ATCO - Atlas Corp

[gfp]

https://www.wsj.com/articles/billionaire-raises-his-bet-on-containerships-1521009921

 

http://www.seaspancorp.com/press-release-post/press-release-122843/

 

(scroll down in second link to see announcement of a second $250m investment by Fairfax to be funded next January on similar/same terms as first debenture/warrant deal)

[petec]

https://www.wsj.com/articles/billionaire-raises-his-bet-on-containerships-1521009921

 

http://www.seaspancorp.com/press-release-post/press-release-122843/

 

(scroll down in second link to see announcement of a second $250m investment by Fairfax to be funded next January on similar/same terms as first debenture/warrant deal)

 

Nice. For both!

[zippy1]

https://www.streetinsider.com/Corporate+News/Seaspan+%28SSW%29+Announces+Departure+of+CFO+David+Spivak/14036717.html

Seaspan Corporation (NYSE: SSW) announced today that David Spivak, Chief Financial Officer of Seaspan, has given notice that he is exercising his right to terminate his employment with Seaspan effective June 29, 2018 to pursue other opportunities. Mr. Spivak will continue in his current role until May 5, 2018, after which Mr. Ryan Courson will be appointed Chief Financial Officer and Mr. Spivak will continue with Seaspan as Special Advisor to the President and Chief Executive Officer through the end of June.

 

Mr. Courson joined Seaspan in March 2018 as Senior Vice President of Corporate Development. He played a significant role in Seaspan's recent acquisition of GCI, working closely with Mr. Chen, Mr. Spivak and other senior executives at Seaspan on all aspects of the transaction. Prior to joining Seaspan, Mr. Courson spent three years at Falcon Edge Capital, a diversified investment firm with over $3 billion in assets under management, where he focused on researching and investing in capital-intensive industrial companies in North America and Asia. Before that, Mr. Courson worked at Teton Capital, a private family office, as an investment professional and as acting CFO of Teton's largest investment, Davos Brands. While serving as acting CFO of Davos, Mr. Courson managed all aspects of financial planning and analysis, and worked closely with the company's executive team and Board of Directors to help guide strategy, organizational structure, strategic partnerships and other matters. Mr. Courson began his career working at Berkshire Hathaway, where he performed financial analysis and helped structure joint ventures with certain Berkshire portfolio companies and Asian counterparties. Mr. Courson, who is fluent in Mandarin, graduated Summa Cum Laude from Washington University in St. Louis, where he currently serves as a visiting professor.

[lessthaniv]

Love hearing Sokol talk. He has huge presence.

[walkie518]

any one have any insights as to what other areas Sokal may be researching when he mentions that there are some interesting opportunities in related businesses to Seaspan? 

 

would some of the next set of investments would aim to diversify the core business with some counter-cyclical exposure? 

[Saluki]

IIRC he mentioned things like ports, warehouses and logistics management for their customers.  I wish the video of the speech was posted online because I didn't take notes :(

[walkie518]

SEASPAN REPORTS FINANCIAL RESULTS FOR THE THREE AND SIX

MONTHS ENDED JUNE 30, 2018

Seaspan Achieves Strong Operating Results with the Successful Integration of GCI,

Growth of Operating Fleet, and

Increases Equity Capital through Fairfax’s Continued Investment and Support

Seaspan_Corporation_Seaspan_Reports_Financial_Results_for_the_Th.pdf

[petec]

Can someone with a brain help me out please. I'm confused about how many shares there are.

 

YE17 20F summary table shows 131m but notes show 117m diluted. That in itself is confusing.

 

Q1 release shows 134mdiluted  and clearly states the 1st tranche of 38.5m FFH warrants are antidilutive and not included.

 

Q2 shows 146m diluted and on the call they said that the first tranche of FFH warrants was included in that number since it is now dilutive.

 

How do you go from 134m to 146m by adding 38.5m?

[walkie518]

filed yesterday:

https://www.sec.gov/Archives/edgar/data/1332639/000119312518277358/d616840dex33.htm

 

6,000,000 new pref shares @ 8% ... guess it's better than 10%

 

There must be an immediate need for the capital now?  Alternatively, does this tie into the new revolving facility, ie need for cash on hand?

[petec]

filed yesterday:

https://www.sec.gov/Archives/edgar/data/1332639/000119312518277358/d616840dex33.htm

 

6,000,000 new pref shares @ 8% ... guess it's better than 10%

 

There must be an immediate need for the capital now?  Alternatively, does this tie into the new revolving facility, ie need for cash on hand?

 

Also announced repayment of loans on several vessels - may have something to do with that.

[walkie518]

filed yesterday:

https://www.sec.gov/Archives/edgar/data/1332639/000119312518277358/d616840dex33.htm

 

6,000,000 new pref shares @ 8% ... guess it's better than 10%

 

There must be an immediate need for the capital now?  Alternatively, does this tie into the new revolving facility, ie need for cash on hand?

 

Also announced repayment of loans on several vessels - may have something to do with that.

guess the prefs are easier to manage than the revolvers and gets the company away from using "debt" ... not sure if it's cheaper, though?

 

[petec]

No, nor me.

 

Amused at the reaction today on DB downgrade. The wall of cash is still coming, and a downturn would create great opportunities for Sokol.

[Guest Schwab711]

Long-run, I bet SSW is right that there will be further consolidation, which they will probably benefit from. In the short-run, it does seem like margins are going to be impacted by IMO 2020 (assuming the industry does comply with regulations). Especially since SSW seems to have missed the boat on scrubber installs and will be forced to purchase lower-emission fuel or take the fines.

[petec]

Long-run, I bet SSW is right that there will be further consolidation, which they will probably benefit from. In the short-run, it does seem like margins are going to be impacted by IMO 2020 (assuming the industry does comply with regulations). Especially since SSW seems to have missed the boat on scrubber installs and will be forced to purchase lower-emission fuel or take the fines.

 

Yes. This is something I’ve been meaning to do more work on. Do you have a feel for how significant these costs are going to be? I haven’t found managements’ comments on recent calls very helpful.

[Guest Schwab711]

Long-run, I bet SSW is right that there will be further consolidation, which they will probably benefit from. In the short-run, it does seem like margins are going to be impacted by IMO 2020 (assuming the industry does comply with regulations). Especially since SSW seems to have missed the boat on scrubber installs and will be forced to purchase lower-emission fuel or take the fines.

 

Yes. This is something I’ve been meaning to do more work on. Do you have a feel for how significant these costs are going to be? I haven’t found managements’ comments on recent calls very helpful.

 

Not really yet. It seems like it will be a bigger deal than many first thought. I've been trying to figure it out across all vessels. I posted hoping someone would correct me. I think SSW planned to not comply and then most of their competitors made plans to comply so they are a bit gun-shy right now (and probably why they issued preferreds instead of debt).

 

Best I can tell, SSW will have to use low-sulfur bunker fuel for at least the first year or two on the large majority of their vessels (currently going for ~30% more than regular fuel).

[petec]

Thanks. That’s useful.

 

[bizaro86]

I thought this piece on scrubbers was pretty helpful.

 

https://seekingalpha.com/article/4207153-2020-sulfur-cap-scrubbers-gain-favor

[petec]

I thought this piece on scrubbers was pretty helpful.

 

https://seekingalpha.com/article/4207153-2020-sulfur-cap-scrubbers-gain-favor

 

Thanks-I find that quite compelling on the anti-scrubber side!

[John Hjorth]

Perhaps a hint [i'm not sure, because I haven't searched or looked for it]. DFDS A/S [DFDS.CPH] ran a program for scrubber mods/retrofits for a part of their wessels a few years back. Perhaps you might find some comments about the economy in doing so in the DFDS financials a few years back - I would look at 2012 - 2016.

 

- - - o 0 o - - -

 

Please don't scrub my butt, if you find nothing!

[petec]

This looks cheap to me.

 

7.5x ev/ebitda looks roughly right but the balance between equity and debt isn't. After an epic capex binge they are moving to almost zero growth capex and the fleet is young so maintenance capex is low. As a result it's moving towards free cash flow of $400-500m (depreciation alone will be nearly $300m). Depending on the share count you use (213-238 depending on how many warrants FFH exercise) that gives a free cash yield of 25-33% on the current share price. That value should accrue to equity as the company delevers, plus more as the cost of debt falls.

 

The cash flows are largely contracted for the next few years and then they are subject to contract rollovers. Some look to be above market, some below, but the market is tightening with a steady demand growth, deliveries dropping from 1.4m TEU in 2018 to 0.5m in each of 2020 and 2021 (per the 2q call), and a low order book. Clearly a collapse in global trade would be bad but I regard that as unlikely and it's worth noting that China-US is only 7% of global container traffic.

 

These cash flows go into the hands of a very able (and very incentivised - he's been given a ton of shares) hard asset capital allocator: David Sokol. If he can do anything smart with the money then the return to equity should be greater than the FCF yield. He has already made one $200m acquisition, Swiber, an oil services EPIC firm and vessel owner with a stake in an LNG-to-power plant. We will learn more about that on the next call.

 

The blot is the scrubber issue discussed above. The IMO confirmed a couple of days ago that stricter NOX emissions will be required from 2020. This impacts container economics via more capex (to fit scrubbers) or higher fuel costs and fines (if you don't fit scrubbers). I assume Seaspan will go down the capex route, reducing FCF temporarily, but I would also imagine that that investment will get reflected in contract rates as contracts roll. What I am not sure about is who bears the cost of low-sulphur fuel and fines from 2020 until the fleet is fully refitted. Fuel is generally passthrough, but I don't know if that applies in this situation. Can anyone help on this?

 

Any other thoughts?

 

[DooDiligence]

Wow, I'm embarrassed to say that as a former mariner, I was not aware of the upcoming IMO scrubber compliance regs.

 

When you fire up a big set of C280-16 Cats they put out a ton of visible soot (less cylinders, no less soot emission.)

Visible soot disappears after they're warmed up, if the injectors are all good.

 

Others engines, like EMD's, continue to put out visible soot even after they're warmed up.

 

How much does it cost to install these things & who makes them?

 

Chief engineers already have to show records of matching S/N's for injectors in an actual installation or ABS will issue a non-conformity which could end up in the vessel losing its IOPP certificate (a SOLAS boat usually has 2 huge binders full of certificates.)

 

I've sent a message to the last Chief I worked with to ask about additional maintenance & to see if the company has started installing scrubbers (he's working on an ice class vessel in Antartica now.)

 

Companies which quickly got onboard with SOLAS requirements gained a foothold in the industry over lesser operators & this scrubber compliance issue will probably result in the same competitive advantage.

[gary17]

Is this the Seaspan on this forum

https://www.seaspancorp.com/ir-dashboard/corporate-governance/directors-officers/

 

and is that the same company as this Seaspan based in vancouver?

 

https://www.seaspan.com/history

 

Thanks

[petec]

Is this the Seaspan on this forum

https://www.seaspancorp.com/ir-dashboard/corporate-governance/directors-officers/

 

and is that the same company as this Seaspan based in vancouver?

 

https://www.seaspan.com/history

 

Thanks

 

Yes, the first link (Seaspan Corp) is the company discussed on this thread. No, the second link (Seaspan.com) is not the same company, but it is 100% owned by the Washington family who are a major shareholder in Seaspan Corp, so there’s a link.

 

Incidentally Seaspan Corp announced results last night. They look to be well ahead of consensus, and FCF came in at $120m, implying a huge yield.

[walkie518]

Is this the Seaspan on this forum

https://www.seaspancorp.com/ir-dashboard/corporate-governance/directors-officers/

 

and is that the same company as this Seaspan based in vancouver?

 

https://www.seaspan.com/history

 

Thanks

 

Yes, the first link (Seaspan Corp) is the company discussed on this thread. No, the second link (Seaspan.com) is not the same company, but it is 100% owned by the Washington family who are a major shareholder in Seaspan Corp, so there’s a link.

 

Incidentally Seaspan Corp announced results last night. They look to be well ahead of consensus, and FCF came in at $120m, implying a huge yield.

numbers look good

 

overhang still there, but under Watsa's price seems to be a good deal when available, glad to see the stock picking up

 

some clarity on the pref share issuance was helpful, effectively swapping the 10% for 8% saves some money without changing cap structure...though I was under the impression they wanted to move to reduce debt than retain debt, but the working capital deficit matter needs to be addressed first most likely

 

we won't see better credit ratings until May/June 2019?

 

[petec]

A boardmember pm'd me to ask whether there is a good reason this is so cheap. Here are a few thoughts:

 

1) It's not that cheap on EV/EBITDA, and arguably not even on earnings, given the quality of the industry (poor). If you screen on those metrics it might not stand out. It's only truly cheap on p/FCF, and...

 

2)...I don't think the market has really realised how powerful FCF generation is going to be. Even on today's call one analyst admitted surprise that quarterly free cash annualised out at $500m, said that was too aggressive as a forecast, and asked if they plan to generate FCF in the future and if so whether $200m might be a reasonable figure. This suggests a total misunderstanding of what's happening. Q3 was the first quarter with the full contribution from the GCI acquisitions and the last of the newbuilds (delivered in May). Therefore the next several quarters should look very similar: full cash flow contribution from all vessels and no capex, because they aren't ordering newbuilds any more (note that operating cash flow is after the drydock costs to maintain the existing fleet). So annualised FCF is quite likely to get close to $500m, but it doesn't seem like the market has realised it yet. That's forgivable because...

 

3)...the Seaspan story is complicated. It's been a jam tomorrow story for years, it got overlevered, there's been wholesale management change, and then there's been the FFH warrant dilution to wrap your head around. It's understandable that plenty of people got bored/annoyed and looked away just as the free cash flow tap got turned on.

 

4) Although there's a lot of contracted revenue, contracts do roll over, and people have been panicking that the US/China trade war and possible general economic slowdown would hurt recontracting rates. The call is worth listening to on this but the basic points are that demand is growing, supply is slowing, both the idle fleet and the order book are at multidecade lows, consolidation of container companies has driven better supply discipline, and charter rates are trending gently up. Seaspan signed new contracts and contract extensions on good terms in the quarter and higher charter rates have driven about $20m in incremental revenue YTD, which is significant when you consider only 10% of their revenues are uncontracted.

 

I think this share will do very well over time as people realise the massive change from borrowing to build, to generating FCF and delevering. In addition I expect some smart capital allocation moves. There is one caveat, which is that the FCF is after drydock costs to maintain the existing fleet, but ships do have finite lives (30 years) so the fleet does actually have to be replaced over time. But the fleet is young today so this is not something I'm worried about. If it worries you, value the stock on earnings not FCF. Notably they have said they won't order newbuilds just to extend the life of the fleet, but only if the returns warrant it. They'd rather run the existing fleet off than reinvest the cash flows at subpar rates, which is smart.

 

Incremental positives on the call, for me, were:

- the addition of 2 new customers on "innovative" contracts and the extension of several existing contracts on good terms. Details will apparently be in a 6K later this week.

- Swiber will be debt free when they buy 80% of it for $20m. Apparently the term sheet is public but I can't find it.

- Scrubbers will either be paid for by customers - either customers will fund the capex or Seaspan will earn a return on the capex. I suspected this but wasn't sure.

 

I expect to see quite a lot of debt management activity as they delever, which should result in better maturity laddering and lower debt cost which has the potential to meaningfully juice earnings and FCF. I also expect to see either accretive acquisitions or buybacks once the maturities have been sorted out.