vessels are going to be written-down substantially.  I'd guess that they write down enough to wipe out the common (go private), then sell what they have to pay back the preferreds.

 

Here is my view on why the vessels are going to tank in value:

- Consolidation of SSW's customers is underway (see Alliances, see Japanese shipper merger).  This is bad for price negotiation on contracts / resale of vessels to liners.

- Global warming is opening up more efficient trade routes.  This pushes shipping further into oversupply territory.

- Technology is advancing at a faster rate, providing better alternatives to the existing fleet.  12 year contracts are great, but not so great if you exit the contract with an obsolete asset.

 

If you want to gamble on the outcome, probably the best time to buy shares is shortly after the February dividend announcement, where they're likely to cut the dividend.  Last time they did this, the stock capitulated (capsized?) and you could scoop up shares for $6.5.

[xtreeq]

http://theloadstar.co.uk/seaspan-sells-youngest-ever-container-vessel-for-scrap-as-idle-fleet-nears-1m-teu-mark/

 

Meanwhile, it appears that Seaspan, the biggest containership non-operating owner, has decided that the Panamax charter market is unlikely to improve anytime soon.

According to shipbroker reports, the NYSE-listed container vessel lessor has sold its 2003-built 4,646 teu Seaspan Excellence (previously known as the MOL Excellence) for a sum reported by vesselsvalue.com as $280 LDT [light displacement tonne, the measure used by scrap buyers], equating to a total demolition value of $5.96m.

The deal gives a useful snapshot of the container chartering market – Seaspan bought the vessel from MOL in March 2013 for $17.2m, only to be forced to sell it for scrap for $11.25m less than it paid for it just three and half years later, and at least a decade before the end of its operating lifetime

[ScottHall]

Forget it Jake, it's Chinatown.

[Uccmal]

All out.  This is going to get worse before it gets better, for all the reasons listed above by myself and other posters. 

 

The balance sheet, as I comprehend it, is too fragile to sustain the present value of the common stock in the event of a recession.  I dont think they go bankrupt, but the common stock could well break a dollar, making it a private company held by the pref. shareholders.  The window to access capital is likely closed for them now. 

 

As a betting man I say the dividend gets cut by alot, if not 100%. 

 

 

[finetrader]

comparing Seaspan business model to a REIT was probably an aggressive way of evaluating this company.

 

I did not invest in Seaspan (well I've traded it a few years ago)  but I've been following the story.

[Guest Schwab711]

Does anyone have any docs or know a rule-of-thumb for estimating lightweight displacement tonnage from DWT? All I can find on SSW's website is DWT and the only DWT-LDT matrix I can find (vesselvalues.com) is behind a paywall.