Ladies and gentlemen, thank you for standing by, and welcome to the Global Ship Lease Q1 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Ian Webber, Chief Executive Officer of Global Ship Lease. Thank you. Please go ahead..

Thank you very much. Good morning, good afternoon, everybody, and welcome to the GSL First Quarter 2020 Earnings Conference Call. The slides that accompany today's presentation are available at our website, www.globalshiplease.com.

Slides 1 and 2, as usual, remind you that today's call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company's control.

Actual results may differ materially from these forward-looking statements due to many factors, including those described in the safe harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent annual report on Form 20-F, which is for 2019, and was filed with the SEC on April 2, 2020.

You can see this via our website or via the SEC's. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements.

For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning, which is also available on our website.

I'm joined today by our Executive Chairman, George Giouroukos; our Chief Financial Officer, Tassos Psaropoulos; and our Chief Commercial Officer, Tom Lister. George will begin the call with some high-level commentary and an update on our current areas of focus.

And then Tassos, Tom and I will take you through the quarterly results, our financials and the current market environment, after which we'll be delighted to take your questions. Turning now to Slide 3, I'll pass the call to George..

Thank you, Ian. As we all know, we're in the midst of an unprecedented global coronavirus pandemic.

And while our extensive contract cover provides our financial results with a great deal of insulation from the market, it will be no surprise to anyone on this call today that the global COVID-19 pandemic has been the focus of much of our attention and activity in recent months.

The timing and shape of global economic recovery and other potential longer-term consequences remain open questions.

That said, we believe that our strategy, fleet composition, contract cover and balance sheet position us well during these uncertain times, and we're focused on taking specific concrete steps to maximize GSL's resilience such as deferral of drydockings and intended divestment of 2 ships.

Before I discuss our strategic areas of focus during the crisis and the impact of the pandemic on containerized freight flows and demand for ships, I would like to take a moment to acknowledge the human element underlying these economic issues. The health and safety of our seafarers as well as that of our staff onshore are of highest priority to us.

And I'm pleased to report that we have not experienced any COVID-related health issues on ship or shore, which speaks to the effectiveness of the measures we have taken to protect our people and to keep the business running smoothly.

Despite the challenging backdrop, Global Ship Lease continues to have strong liquidity and a healthy balance sheet, supported by almost USD 700 million of contracted revenue over the average of more than 2 years, set against less than $5 million of debt maturities between now and late 2022.

We have made great progress over the last year in strengthening our charter portfolio, virtually eliminating any debt maturities through the medium term, diversifying our charter portfolio and ensuring that we're financially resilient so we're capable of withstanding a wide range of potential scenarios in an industry that is subject to cyclicality in even the best of times.

We remain committed to refinancing the bond as soon as possible, but we're focused in the near term in responding to the challenges posed by the pandemic. Critical to a strong liquidity and cash flow is our ability to maintain the highest level of commercial and operational uptime for our ships.

Success in this regard is centered to our strategy and to our competitive advantage as a trusted provider of containership tonnage to our customers. In much the same way, we're focused on providing consistent, high-quality service for our liner operator partners.

During this challenging period for global trade, the reliability, operational flexibility, low slot costs and high reefer contest of our ships are of heightened relevance to the shipping lines, allowing them to maintain their own service integrity on a cost-competitive basis.

We are pleased to work with a cross-section of the global market leaders in the liner industry. And our provision of highly competitive best-in-class tonners and operations ensures that we continue to do so through good times and bad, well into the future.

With that, I will turn the call to Ian for a review of our fleet and charter portfolio as well as an overview of recent developments..

Thank you, George. On Slide 4, you can see our charter portfolio from which I'll draw 1 or 2 highlights. We have some $696 million of contracted revenue with the TEU-weighted average remaining contract duration of 2.3 years.

As you can see, we have limited open periods for our ships in the near term, perhaps best illustrated by the fact that 89% of our adjusted EBITDA, based on certain assumptions, which we set out later. 89% of our adjusted EBITDA for 2020 is covered by contracts already.

This tightly limits our exposure to a near-term charter market, but is likely to experience volatility as economies throughout the world work through COVID-related closures and the phased process of reopening.

On Slide 5, I'd like to provide some additional color on an aspect of our fleet that George mentioned in his opening remarks, namely its ability to carry a high number of refrigerated containers or reefers, including in some ships, which have market-leading reefer capacity in their size segments.

The reason I want to emphasize this particular aspect of our fleet is that reefer cargo represents both the fastest-growing elements of containerized trade and also provides premium freight rate cargo for the liner operators compared to a standard or a dry container.

Among other things, reefers are utilized extensively as a vital link in the global supply chain for food stuffs and medicines, both highly important segments of containerized trade considered to be relatively less susceptible to economic fluctuation. Slide 5 shows the superior reefer capacity of our fleet.

Midsize and smaller ships with such high reefer capacity represent our outliers in the market and tend to command employment, earnings and valuation premiums relative to a standard vessel of the same size. This is often unappreciated by financial investors.

We view this high reefer capacity as an important competitive differentiator for our vessels and their proven ability to command those premiums in the market serves as proof that the liner companies, our customers agree. Moving on to Slide 6. We've outlined our first quarter 2020 results and year-to-date highlights.

Throughout the quarter, we continued to generate strong, predictable cash flow from our contracted charter cover, with $70.9 million of operating revenue, $39.6 million of adjusted EBITDA and $10.5 million of normalized net income, which is adjusted for a noncash impairment charge of $7.6 million and for $2.3 billion net premium paid on the redemption and repurchase of our 9.875% notes due late 2022.

Our operating performance for the quarter was solid through our utilization level of 92.1%. Although this reflects extended drydockings related to COVID-19, delays in shipyards, docking work is simply taking longer.

Our operating expenses of $6,352 per ownership day are up slightly, reflecting the addition of newly acquired post-Panamax ships and their integration into our fleet. Commercially, we were able to extend charters on 7 of our smaller vessels, achieving rates of between $8,000 and $9,000 per day for durations of between a few months and a year.

Tom will talk more about the market shortly. We also extended the charter of 1 of our recently acquired post-Panamax ships for 70 to 90 days from early April at a 40% higher charter rate with the extension expected to generate approximately $1.2 million of additional EBITDA.

Just as importantly, we took steps to reduce our cost of debt and further extend the runway on our debt maturities. We refinanced $46 million facility due at the end of 2020, utilizing a facility agreed last year of $36 million or so and a new $9 million facility agreed recently.

We have negligible debt maturities for the balance of this year and next year. We opportunistically utilized the proceeds of our at-the-market programs for our 8.75% Series B preferred bond and our 8% notes to call $46 million of our 2022 senior secured notes and to purchase $9.1 million of those notes in the open market at a discount.

Meanwhile, our cost of debt falls as LIBOR drops, as the majority of our debt is floating rate. And as George says, we continue to be in discussions regarding the opportunistic refinancing of the remaining $270 million or so of the 2022 notes, just an outstanding.

None of the parties with whom we are in discussions have withdrawn, but it must be acknowledged that progress is now a little slow.

Following a scheduled $7.4 million amortization payment we made on April 30 on our senior secured credit facility, which is tied in with the 2022 notes, we stand here today with only $4.7 million of debt maturing before late 2022, giving us an excellent runway through the near and medium term.

With that, I'll now turn the call over to Tom Lister to walk us through the market..

one, the high Suez Canal charges; two, exceptionally low fuel costs, which are helping shipping lines across the board; and three, the rational deployment of excess capacity by the liner companies themselves.

Changing tack, the pie chart at the bottom left shows the composition of global containerized trade, roughly 70% of which by TEU volume, is in the non-mainlane, intermediate and regional trades typically served by midsized and smaller ships like ours. Slide 12 wraps up this section by focusing on the supply side of the picture.

Yes, as you can see at top left, idle fleet capacity in the market is north of 10% which is the highest level seen since the global financial crisis.

And yes, exacerbating this is the fact that COVID-19 has triggered the temporary closure of the world's principal ship recycling facilities, prompting a buildup of ships, some of which would be expected to be deleted from the fleet upon the anticipated reopening of those facilities, we hope comparatively soon.

Undoubtedly though, the industry is facing a challenging near-term outlook.

On the flip side, however, we believe that the supply side fundamentals laid out on the bottom half of this slide, namely negligible or even negative fleet growth, combined with a minimal order book pipeline, provide the foundation for an earnings rebound for midsize and smaller containerships when the world begins to recover from COVID-19.

So on that note, I'll hand the call to Tassos to talk you through our financials.

Tassos?.

Thank you very much, Tom. Slides 14, 15 and 16 show our unaudited pro forma consolidated balance sheet, statement of operation and statement of cash flow based on the first quarter of 2020. Rather than going through every line item, let me point out a few key items. We generated revenue of $70.9 million during this first quarter.

The $3 million increase in revenue year-over-year was principally due to the acquisition of 7 vessels since March 31, 2019.

We generated a net profit of $0.6 million after a noncash impairment charge of $7.6 million for the 2 vessels, Utrillo and GSL Matisse, which we plan to sell, and $2.3 million net premium paid on the redemption and repurchase of approximately $55.1 million nominal amount of our 2022 notes.

In the first quarter of 2020, there was 224 plant offhire days for 3 regulatory drydockings completed and 2 scrubber installations in progress. 39 days of unplanned offhire and 56 days of idle ballast time giving a utilization of 92.1%.

We are experiencing extent in CPR time due to the effects of the virus and congestion in yards, as Ian has mentioned before.

The average operating expenses per ownership day, including management fees in this quarter was $6,352, down by $225 per day year-over-year, mainly as a result of the acquisition of the 7 vessels noted above, all of which are post-Panamax with higher daily operating expenses.

The general and administrative expenses were $2.4 million for first quarter of 2020 compared to $2.5 million in the same quarter in 2019. The average general and administrative expenses per ownership day in the first quarter of 2020 went down to $595 from $718 in the same quarter in 2019.

Finally, the total cash on hand as of end of the quarter of 2020 was $97.7 million after the redemption of $55.9 million of our 2022 notes. Slide 17 now shows information on scheduled drydockings and upgrade works to assist you in modeling CapEx and offhire for the year. And Slide 18 is our usually illustrative adjusted EBITDA calculator.

To assist, we have provided 10- and 15-year historic average charter rates per vessel size. I should emphasize here that this is not a forecast. I would now like to turn the call back to George for closing remarks..

I will briefly summarize on Slide 20 before moving to our questions -- to your questions.

We have entered this current period of uncertainty in the global economy on an active footing, having taken steps both in the preceding year and through the early part of 2020 that have reinforced our resilience and downside cover that will serve us well over the period of near-term volatility while also ensuring that we're positioned to regain forward momentum in a recovery.

We have strong downside protection. Our debt service and CapEx are well covered by contracted cash flow and strong cash position. On top of that, we have negligible debt maturities before late 2022. Our charters are performing well, are noncancelable and do not have any force majeure clauses.

We are focused on midsize and smaller fleet segments that have flexible deployment options and supportive fundamentals. Most notably, they're negligible to negative net fleet supply growth in recent years and the minimal order book covering any deliveries in the next 18 to 24 months. Now this is very important.

This is radically different from prior downturns, which were exacerbated by overcapacity and high order books. We are providing vital services in close partnership with our liner customers.

Our consistency -- consistently excellent operational performance and ability to provide highly efficient, well-specified vessels makes it possible for our customers to achieve cost efficiencies in a highly competitive environment.

Additionally, our high reefer capacity supports a liner customers' ability to participate in a high-margin, fast-growing business segment, while supporting supply chain integrity for essential commodities such as food stuffs and medicines.

Finally, we're prioritizing the safety and well-being of our personnel as well as our financial strength and flexibility. Our operational excellence and the all-around resilience of our business in a complex, uncertain time.

Now these priorities are the core of our business throughout economic cycles, but take on the greatest importance in periods of stress.

By staying true to these principles and executing our strategy, we believe that GSL is well positioned to weather the storm ahead of us and to utilize the substantial benefits of our diversified contract cover, our highly efficient well specified fleet, our integrated management platform and our close relationships with top liner customers to position the company for a market recovery.

With that, we would be pleased to take your questions..

[Operator Instructions]. And your first question, line of Liam Burke with B. Riley FBR..

In the prepared comments on the industry overview, you pointed out correctly that the rates on the liner companies are holding up. Part of that is because there's been some idling of tonnage just to keep the capacity tighter.

Do you anticipate a correction period as the liner companies start releasing more capacity? And how do you think that will affect some of the vessels you have open for recharter?.

Tom, do you want to take this up?.

Sure. I'll have a go in any case. It's very difficult to tell, to tell you the truth. And all I can do really is point back to the fact that unlike previous downturns, the lines have kept their discipline in terms of capacity management. And as a result, freight rates have remained high.

I can also, I suppose, point to the fact that much of the idle capacity at the moment is actually operator-owned tonnage. So it's ships owned by the liner companies themselves, and it tends to be the much bigger ships, which, as we've remarked, are deployed on the big East-West arterial trades.

So not really ships that -- against which our vessels would be competing in an open market, but much more than that. It's difficult to say..

If I may add, what we have seen in the past downturn of 2009, the liner companies, what they have done is they have kept the big ships idle as long as necessary for the market to normalize. So given the fact that since then, we have a substantially bigger fleet of large ships.

I would imagine that liner companies would keep idling these 20,000 TEU ships, most likely and letting the rest of their fleet operate to manage capacity. That's what would be my personal guess going forward, which is positive for the operator owners like GSL that do not own such large ships..

Great. That's very helpful. And on the operations, your operating costs per vessel went up for obvious reasons. You added 7 vessels. They were larger. Operating costs are higher.

During the same period, did you -- were you able to take a similar amount of revenue credit for owning those vessels? Or was there a lag time between the expense incurred and the realization of revenue?.

Yes.

Tassos, do you want to answer that?.

Yes, of course. Of course. During the time of the operation, most of these vessels have incurred some dry dock. So in this case, we have incurred the OpEx expense during that time, but we haven't received the appropriate revenue. Everything will be normalized on the second quarter..

Just to explain a little bit on this, the deal was on some of the ships when we took them over, that we would pass the special survey and then get a clear 5-year, 3-year employment on the ships. That is why we had to perform the dry dock special surveys right7 away and then have a clear runway of the remaining of the charter..

Your next question, line of Mark Stan [ph] with DB..

Solid performance.

I guess just given the environment we're in, I wanted to ask if any of your charters have looked to renegotiate any of the charters in place? And if so, how the company has responded?.

Well, we have not had any negotiations. And I think we haven't had any negotiations in our history, but Ian can add to that because I was not in the company a few years back.

Ian?.

Yes, sure, George. No, we're not talking with anybody about renegotiating terms. But as George says, it happens from time to time.

The last time for us was I think back in 2014, when we agreed to amend the charter rates against 4 ships -- against a 3-year increase in the duration of the charters, so-called amend and extend, which was clearly beneficial to us improving our credit profile.

But to answer your direct question, Mark, as just to reaffirm what George says, no, we're not talking with anybody right now..

Okay. That's helpful. And it's encouraging, I guess, to see liquidity position that you have as well as basically the runway until the upcoming bond maturity, and I guess, given the circumstances, maybe refinance isn't as imminent as would have been planned maybe a few months ago, probably you could have looked to call it and refinance cheaper.

But I guess, what is the most current thinking with respect to the upcoming bond maturity to the extent there is any update?.

The refinance is, like we said, that form the core, is our top priority, and it was all along. The discussions we've been having with various financial institutions in achieving that have been pretty forward moving. And none of the parties that we have been in discussion has backed off these discussions.

Unfortunately, the pandemic came and our focus is right now into this, which is far more pressing and demanding requirement. Once this is settled and the market settles to a more stable state, we were going to refocus back on to the refinance. One thing that is though important to mention is that as time goes by, our bond is maturing anyway.

So the net position, cash plus debt at any given time, more or less, it's the same as time goes by. So we're not building up debt, and as time is slipping away. So that shouldn't worry any of our investors. But yes, we are fully focused on the refinance as before..

And final question. It was encouraging to see the new charters.

When did those come into place? What part of the quarter? Was it pre-COVID or post?.

Which charters do you referred to?.

I think there are some extensions to the presentation. It looks like....

So I think the answer, Mark, is both before, during and -- well, we're not yet after, sadly. So the charter market is obviously a bit more challenging. But it's still active, and we've been able to fix ships despite the pandemic..

Yes. I'm just looking at the presentation, the charter contract cover, it looks like there's some smaller vessels, which -- that were added to this year, the $9,000, pretty good levels.

So wondering whether that occurred at the very beginning of the year or pre -- where the market getting more difficult or if it's -- it was more in the back half of the quarter?.

Mark, this is Tom. I would say that the $9,000 per day rates were agreed earlier in the year. And the $8,000 a day rates for the Keta, which is at the top of Slide 4, was agreed when the market was beginning to get more challenging..

Next question, line of J. Mintzmyer with Value Investor's Edge..

So continuing the discussion there, I think we had a good start asking about the charters. I noticed they're all kind of short term. And I saw the same from some of your peers that have reported -- we talked with Costamare as well and a lot of short-term little extensions for 6 months, 12 months, maybe even shorter.

Is there any interest in the market right now for something of a longer duration of 2 or 3 years? Or are these just a little patchwork, 3-month, 6-month, 12-month type deals?.

Well, I'll try answering that, and Tom can also add. Right now, nobody knows when the world economy will be fully open and back to the normal operation, equally our charters. Therefore, for the time being, we're not seeing really the market. We're just seeing psychologically driven market where people are having uncertainty.

And when you have uncertainty, you just want to keep rolling until you see where this -- the end result of this pandemic, economically wise will end up. And that's the time where the liner companies will come into the market for some more material engagement with owners and longer charters.

So I do not believe in the next 2 or 3 months, we will see any liner company willing to commit long term, and long term means more than 12 months, if at all, 12 months, until they have a view of what the new norm for demand will be..

And just to add to those remarks, I agree completely. But I think that the short-term nature of the contract or at the moment is not just something that suits the liner operators, it's also something that owners prefer, neither the liners nor ourselves would want to go long in such an uncertain context.

So we're both waiting for more visibility on the market..

It certainly makes sense. You don't want to trade off your longer-term upside as well if things pick up. So look, I mean, last year, when we were talking last fall, 2020 was that pivotal turnaround year, right, where you completed the refinancing of those 2022 notes.

We were talking about maybe bringing the dividend back, but look, coronavirus has changed a lot of those things. But I did notice at the start of the year, you repurchased a little bit of those notes. You called a little bit of them back. They now trade around 80% to 85% par. They have a yield maturity of around 18% right now.

Is there any additional levers out there to maybe do some open market repurchases? Or are you preferring to just keep a high cash balance for now?.

Well, liquidity is key in these uncertain times, and we will maintain liquidity until we can see clearly the light at the end of the tunnel. When we see the market where it settles, and then once that's done, then we will rethink and reconsider.

But as of today, when we don't know really how the market will develop, we wouldn't want to lose the strength of our liquidity, which is a very material advantage of our company. I don't know, Ian, if you have any further comment to add to it..

No, I think that sums it up nicely. J, we're in a relatively good position with our charter cover and forward cover, but we're not complacent. Cash is king. We've taken steps to defer dry docks. We are reducing the work being done on dry docks that we can't defer. We're looking again at OpEx to bring that down. So we're conserving cash.

And whilst, yes, it looks like a smart treasury decision to go and buy back bonds in the low 80s, which is where they're trading at the moment, we don't want to prejudice the company's cash position just yet. We need some more visibility on the recovery..

Your next question, line of Howard Blum with UBS..

While I appreciate the need to husband cash and I think being conservative in this environment is, of course, the right way to go, some of us were long-term owners. Remember that there were a number of restrictions in place previously to this year about payings.

If you saw the market stays and conditions improve and become more normal, is there anything in any of your financing arrangements currently that prevents the Board from paying cash dividends to shareholders?.

Ian?.

There are some theoretical limitations, but in practice, no, Howard. The principal limitation is in our bond instrument. But just to illustrate the point, if we raise cash equity, then we're allowed to pay a dividend or repurchase stock to the extent of the cash that we raised. We raised $50 million of cash equity last year.

So we have $50 million of dividend capacity because of that. And we're also allowed to pay a dividend now based on 50% of last year's earnings. So we are permitted to pay a dividend. But conserving cash, as you -- as I've just said, when I talked about buying back bonds, and you've observed conserving cash right now is key to us.

But we do understand the importance of the dividend in due course for our patient, common stockholders..

[Operator Instructions]. Your next question, line of Phill Larson with Millstreet Capital..

Solid quarter. I also just wanted to ask about the notes rather quickly.

So just to be clear, have you repurchased any additional notes since the end of the first quarter?.

No. We haven't..

No..

So the $267 million is the total amount outstanding right now. Okay.

And then is there anything in any of your financing agreements that would prevent you from repurchasing those notes in the future should things change?.

No, none. Nothing..

[Operator Instructions]. And there are no other questions. I will now turn the call back over to Ian Webber for closing remarks..

Thank you very much. Thanks for your interest and your questions. We look forward to providing you with a further update on GSL and the markets later in the year after our second quarter closes. So we'll speak to you then. Thank you very much..

Ladies and gentlemen, this concludes today's conference call. Thank you for you participating it. You may now disconnect..