SSWA Seaspan Corporation

Achieves record annual Revenue, Operating Earnings and Cash Flow from Operations,
Closes the Second Fairfax Investment of $500 million, and
Takes steps to increase the number of unencumbered vessels to 32

HONG KONG, March 5, 2019 /PRNewswire/ - Seaspan Corporation ("Seaspan") (NYSE: SSW) announced today its financial results for the quarter and year ended December 31, 2018.

Highlights for the Fourth Quarter & Full Year 2018 & Year-to-Date 2019:

• Earnings per diluted share of $0.25 for the fourth quarter and $1.31 for the full year
• Record quarterly and annual operating earnings of $134.4 million for the fourth quarter and $469.9 million for the full year
• Record quarterly and annual cash flows from operations of $149.3 million for the fourth quarter and $483.9 million for the full year
• Achieved vessel utilization of 97.3% for the fourth quarter and 97.8% for the full year
• Executed plan to increase the pool of unencumbered assets from 18 to 32 vessels (eight of which are in the process of being unencumbered) through prepayment of two credit facilities, including one credit facility prepaid subsequent to quarter end
• Agreed to install scrubbers on ten large vessels with two leading charterers; Seaspan will be compensated i) as costs are incurred on five vessels and ii) through an increase in charter rates on the other five vessels

Comments from Management

Bing Chen, President and Chief Executive Officer of Seaspan, commented, "2018 has been a year of transformation for Seaspan. We started out the year with our largest acquisition to date – GCI – which was seamlessly integrated into Seaspan, and helped us grow 2018 revenue by 32% over the prior year. With continued commitment from our founding shareholders, the Washington Family, we have added Fairfax Financial Holdings as a strategic financial partner. As of January 2019, Fairfax has invested $1 billion into Seaspan, and in the process became our largest shareholder. Throughout 2018, we worked relentlessly to strengthen our trademark operational excellence; in fact, this year marked our safest year on record, as measured by lost time injury frequency. Finally, we established a new leadership team during the year which, in partnership with the board of directors, has done an outstanding job of guiding the organization to achieve our targets. This remarkable year would not have been possible without each of our 4,600+ employees, and the partnership of our customers. Together, we have set the stage for a prosperous future for Seaspan."

Ryan Courson, Chief Financial Officer, added, "Throughout 2018 and into 2019, we have made significant progress in strengthening our balance sheet. Since the beginning of 2018, we have raised approximately $1.5 billion of capital, and in the process have substantially increased our equity capital base and improved our flexibility via our growing unencumbered fleet and committed corporate revolving credit facility. We will continue to augment our financial strength, while focusing on thoughtful capital allocation to position the business for long-term value creation."

Significant Developments in the Fourth Quarter

Debt Repayment

In November 2018, Seaspan made a repayment of $36.5 million for the remaining principal balance of one of its secured credit facilities; as a result, six vessels were unencumbered subsequent to year-end.

Senior Unsecured Notes

In December 2018, Seaspan repurchased approximately $17.5 million aggregate principal amount of its 6.375% senior unsecured notes due 2019.

Investment in Swiber Holdings Limited

On October 3, 2018, Seaspan entered into a binding term sheet to invest up to $200.0 million in Swiber Holdings Limited ("Swiber"). Subject to the terms and conditions to be set forth in a definitive transaction agreement, upon closing, Seaspan anticipates acquiring an 80% post-restructured equity interest in Swiber for $20.0 million and, after meeting certain milestones, an additional $180.0 million would be invested in Swiber's LNG-to-power project in Vietnam.

Recent Additions to Senior Management

In October 2018, Seaspan appointed Torsten Holst Pedersen as Executive Vice-President, Ship Management.

Subsequent Events

Registration of Washington Family Class A Common Shares

On January 14, 2019, Seaspan entered into a registration rights agreement (the "Washington Registration Rights Agreement") with various affiliates of the Washington family (the "Washington Shareholders"). Pursuant to the Washington Registration Rights Agreement, Seaspan agreed to file a registration statement covering the resale of the Washington Shareholders' Class A Common Shares, and a registration statement on Form F-3 was filed with the U.S. Securities and Exchange Commission (the "SEC") on January 18, 2019. For additional information regarding the Washington Registration Rights Agreement, please read our Report on Form 6-K furnished to the SEC on January 15, 2019.

"The share registration noted was simply an administrative task.  The Washington family is not selling any of its shares, and it remains one of the largest shareholders of Seaspan Corporation.  I will continue to serve on Seaspan's Board of Directors and remain committed to the long-term strategy of the Company," said Larry Simkins, a member of the Board of Directors of Seaspan and President of The Washington Companies.

Closing of Second Fairfax Investment of $500 million

On January 15, 2019, Seaspan closed its previously announced transaction (the "Second Fairfax Investment") with Fairfax Financial Holdings Limited ("Fairfax"), whereby Seaspan received proceeds of $500 million in exchange for $250 million aggregate principal amount of 5.50% Senior Notes due 2026 (the "2026 Notes"), and 38.5 million Class A Common Shares, which were issued in exchange for Fairfax's immediate exercise of warrants (the "2019 Warrants"). The aggregate purchase price of the 2026 Notes and the 2019 Warrants was $250 million and the proceeds from exercise of the 2019 Warrants was an additional $250 million.

Summary of Fairfax Investments⁽¹⁾

Debt Repayment

On January 16, 2019, Seaspan made a repayment of $147.0 million for the remaining principal balance on a secured credit facility. As a result of the repayment, eight vessels will be unencumbered, subject to the completion of the associated collateral release documentation. As of March 5, 2019, Seaspan has 32 unencumbered vessels (with collateral in the process of being released with respect to eight of these).

Distribution

The Board of Directors declared a quarterly distribution in the amount of $0.125 per share for its Class A Common Shares, paid on January 30, 2019 to shareholders of record as at the close of business on January 14, 2019. Regular quarterly dividends on the Preferred Shares Series D, Series E, Series G, Series H and Series I were also declared.

Class A Common Shares Outstanding

As of February 28, 2019, there were 215,474,629 Class A Common Shares outstanding.

Results for the Quarter and Year Ended December 31, 2018

Financial Results

The following table summarizes Seaspan's consolidated financial results for the quarter ended and year ended December 31, 2018 and 2017:

Ownership Days, Operating Days and Vessel Utilization

Ownership days are the number of days a vessel is owned and available for charter.  Operating days are the number of days a vessel is available to the charterer for use. 

The primary driver of ownership days are the increases or decreases in the number of vessels owned, while the drivers of operating days are ownership days and the number of days the vessels are off-hire.

Ownership days increased by 1,939 days and 5,257 days for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. These increases were primarily due to the addition of 16 vessels acquired through the acquisition of Greater China Intermodal Investments LLC ("GCI"), which contributed 1,472 days and 4,688 days, respectively.  The remainder of the increase was due to 2018 vessel deliveries and acquisitions and partially offset by vessel disposals.

Vessel utilization represents the number of operating days as a percentage of ownership days. 

The following table summarizes Seaspan's vessel utilization by quarter and for the year ended December 31, 2018 and 2017:

Vessel utilization increased for the quarter and year ended December 31, 2018, compared to the same periods in 2017. The increases in utilization were primarily due to a large decrease in the number of unscheduled off-hire days in combination with the higher utilization of vessels acquired from GCI. During the year ended December 31, 2018, Seaspan completed dry-dockings for seven 2500 TEU vessels, one 3500 TEU vessel and one 4250 TEU vessel, one of which occurred while the vessel was off-charter.

Revenue 

Revenue increased by 37.6% to $294.9 million and by 31.9% to $1,096.3 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. The increases in revenue were primarily due to the additional operating days from the acquisition of vessels from the GCI transaction, 2018 vessel deliveries and higher average charter rates for vessels that were on short-term charters.

The increase in operating days and the related financial impact thereof for the quarter and year ended December 31, 2018, relative to the same periods in 2017, is attributable to the following:

Ship Operating Expense

Ship operating expense increased by 15.6% to $55.6 million and by 19.2% to $219.3 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in ownership days from the acquisition of vessels from the GCI transaction and 2018 vessel deliveries as well as higher bulk purchasing of vessel stores and spare parts. The increase in ship operating expense for the year ended December 31, 2018 was also due to the increase in planned maintenance required for certain vessels less than 8500 TEU in size.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 28.5% to $64.7 million and by 22.9% to $245.8 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in ownership days from the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.

General and Administrative Expense

General and administrative expense decreased by 36.2%, to $7.1 million and by 21.3% to $31.6 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. For the quarter ended December 31, 2018, the decrease was primarily due to share-based compensation expense relating to the accelerated vesting of restricted shares and cancellation of performance share units in 2017. For the year ended December 31, 2018, the decrease was primarily due to share-based compensation expense to the chairman of the board and the former chief executive officer, partially offset by a transition payment to the former chief financial officer in 2018.

Operating Lease Expense

Operating lease expense increased by 8.6% to $33.2 million and by 12.3% to $129.7 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in LIBOR.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan's borrowings:

Interest expense and amortization of deferred financing fees increased by $26.3 million to $57.6 million and by $95.7 million to $212.1 million for the quarter and year ended December 31, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to the debt assumed as part of the acquisition of GCI, an increase in operating debt for delivered vessels, the issuance of the February 2018 debentures to Fairfax and an increase in LIBOR.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a loss of $14.3 million for the quarter ended and a gain of $15.5 million year ended December 31, 2018, respectively. The loss for the quarter ended December 31, 2018 was primarily due to a decrease in the forward LIBOR curve as it relates to the interest rate swaps during the period. The gain for the year ended December 31, 2018 was primarily due to an increase in the forward LIBOR curve as it relates to interest rate swaps during the period. Included in the change in fair value is the unrealized change in fair value of $5.4 million loss and $57.4 million gain for the quarter and year ended December 31, 2018, respectively, compared to a gain of $19.4 million and $44.1 million for the comparative periods in the prior year.

Liquidity and Unencumbered Vessels⁽¹⁾

As of December 31, 2018, Seaspan had total liquidity of $507.3 million, consisting of $357.3 million of cash and cash equivalents and $150.0 million available under our committed two year revolving credit facility.  Additionally, as of March 5, 2019, Seaspan's unencumbered asset pool included 32 vessels (eight of which are in the process of being unencumbered).  

Working Capital

At December 31, 2018, Seaspan had a working capital deficiency of $475.6 million, which includes $320.4 million of senior unsecured notes maturing in April 2019.  This deficiency is addressed by the closing of the Second Fairfax Investment on January 15, 2019 in which Seaspan received gross proceeds of $500.0 million.

About Seaspan

Seaspan is the leading independent charter owner of containerships with industry leading ship management services. Seaspan charters its vessels primarily pursuant to long-term, fixed-rate, time charters from the world's largest container shipping liners. Seaspan's operating fleet consists of 112 containerships with a total capacity of more than 900,000 TEU, an average age of approximately six years and an average remaining lease period of approximately four years, on a TEU weighted basis.

Seaspan has the following securities listed on The New York Stock Exchange:

Conference Call and Webcast

Seaspan will host a conference call and webcast presentation for investors, analysts, and interested parties to discuss its fourth quarter and full year results on March 6, 2019 at 8:30 a.m. ET. Participants should call 1-877-246-9875 (US/Canada) or 1-707-287-9353 (International) and request the Seaspan call. The live webcast and slide presentation are available under "Events & Presentations" at www.seaspancorp.com.

A recording will be available at 1-855-859-2056 or 1-404-537-3406 (Conference passcode: 4980867).