SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| ATLAS CORP. |
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Date: May 19, 2022 | By: | | /s/ Graham Talbot |
| | | Graham Talbot |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
INDEX
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PART I | | |
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Item 1. | Financial Statements | |
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Item 2. | | |
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Item 3. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
Unless we otherwise specify, when used in this Report, the terms “Seaspan”, the “Company”, “we”, “our” and “us” refer to Seaspan Corporation and its subsidiaries.
ITEM 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEASPAN CORPORATION
Interim Consolidated Balance Sheets
(Unaudited)
(Expressed in millions of United States dollars)
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 151.0 | | | $ | 169.0 | |
Accounts receivable | | 32.8 | | | 28.8 | |
Due from related party (note 3) | | 42.1 | | | 38.3 | |
Prepaid expenses and other | | 43.8 | | | 36.6 | |
Net investment in lease (note 4) | | 17.1 | | | 16.8 | |
Assets held for sale (note 5) | | 48.2 | | | — | |
| | 335.0 | | | 289.5 | |
| | | | |
Vessels (note 5) | | 7,654.4 | | | 7,676.1 | |
Right-of-use asset (note 6) | | 724.1 | | | 720.4 | |
Net investment in lease (note 4) | | 736.8 | | | 741.5 | |
Goodwill | | 75.3 | | | 75.3 | |
Derivative instruments (note 16(c)) | | 86.4 | | | 49.0 | |
Other assets (note 7) | | 262.1 | | | 270.6 | |
| | $ | 9,874.1 | | | $ | 9,822.4 | |
Liabilities and shareholder's equity | | | | |
Current liabilities: | | | | |
Accounts payable and accrued liabilities | | $ | 130.4 | | | $ | 136.7 | |
Deferred revenue | | 28.2 | | | 44.7 | |
Long-term debt - current (note 8) | | 543.4 | | | 542.1 | |
Operating lease liabilities - current (note 9) | | 144.1 | | | 153.8 | |
Finance lease liabilities - current (note 10) | | 59.3 | | | — | |
Other financing arrangements - current (note 11) | | 100.8 | | | 100.5 | |
Other liabilities - current | | 23.6 | | | 7.6 | |
| | 1,029.8 | | | 985.4 | |
| | | | |
Long-term debt (note 8) | | 3,441.8 | | | 3,480.9 | |
Operating lease liabilities (note 9) | | 512.2 | | | 558.6 | |
Other financing arrangements (note 11) | | 1,212.2 | | | 1,239.3 | |
Derivative instruments (note 16(c)) | | 60.3 | | | 66.5 | |
Other liabilities | | 9.0 | | | 10.4 | |
Total liabilities | | 6,265.3 | | | 6,341.1 | |
| | | | |
Shareholder's equity: | | | | |
Share capital | | 2.5 | | | 2.5 | |
Additional paid in capital | | 3,568.5 | | | 3,565.1 | |
Retained earnings (deficit) | | 56.7 | | | (67.2) | |
Accumulated other comprehensive loss | | (18.9) | | | (19.1) | |
| | 3,608.8 | | | 3,481.3 | |
| | $ | 9,874.1 | | | $ | 9,822.4 | |
Commitments and contingencies (note 14)
Subsequent events (note 17)
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Interim Consolidated Statements of Operations
(Unaudited)
(Expressed in millions of United States dollars)
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
Revenue (note 13) | | $ | 387.2 | | | $ | 333.8 | |
Operating expenses: | | | | |
Ship operating | | 75.0 | | | 68.2 | |
Depreciation and amortization | | 78.4 | | | 75.2 | |
General and administrative | | 12.2 | | | 9.5 | |
Operating leases (note 9) | | 32.9 | | | 35.4 | |
Loss on disposal of vessels | | 2.0 | | | — | |
| | | | |
| | 200.5 | | | 188.3 | |
Operating earnings | | 186.7 | | | 145.5 | |
Other expenses (income): | | | | |
Interest expense | | 40.9 | | | 42.7 | |
Interest income | | (0.1) | | | (0.1) | |
| | | | |
(Gain)/loss on derivative instruments (note 16 (c)) | | (37.4) | | | 5.9 | |
Other expenses | | 6.8 | | | 0.9 | |
| | 10.2 | | | 49.4 | |
Net earnings | | $ | 176.5 | | | $ | 96.1 | |
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Interim Consolidated Statements of Comprehensive Income
(Unaudited)
(Expressed in millions of United States dollars)
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
Net earnings | | $ | 176.5 | | | $ | 96.1 | |
Other comprehensive income: | | | | |
Amounts reclassified to net earnings during the period relating to cash flow hedging instruments (note 16(c)) | | 0.2 | | | 0.3 | |
Comprehensive income | | $ | 176.7 | | | $ | 96.4 | |
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Interim Consolidated Statements of Shareholder’s Equity
(Unaudited)
(Expressed in millions of United States dollars, except number of shares)
Three Months Ended March 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of | | | | Additional | | | | Accumulated other | | Total |
| | common | | Common | | paid-in | | | | comprehensive | | shareholder's |
| | shares | | shares | | capital | | Deficit | | loss | | equity |
Balance, December 31, 2021 | | 249,219,800 | | | $ | 2.5 | | | $ | 3,565.1 | | | $ | (67.2) | | | $ | (19.1) | | | $ | 3,481.3 | |
Impact of accounting policy change (note 2(b)) | | — | | | — | | | — | | | (5.1) | | | — | | | (5.1) | |
Adjusted balance, December 31, 2021 | | 249,219,800 | | | 2.5 | | | 3,565.1 | | | (72.3) | | | (19.1) | | | 3,476.2 | |
Net earnings | | — | | | — | | | — | | | 176.5 | | | — | | | 176.5 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 0.2 | | | 0.2 | |
Dividends on common shares | | — | | | — | | | — | | | (47.5) | | | — | | | (47.5) | |
Share-based compensation expense | | — | | | — | | | 3.4 | | | — | | | — | | | 3.4 | |
Balance, March 31, 2022 | | 249,219,800 | | | $ | 2.5 | | | $ | 3,568.5 | | | $ | 56.7 | | | $ | (18.9) | | | $ | 3,608.8 | |
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Interim Consolidated Statements of Shareholder’s Equity
(Unaudited)
(Expressed in millions of United States dollars, except number of shares)
Three Months Ended March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of | | | | | | | | Additional | | | | Accumulated other | | Total |
| | common | | | | Common | | | | paid-in | | | | comprehensive | | shareholder's |
| | shares | | | | shares | | | | capital | | Deficit | | loss | | equity |
Balance, December 31, 2020, carried forward | | 249,219,800 | | | | | $ | 2.5 | | | | | $ | 3,557.8 | | | $ | (292.7) | | | $ | (20.3) | | | $ | 3,247.3 | |
Net earnings | | — | | | | | — | | | | | — | | | 96.1 | | | — | | | 96.1 | |
Other comprehensive income | | — | | | | — | | | | — | | | — | | | 0.3 | | | 0.3 | |
Dividends on common shares | | — | | | | | — | | | | | — | | | (48.0) | | | — | | | (48.0) | |
Share-based compensation expense | | — | | | | — | | | | 2.4 | | | — | | | — | | | 2.4 | |
Balance, March 31, 2021 | | 249,219,800 | | | | $ | 2.5 | | | | | $ | 3,560.2 | | | $ | (244.6) | | | $ | (20.0) | | | $ | 3,298.1 | |
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Interim Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in millions of United States dollars)
| | | | | | | | | | | | | | |
| | Three Months Ended March 21, |
| | 2022 | | 2021 |
| | | | |
Cash from (used in): | | | | |
Operating activities: | | | | |
Net earnings | | $ | 176.5 | | | $ | 96.1 | |
Items not involving cash: | | | | |
Depreciation and amortization | | 78.4 | | | 75.2 | |
Change in right-of-use asset | | 29.2 | | | 30.3 | |
Non-cash interest expense and accretion | | 4.8 | | | 11.0 | |
Unrealized change in derivative instruments | | (43.5) | | | (0.9) | |
Amortization of acquired revenue contracts | | 4.7 | | | 4.2 | |
| | | | |
Loss on vessel disposal | | 2.0 | | | — | |
Other | | 2.3 | | | 3.1 | |
Changes in assets and liabilities: | | | | |
Accounts receivable | | (8.3) | | | (10.5) | |
Net investment in lease | | 4.3 | | | 3.2 | |
Prepaid expenses and other | | (7.2) | | | (0.6) | |
Deferred dry-dock | | (2.1) | | | (5.6) | |
Other assets | | (2.2) | | | (3.4) | |
Accounts payable and accrued liabilities | | (7.8) | | | (7.7) | |
Deferred revenue | | (16.6) | | | 0.7 | |
Operating lease liabilities | | (26.8) | | | (30.0) | |
Finance lease liabilities | | (3.0) | | | — | |
Derivative instruments | | 6.1 | | | 6.8 | |
Cash from operating activities | | 190.8 | | | 171.9 | |
| | | | |
Investing activities: | | | | |
Acquisition of /additions to vessels, including vessels under construction | | (118.4) | | | (185.6) | |
| | | | |
Prepayment on vessel purchase | | — | | | (12.7) | |
Payment on settlement of interest swap agreements | | (5.0) | | | (5.3) | |
Other assets and liabilities | | 2.3 | | | 0.7 | |
Proceeds from vessel sales | | 43.8 | | | — | |
Capitalized interest | | (9.3) | | | (0.8) | |
Cash used in investing activities | | (86.6) | | | (203.7) | |
| | | | |
Financing activities: | | | | |
Repayments of long-term debt and other financing arrangements | | (69.6) | | | (415.5) | |
Issuance of long-term debt and other financing arrangements | | — | | | 530.2 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Financing fees | | (5.1) | | | (2.5) | |
Dividends on common shares | | (47.5) | | | (48.0) | |
| | | | |
| | | | |
Cash (used in) from financing activities | | (122.2) | | | 64.2 | |
(Decrease) increase in cash and cash equivalents | | (18.0) | | | 32.4 | |
Cash and cash equivalents and restricted cash, beginning of period | | 169.0 | | | 243.5 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 151.0 | | | $ | 275.9 | |
Supplemental cash flow information (note 12)
See accompanying notes to consolidated financial statements.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
1.General:
Seaspan Corporation (“Seaspan” or the “Company”) was incorporated on May 3, 2005 in the Marshall Islands and owns and operates containerships pursuant to primarily long-term, fixed-rate time charters to major container liner companies. Seaspan is a wholly owned subsidiary of Atlas Corp. ("Atlas").
2.Significant accounting policies:
(a)Basis of presentation:
Except for the changes described in note 2(b), the accompanying interim financial information of Seaspan Corporation has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), on a basis consistent with those followed in the December 31, 2021 audited annual consolidated financial statements of Atlas. The accompanying interim financial information is unaudited and reflects all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented.
(b) Recent accounting pronouncements:
Discontinuation of LIBOR
In 2021, the Company adopted ASU 2020-04, “Reference Rate Reform (Topic 848)”, prospectively to contract modifications. The guidance provides optional relief for the discontinuation of LIBOR resulting from rate reform. Contract terms that are modified due to the replacement of a reference rate are not required to be remeasured or reassessed under FASB’s relevant U.S. GAAP Topic. The election is available by Topic. The Company has elected to apply the optional relief for contracts under ASC 470, “Debt”, ASC 840 and 842, “Leases”, and ASC 815, “Derivatives and Hedging”. There was no impact to the Company's financial statements upon initial adoption. The LIBOR replacement modifications for Debt contracts will be accounted for by prospectively adjusting the effective interest rate in the agreements. Existing lease and derivative contracts will require no reassessments. Transition activities are focused on the conversion of existing LIBOR based contracts to the Secured Overnight Financing Rate.
Debt with conversion and other options
Effective January 1, 2022, the Company adopted ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2020-06”), using the modified retrospective method, whereby the cumulative effect adjustment was made as of the date of the initial application. Accordingly, financial information and disclosures in the comparative period were not restated. The impact of the adoption of ASU 2020-06 resulted in an adjustment of $5,073,000 to opening retained earnings at January 1, 2022 related to the unamortized debt discount that was initially recorded when the convertible notes were issued. Under ASU 2020-06, the accounting for convertible debt instruments is simplified by reducing the number of accounting models and circumstances when embedded conversion features are separately recognized. This update also revises the method in which diluted earnings per share is calculated related to certain instruments with conversion features, among other clarifications. As a result of the adoption, the Company recognizes the maximum potential dilutive effect of its exchangeable notes in diluted EPS using the if-converted method effective January 1, 2022.
3.Related party transactions:
The income or expenses with related parties relate to amounts paid to or received from individuals or entities that are associated with the Company or with the Company’s directors or officers and these transactions are governed by pre-arranged contracts.
Over the course of 2018, 2019 and 2020, the Company issued to Fairfax Financial Holdings Limited and certain of its affiliates (“Fairfax”) an aggregate $600,000,000 of 5.50% senior notes due in 2025, 2026 and 2027 (the “Fairfax Notes”) and warrants to purchase an aggregate 101,923,078 common shares of the Company. Two tranches of warrants, each for 38,461,539 common shares, were exercisable at a price of $6.50 per share. One tranche of warrants, for 25,000,000 common shares, was exercisable at a price of $8.05 per share. As of April 7, 2022, all such warrants have been exercised.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
3.Related party transactions (continued):
In June 2021, Atlas and the Company exchanged and amended $300,000,000 of the Fairfax Notes for (i) 12,000,000 Series J 7.00% Cumulative Redeemable Perpetual Preferred Shares of Atlas, representing a total liquidation value of $300,000,000, and (ii) warrants to purchase 1,000,000 common shares of Atlas. The exchanged Fairfax Notes were subsequently cancelled and, in August 2021, the Company redeemed for cash the remaining Fairfax Notes at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest.
Transactions with Atlas Corp.
The Company makes dividend payments to Atlas on a quarterly basis to service Atlas’s payment of dividends to holders of its common and preferred shares. During the three months ended March 31, 2022, the Company declared dividends of $47,500,000 (2021 - $48,000,000)
The Company routinely makes payments to cover expenses on behalf of Atlas. As of March 31, 2022, amounts due from Atlas are non-interest bearing, unsecured and have no fixed repayment terms.
The Company provides certain management services to Atlas in exchange for a management fee. For the three months ended March 31, 2022, the management service revenue recognized from this arrangement was $2,585,000 (2021 - $2,239,000).
During the three months ended March 31, 2022, Atlas granted 306,230 restricted stock units to certain members of senior management of Seaspan, under the Atlas Stock Incentive Plan.
As at March 31, 2022, the Company’s 3.75% exchangeable senior unsecured notes due in 2025 (“Exchangeable Notes”), of which there was $201,250,000 aggregate principal amount outstanding (December 31, 2021 – $201,250,000) are exchangeable into common shares of Atlas.
4.Net investment in lease: | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Undiscounted lease receivable | $ | 1,428.6 | | | $ | 1,448.2 | |
Unearned interest income | (674.7) | | | (689.9) | |
Net investment in lease | $ | 753.9 | | | $ | 758.3 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Lease receivables | $ | 753.9 | | | $ | 751.4 | |
Unguaranteed residual value | — | | | 6.9 | |
Net investment in lease | 753.9 | | | 758.3 | |
Current portion of net investment in lease | (17.1) | | | (16.8) | |
Long-term portion of net investment in lease | $ | 736.8 | | | $ | 741.5 | |
At March 31, 2022, the undiscounted minimum cash flows related to lease receivable on direct financing leases are as follows:
| | | | | |
Remainder of 2022 | $ | 59.7 | |
2023 | 79.3 | |
2024 | 79.5 | |
2025 | 79.3 | |
2026 | 79.3 | |
Thereafter | 1,051.5 | |
| $ | 1,428.6 | |
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
5.Vessels:
| | | | | | | | | | | | | | | | | |
March 31, 2022 | Cost | | Accumulated depreciation | | Net book value |
Vessels | $ | 9,295.7 | | | $ | (2,855.0) | | | $ | 6,440.7 | |
Vessels under construction | 1,213.7 | | | — | | | 1,213.7 | |
Total | $ | 10,509.4 | | | $ | (2,855.0) | | | $ | 7,654.4 | |
| | | | | | | | | | | | | | | | | |
December 31, 2021 | Cost | | Accumulated depreciation | | Net book value |
Vessels | $ | 9,410.9 | | | $ | (2,830.4) | | | $ | 6,580.5 | |
Vessels under construction | 1,095.6 | | | — | | | 1,095.6 | |
Total | $ | 10,506.5 | | | $ | (2,830.4) | | | $ | 7,676.1 | |
During the three months ended March 31, 2022, depreciation and amortization expense relating to vessels was $78,162,000 (2021 - $74,945,000).
Vessel sales
In February 2022, the Company completed the sale of one 4,250 TEU vessel to a liner company for gross proceeds of $32,750,000 and recognized a gain on sale of $6,597,000.
Assets held for sale
In December 2021, the Company entered into memoranda of agreement with a liner company for the sale of three 4,250 TEU vessels. As at December 31, 2021, these vessels were classified as held for use. In February 2022, one of these vessels was delivered to the purchaser as described above and the remaining two vessels were reclassified as assets held for sale as at March 31, 2022.
An additional 4,250 TEU vessel was classified as held for sale at March 31, 2022 and a loss on classification as asset held for sale of $8,562,000 was recognized for this vessel (note 17). Vessels under construction:
As at March 31, 2022, the Company has 67 vessels under construction (December 31, 2021 – 67 vessels).
During the three months ended March 31, 2022, vessels under construction includes $9,347,000 of capitalized interest and $103,307,000 of installment payments (March 31, 2021 – $776,000 and $179,220,000, respectively).
6.Right-of-use assets:
| | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | | Cost | | Accumulated amortization | | Net book value |
Vessel operating leases | | $ | 1,012.6 | | | $ | (353.4) | | | $ | 659.2 | |
Other operating leases | | 9.4 | | | (6.1) | | | 3.3 | |
Vessel finance leases | | 62.3 | | | (0.7) | | | 61.6 | |
Right-of-use assets | | $ | 1,084.3 | | | $ | (360.2) | | | $ | 724.1 | |
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
6.Right-of-use assets (continued):
| | | | | | | | | | | | | | | | | |
December 31, 2021 | Cost | | Accumulated amortization | | Net book value |
| | | | | |
Vessel operating leases | $ | 1,066.6 | | | $ | (350.0) | | | $ | 716.6 | |
Other operating leases | 9.4 | | | (5.6) | | | 3.8 | |
Right-of-use assets | $ | 1,076.0 | | | $ | (355.6) | | | $ | 720.4 | |
In January 2022, the Company exercised its option under an existing lease financing arrangement to purchase one 10,000 TEU vessel. The purchase is expected to complete in January 2023 at the predetermined purchase price of $52,690,000.
During the three months ended March 31, 2022, the change in right-of-use assets was $29,186,000 (2021 - $30,300,000).
7.Other assets:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Intangible assets (a) | $ | 61.7 | | | $ | 65.2 | |
Deferred dry-dock (b) | 75.8 | | | 79.4 | |
Deferred financing fees on undrawn financings (c) | 75.3 | | | 77.0 | |
Other | 49.3 | | | 49.0 | |
Other assets | $ | 262.1 | | | $ | 270.6 | |
(a)Intangible assets
| | | | | | | | | | | | | | | | | |
March 31, 2022 | Cost | | Accumulated amortization | | Net book value |
Customer contracts | $ | 129.9 | | | $ | (80.2) | | | $ | 49.7 | |
Other | 17.2 | | | (5.2) | | | 12.0 | |
| $ | 147.1 | | | $ | (85.4) | | | $ | 61.7 | |
| | | | | | | | | | | | | | | | | |
December 31, 2021 | Cost | | Accumulated amortization | | Net book value |
| | | | | |
Customer contracts | $ | 129.9 | | | $ | (76.2) | | | $ | 53.7 | |
Other | 16.5 | | | (5.0) | | | 11.5 | |
| $ | 146.4 | | | $ | (81.2) | | | $ | 65.2 | |
Intangible assets are primarily comprised of the acquisition date fair value of time charter contracts acquired. During the quarter ended March 31, 2022, the Company recorded $4,249,000 (2021 - $4,657,000) of amortization expense related to intangible assets.
Acquired customer contracts are amortized on a straight-line basis over their remaining useful lives. As of March 31, 2022, the weighted average useful lives of acquired customer contracts was 3.6 years (2021 - 4.6 years).
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
7.Other assets (continued):
(a)Intangible assets (continued)
Future amortization expense of intangible assets is as follows:
| | | | | |
Remainder of 2022 | $ | 12.7 | |
2023 | 13.3 | |
2024 | 10.5 | |
2025 | 6.4 | |
2026 | 2.8 | |
Thereafter | 16.0 | |
| $ | 61.7 | |
(b)Deferred dry-dock
During the three months ended March 31, 2022, changes in deferred dry-dock were as follows:
| | | | | | | | |
December 31, 2021 | | $ | 79.4 | |
Costs incurred | | 3.7 | |
Amortization expensed (1) | | (7.3) | |
March 31, 2022 | | $ | 75.8 | |
(1)Amortization of dry-docking costs is included in depreciation and amortization.
(c)Deferred financing fees on undrawn financings:
The Company has entered into financing arrangements for certain of its vessels under construction. As the financing arrangements are undrawn as at March 31, 2022, the amounts incurred have been capitalized and recorded as long-term asset. As the financing is drawn, the amounts will be reclassified and presented as a direct deduction from the related debt liability.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
8.Long-term debt:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Revolving credit facilities (a) (c) | $ | — | | | $ | — | |
Term loan credit facilities (b) (c) | 2,084.1 | | | 2,128.6 | |
Senior unsecured notes | 1,250.0 | | | 1,250.0 | |
| | | |
Senior Unsecured Exchangeable Notes | 201.3 | | | 201.3 | |
Senior Secured Notes | 500.0 | | | 500.0 | |
| 4,035.4 | | | 4,079.9 | |
| | | |
| | | |
Debt discount on Senior Unsecured Exchangeable Notes | — | | | (5.1) | |
Deferred financing fees | (50.2) | | | (51.8) | |
Long-term debt | 3,985.2 | | | 4,023.0 | |
Current portion of long-term debt | (543.4) | | | (542.1) | |
Long-term debt | $ | 3,441.8 | | | $ | 3,480.9 | |
(a)Revolving credit facilities:
In February 2022, the Company closed a new $250,000,000, 3-year unsecured revolving credit facility which replaces a $150,000,000 2-year unsecured revolving credit facility.
As at March 31, 2022 and December 31, 2021, the Company had three revolving credit facilities available, which provided for aggregate borrowings of up to $650,000,000 (December 31, 2021 – $550,000,000), of which $650,000,000 (December 31, 2021 - $550,000,000) was undrawn.
The Company is subject to commitment fees ranging between 0.45% and 0.5% (December 31, 2021 – 0.5% and 0.6%) calculated on the undrawn amounts under the various facilities.
(b)Term loan credit facilities:
As at March 31, 2022, the Company has entered into $3,794,348,000 (December 31, 2021 - $3,838,853,000) of term loan credit facilities available, of which $1,710,224,000 (December 31, 2021 - $1,710,224,000) was undrawn.
Term loan credit facilities mature between December 31, 2022 and January 21, 2030.
For the Company’s term loan credit facilities, except for three, interest is calculated on three month or six month LIBOR plus a margin per annum. The three month and six month average LIBOR was 0.7% and 0.6%, respectively (December 31, 2021 – 0.2% and 0.2%, respectively) and the margins ranged between 0.4% and 2.3% as at March 31, 2022 (December 31, 2021 – 0.4% and 2.3%).
For one of our term loan credit facilities with a total principal outstanding of $24,005,000 (December 31, 2021 - $27,198,000), interest is calculated based on the Export-Import Bank of Korea (KEXIM) rate plus 0.7% per annum.
For two of the term loan credit facilities with a total principal amount outstanding of $9,877,000 (December 31, 2021 – $10,923,000), interest is calculated based on a contractual rate of 3.8% per annum for both.
The Company is subject to commitment fees ranging between 0.2% and 0.6% (December 31, 2021 – 0.2% and 0.6%) calculated on the undrawn amounts under the various facilities.
The weighted average rate of interest, including the applicable margin, was 2.1% at March 31, 2022 (December 31, 2021 – 1.8%) for term loan credit facilities. Interest payments are made in monthly, quarterly or semi-annual payments.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
8.Long-term debt (continued):
(b)Term loan credit facilities (continued):
The following is a schedule of future minimum repayments under our term loans credit facilities as of March 31, 2022:
| | | | | |
Remainder of 2022 | $ | 499.0 | |
2023 | 268.2 | |
2024 | 138.9 | |
2025 | 136.1 | |
2026 | 778.7 | |
Thereafter | 263.2 | |
| $ | 2,084.1 | |
(c)Credit facilities – other:
As of March 31, 2022, the Company’s credit facilities were secured by first-priority mortgages granted on 62 of its vessels, together with other related security. The security for each of the Company’s current secured credit facilities may include:
•A first priority mortgage on the collateral vessels funded by the related credit facility;
•An assignment of the Company’s time charters and earnings related to the related collateral vessels;
•An assignment of the insurance on each of the vessels that are subject to a related mortgage;
•An assignment of the Company’s related shipbuilding contracts and the corresponding refund guarantees;
•A pledge over shares of various subsidiaries; and
•A pledge over the related retention accounts.
As at March 31, 2022, $1,479,550,000 principal amount of indebtedness under one of the Company’s term loan and revolving credit facilities, together with $500,000,000 of sustainability-linked fixed rate notes with maturities from June 2031 to June 2036, was secured by a portfolio of 49 vessels, the composition of which can be changed and is subject to a borrowing base and portfolio concentration requirements, as well as compliance with financial covenants and certain negative covenants.
The Company may prepay certain amounts outstanding without penalty, other than breakage costs in certain circumstances. A prepayment may be required as a result of certain events, including without limitation the sale or loss of a vessel, a termination or expiration of a charter (and the inability to enter into a replacement charter acceptable to lenders within a prescribed period of time). The amount that must be prepaid may be calculated based on the loan to market value. In these circumstances, valuations of the Company’s vessels are conducted on a “without charter” basis as required under the credit facility agreement.
Each credit facility contains a mix of financial covenants requiring the Company to maintain minimum liquidity, tangible net worth, interest and principal coverage ratios and/or debt to assets ratios, as defined.
Certain facilities are guaranteed by an intermediate parent entity, in which case the parent entity must meet certain consolidated financial covenants under those term loan facilities including maintaining certain minimum tangible net worth, cash requirements and debt-to-asset
Some of the facilities also have an interest and principal coverage ratio, debt service coverage and vessel value requirement for the subsidiary borrower. The Company was in compliance with these covenants as at March 31, 2022.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
9.Operating lease liabilities:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Operating lease commitments | $ | 729.6 | | | $ | 785.1 | |
Impact of discounting | (91.8) | | | (103.5) | |
Impact of changes in variable rates | 18.5 | | | 30.8 | |
Operating lease liabilities | 656.3 | | | 712.4 | |
Current portion of operating lease liabilities | (144.1) | | | (153.8) | |
Operating lease liabilities | $ | 512.2 | | | $ | 558.6 | |
Operating lease costs related to vessel sale-leaseback transactions and other leases are summarized as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Lease costs: | | | |
Operating lease costs | $ | 36.6 | | | $ | 40.1 | |
Variable lease adjustments | (2.7) | | | (3.8) | |
| | | |
Other information: | | | |
Operating cash outflow used for operating leases | 33.0 | | | 35.5 | |
Weighted average discount rate(1) | 4.8 | % | | 4.8 | % |
Weighted average remaining lease term | 5 years | | 6 years |
(1)The weighted average discount rate is based on a fixed rate at the time the lease was entered into and is adjusted quarterly as each lease payment is made.
10.Finance lease liabilities: | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | | | |
| | | | |
Finance lease liabilities | | $ | 59.3 | | | $ | — | |
Current portion of finance lease liabilities | | (59.3) | | | — | |
Long-term finance lease liabilities | | $ | — | | | $ | — | |
In January 2022, the Company exercised its option under an existing lease financing arrangement to purchase one 10,000 TEU vessel. The purchase is expected to complete in January 2023 at the pre-determined purchase price of $52,690,000.
As at March 31, 2022, the total remaining commitments related to financial liabilities of this vessel were approximately $60,383,000 (December 31, 2021 – nil), including imputed interest of $1,118,000 (December 31, 2021 – nil), repayable from 2022 through 2023.
The weighted average interest rate on obligations related to finance leases as at March 31, 2022 was 3.2%.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
11.Other financing arrangements:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Other financing arrangements | $ | 1,338.0 | | | $ | 1,363.1 | |
Deferred financing fees | (25.0) | | | (23.3) | |
Other financing arrangements | 1,313.0 | | | 1,339.8 | |
Current portion of other financing arrangements | (100.8) | | | (100.5) | |
Other financing arrangements | $ | 1,212.2 | | | $ | 1,239.3 | |
The weighted average rate of interest, including the margin, was 3.4% at March 31, 2022 (December 31, 2021 – 3.1%).
Based on amounts funded, payments due to the counterparties are as follows:
| | | | | |
Remainder of 2022 | $ | 75.9 | |
2023 | 101.4 | |
2024 | 102.6 | |
2025 | 97.4 | |
2026 | 94.2 | |
Thereafter | 866.5 | |
| $ | 1,338.0 | |
12.Supplemental cash flow information
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | |
Interest paid | $ | 54.2 | | | $ | 29.2 | |
Interest received | 0.1 | | | 0.1 | |
Undrawn credit facility fee paid | 6.3 | | | 0.2 | |
Non-cash investing and financing transactions: | | | |
| | | |
| | | |
| | | |
Commencement of sales-type lease | — | | | 88.1 | |
| | | |
| | | |
Change in right-of-use assets and operating lease liabilities | 28.5 | | | 30.3 | |
| | | |
Interest capitalized on vessels under construction | 9.3 | | | 0.8 | |
The Company did not have any restricted cash in either reporting period presented.
13.Revenue:
For the three months ended March 31, 2022 and 2021 revenue consists of:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
Time charter revenue | $ | 367.4 | | | $ | 320.5 | |
Interest income from leasing | 16.1 | | | 10.0 | |
| | | |
| | | |
| | | |
Other | 3.7 | | | 3.3 | |
| | | |
| $ | 387.2 | | | $ | 333.8 | |
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
13.Revenue (continued):
At March 31, 2022, the minimum future revenues to be received on committed operating leases and interest income to be earned from direct financing leases are as follows:
| | | | | | | | | | | | | | | | | |
| Operating lease (1) | | Finance lease (2) | | Total committed revenue |
Remainder of 2022 | $ | 1,107.6 | | | $ | 47.8 | | | $ | 1,155.4 | |
2023 | 1,456.3 | | | 60.9 | | | 1,517.2 | |
2024 | 1,291.4 | | | 58.2 | | | 1,349.6 | |
2025 | 841.7 | | | 55.2 | | | 896.9 | |
2026 | 469.9 | | | 53.1 | | | 523.0 | |
Thereafter | 345.1 | | | 393.1 | | | 738.2 | |
| $ | 5,512.0 | | | $ | 668.3 | | | $ | 6,180.3 | |
(1)Minimum future operating lease revenue includes payments from signed charter agreements that have not yet commenced and includes $53,965,000 of lease payments from three vessels that are classified as "Assets held for sale".
(2)Minimum future interest income includes direct financing leases currently in effect.
Minimum future revenues assume 100% utilization, extensions only at the Company’s unilateral option and no renewals. It does not include signed charter agreements on undelivered vessels.
14.Commitments and contingencies:
(a)Operating leases:
At March 31, 2022, the commitment under operating leases for vessels is $727,016,000 for the years from 2022 to 2029 and for other operating leases is $2,547,000 for the years from 2022 to 2024. Total commitments under these leases are as follows:
| | | | | |
Remainder of 2022 | $ | 102.8 | |
2023 | 138.0 | |
2024 | 140.9 | |
2025 | 127.4 | |
2026 | 112.7 | |
Thereafter | 107.8 | |
| $ | 729.6 | |
For operating leases indexed to three month LIBOR, commitment under these leases are calculated using the LIBOR in place as at March 31, 2022 for the Company.
(b)Vessel commitment:
As of March 31, 2022, the Company had entered into agreements to acquire 67 vessels (December 31, 2021– 67 vessels).
The Company has outstanding commitments for installment payments as follows:
| | | | | |
Remainder of 2022 | 965.1 | |
2023 | 2,747.4 | |
2024 | 2,457.8 | |
Total | $ | 6,170.3 | |
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
15.Concentrations:
The Company’s revenue is derived from the following customers:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
COSCO | $ | 121.1 | | | $ | 106.8 | |
Yang Ming Marine | 60.4 | | | 63.4 | |
ONE | 58.6 | | | 64.3 | |
Other | 147.1 | | | 99.3 | |
| $ | 387.2 | | | $ | 333.8 | |
16.Financial Instruments
(a)Fair value:
The carrying values of cash and cash equivalents, short-term investments, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values because of their short term to maturity.
As of March 31, 2022, the fair value of the Company’s revolving credit facilities and term loans excluding deferred financing fees was $2,061,734,316 (December 31, 2021 - $2,113,823,949) and the carrying value was $2,084,123,688 (December 31, 2021 - $2,128,628,523). As of March 31, 2022, the fair value of the Company’s other financing arrangements, excluding deferred financing fees, was $1,394,100,000 (December 31, 2021 - $1,419,508,000) and the carrying value was $1,337,977,138 (December 31, 2021 - $1,363,098,000). The fair value of the revolving and term loan credit facilities and other financing arrangements, excluding deferred financing fees, are estimated based on expected principal repayments and interest, discounted by relevant forward rates plus a margin appropriate to the credit risk of the Company. Therefore, the Company has categorized the fair value of these financial instruments as Level 2 in the fair value hierarchy.
As of March 31, 2022, the fair value of the Company’s senior unsecured notes was $1,283,431,000 (December 31, 2021 – $1,291,476,000) and the carrying value was $1,250,000,000 (December 31, 2021 – $1,250,000,000). The fair value of the Company’s Exchangeable Notes was $198,724,000 (December 31, 2021 - $209,566,000) and the carrying value was $201,250,000 (December 31, 2021 - $201,250,000) or $201,250,000 (December 31, 2021 - $196,177,000 net of debt discount). The fair value of the Company’s Senior Secured Notes was $453,873,000 and the carrying value was $500,000,000. The fair value is calculated using the present value of expected principal repayments and interest discounted by relevant forward rates plus a margin appropriate to the credit risk of the Company. As a result, these amounts are categorized as Level 2 in the fair value hierarchy.
The Company’s interest rate derivative financial instruments are re-measured to fair value at the end of each reporting period. The fair values of the interest rate derivative financial instruments have been calculated by discounting the future cash flow of both the fixed rate and variable rate interest rate payments. The discount rate was derived from a yield curve created by nationally recognized financial institutions adjusted for the associated credit risk. The fair values of the interest rate derivative financial instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the fair value of these derivative financial instruments as Level 2 in the fair value hierarchy.
The exchange feature embedded in the Exchangeable Notes and capped calls entered into in connection with the Exchangeable Notes are derivatives measured at fair value at the end of each reporting period. The embedded exchange feature derivative is measured at fair value using a partial differential equation, with a Monte Carlo model for certain features. The capped call derivative is measured at fair value using a binomial tree. These models utilize observable and unobservable market data, including stock price, expected volatility, risk-free interest rate and expected dividend yield, as applicable. The embedded exchange feature and capped call derivatives are classified as Level 3 as the Company uses expected volatility that is unobservable and significant to the valuation. In general, an increase in Atlas’s stock price or stock price volatility will increase the fair value of the embedded exchange feature and capped call derivatives which will result in an increase in loss and gain, respectively. As time to the expiration of the derivatives decreases, the fair value of the derivatives will decrease. The volatilities used as of March 31, 2022, for the embedded exchange feature were 43.05%% and 30.24% for the capped call.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
16.Financial Instruments (continued):
(a)Fair value (continued):
The fair value of the embedded exchange feature and capped calls resulting from a change in volatility are included below.
| | | | | | | | | | | |
| 10% increase in volatility | | 10% decrease in volatility |
Embedded exchange feature | $ | 52.2 | | | $ | 38.4 | |
Capped calls | 50.8 | | | 39.7 | |
Unobservable inputs for recurring and non-recurring Level 3 disclosures are obtained from third parties whenever possible and reviewed by the Company for reasonableness.
(b)Interest rate swap derivatives:
As of March 31, 2022, the Company had the following outstanding interest rate derivatives:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed per annum rate swapped for LIBOR | | Notional amount as of March 31, 2022 | | Maximum notional amount(1) | | Effective date | | Ending date |
0.1925% | | $ | 500.0 | | | $ | 500.0 | | | January 31, 2022 | | January 31, 2032 |
5.4200% | | 269.6 | | | 269.6 | | | September 6, 2007 | | May 31, 2024 |
1.6490% | | 160.0 | | | 160.0 | | | September 27, 2019 | | May 14, 2024 |
0.7270% | | 125.0 | | | 125.0 | | | March 26, 2020 | | March 26, 2025 |
1.6850% | | 110.0 | | | 110.0 | | | November 14, 2019 | | May 15, 2024 |
0.6300% | | 94.0 | | | 94.0 | | | January 21, 2021 | | October 14, 2026 |
0.6600% | | 94.0 | | | 94.0 | | | February 4, 2021 | | October 14, 2026 |
1.4900% | | 25.6 | | | 25.6 | | | February 4, 2020 | | December 30, 2025 |
(1)Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional amount over the remaining term of the swap.
If interest rates remain at their current levels, the Company expects that $8,998,000 would be settled in cash in the next 12 months on instruments maturing after March 31, 2022. The amount of the actual settlement may be different depending on the interest rate in effect at the time settlements are made.
(c)Financial instruments measured at fair value:
The following provides information about the Company’s derivatives:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Derivative assets | | | |
Interest rate swaps | $ | 39.0 | | | $ | 6.1 | |
Capped call derivative asset | 47.4 | | | 42.9 | |
Derivative liabilities | | | |
Interest rate swaps | 14.6 | | | 28.5 | |
Derivative embedded exchange feature | 45.7 | | | 38.0 | |
There are no amounts subject to the master netting arrangements in 2022 or 2021.
SEASPAN CORPORATION
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts in millions of United States dollars)
16.Financial Instruments (continued):
(c)Financial instruments measured at fair value (continued):
The following table provides information about gains and losses included in net earnings and reclassified from accumulated other comprehensive loss (“AOCL”) into earnings:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2022 | | 2021 |
(Gain) loss recognized in net earnings: | | | | |
| | | | |
Gain on interest rate swaps(1) | | $ | (40.7) | | | $ | (9.4) | |
Loss on derivative put instrument | | — | | | 0.7 | |
Gain on capped call derivative asset | | (4.5) | | | (20.8) | |
Loss on derivative embedded exchange feature | | 7.7 | | | 35.4 | |
Loss reclassified from AOCL to net earnings(2) | | | | |
| | | | |
Depreciation and amortization | | 0.2 | | | 0.3 | |
(1)For the three months ended March 31, 2022 and 2021 , cash flows related to actual settlement of interest rate swaps were $5,025,000 and $5,305,000. These are included in investing activities on the consolidated statements of cash flows.
(2)The effective portion of changes in unrealized loss on interest rate swaps was recorded in accumulated other comprehensive loss until September 30, 2008 when these contracts were voluntarily de-designated as accounting hedges. The amounts in accumulated other comprehensive loss are recognized in earnings when and where the previously hedged interest is recognized in earnings.
The estimated amount of AOCL expected to be reclassified to net earnings within the next 12 months is approximately $1,019,000.
17.Subsequent events:
(a)On April 1, 2022, the Company declared dividends of $51,000,000 on its commons shares to Atlas, which were paid on April 25, 2022. In May 2022, Atlas made a capital contribution of $100,000,000 to the Company.
(b)On April 14, 2022, the Company accepted delivery of one 12,200 TEU containership, which immediately began an 18-year charter with a major liner customer.
(c)In April 2022, the Company completed the sale of one 4,250 TEU vessel that was classified as “Assets held for Sale”. The Company continues to manage the ship operations of the vessel pursuant to a ship management agreement.
(d)In April 2022, the Company entered into memoranda of agreement to sell four 4,250 TEU vessels. One of the vessels was classified as “Assets held of Sale” and the sale completed in May 2022. The sale of the remaining three vessels are expected to be completed in the second and third quarters of 2022, subject to closing conditions.
(e)In April 2022, the Company exercised purchase options under two of its operating lease financing arrangements. The purchases are expected to complete in April and May 2023, respectively, at a predetermined purchase price of $52,690,000 per vessel.
(f)On May 16, 2022, the Company sold three 4,250 TEU vessels to a wholly owned subsidiary of Zhejiang Energy Atlas Marine Technology Co., Ltd, which is 50% owned by Atlas. The Company continues to manage the ship operations of the vessels. The agreements for the sale of these vessels were executed in December 2021.
(g)On May 17, 2022, the Company entered into a note purchase agreement to issue, in a private placement, $500,000,000 aggregate principal amount of fixed-rate, sustainability-linked senior secured notes. The notes are expected to be issued in August 2022 and will comprise three series, with interest rates ranging from 5.18% to 5.53% and maturities ranging from September 2032 to September 2037.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited consolidated financial statements and related notes included in this Report and the audited consolidated financial statements and related notes for the quarter ended March 31, 2022 filed with the U.S. Securities and Exchange Commission on an Atlas Corp. Form 6-K. Unless otherwise indicated, all amounts are presented in U.S. dollars, or USD. We prepare our consolidated financial statements in accordance with U.S. GAAP.
Overview
General
Seaspan was incorporated on May 3, 2005, in the Republic of the Marshall Islands. Seaspan is a leading independent charter owner and manager of containerships, which we charter primarily pursuant to long-term, fixed-rate time charters with major container liner companies. We primarily deploy our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters. As of March 31, 2022, we operated a fleet of 132 vessels that have an average age of approximately eight years, on a TEU weighted basis.
Customers for our operating fleet as at March 31, 2022 were as follows:
| | | | | | | | |
Customer for Current Fleet | Number of vessels under charter | TEUs under charter |
CMA CGM | 17 | 160,950 |
COSCO | 28 | 243,750 |
Hapag-Lloyd(1) | 16 | 124,550 |
Maersk | 20 | 90,500 |
MSC | 9 | 103,600 |
ONE | 21 | 184,030 |
Yang Ming Marine | 15 | 210,000 |
ZIM | 6 | 30,600 |
Total | 132 | 1,147,980 |
(1)As at March 31, 2022, two vessels were off charter and commenced charters with Hapag-Lloyd in April and May 2022.
Our primary objective for Seaspan is to continue to grow our containership leasing business through accretive vessel acquisitions as market conditions allow. Most of our customers’ containership business revenues are derived from the shipment of goods from the Asia Pacific region to various overseas export markets in the United States and in Europe.
We use the term “twenty-foot equivalent unit”, or TEU, the international standard measure of containers, in describing the capacity of our containerships, which are also referred to as our “vessels”.
The following table summarizes key facts regarding Seaspan’s fleet as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vessel Class (TEU) | | # Vessels (Total Fleet) | | # Vessels (of which are unencumbered) | Average Age (Years)(1) | Average Remaining Charter Period (Years)(1)(2) | Average Daily Charter Rate (in thousands of USD) | Days Off-Hire(3) | Total Ownership Days(4) |
2500-3500 | | 14 | | 6 | 13.8 | 2.9 | 24.3 | 56 | 1,260 |
4250-5100 | | 31 | | 22 | 14.9 | 2.8 | 20.9 | 93 | 2,834 |
8500-9600(5) | | 18 | | 4 | 12.1 | 3.9 | 40.1 | 11 | 1,620 |
10000-11000(6) | | 33 | | 4 | 6.5 | 4.2 | 31.7 | 15 | 2,970 |
12000-13100(7) | | 19 | | 0 | 7.0 | 6.8 | 42.4 | 2 | 1,710 |
14000+ | | 17 | | 2 | 6.2 | 3.9 | 48.0 | 4 | 1,530 |
Total/Average | | 132 | | 38 | 8.5 | 4.0 | 33.4 | 181 | 11,924 |
(1)Averages shown are weighted by TEU.
(2)Excludes options to extend charter.
(3)Days Off-Hire includes scheduled and unscheduled days related to vessels being off-charter during the quarter ended March 31, 2022.
(4)Total Ownership Days for the quarter ended March 31, 2022 includes time charters and bareboat charters and excludes days prior to the initial charter hire date.
(5)Includes 3 vessel on bareboat charter.
(6)Includes 8 vessels on bareboat charter.
(7)Includes 4 vessels on bareboat charter.
Significant Developments During the Quarter Ended March 31, 2022 and Subsequent
Shipbuilding Contracts for Newbuild Containerships
As of March 31, 2022, Seaspan had entered into agreements with shipyards to build 67 newbuild containerships, as summarized in the following table:
| | | | | | | | | | | |
| Newbuilds | Total TEU | Month Ordered |
12200 TEU | 2 | 24,400 | December 2020 |
24000 TEU | 2 | 48,000 | February 2021 |
15000 TEU LNG | 10 | 150,000 | February 2021 |
12000 TEU | 4 | 48,000 | February 2021 |
15000 TEU | 4 | 60,000 | February 2021 |
16000 TEU | 9 | 144,000 | March 2021 |
15500 TEU | 6 | 93,000 | March 2021 |
12000 TEU | 2 | 24,000 | June 2021 |
15000 TEU | 3 | 45,000 | June 2021 |
7000 TEU LNG | 15 | 105,000 | July and September 2021 |
7000 TEU | 10 | 70,000 | August 2021 |
Total | 67 | 811,400 | |
In April 2022, the Company accepted delivery of one 12,200 TEU containership, which immediately commenced an 18-year charter with a major liner customer.
In May 2022, the Company announced that it entered into shipbuilding contracts for the construction of four 7,700 TEU dual-fuel liquified natural gas newbuild containerships. The vessels are anticipated to be delivered in the third and fourth quarters of 2024. The transaction remains subject to certain closing conditions.
Upon delivery, each newbuild containership will commence a long-term charter with a leading global liner company.
Containership Sale Developments
In February 2022, the Company completed the sale of one 4,250 TEU vessel for gross proceeds of $32.8 million. Seaspan continues to manage the ship operations of this vessel pursuant to a management agreement entered into in connection with the sale. As of March 31, 2022, Seaspan had also entered into agreements for five more vessel sales, one of which closed in April and three of which closed in May 2022. The remaining vessel sale is expected to complete in the second quarter of 2022, subject to closing conditions.
In April 2022, the Company entered into agreements for the sale of an additional four 4,250 TEU vessels, one of which completed in May 2022 and the remaining three sales are expected to be completed in the second and third quarters of 2022, subject to closing conditions.
Financing Developments
On February 16, 2022, the Company closed a new $250.0 million 3-year unsecured revolving credit facility (the “New Seaspan RCF”), which replaces a $150.0 million 2-year unsecured revolving credit facility. The New Seaspan RCF includes several new lenders and improvements driven by the Company’s improving credit quality, including greater liquidity, tenor and pricing.
In April 2022, the Company exercised purchase options under two of its operating lease financing arrangements. The purchases are expected to complete in April and May 2023, respectively, at a predetermined purchase price of $52.7 million per vessel.
On May 17, 2022, the Company entered into a note purchase agreement to issue, in a private placement, $500 million aggregate principal amount of fixed-rate, sustainability-linked senior secured notes as part of the Company’s portfolio financing program (the “Program”). The notes are expected to be issued in August 2022 and will comprise three series, with interest rates ranging from 5.18% to 5.53% and maturities ranging from September 2032 to September 2037. The senior secured notes contain certain sustainability features, and are subject to adjustment based on the Company’s achievements relative to certain key performance indicators. The proceeds from the notes are intended to be used to pay down existing debt in the Program, to fund capital expenditures and for other general corporate purposes.
Dividends
On January 3, 2022, the Company declared dividends of $47.5 million on its common shares to Atlas, which was paid on January 24, 2022.
On April 1, 2022, the Company declared dividends of $51.0 million on its common shares to Atlas, which was paid on April 25, 2022.
Changes to Senior Management
In February 2022, Karen Lawrie resigned as General Counsel of the Company.
Impact of Recent Developments in Ukraine
Since February 2022, as a result of the invasion of Ukraine by Russia, economic sanctions have been imposed by the U.S., the EU, the UK and a number of other countries on Russian financial institutions, businesses and individuals, as well as certain regions within the Donbas region of Ukraine. The nature and extent of such sanctions continue to evolve. While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s operations and/or financial results. Due to volatility in the region caused by the invasion, with the support of our customers, our vessels have ceased trading to Russia for the time being. Given that Ukrainians constitute a significant number of our seafarers, we also anticipate we may face challenges to recruit seafarers in sufficient numbers to replace Ukrainians seafarers who are not able to or permitted to leave their country, as well as Ukrainians seafarers currently onboard our vessels who request to disembark to return home. Finally, we expect that the Russia-Ukraine conflict may exacerbate market volatility, and may impact access to and pricing of capital.
Effects of COVID-19
The impacts of COVID-19 on our business continue unchanged since the date of Atlas Corp.'s Annual Report on Form 20-F for year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission on March 24, 2022 (the “2021 Annual Report”), with the most significant impacts being on our ability to conduct crew changes on our vessels and the costs associated therewith. Please read “Item 5. Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Effects of COVID-19” in Atlas’ 2021 Annual Report for more information.
Results of Operations
Three Months Ended March 31, 2022, Compared with Three Months Ended March 31, 2021
The following tables summarize Seaspan’s consolidated financial results for the quarter ended March 31, 2022.
| | | | | | | | | | | | | | |
Consolidated Financial Summary (in millions of US dollars, except earnings per share amount) | | Quarter Ended March 31, |
| | 2022 | | 2021 |
Revenue | | $ | 387.2 | | | $ | 333.8 | |
Ship operating expense | | 75.0 | | | 68.2 | |
Depreciation and amortization expense | | 78.4 | | | 75.2 | |
General and administrative expense | | 12.2 | | | 9.5 | |
Operating lease expense | | 32.9 | | | 35.4 | |
Loss on sale | | 2.0 | | | — | |
Operating earnings | | 186.7 | | | 145.5 | |
Interest expense | | 40.9 | | | 42.7 | |
Net earnings | | 176.5 | | | 96.1 | |
Cash from operating activities | | 190.8 | | | 171.9 | |
Operating Results
Ownership Days are the number of days a vessel is owned and available for charter. Ownership Days On-Hire are the number of days a vessel is available to the charterer for use. The primary driver of Ownership Days is the increase or decrease in the number of vessels in our fleet.
Total Ownership Days increased by 495 days for the quarter ended March 31, 2022, compared with the same period in 2021. The increase was due to the delivery of seven vessels after March 31, 2021 which contributed 630 days. This increase was partially offset by 135 fewer ownership days from the sale of two vessels.
Vessel Utilization represents the number of Ownership Days On-Hire as a percentage of Total Ownership Days. The following table summarizes Seaspan’s Vessel Utilization for the last eight consecutive quarters:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 |
| | Q2 | | Q3 | | Q4 | | Q1 | | Q2 | | Q3 | | Q4 | | Q1 |
Vessel Utilization: | | | | | | | | | | | | | | | | |
Time Charter Ownership Days(1) | | 10,047 | | 10,284 | | 10,520 | | 10,318 | | 10,609 | | 10,946 | | 10,885 | | 10,575 |
Bareboat Ownership Days(1) | | 1,092 | | 1,104 | | 1,104 | | 1,112 | | 1,092 | | 1,105 | | 1,265 | | 1,350 |
Total Ownership Days | | 11,139 | | 11,388 | | 11,624 | | 11,430 | | 11,701 | | 12,051 | | 12,150 | | 11,925 |
Less Off-Hire Days: | | | | | | | | | | | | | | | | |
Scheduled Dry-Docking | | (195) | | (89) | | (20) | | (63) | | (111) | | (123) | | (95) | | (63) |
Unscheduled Off-Hire(2) | | (90) | | (68) | | (29) | | (25) | | (60) | | (44) | | (93) | | (119) |
Ownership Days On-Hire | | 10,854 | | 11,231 | | 11,575 | | 11,342 | | 11,530 | | 11,884 | | 11,962 | | 11,743 |
Vessel Utilization | | 97.4 | % | | 98.6 | % | | 99.6 | % | | 99.2 | % | | 98.5 | % | | 98.6 | % | | 98.5 | % | | 98.5 | % |
(1)Ownership Days for time charters and bareboat charters exclude days prior to the initial charter hire date
(2)Unscheduled off-hire includes days related to vessels being off-charter.
Vessel utilization remained constant and decreased for the quarter ended March 31, 2022, compared with the same period in 2021 respectively. The decrease was primarily due to a increase in the number of unscheduled off-hire days.
List of Newbuild Vessels
The following table summarizes key facts regarding our 67 newbuild vessels totaling 811,400 TEU as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hull Number | | Vessel Class (TEU) | | Expected Delivery Date | | Charterer | | Length of Charter(1) | | Charter Type |
2338 | | 24000 | | Aug-23 | | MSC | | 18 years | | Bareboat Charter |
2339 | | 24000 | | Sep-23 | | MSC | | 18 years | | Bareboat Charter |
H1845A | | 15500 | | Aug-23 | | Maersk | | Minimum 84 months and up to 96 months | | Time Charter |
H2760 | | 15500 | | Oct-23 | | Maersk | | Minimum 84 months and up to 96 months | | Time Charter |
H2761 | | 15500 | | Dec-23 | | Maersk | | Minimum 84 months and up to 96 months | | Time Charter |
H1846A | | 15500 | | Dec-23 | | ONE | | 5 years | | Time Charter |
H1847A | | 15500 | | May-24 | | ONE | | 5 years | | Time Charter |
H2762 | | 15500 | | Mar-24 | | ONE | | 5 years | | Time Charter |
1384(2) | | 16000 | | Aug-24 | | MSC | | 18 years | | Bareboat Charter |
1385(2) | | 16000 | | Sep-24 | | MSC | | 18 years | | Bareboat Charter |
1344(2) | | 16000 | | Jul-24 | | MSC | | 18 years | | Bareboat Charter |
1345 | | 15000 | | Apr-24 | | ONE | | 5 years | | Time Charter |
1346 | | 15000 | | May-24 | | ONE | | 5 years | | Time Charter |
1347 | | 15000 | | Jun-24 | | ONE | | 5 years | | Time Charter |
1340 | | 15000 | | Jan-23 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
1341 | | 15000 | | Apr-23 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
1342 | | 15000 | | May-23 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
1343 | | 15000 | | Jul-23 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
2434 | | 15000 | | Feb-23 | | ZIM | | 12 years | | Time Charter |
2435 | | 15000 | | Mar-23 | | ZIM | | 12 years | | Time Charter |
2436 | | 15000 | | Apr-23 | | ZIM | | 12 years | | Time Charter |
2437 | | 15000 | | May-23 | | ZIM | | 12 years | | Time Charter |
2438 | | 15000 | | Jul-23 | | ZIM | | 12 years | | Time Charter |
2444 | | 15000 | | Sep-23 | | ZIM | | 12 years | | Time Charter |
2445 | | 15000 | | Nov-23 | | ZIM | | 12 years | | Time Charter |
2446 | | 15000 | | Nov-23 | | ZIM | | 12 years | | Time Charter |
2447 | | 15000 | | Dec-23 | | ZIM | | 12 years | | Time Charter |
2448 | | 15000 | | Jan-24 | | ZIM | | 12 years | | Time Charter |
1360(2) | | 16000 | | Dec-23 | | MSC | | 18 years | | Bareboat Charter |
1361(2) | | 16000 | | Feb-24 | | MSC | | 18 years | | Bareboat Charter |
1362(2) | | 16000 | | Mar-24 | | MSC | | 18 years | | Bareboat Charter |
1363(2) | | 16000 | | Apr-24 | | MSC | | 18 years | | Bareboat Charter |
1364(2) | | 16000 | | Apr-24 | | MSC | | 18 years | | Bareboat Charter |
1365(2) | | 16000 | | Jun-24 | | MSC | | 18 years | | Bareboat Charter |
J0264 | | 12200 | | Apr-22 | | MSC | | 18 years | | Bareboat Charter |
J0265 | | 12200 | | Jun-22 | | MSC | | 18 years | | Bareboat Charter |
2270(3) | | 12000 | | Aug-22 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
2271(3) | | 12000 | | Sep-22 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
2822(3) | | 12000 | | Jun-22 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
2823(3) | | 12000 | | Jun-22 | | ONE | | Minimum 60 months and up to 64 months | | Time Charter |
2049 | | 12000 | | Oct-22 | | ZIM | | 5 years | | Time Charter |
2050 | | 12000 | | Nov-22 | | ZIM | | 5 years | | Time Charter |
1369 | | 7000 | | Oct-23 | | ZIM | | 12 years | | Time Charter |
1370 | | 7000 | | Nov-23 | | ZIM | | 12 years | | Time Charter |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1371 | | 7000 | | Dec-23 | | ZIM | | 12 years | | Time Charter |
1372 | | 7000 | | Jan-24 | | ZIM | | 12 years | | Time Charter |
1373 | | 7000 | | Feb-24 | | ZIM | | 12 years | | Time Charter |
1386 | | 7000 | | Apr-24 | | ZIM | | 12 years | | Time Charter |
1387 | | 7000 | | May-24 | | ZIM | | 12 years | | Time Charter |
1388 | | 7000 | | Jun-24 | | ZIM | | 12 years | | Time Charter |
1389 | | 7000 | | Jun-24 | | ZIM | | 12 years | | Time Charter |
1390 | | 7000 | | Aug-24 | | ZIM | | 12 years | | Time Charter |
1394 | | 7000 | | Oct-24 | | ZIM | | 12 years | | Time Charter |
1395 | | 7000 | | Nov-24 | | ZIM | | 12 years | | Time Charter |
1396 | | 7000 | | Nov-24 | | ZIM | | 12 years | | Time Charter |
1397 | | 7000 | | Dec-24 | | ZIM | | 12 years | | Time Charter |
1398 | | 7000 | | Dec-24 | | ZIM | | 12 years | | Time Charter |
H1562 | | 7000 | | Apr-24 | | ONE | | 10 years | | Time Charter |
H1563 | | 7000 | | May-24 | | ONE | | 10 years | | Time Charter |
H1564 | | 7000 | | Jun-24 | | ONE | | 10 years | | Time Charter |
H1565 | | 7000 | | Jul-24 | | ONE | | 10 years | | Time Charter |
H1566 | | 7000 | | Jul-24 | | ONE | | 10 years | | Time Charter |
H1567 | | 7000 | | Aug-24 | | ONE | | 10 years | | Time Charter |
H1568 | | 7000 | | Sep-24 | | ONE | | 10 years | | Time Charter |
H1569 | | 7000 | | Sep-24 | | ONE | | 10 years | | Time Charter |
H1570 | | 7000 | | Oct-24 | | ONE | | 10 years | | Time Charter |
H1571 | | 7000 | | Nov-24 | | ONE | | 10 years | | Time Charter |
(1)Excludes all option periods in the charterer’s option.
(2)In February 2022, nine of the 16000 TEU vessels had delivery dates extended by 45 days.
(3)In February 2022, four of the 12000 TEU vessels had delivery dates advanced by 30 days.
Gross Contracted Cash Flows – Undelivered Vessels
As of March 31, 2022, the gross contracted cash flows for 67 undelivered vessels is summarized below:
| | | | | |
| (in millions of USD) |
Remainder of 2022 | $ | 66.2 | |
2023 | 430.6 | |
2024 | 967.7 | |
2025 | 967.8 | |
2026 | 967.8 | |
Thereafter | 7,429.0 | |
| $ | 10,829.1 | |
Financial Results Summary
Revenue
Revenue increased by 16.0% to $387.2 million for the three months ended March 31, 2022 compared with the same period in 2021. The increase in revenue was primarily due to an increase in average charter rates for its existing vessels and contribution from the delivery of seven vessels after March 31, 2021.
Ship Operating Expense
Operating expense increased by 10.0% to $75.0 million for the three months ended March 31, 2022 compared to 2021. The increase was primarily due to a growth of our operating fleet from delivery of seven vessels after March 31, 2021.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 4.3% to $78.4 million for the three months ended March 31, 2022 compared to 2021. The increase was primarily due to the delivery of seven vessels after March 31, 2021.
General and Administrative Expense
General and administrative expense increased by 28.4% to $12.2 million for the three months ended March 31, 2022 compared to 2021. The increase was primarily due to an increase in general corporate expenses including non-cash share-based compensation.
Operating Lease Expense
Operating lease expense decreased by 7.1% to $32.9 million for the three months ended March 31, 2022 compared to 2021. The decrease was primarily due to a lease reclassification from operating to financing as a result of a purchase option being exercised in January 2022.
Interest Expense and Amortization of Deferred Financing Fees
The following table summarizes our borrowings:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions of US dollars) | | March 31, | | Change |
| | 2022 | | 2021 | | $ | | % |
Long-term debt: | | | | | | | | |
| | | | | | | | |
Term loan credit facilities | | $ | 2,084.1 | | | 2,557.2 | | | $ | (473.1) | | | (18.5) | % |
Senior unsecured notes | | 1,250.0 | | | 280.0 | | | 970.0 | | | 346.4 | % |
Fairfax notes | | — | | | 600.0 | | | (600.0) | | | (100.0) | % |
Senior unsecured exchangeable notes | | 201.3 | | | 201.3 | | | — | | | 0.0 | % |
Senior secured notes | | 500.0 | | | — | | | 500.0 | | | 100.0 | % |
Debt discount and fair value adjustment | | — | | | (131.4) | | | 131.4 | | | (100.0) | % |
Deferred financing fees on long term debt | | (50.2) | | | (36.8) | | | (13.4) | | | 36.4 | % |
Long term debt | | 3,985.2 | | | 3,470.3 | | | 514.9 | | | 14.8 | % |
| | | | | | | | |
Other financing arrangements | | 1,338.0 | | | 879.1 | | | 458.9 | | | 52.2 | % |
Deferred financing fees on other financing arrangements | | (25.0) | | | (13.6) | | | (11.4) | | | 83.7 | % |
Other financing arrangement | | 1,313.0 | | | 865.5 | | | 447.5 | | | 51.7 | % |
| | | | | | | | |
Total deferred financing fees | | 75.2 | | | 50.4 | | | 24.8 | | | 49.2 | % |
Total borrowings | | 5,373.4 | | | 4,386.2 | | | 987.2 | | | 22.5 | % |
Vessels under construction | | (1,213.7) | | | (222.0) | | | (991.7) | | | 446.8 | % |
Operating borrowings(1) | | $ | 4,159.7 | | | $ | 4,164.2 | | | $ | (4.5) | | | (0.1) | % |
(1)Total borrowings is a non-GAAP financial measure which comprises of long-term debt and other financing arrangements, excluding deferred financing fees. The Company’s total borrowings include amounts related to vessels under construction, consisting primarily of amounts borrowed to pay installments to shipyards. The interest incurred on borrowings related to the vessels under construction are capitalized during the construction period. Total borrowings and operating borrowings are non-GAAP financial measures that are not defined under or prepared in accordance with U.S. GAAP. Disclosure of total borrowings and operating borrowings is intended to provide additional information and should not be considered a substitute for financial measures prepared in accordance with U.S. GAAP.
Interest expense decreased by $41.2 million to $186.7 million for the three months ended March 31, 2022 compared with the same period in 2021. The decrease is primarily due higher capitalized interest related to an increase in vessels under construction.
Gain on Derivative Instruments
The change in fair value of financial instruments resulted in a gain of $37.4 million for the three months ended March 31, 2022 compared to a loss of $5.9 million for the three months ended March 31, 2021. The gain for this period was primarily due to an increase in the LIBOR forward curve and offset by swap settlements.
The fair value of our interest rate swaps are subject to change based on our company specific credit risk included in the discount factor and current swap curve, including its relative steepness. In determining the fair value, these factors are based on current information available to us. These factors are expected to change through the life of the instruments, causing the fair value to fluctuate significantly due to the large notional amounts and long-term nature of our derivative instruments. As these factors may change, the fair value of the instruments is an estimate and may deviate significantly from the actual cash settlements realized during the term of the instruments. Our valuation techniques have not changed, and we believe that such techniques are consistent with those followed by other valuation practitioners.
The fair value of our interest rate swaps is most significantly impacted by changes in the yield curve. Based on the current notional amount and tenor of our interest rate swap portfolio, a one percent parallel shift in the overall yield curve is expected to result in a change in the fair value of our interest rate swaps of approximately $54.3 million. Actual changes in the yield curve are not expected to occur equally at all points and changes to the curve may be isolated to periods of time. This steepening or flattening of the yield curve may result in greater or lesser changes to the fair value of our financial instruments in a particular period than would occur had the entire yield curve changed equally at all points.
The fair value of our interest rate swaps is also impacted by changes in the company-specific credit risk included in the discount factor. We discount our derivative instruments in a liability position with reference to the corporate Bloomberg industry yield curves and the fair value of our interest rate swaps in an asset position is discounted by the counterparty credit risk.
Our fair value instruments, including interest rate swaps and put instruments were marked to market with all changes in the fair value of these instruments recorded in “Change in fair value of financial instruments” in our Interim Consolidated Statement of Operations.
Please read “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in Atlas’ 2021 Annual Report for additional information.
Liquidity and Capital Resources
Liquidity
As of quarter ended March 31, 2022, we have total liquidity of $801.0 million, consisting of $151.0 million of cash and cash equivalents and $650.0 million of undrawn commitments under available revolving credit facilities. Our primary short-term liquidity needs are to fund our operating expenses, investments in assets including vessels under construction, debt repayments, lease payments, swap settlements, payment of quarterly dividends and payments on our other financing arrangements. Our medium-term liquidity needs primarily relate to debt repayments, vessel purchase commitments, lease payments and payments on our other financing arrangements. Our long-term liquidity needs primarily relate to potential future acquisitions, lease payments, debt repayments including repayment of our notes, the potential future redemption of our preferred shares and payments on our other financing arrangements. Please read note 8 “Long-term debt”, note 9 “Operating lease liabilities”, note 10 “Finance lease liabilities”, note 11 “Other financing arrangements” in our quarter ended interim Consolidated Financial Statements for additional information.
We anticipate that our primary sources of funds for our short-term liquidity needs will be cash from operations, and existing and new credit facilities and other financing arrangements. We anticipate our medium and long-term sources of funds will be from cash from operations, new credit facilities, lease facilities and capital markets financings to the extent available.
The following table summarizes our liquidity as of March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions of US dollars) | March 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| | | | | | | |
Cash and cash equivalents | $ | 151.0 | | | $ | 275.9 | | | $ | (124.9) | | | (45.3) | % |
Undrawn Seaspan revolving credit facilities(1) | 650.0 | | | 450.0 | | | 200.0 | | | 44.4 | % |
| | | | | | | |
| | | | | | | |
Total liquidity | 801.0 | | | 725.9 | | | 75.1 | | | 10.3 | % |
Total committed and undrawn newbuild financings | 5,974.7 | | | — | | | 5,974.7 | | | 100.0 | % |
Total liquidity including newbuild financing | $ | 6,775.7 | | | $ | 725.9 | | | $ | 6,049.8 | | | 833.4 | % |
(1)Undrawn revolving credit facilities as of March 31, 2022 included $650.0 million (2021 - $450.0 million) available.
As of March 31, 2022, the Company’s liquidity was sufficient to meet near-term requirements. As of March 31, 2022 the Company had consolidated liquidity of $801.0 million, excluding $5,974.7 million of committed but undrawn financings related to our newbuild vessels, which represents an increase from $725.9 million in the prior 2021 period. During the quarter we increased the size of one of our revolving credit facilities from $150.0 million to $250.0 million, as part of our ongoing focus on bolstering liquidity.
Unencumbered Assets
The Company’s growing base of unencumbered assets is a fundamental objective to achieving an investment grade credit rating, as well as a potential source of liquidity through secured financing or asset sales. Over the long-term, the Company expects its unencumbered asset base to grow as it enhances its presence in the unsecured credit markets, and also naturally as secured borrowings mature or are prepaid.
In the short-term, the Company expects that it’s unencumbered asset base may fluctuate as unencumbered assets may be sold or financed from time to time, as part of normal course management of assets and liquidity.
The following table provides a summary of our unencumbered fleet and net book value over time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As at |
| | December 31, | | March 31, |
(in millions of USD) | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
Number of Vessels | | 21 | | 31 | | 28 | | 31 | | 36 | | 38 |
Net Book Value | | 828 | | 912 | | 859 | | 1,109 | | 1,369 | | 1,359 | |
Contracted Cash Flows
The Company’s focus on long-term contracted cash flows provides predictability and reduces liquidity risk through economic cycles. As of March 31, 2022, the Company had total gross contracted cash flows of $18.1 billion, which includes components that are accounted for differently, including i) minimum future revenues relating to operating leases with customers, ii) minimum cash flows to be received relating to financing leases with certain customers, and iii) contracted cash flows underlying leases for newbuild vessels which have not yet been delivered to customers. The gross contracted cash flow at March 31, 2022, excludes $54.0 million of lease payments from three vessels that are classified as “Assets held for sale”. The following tables provide a summary of gross contracted cash flows.
As of March 31, 2022, minimum future revenues on committed operating leases were as follows:
| | | | | | | | |
(in millions of USD) | | Operating lease revenue(1) |
Remainder of 2022 | | $ | 1,107.6 | |
2023 | | 1,456.3 | |
2024 | | 1,291.4 | |
2025 | | 841.7 | |
2026 | | 469.9 | |
Thereafter | | 345.1 | |
| | $ | 5,512.0 | |
(1)Minimum future operating lease revenue includes payments from signed charter agreements on operating vessels that have not yet commenced and includes $54.0 million of lease payments from three vessels that are classified as “Assets held for sale”.
Minimum future revenues assume that, during the term of the lease , (i) there will be no unpaid days, (ii) extensions are included where exercise is at our unilateral option, and (iii) extensions are excluded where exercise is at the charterers' option. Minimum future revenues do not reflect signed charter agreements for undelivered vessels.
As of March 31, 2022, the undiscounted minimum cash flows related to lease receivable on financing leases are as follows:
| | | | | | | | |
(in millions of USD) | | Lease receivable on financing leases |
Remainder of 2022 | | $ | 59.7 | |
2023 | | 79.3 | |
2024 | | 79.5 | |
2025 | | 79.3 | |
2026 | | 79.3 | |
Thereafter | | 1,051.5 | |
| | $ | 1,428.6 | |
As of March 31, 2022, the gross contracted cash flows for its 67 undelivered vessels were as follows: | | | | | |
(in millions of USD) | Gross contracted cash flows |
Remainder of 2022 | $ | 66.2 | |
2023 | 430.6 |
2024 | 967.7 |
2025 | 967.8 |
2026 | 967.8 |
Thereafter | 7,429.0 |
| $ | 10,829.1 | |
The Company is focused on continuing to allocate capital selectively into opportunities that enhance the long-term value of the business and provide attractive risk-adjusted returns on capital, including evaluating synergistic opportunities in adjacent businesses to diversify cash flow drivers.
The Company intends to continue its growth trajectory in 2022, further growing its liquidity through capital recycling and expansion of its revolving credit facilities, diversifying sources of capital to enhance financial flexibility, managing leverage in alignment with its long-term targets, and growing the value of its unencumbered asset base.
The Company’s primary liquidity needs include funding our investments in assets including our newbuild vessels under construction, scheduled debt and lease payments, vessel purchase commitments, potential future exercises of vessel purchase options, and dividends on our common and preferred shares.
Borrowings
The following table summarizes our borrowings:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions of US dollars) | | March 31, | | Change |
| | 2022 | | 2021 | | $ | | % |
Long-term debt: | | | | | | | | |
| | | | | | | | |
Term loan credit facilities | | $ | 2,084.1 | | | 2,557.2 | | | $ | (473.1) | | | (18.5) | % |
Senior unsecured notes | | 1,250.0 | | | 280.0 | | | 970.0 | | | 346.4 | % |
Fairfax notes | | — | | | 600.0 | | | (600.0) | | | (100.0) | % |
Senior unsecured exchangeable notes | | 201.3 | | | 201.3 | | | — | | | 0.0 | % |
Senior secured notes | | 500.0 | | | — | | | 500.0 | | | 100.0 | % |
Debt discount and fair value adjustment | | — | | | (131.4) | | | 131.4 | | | (100.0) | % |
Deferred financing fees on long term debt | | (50.2) | | | (36.8) | | | (13.4) | | | 36.4 | % |
Long term debt | | 3,985.2 | | | 3,470.3 | | | 514.9 | | | 14.8 | % |
| | | | | | | | |
Other financing arrangements | | 1,338.0 | | | 879.1 | | | 458.9 | | | 52.2 | % |
Deferred financing fees on other financing arrangements | | (25.0) | | | (13.6) | | | (11.4) | | | 83.7 | % |
Other financing arrangement | | 1,313.0 | | | 865.5 | | | 447.5 | | | 51.7 | % |
| | | | | | | | |
Total deferred financing fees | | 75.2 | | | 50.4 | | | 24.8 | | | 49.2 | % |
Total borrowings | | 5,373.4 | | | 4,386.2 | | | 987.2 | | | 22.5 | % |
Vessels under construction | | (1,213.7) | | | (222.0) | | | (991.7) | | | 446.8 | % |
Operating borrowings | | $ | 4,159.7 | | | $ | 4,164.2 | | | $ | (4.5) | | | (0.1) | % |
The Company’s approach is to target a long-term debt-to-asset ratio of 50-60%, and to mitigate credit risk by diversifying its maturity profile over as long a term as economically feasible, while maintaining or reducing its cost of capital. The Company’s debt-to-asset ratio was 54.4% as of March 31, 2022 compared to 44.7% at March 31, 2021, the increase was primarily due to financing of newbuild vessels under construction.
The weighted average interest rate for March 31, 2022 was 3.6% compared to 3.0% at March 31, 2021.
Our Credit Facilities
We primarily use our credit facilities to finance the construction and acquisition of assets. As at March 31, 2022, our credit facilities are secured by first-priority mortgages granted on 62 of our vessels, together with other related security, such as assignments of lease contracts, earnings for our assets, assignments of insurances and management agreements for vessels.
As of March 31, 2022, we had $2.1 billion outstanding under our revolving credit facilities and term loan credit facilities excluding deferred financing fees. In addition, there is $650.0 million available to be drawn under our revolving credit facilities.
Interest payments on our term loan credit facilities are based on LIBOR plus margins, which ranged between 0.4% and 2.3% as of March 31, 2022. For a portion of one of our term loans, interest is calculated based on the reference rate of KEXIM plus a margin, which was 0.7% as of March 31, 2022. One of our term loan credit facilities bears interest at a fixed rate of 7.7%. Two of our term loans bear interest at a fixed rate of 3.8%.
The Company may prepay certain amounts outstanding without penalty, other than breakage costs in certain circumstances. A prepayment may be required as a result of certain events, including without limitation the sale or loss of a vessel, a termination or expiration of a charter (and the inability to enter into a replacement charter acceptable to lenders within a prescribed period of time). The amount that must be prepaid may be calculated based on the loan to market value. In these circumstances, valuations of the Company’s vessels are conducted on a “without charter” basis as required under the credit facility agreement.
Each credit facility contains a mix of financial covenants requiring the Company to maintain minimum liquidity, tangible net worth, interest and principal coverage ratios, and debt-to-assets ratios, as defined. Certain facilities are guaranteed by an intermediate parent entity, in which case the parent entity must meet certain consolidated financial
covenants under those term loan facilities including maintaining certain minimum tangible net worth, cash requirements and debt-to-asset ratios.
Some of the facilities also have an interest and principal coverage ratio, debt service coverage and vessel value requirement for the subsidiary borrower. We were in compliance with these covenants at March 31, 2022.
The following is a schedule of key facts relating to the Company’s credit facilities as of March 31, 2022:
| | | | | | | | | | | | | | | | | |
(in millions of USD) | Scheduled Amortization | Bullet Due on Maturity | Total Future Minimum Repayments | Additional Vessels Unencumbered Upon Maturity | Net Book Value of Vessels Unencumbered(1) |
Remainder of 2022 | $ | 172.5 | | $ | 326.5 | | $ | 499.0 | | 8 | | $ | 672.1 | |
2023 | 156.8 | | 111.4 | | 268.2 | | 3 | | 358.2 | |
2024 | 138.9 | | — | | 138.9 | | — | | — | |
2025 | 136.1 | | — | | 136.1 | | — | | — | |
2026 | 74.7 | | 704.0 | | 778.7 | | — | | — | |
2027 | 16.8 | | 224.4 | | 241.2 | | — | | — | |
2028 | 8.8 | | — | | 8.8 | | — | | — | |
2029 | 8.8 | | — | | 8.8 | | — | | — | |
2030 | 4.4 | | — | | 4.4 | | 2 | | 170.3 | |
2031 | — | | — | | — | | — | | — | |
Thereafter | — | | — | | — | | 49 | | 3,106.7 | |
Total | $ | 717.8 | | $ | 1,366.3 | | $ | 2,084.1 | | 62 | | $ | 4,307.3 | |
Notes
As of March 31, 2022, we had $2.0 billion outstanding under notes, $1.5 billion of which was unsecured, with the remaining $0.5 billion secured by assets held by the Company. We expect to continue to access the debt capital markets and issue additional series of notes similar to those described below, the proceeds of which may be used to repay other indebtedness, for capital expenditures, or for other general corporate purposes. The Company's outstanding notes are summarized below.
3.75% 2025 Exchangeable Notes
As of March 31, 2022, we had $201.3 million outstanding under our 3.75% exchangeable senior notes due 2025 (the “Exchangeable Notes”). The Exchangeable Notes were issued in December 2020, and are exchangeable at the holders’ option into an aggregate 15,474,817 Atlas common shares at an initial exchange price of $13.005 per share, the cash equivalent or a combination thereof, as elected by us, at any time on or after September 15, 2025, or earlier upon the occurrence of certain market price triggers, significant corporate events, or in response to early redemption elected by us. The holders may require us to redeem the Exchangeable Notes upon the occurrence of certain corporate events qualifying as a fundamental change in the business. We may redeem the Exchangeable Notes in connection with certain tax-related events or on any business day on or after December 20, 2023 and prior to September 15, 2025, if the last reported sale price of Atlas shares is at least 130.0% of the exchange price during a specified measurement period. A redemption of the Exchangeable Notes is made at 100.0% of the principal amount, plus accrued and unpaid interest. In connection with the Exchangeable Notes, we entered into capped call transactions using $15.5 million in proceeds from the issuance of the Exchangeable Notes to reduce the potential dilution to Atlas shares and/or offset any cash payments that are required upon an exchange, up to a maximum share price.
Sustainability-Linked NOK Bonds
As of March 31, 2022, we had an aggregate $500.0 million outstanding under our NOK Bonds. The NOK Bonds were issued in the Nordic bond market in February 2021 ($200.0 million) and April 2021 ($300.0 million), bear interest at 6.5% per annum, and mature in February 2024 and April 2026, respectively. Upon maturity, 100.0% of the principal balance is due, or 100.5% if certain sustainability-linked targets are not achieved, except in the event of certain eligible changes in tax law. As of March 31, 2022, the sustainability-linked targets had been achieved, which targeted capital expenditure for projects which mitigate carbon emissions, including LNG vessel technology. Upon the occurrence of a change of control or a delisting event (each as defined in the NOK Bonds), each holder of NOK Bonds will have the right to require the Company to purchase all or a portion of such holder’s NOK Bonds at a purchase price equal to 101.0% of the principal amount thereof plus accrued and unpaid interest, if any.
Blue Transition 5.50% 2029 Notes
As of March 31, 2022, we had $750.0 million outstanding under our blue transition 5.5% senior unsecured notes due 2029 (the “5.5% 2029 Notes”). The 5.5% 2029 Notes were issued in July 2021, bear interest at 5.5% per annum, payable semi-annually beginning on February 1, 2022, and mature in 2029. The blue transition structure includes designated uses of proceeds for carbon mitigating projects, and were developed to align with the Company’s sustainability efforts.
Sustainability-Linked Senior Secured Notes
As of March 31, 2022, we had $500.0 million outstanding under our senior secured notes. The notes were issued pursuant to a U.S. private placement with life insurance companies and comprise four series. The Series A, Series C and Series D senior secured notes, totaling $450.0 million, were issued in May 2021, with interest rates ranging from 3.91% to 4.26% and maturities from June 2031 to June 2036. The Series B senior secured notes, totaling $50.0 million, were issued in August 2021, with an interest rate of 3.91%, and mature in 2031. The senior secured notes contain certain sustainability features, and are subject to adjustment based on Seaspan’s achievements relative to certain key performance indicators.
In May 2022, the Company entered into a note purchase agreement to issue a further $500 million of senior secured notes. Please read “Significant Developments During the Quarter ended March 31, 2022 and Subsequent—Financing Developments” for additional information.
Operating Leases
As of March 31, 2022, we had 13 vessel operating lease arrangements. Under 12 of the operating lease arrangements, we may purchase the vessels for a predetermined fair value purchase price. For the remaining lease, we may purchase the vessel at the end of the lease term for the greater of the fair market value and a predetermined amount. As of March 31, 2022, we had total commitments, excluding purchase options, under vessel operating leases from 2022 to 2029 of approximately $727.0 million.
Under our operating lease arrangements, subject to payment of a specified termination sum, we may voluntarily terminate the arrangement in certain circumstances. We may also be required to terminate and pay a termination sum as specified in the agreements in certain circumstances, such as a termination or expiry of a charter (where we do not enter into a charter acceptable to the counterparties, acting reasonably, within a required period of time).
Based on current market conditions, the Company expects that it will exercise the purchase options under the 12 operating lease arrangements subject to purchase options. These purchase option prices are $668.7 million in aggregate for the 12 vessels, and if exercised, such purchases would be completed between April 2023 and November 2026. If exercised, the term of the operating leases would be shortened, and the amount paid by the Company under the operating leases (excluding the purchase option price) would be less than the total commitment outlined below. In January 2022, the Company exercised its option to purchase one 10,000 TEU vessel and the lease has been re-assessed as a financing lease for the remainder of its term until the purchase is completed in January 2023 at the predetermined purchase price of $52.7 million. In April 2022, the Company exercised its options to purchase an additional two 10,000 TEU vessels as described in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Developments During the Quarter ended March 31, 2022 and Subsequent” above.
As of March 31, 2022, the commitment under operating leases relating to vessels was $727.0 million for 2022 to 2029, and for other leases it was $2.5 million for the remainder of 2022 to 2024. Total commitments under these leases are as follows:
| | | | | | | | |
(in millions of USD) | | Operating leases commitment |
Remainder of 2022 | | $ | 102.8 | |
2023 | | 138.0 | |
2024 | | 140.9 | |
2025 | | 127.4 | |
2026 | | 112.7 | |
Thereafter | | 107.8 | |
Total | | $ | 729.6 | |
Capital Commitments
As of March 31, 2022, the Company had 67 newbuild vessels under construction. The Company had outstanding commitments for the remaining installment payments as follows:
| | | | | | | | |
(in millions of USD) | | Capital Commitment |
Remainder of 2022 | | $ | 965.1 | |
2023 | | 2,747.4 | |
2024 | | 2,457.8 | |
Total | | $ | 6,170.3 | |
Recently we have seen increasing consensus around expectations for a long-term period of heightened inflation. These expectations align with expectations for our business, as the cost of transport is a major component of inflation, and the underlying demand for our business is closely linked to both global GDP growth and inflation. While we expect these factors to continue to be a net positive for our business, we anticipate that expectations of quantitative tightening and rising interest rates intended to combat inflation may continue to cause volatility in the equity and credit markets near-term, impacting the pricing of our publicly traded securities, notwithstanding strong and stable underlying performance and asset values.
For additional information about our credit and lease facilities and other financing arrangements, including, among other things, a description of certain related covenants, please read “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” in the 2021 Annual Report.
Other Financing Arrangements
We enter into financing arrangements consisting of financing sale-leaseback and failed sales arrangements with special purpose entities, which are consolidated by us as primary beneficiaries. These leases are provided by bank financial leasing owners who legally own our vessels through special purpose entities and are also granted other related security, such as assignments of time charters, earnings for the vessels, insurances for the vessels and management agreements for the vessels. We use these arrangements to finance the construction and acquisition of vessels, as well as certain of our operating vessels.
As of March 31, 2022, we have 26 vessels under these financing arrangements, which provided for borrowings of approximately $1.3 billion excluding deferred financing fees. Under these agreements, we may voluntarily terminate a lease agreement, subject to payment of a termination fee in certain circumstances. We are also required to prepay rental amounts, broken funding costs and other costs to the lessor in certain circumstances, such as a termination or expiry of a charter (where we do not enter into a charter acceptable to the lessors within a required period of time). If we default under these financing arrangements, our lessors could declare all outstanding amounts to be immediately due and payable and realize on the security granted under these arrangements.
For additional information about our credit and lease facilities and other financing arrangements, including, among other things, a description of certain related covenants, please read “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” in Atlas’ 2021 Annual Report.
The following is a schedule of key facts under our other financing arrangements as of March 31, 2022:
| | | | | | | | | | | | | | | | | | |
(in millions of USD) | Scheduled Amortization | Bullet Due on Maturity | Total Future Minimum Repayments | Additional Vessels Unencumbered Upon Maturity | Net Book Value of Vessels Unencumbered(1)(2) | |
Remainder of 2022 | $ | 75.9 | | $ | — | | $ | 75.9 | | — | | $ | — | | |
2023 | 101.4 | | — | | 101.4 | | — | | — | | |
2024 | 102.6 | | — | | 102.6 | | — | | — | | |
2025 | 97.4 | | — | | 97.4 | | — | | — | | |
2026 | 94.2 | | — | | 94.2 | | — | | — | | |
2027 | 94.2 | | — | | 94.2 | | — | | — | | |
2028 | 94.2 | | — | | 94.2 | | — | | — | | |
2029 | 86.5 | | 27.0 | | 113.5 | | 2 | | 189.1 | | |
2030 | 61.3 | | 181.0 | | 242.3 | | 7 | | 571.4 | | |
2031 | 44.8 | | 60.0 | | 104.8 | | 2 | | 169.2 | | |
Thereafter | 98.1 | | 119.4 | | 217.5 | | 7 | | 586.5 | | |
Total | $ | 950.6 | | $ | 387.4 | | $ | 1,338.0 | | 18 | | $ | 1,516.2 | | |
(1)Includes unencumbered vessels that are included on our balance sheet as “Vessels” and as “Net Investment in Lease”.
(2)Excludes newbuild containerships that have not been delivered as at March 31, 2022.
Summary of Consolidated Statements of Cash Flows
The following table summarizes our sources and uses of cash for the periods presented:
| | | | | | | | |
(in millions of US dollars) | Three Months Ended March 31, |
| 2022 | 2021 |
Net cash flows from operating activities | $ | 190.8 | | $ | 171.9 | |
Net cash flows used in investing activities | (86.6) | | (203.7) | |
Net cash flows (used in) from financing activities | (122.2) | | 64.2 | |
Three-month periods ended March 31, 2022 and 2021
Operating Cash Flows
Net cash flows from operating activities was $190.8 million for the quarter ended March 31, 2022, an increase of $18.9 million, compared to 2021. The increase in net cash flows from operating activities for the quarter ended March 31, 2022, compared to the prior year, was primarily due to net cash flows from chartering of seven additional vessels delivered during 2021 and higher revenue due to increases in the charter rates in 2021. For further discussion of changes in revenue and expenses, please read “Financial Results Summary”.
Investing Cash Flows
Net cash flows used in investing activities were $86.6 million for the quarter ended March 31, 2022, a decrease of $117.1 million compared to 2021. Decrease in cash used was primarily due to the decrease in expenditures on installments on vessels under construction compared to the same period in 2021.
Financing Cash Flows
Net cash flows used in financing activities were $122.2 million for the quarter ended March 31, 2022, compared to net cash flows from financing activities of $64.2 million in 2021. This represents a net decrease of $186.4 million in cash flows from financing activities for the quarter ended March 31, 2022 compared to 2021. The decrease was primarily due to a decrease in draws on our existing debt and no new debt issuances for the quarter ended March 31, 2022 given significant liquidity available to service obligations during the quarter. For the three months ended March 31, 2022, we had lower repayments on our long term debt and other financing arrangements compared to the same period in 2021.
Ongoing Capital Expenditures
Ongoing Capital Expenditures
The average age of the vessels in our containership fleet is approximately eight years, on a TEU-weighted basis. Capital expenditures for our containership fleet primarily relate to our regularly scheduled dry-dockings. During the quarter ended March 31, 2022, we completed two dry-dockings. For the remainder of 2022, we expect 24 additional vessels to complete dry-docking.
We must make substantial capital expenditures over the long-term to preserve our capital base, which is comprised of our net assets, to continue to refinance our indebtedness and to maintain our dividends. We will likely need to retain additional funds at some time in the future to provide reasonable assurance of maintaining our capital base over the long-term. We believe it is not possible to determine now, with any reasonable degree of certainty, how much of our operating cash flow we should retain in our business and when it should be retained to preserve our capital base. The amount of operating cash flow we retain in our business will affect the amount of our dividends. Factors that will impact our decisions regarding the amount of funds to be retained in our business to preserve our capital base, include the following, many of which are currently unknown and are outside our control:
(1)the remaining lives of our vessels;
(2)the returns that we generate on our retained cash flow, which will depend on the economic terms of any future asset acquisitions and lease terms;
(3)future contract rates for our assets after the end of their existing leases agreements;
(4)our future operating and interest costs;
(5)future operating and financing costs;
(6)our future refinancing requirements and alternatives and conditions in the relevant financing and capital markets at that time; and
(7)unanticipated future events and other contingencies.
Please read “Item 3. Key Information – D. Risk Factors” in Atlas’ 2021 Annual Report for factors that may affect our future capital expenditures and results.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. Our estimates affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For more information about our critical accounting estimates, please read “Item 5. Operating and Financial Review and Prospects—D. Critical Accounting Estimates” in Atlas’ 2021 Annual Report.
Recent accounting pronouncements
Discontinuation of LIBOR
In 2021, the Company adopted ASU 2020-04, “Reference Rate Reform (Topic 848)”, prospectively to contract modifications. The guidance provides optional relief for the discontinuation of LIBOR resulting from rate reform. Contract terms that are modified due to the replacement of a reference rate are not required to be remeasured or reassessed under FASB’s relevant U.S. GAAP Topic. The election is available by Topic. The Company has elected to apply the optional relief for contracts under ASC 470, “Debt”, ASC 840 and 842, “Leases”, and ASC 815, “Derivatives and Hedging”. There was no impact to the Company's financial statements upon initial adoption. The LIBOR replacement modifications for Debt contracts will be accounted for by prospectively adjusting the effective interest rate in the agreements. Existing lease and derivative contracts will require no reassessments. The ASU has not and is currently not expected to have a material impact on our consolidated financial statements.
Debt with conversion and other options
Effective January 1, 2022, the Company adopted ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2020-06”), using the modified retrospective method, whereby the cumulative effect adjustment was made as of the date of the initial application. Accordingly, financial information and disclosures in the comparative period were not restated. The impact of the adoption of ASU 2020-06 resulted in an adjustment of $5,073,000 to opening retained earnings at January 1, 2022 related to the unamortized debt discount that was initially recorded when the convertible notes were issued. Under ASU 2020-06, the accounting for convertible debt instruments is simplified by reducing the number of accounting models and circumstances when embedded conversion features are separately recognized. This update also revises the method in which diluted earnings per share is calculated related to certain instruments with conversion features, among other clarifications. As a result of the adoption, the Company recognizes the maximum potential dilutive effect of its exchangeable notes in diluted EPS using the if-converted method effective January 1, 2022.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the quarter ended March 31, 2022, contains forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act) concerning our operations, cash flows, and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “forecasts,” “will,” “may,” “potential,” “should” and similar expressions are forward-looking statements. Although these statements are based upon assumptions we believe to be reasonable based upon available information, including projections of revenues, operating margins, earnings, cash flow, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully in this Report in the section titled “Risk Factors.”
These forward-looking statements represent our estimates and assumptions only as of the date of this Report and are not intended to give any assurance as to future results. As a result, you are cautioned not to rely on any forward-looking statements. Forward-looking statements appear in a number of places in this Report. These statements include, among others:
•future operating or financial results;
•future growth prospects;
•our business strategy and capital allocation plans, and other plans and objectives for future operations;
•our primary sources of funds for our short, medium and long-term liquidity needs;
•our expectations as to impairments of our vessels, including the timing and amount of potential impairments;
•the future valuation of our vessels and goodwill;
•potential acquisitions, financing arrangements and other investments, and our expected benefits from such transactions;
•future time charters and vessel deliveries, including replacement charters and future long-term charters for certain existing vessels;
•estimated future capital expenditures needed to preserve the operating capacity of our containership fleet and to comply with regulatory standards, our expectations regarding future operating expenses, including dry-docking and other ship operating expenses, and general and administrative expenses
•availability of crew for our containerships, number of off-hire days and dry-docking requirements;
•global economic and market conditions and shipping market trends, including charter rates and factors affecting supply and demand for our containerships;
•disruptions in global credit and financial markets as the result of the COVID-19 pandemic or otherwise;
•conditions in the public equity market and the price of our shares;
•our financial condition and liquidity, including our ability to realize the benefits of recent financing activities, borrow and repay funds under our credit facilities, our ability to obtain waivers or secure acceptable replacement charters under certain of our credit facilities, our ability to refinance our existing facilities and notes and to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
•our continued ability to maintain, enter into or renew primarily long-term, fixed-rate time charters with our existing customers or new customers;
•the potential for early termination of long-term contracts and our potential inability to enter into, renew or replace long-term contracts;
•changes in governmental rules and regulations or actions taken by regulatory authorities, and the effect of governmental regulations on our business;
•our continued ability to meet specified restrictive covenants in our financing and lease arrangements, our notes and our preferred shares;
•the length and severity of the ongoing novel coronavirus (COVID-19) pandemic, including as a result of the new variants of the virus, and its impact on our business;
•the financial condition of our customers, lenders and other counterparties and their ability to perform their obligations under their agreements with us;
•our ability to leverage to our advantage our relationships and reputation in the containership industry;
•changes in technology, prices, industry standards, environmental regulation and other factors which could affect our competitive position, revenues and asset values;
•disruptions and security threats to our technology systems;
•taxation of our company, including our exemption from tax on our U.S. source international transportation income, and taxation of distributions to our shareholders;
•our ability to achieve or realize expected benefits from ESG initiatives;
•potential liability from future litigation;
•other factors detailed in this Report and from time to time in our periodic reports; and
•other risks that are not currently material or known to us.
Forward-looking statements in this Report are estimates and assumptions reflecting the judgment of senior management and involve known and unknown risks and uncertainties. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, these forward-looking statements should be considered in light of various important factors, including, but not limited to, those set forth in “Item 3. Key Information—D. Risk Factors” in Atlas’ 2021 Annual Report.
We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. You should carefully review and consider the various disclosures included in this Report and in our other filings made with the Securities and Exchange Commission, or the SEC, that attempt to advise interested parties of the risks and factors that may affect our business, prospets and results of operations.
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and foreign currency fluctuations. We use interest rate swaps to manage interest rate price risks. We do not use interest rate swaps for trading or speculative purposes.
Interest Rate Risk
As of March 31, 2022, our variable-rate credit facilities totaled $2.1 billion, of which we had entered into interest rate swap agreements to fix the rates on a notional principal amount of $1.4 billion. These interest rate swaps have a fair value of $24.4 million, net, in the Company's favor.
The tables below provide information about our financial instruments at March 31, 2022 that are sensitive to changes in interest rates. In addition to the disclosures in this report, please read notes 8 to 11 to our consolidated financial statements included in this Report, which provide additional information with respect to our existing credit and lease facilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Principal Payment Dates |
(in millions of US dollars) | | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
Credit Facilities(1) | | $ | 486.8 | | | $ | 249.4 | | | $ | 136.1 | | | $ | 136.1 | | | $ | 778.7 | | | $ | 263.2 | | | $ | 2,050.3 | |
Vessel Operating Leases(2) | | 101.6 | | | 137.2 | | | 140.4 | | | 127.4 | | | 112.7 | | | 107.7 | | | 727.0 | |
Vessel Finance Leases(3) | | 6.2 | | | 53.1 | | | — | | | — | | | — | | | — | | | 59.3 | |
Sale-Leaseback Facilities(4) | | 75.9 | | | 101.4 | | | 102.6 | | | 97.4 | | | 94.2 | | | 866.5 | | | 1,338.0 | |
Total | | $ | 670.5 | | | $ | 541.1 | | | $ | 379.1 | | | $ | 360.9 | | | $ | 985.6 | | | $ | 1,237.4 | | | $ | 4,174.6 | |
(1)Represents principal payments on amounts drawn on our credit facilities that bear interest at variable rates. We have entered into interest rate swap agreements under certain of our credit facilities to swap the variable interest rates for fixed interest rates. For the purposes of this table, principal payments are determined based on contractual repayments in commitment reduction schedules for each related facility.
(2)Represents payments under our operating leases. Payments under the operating leases have a variable component based on underlying interest rates, calculated using the applicable LIBOR in place as at March 31, 2022.
(3)Represents payments under our finance leases. Payments under the finance leases have a variable component based on underlying interest rates, calculated using the applicable LIBOR in place as at March 31, 2022.
(4)Represents payments, excluding amounts representing interest payments, on amounts drawn on our sale-leaseback facilities where the vessels remain on our balance sheet and that bear interest at variable rates.
As of March 31, 2022, we had the following interest rate swaps outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed per annum rate swapped for LIBOR | | Notional amount as of March 31, 2022 (in millions of US dollars) | | Maximum notional amount(1) (in millions of US dollars) | | Effective date | | Ending date |
0.1925% | | $ | 500.0 | | | $ | 500.0 | | | January 31, 2022 | | January 31, 2032 |
5.4200% | | 269.6 | | | 269.6 | | | September 6, 2007 | | May 31, 2024 |
1.6490% | | 160.0 | | | 160.0 | | | September 27, 2019 | | May 14, 2024 |
0.7270% | | 125.0 | | | 125.0 | | | March 26, 2020 | | March 26, 2025 |
1.6850% | | 110.0 | | | 110.0 | | | November 14, 2019 | | May 15, 2024 |
0.6300% | | 94.0 | | | 94.0 | | | January 21, 2021 | | October 14, 2026 |
0.6600% | | 94.0 | | | 94.0 | | | February 4, 2021 | | October 14, 2026 |
1.4900% | | 25.6 | | | 25.6 | | | February 4, 2020 | | December 30, 2025 |
| | $ | 1,378.2 | | | $ | 1,378.2 | | | | | |
(1)Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional amount over the remaining term of the swap.
Counterparties to these financial instruments may expose us to credit-related losses in the event of non-performance. As of March 31, 2022, these financial instruments are in the counterparties’ favor. We have considered and reflected the risk of non-performance by us in the fair value of our financial instruments as of March 31, 2022. As part of our consideration of non-performance risk, we perform evaluations of our counterparties for credit risk through ongoing monitoring of their financial health and risk profiles to identify funding risk or changes in their credit ratings.
Counterparties to these agreements are major financial institutions, and we consider the risk of loss due to non-performance to be minimal. We do not require collateral from these institutions. We do not hold and will not issue interest rate swaps for trading purposes
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings
None.
Item 1A — Risk Factors
None.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
None.
Item 6 — Exhibits
None.