Danaos Corp unveiled a major loan refinancing with two banks as the container ship owner reported record operating profit even as its investment in Zim hit bottom-line net income.
The New York-listed shipowner said it had reached an agreement in principle with US-based Citi and Greece’s Alpha Bank to refinance a loan facility with nearly $438m outstanding.
The deal will result in a $383m revolving credit facility that sees Citi reduce 20 quarterly payments by almost $11.3m each, also reducing the final maturity by nearly $158m in the fourth quarter of 2027.
And Danaos will have a $55.3m term loan with Alpha Bank with quarterly instalments of just under $1.88m until a balloon payment of $17.8m at the same maturity date.
The deal, which is expected to close in the fourth quarter of this year, extends the debt by 2.5 years and creates a five-year runway with no maturities.
“This means we have no significant capital requirements or refinancings until then, and we have the necessary flexibility to pursue our strategy of growth, share buybacks, and acquisitions,” chief executive John Coustas said.
“In fact, our net debt will be very close to zero by the end of this year, which protects Danaos from the recent dramatic increase in interest rates.”
Better pricing and more debt-free vessels
The refinancing, which Danaos said also brings better pricing, also results in the company holding 45 debt-free vessels out of its 71 container ships, compared to just 15 unencumbered vessels before the refinancing.
Athens-based Danaos unveiled the deal as it reported record operating profits that appeared to beat Wall Street expectations.
The John Coustas-led company logged nearly $177m in adjusted net income in the third quarter, a 61.6% improvement on the $110m earned a year earlier. That led to third-quarter adjusted net earnings of $8.71 per share, well above the $7.26 average estimate by two analysts that track the company.
But the company delivered bottom-line net income of $66.8m, a 69% slump from the same period of 2021 as the company logged a $107m charge from the value of its shares in Israel’s Zim. Danaos sold off all of its remaining Zim shares, which are also listed in New York, in an effort that brought $161m in proceeds.
Danaos reported operating revenue of $260m, a 32.7% jump compared to the third quarter of 2022.
But looking forward, Coustas pointed to the deteriorating market conditions facing liner operators — the company’s customers.
“This quarter marked the retreat of the container market from unsustainable stratospheric highs to more normalised levels, albeit still well above 2019 levels,” he said.
“The liner market has experienced a combination of supply chain normalisation and demand destruction due to various factors. These include, but are not limited to, rampant inflation and declining GDP growth, the uncertainties created by the war in Ukraine and an energy crisis.”
The situation has been compounded by high warehouse inventories and delayed container collection that resulted from supply chain disruption.
| Q3 2022 | Q3 2021 | |
| Operating revenue | $260m | $196m |
| Net income | $66.8m | $217m |
| Adjusted net income | $177m | $110m |
Falling containerised freight markets have slammed vessel demand from opportunistic players, fuelling a correction in the market for vessels below 3,000 teu, Coustas said.
And charter periods have shrunk to as little as six months on smaller ships as charterers wait to see the impact of the upcoming Carbon Intensity Indicator regulation, he said.
Coustas said the company is well insulated, as its commercial efforts led to new fixtures that built its backlog and its financial deals have left it with a stronger balance sheet.
Danaos ended the quarter with more than $556m in cash and equivalents, $399m in net debt and $2.3bn in contracted cash operating revenue.
“With a fortress balance sheet, we are looking at the future with great optimism and evaluating the steps that will keep Danaos at the forefront of the industry,” he said.
“Danaos’ management team is fully aligned with our shareholders, and we will continue working to enhance the long-term value of the company.”
For the first nine months of the year, Danaos’ net income fell to $406m from $887m, but adjusted net income jumped to $569m from $236m.
