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Seaspan Corporation (NYSE:SSW)

Q4 2008 Earnings Call Transcript

March 2, 2009 9:00 am ET

Executives

Gerry Wang – CEO

Sai Chu – CFO

Analysts

Mike Huber – Wachovia Securities

Matt Troy – Citigroup

Florian Inn [ph] – Bank of America Merrill Lynch

Greg Lewis – Credit Suisse

Urs Dur – Lazard Capital Markets

Miles McCann [ph] – Cantor Fitzgerald

Arnia Sadersam [ph] – Maxim Group

Operator

Welcome to the Seaspan Corporation conference call to discuss the financial results for the 3 and 12-month periods ended December 31, 2008.

Hosting the call today is Gerry Wang, Chief Executive Officer of Seaspan Corporation; and Sai Chu, Chief Financial Officer of Seaspan Corporation. Mr. Wang and Mr. Chu will be making some introductory comments, and then we'll open the call up for Q&A.

I'll now like to turn the call over to Mr. Sai Chu. Please go ahead sir.

Sai Chu

Thank you operator. Good morning, everyone, and thank you for joining us today. Before we begin, please allow me to remind you that this presentation contains certain forward-looking statements as such term is defined in Section 21e of the Securities Exchange Act of 1934, as amended, concerning future events and our operations, performance, and financial condition, including in particular, the likelihood of our success in developing and expanding our business. These forward-looking statements reflect management's current views only as of the date of this presentation 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. Although these statements are based upon assumptions we believe to be reasonable based upon available information, they are subject to risks and uncertainties detailed from time to time in our periodic reports. We expressly disclaim any obligation to update or revise any of these forward-looking statements because of future events, new information, change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our common and subordinated shares.

I'll now turn over the call to Gerry.

Gerry Wang

Thanks, Sai. Good morning everyone. Thank you for joining today's conference call. I'll start on slide three of the web presentation.

For the fourth quarter, on the financial side, we reported revenue of $62.7 million. We recorded normalized earnings of $20.4 million. We generated $36.8 million in cash available for distribution.

For the fourth quarter on the operational side, we took delivery of three new vessels, increasing our operating fleet to 35 vessels. We achieved almost 100% utilization, which is consistent with Seaspan’s strategy to operate its modern fleet, exclusive on time charters and its past performance, with no incident related to piracy, collisions, environmental pollution during the quarter.

For the fourth quarter, we declared a dividend of $0.475 per share, bringing cumulative dividend to a total of $6.09 per share since our IPO in the year 2005.

We also finalized our new technical management agreement during the fourth quarter. Formerly in January, we entered into an agreement for the issuance of $200 million US in preferred shares, with the sponsors and the funders, further expanding our financial flexibility. So, I will briefly detail the main parameters [ph] for growth, who are not familiar with this transaction.

Now please turn to slide 4, you will see the breakdown of our customers. Seaspan customers consist of a portfolio of seven of the world’s largest and highest credit quality line of companies. 70% of our total contracted revenue comes from COSCO, China shipping of the few state-owned Chinese shipping companies, and 20% from MOL and the K-Line in Japan.

So far Seaspan has experienced no delays in charter payments, and have had no contractor issue with any of our charters. We expect our charters to continue to perform according to the governing third party [ph].

(inaudible) consists of 35 ships in operations and 33 new builds to be delivered over the next 3.5 years. Our existing 35 ships have an average charter period of about seven years. Our new building of 33 ships have an average charter period of about 11 years. We have no scheduled renewals until 2011 at the earliest.

We have secured bank debt financing for all of the remaining 33 new buildings. We have no debt maturities until 2015. The expense leverage as of today is approximately 60%. We are in compliance with all of our loan covenants during a volatile time for asset prices. I will highlight Seaspan’s exposure to market volume shift is minimal, as we do not have market value clauses in any of our own facilities.

Seaspan’s shipyard consists of Hyundai Heavy Industries, Samsung Heavy Industries, and Yangzhou Zhejiang [ph] building. We believe they will continue to perform as expected during the industry downturns. We continue to maintain strong relationships with our shipyards and our charters, and have worked with both to ensure our delivery schedule to reflect the current market conditions.

While delivery schedules continue tend to be dynamic and are subject to change, at this point of time, we expect to take delivery of 6 to 9 vessels instead of 12 vessels during the year 2009. While we cannot predict the extent of the recession and the ultimate impact on the industry, our banks, our shipyards, and our charters, we will continue to manage our business diligently in order to stay healthy and strong for both the well-being of our company and the benefit of our shareholders on a long-term basis.

I would now like to turn the call to Sai Chu.

Sai Chu

Thank you, Gerry. I will begin on slide 5 detailing our key metrics for the fourth quarter and year 2008.

Cash available for distribution remains a key metric for us. We reported increases of 15% for Q4 and 19.1% for 2008 compared to last year.

Cash dividend paid was $28.7 million for Q4, and $115.6 million for the year. The PL ratio [ph] was 77.9% for the quarter and 84.5% for the year, lower than expected due to the drift. The primary participants in our drift are our founders. Our PL ratio for 2009 will be approximately 73%, well within our targeted range. (inaudible), which has helped us continue to achieve a high utilization of 99.9% for Q4, 99.3% for the year, and 99.2% from our August 2005 IPO.

Two days of minor off-hire impacted revenues by $36,000 in Q4, and 83 days impacted revenue by $1.6 million for the year. Most of the off-hire this year occurred in Q1 from the repair and advanced dry docking of the CSCL Hamburg, and in Q3 due to the main engine repairs of the Maersk Matane.

Operating expenses for Q4 were up 16.2% due to three new vessel deliveries, and 18.1% for the year, (inaudible) delivered in 2007 and fixed in the current year.

EBITDA increased 12% for the quarter and 13% for the year to $156 million. Normalized EPS of $0.31 for the quarter was consistent with 2007, an increase of $1.19 for the year compared to $1.18 last year.

Our normalized earnings were adjusted primarily to improve the non-cash mark-to-market accounting, actually required for US GAAP. We elected to discontinue hedge accounting at the end of Q3, as we believe that (inaudible) the non-cash nature of the mark-to-market adjustments are not representative of our actual cash operations.

In addition, we previously chose to apply hedge accounting. We had only approximately 30% of our mark-to-market adjustments met the accounting requirements to the part of these non-cash adjustments for the balance sheet.

Accordingly these (inaudible) with amendments to their cost to maintain hedge accounting for our investors. For further clarification on how that change impaired value affected our income statement and balance sheet, please refer to our earnings press release.

Including these non-cash adjustments, we recorded a net loss of $241.9 million and $199.3 million respectively for the quarter and year. As a reminder, we expect these fixed interest rate swaps to mitigate interest rate risk and realized (inaudible) cash returns for all our acquisitions, as they met our economic and risk management criteria as effective hedges as opposed to accounting requirements for hedge accounting.

Turning to slide 6, we provide a balance sheet summary. As of Q4, we maintained a strong cash position of was $136.3 million and current assets $141.7 million. Total assets were $3.3 billion, $3.1 billion of which were for operating vessels and new build installments. We've drawn $703.8 million of debt for our operating fleet and $1 billion to fund our new building program.

Turning to slide 7, we will discuss our dividend declaration for the quarter. For Q4, our Board declared a dividend of $0.475 per share. Cumulatively, we have declared a dividend of $6.09 per share since our IPO.

The Board will continue to evaluate the dividend each quarter. Since our 2005 IPO, we paid dividends for 14 consecutive quarters. The company continues to have a sizeable and growing contracted revenue stream to support the dividend policy. The company and board recognized that the benefit of this dividend policy and our tremendous [ph] to our shareholders.

At this time, the company has no plans to change its dividend policy. However, in light of the current economic and capital market environment, the company and board will focus on ensuring that the (inaudible) cash flow is a point of matter and remains consistent with creating long-term value to shareholders.

The factors the Board may consider in making future dividend declarations are market conditions, (inaudible), and potential arbitrations which may arise given the current market dynamics.

Despite the macroeconomic environment, we remain confident that our business model being a strategic outsourcing partner providing operational cost effective long-term charters averaging nine years to a select list [ph] of the strongest line of companies, combined with secured long-term capital will continue to perform and generate sustainable cash flow to our investors over the long term.

During the year, Seaspan announced over $1.3 billion of debt and equity financing. Combined with the recent $200 million convertible preferred share offering, we raised $5.6 billion of capital to fund our asset portfolio of 58 ships.

For those who aren’t familiar with the details of the January $200 million convertible pref transaction, we closed a $100 million first tranche with the (inaudible) Graham Porter and other of our founders.

Preferreds were achieved at significant premium over the market with a 57% conversion premium over our January 22 closing price of $9.54, and 94% premium for yesterday’s closing price of $7.75 in a 12% coupon compared to 2010 yield announcement. Most importantly, we deferred the non-cash coupon for five years and maintains the cash available to our common shareholders.

Accordingly, this is not a immediately dilutive transaction until conversion at least 5 years away.

(inaudible) 30 day trailing average of $15 or greater on or after January 31, 2014. This conversion has now achieved the company holds the option to convert 115% of the difference below the $15 strike price.

Alternatively, we can continue to (inaudible). The minimum total cumulative value of the preferred is $340 million after 5 years. As noted in recent 13-G filings (inaudible) to purchase approximately 4 million shares in the open market during Q4.

The founders have also committed to common shares to DRIP, resulting in a $20 million annual reduction of the common cash dividend for a five-year total combined commitment of $440 million in equity, with no cash dividend terms and requirement.

The deferred transaction comprised with their DRIP participation in Q4 open market purchases demonstrate the confidence in our business model in addition to their commitment to support our capital funding, and issue them on a shareholder friendly manner.

The Jury mentioned, we have secured $3.9 billion of long-term debt financing with the earliest maturity in 2015. Our debt has been structured consistent with our cash flow model, does not have traditional (inaudible). We reiterate, that we expect to continue to in compliance with our debt covenants by a large margin.

Although the debt markets have been challenged, our good bank relationships continue as expected. Access to the debt markets is currently limited, although we continue to consider different financing structures currently available to us, and we are well positioned to access the debt markets now and in the future through our strong and growing cash flows to the highest credit quality customers, our conservative balance sheet, and our $1.7 billion of equity raised to date.

We have reduced our targeted equity financing by over $300 million to $500 million or $600 million, and further deferred them by an additional 9 to 12 months to the mid-2012 compared to our previously noted guidance of up to $900 million through Q3 of 2011 in our Q3 earnings release.

The equity reduction due to the convertible preferred and the deferrals were also a result of changes in the shipyard delivery schedule. The management's top priority today is to continue strengthening our balance sheet, ensuring flexibility in our capital structure and management are equity needs.

Gerry and myself and the entire team remains fully committed to actively and effectively leading the company through this period of economic uncertainty.

This concludes our opening remarks. I would now like to open the floor for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we will take our first question from Justin Yagerman from Wachovia Securities.

Mike Huber – Wachovia Securities

Hi, good morning guys. This is Mike Huber filling in for Justin. How are you?

Gerry Wang

Hi, how are you, Mike.

Mike Huber – Wachovia Securities

Good. Just add a handful of questions, first off with the change in your equity capital requirements, you know, I guess the reduction in $300 million from your guidance related to the DRIP in the preferreds, the deferral, however, is that going to be matched by pushing back the delivery dates on some of your vessels, or is that going to be met with, I guess, an overhang or excess capacity in your credit facility or how are you guys thinking about that?

Sai Chu

That is primarily with the changes in the delivery schedule. As we all know, I mean the industry is dealing with an overcapacity issue on slide five. So, clearly people within the industry, the yard, the customers and the orders are working to spread out the capacity. So that is the key reason for the deferral.

Mike Huber – Wachovia Securities

Certainly, that is something you guys have already gone through, I guess, with your charters and the shipyards or is that something that we should expect hearing news on later.

Gerry Wang

Mike, this is Gerry speaking. Seaspan has been working with the builders and the charters on the delivery schedule from day one, (inaudible). During good times, we try to advance deliveries, and during times like this we try to work with charters and shipyards to defer those deliveries. So, it is sort of an ongoing process adjusting to the dynamic market conditions. Yes, we have achieved certain adjustments in the delivery time going forward, and we expect to take delivery of 6 to 9 ship versus 12 originally scheduled. And we're also extended our delivery of the last ship from 2011 to mid second half 2012. So that would help our charters and at the same time that would also help us on the equity side.

Mike Huber – Wachovia Securities

Okay, I think that makes sense. And I guess, kind of related or definitely related, maybe you can give a little color on, I guess, the state of the SNP [ph] market and whether liners are still looking to shut assets, what those term profiles look like given the state of the charter market, and I guess your overall ability or preference right now to continue to expand.

Sai Chu

The current SNP market condition ship volumes are very dynamic. There are very few deals now to be done. Most of the liner majors actually in reasonable shape after having come through a record profit for the year 2006 and 2007, and the 6 to 8 months of 2008. So, we haven't seen any major depreciation, whether it is the liner majors in terms of their ability to honor the agreement. I must highlight, Seaspan has a strong group of charters, with probably the highest credit with 70% of our revenue coming from COSCO (inaudible) in China, with additional 20% coming from (inaudible) in Japan, and we feel very comfortable with the charters we have. The creditworthiness we have. As I mentioned in the opening remarks, we have had no issues right now with regard to the charter party performance, and with our charters and our shipyards are also having very good equity as well being in Hyundai Heavy Industries, Samsung Heavy Industries, two leading distributors in the world. We are confident the distributors will continue to perform. And the overall situation in the liner market really, doesn't really expect such short-term situation. All our charts are long term charter coverage. We have no renewal, the earliest renewal at the end of 2011. So with the generation that, see what happens when we have to renew, we have two ships come up for the year 2011. So, I suppose, you know, the market situation is very limited.

Mike Huber – Wachovia Securities

Okay, are you still getting approached by liners for sale leasebacks, and I guess, what are those term profiles look like, has asset values come down to the point where they are starting to make sense or I guess, from a deal flow perspective it is it still very heavy?

Gerry Wang

Yes, indeed Mike. We are being approached by four or five liner majors for some sale leasebacks, and obviously the primary focus of the company is to preserve the capital to answer that, to get through this challenging period of time. This deal makes a lot of sense in terms of enhancing our capital structure, and then we would look at it. So at the end of the focus is on, preserving capital as I said, couple of weeks ago in an interview, capital is under pressure [ph], and the capital will be expensed, so we want to use that with maxim delivery.

Mike Huber – Wachovia Securities

Now, that makes sense. And I guess just finally, you have a couple of vessels with charter options that I believe could bring you’re your coverage when you look at 2010, and in 2009 and 2010 and beyond, you know, I guess how do you incorporate that into your equity needs, and then do you have an update as to whether or not at all those options have been picked up. I believe specifically, the Dubai Express, the Jakarta Express and a handful of that decrease?

Sai Chu

Yes, the charter was obligated to give us two year advance notice. So far we haven't received the notice. Once the notice is served there is a penalty clause in the charter parties. So far it hasn’t happened. So, our expectation is the earliest possibility for deliveries is 2011. We don't see any intent contractually to have any renewal before that.

Mike Huber – Wachovia Securities

Okay great. That is very helpful. Thank you guys for your time. I appreciate it.

Sai Chu

Thanks Mike.

Operator

And we will take our next question from Matt Troy from Citigroup.

Matt Troy – Citigroup

I wanted to revisit the deferral issues, specifically 6 to 9 vessels, if I look at the book ends of that range, it is 25% to 50% of your expected deliveries in ’09, and you are talking about pushing out to 2010. If I recall the delivery schedule, I think it was 4 customers, which were expecting those ships in 2009. Was this decision driven primarily by those shipping customers, and is it one or two or is it one or two ships at each. I am just trying to decide if it is concentrated or if it is spread across the four that were expecting new deliveries this year.

Sai Chu

And that is spread across, and then as I said, during these times, we always try to help customers to get the ships earlier, like we did for last year. We had an average of four months earlier delivery schedule for the ships to deliver. Now, we are going through a very tough time, especially we want more deliveries for November, December, January, February, the slow season. We want just to be delivered in the spring of February, March and onwards. So, the adjustment is in line with that, and as part of our practice over all those years, in terms of adjusting our delivery times to reflect the market conditions.

Matt Troy – Citigroup

If I look at your – the funding gap on the equity side, what is your sense of timing of the decision or update on how you are going to find the remainder, certainly there is no sense of urgency given what you have announced today and in January relative to scheduling, but it is an overhang for the share price and based on some of your action to the preferred issuance, clearly any visibility in funding the gap would be a positive for your stock. If you could just help us, what is the decision making framework with your board, and any thoughts on timeframe when we could expect or begin to expect an update in terms of how you plan to fund that gap and what the alternatives might be?

Sai Chu

Hi Mat, this is Sai. As you recall back in our Q3 call, we were pretty clear that our goal was to reduce the 2009 equity needs and then tackle 2010 and 2011. So let me say pretty quick, we dealt with the claims in 2009 in a really lot of different [ph] ways for the five years given the preferreds, and we probably did not – could have got it down to the extent that we needed that preferred but we felt it was prudent to take that capital because it was well sized and it made sense in the capital structure for us. So, we also achieved a deferral of the capacity as well (inaudible) given what we did in reducing the equity needs by over $300 million and stretching it out an extra 9 to 12 months, we think that was indicative of what we were able to achieve. A lot of these transactions that we are working on take time and we made pretty good progress compared to a lot of our peers in trying to address the equity needs, and I think that we continue to work on them. We do have time but we are also very cognizant of a very changing environment in terms of the dynamics. So, we keep the board apprised really of all the different transactions that we are working on and the level of success, and the likelihood of timing. And we continue to keep working at it and to put of the – or eliminate the equity needs. The key for us is just managing the capital structure, strengthening it up and have enough flexibility. We don’t have anything to announce today but we continue working on transactions that help us strengthen and eliminate those equity needs over time.

Matt Troy – Citigroup

And not to get overly precise, but can we expect an update or would it be reasonable to assume that we will get an update sometime say before the end of the third quarter? I ask because you did – you put the bull’s eye out there with respect to the ’09 funding needs and you certainly hit it I think in a very constructive way with (inaudible) you know in a market that hates uncertainty, I am just wondering in terms of expectations, can we expect another update or announcement in 3Q?

Sai Chu

3Q, we would expect that you know, we will be able to give clear guidance on 2010 and beyond by the end of Q3.

Matt Troy – Citigroup

Okay. The last question I have got, and it is certainly prevalent across the shipping sector, is the dividend level obviously from a cost to capital perspective, the current yield is not optimal, again though the company was founded on the stability of the dividend the market conditions have changed drastically since that time, could you just update us with your thoughts in terms of your evaluating the capital needs and ways to conserve capital, is the dividend on the table, and if so, is it a greater consideration that it has been in the past, or just help me think about the stability of that dividend in your outlook going forward. Thank you guys.

Sai Chu

Well, first off, as we said, there are no changes as of today but as any company in this world that is being prudent and doing a great job for their constituents, their shareholders, you have to consider in this environment, it is not on the table but I think that we will continue working through the different approaches that we feel more – at this time, what is important is the more we set up the dividend here, we can structure it as the dividend here (inaudible). So there is a value to paying that dividend and we will continue to evaluate it over time.

Matt Troy – Citigroup

Okay, thank you guys.

Sai Chu

Thank you Mat.

Operator

We will take our next question comes from Ken Hoexter from Banc of America Merrill Lynch.

Florian Inn – Bank of America Merrill Lynch

Hi, great. This is Florian Inn [ph] for Ken, he is traveling. I guess to start off from an industry perspective, could you give us a sense of how much you have seen the level of negotiations increase at the shipyards and along with that are you seeing, I guess from a couple of months ago, are owners more – are they able to get easier negotiations with the ship owners, are they more successful in negotiating delays and cancellations?

Sai Chu

As far as the answer to your question, as far as container issues are concerned, obviously there have been a lot of discussion with the ship owners on the different delivery times but I have not seen any massive changes yet, and we are one of the very few owners that has been able to achieve certain adjustments in the new delivery time. We have good relationship with the shipyards, and our policy is to work with them proactively and to go through other options in hand and charters such as COSCO, they have tremendous leverage as well. So (inaudible) a great deal. So we are happy with what we have achieved and we will continue to look at the market conditions and work with our charters and the ship builders. As I have just said, (inaudible) overall all the years from day one to work with our charters in the shipyards to adjust their delivery time in accordance with the market conditions. So we will continue to do that.

Florian Inn – Bank of America Merrill Lynch

Great thanks. I guess lastly, in the management agreement with the 24% increase, is that largely a result of any one particular cost such as insurance or is it more in a broad sense to have all the costs associated with the management agreement increase in that level of magnitude?

Sai Chu

The main factor in the increase was due to the clearing cost. For the year 2008, we saw a dramatic increase of clearing cost due to the demand side and also due to the availability of seagoing farers and hopefully as market goes forward to the demand and supply appreciation to be in different shape with the funds availability in terms of growing [ph] wages, as a matter of fact, over the last six months we have not witnessed any increases at all. So, we hope this thing, this growing wages and going forward the demand for price depreciation will be improved as we see at this point in time.

Florian Inn – Bank of America Merrill Lynch

Great thanks.

Sai Chu

Thank you.

Operator

(Operator instructions) We will go next to Greg Lewis from Credit Suisse.

Greg Lewis – Credit Suisse

Yes, thank you and good morning.

Sai Chu

Hi Greg.

Greg Lewis – Credit Suisse

I wanted to talk a little bit about the preferred issuance, at this point how many preferred shares are outstanding?

Gerry Wang

I don’t have the number exactly in front of me but it is really, the key number is really the $15 –

Greg Lewis – Credit Suisse

Excuse me?

Gerry Wang

$15 [ph] is the number.

Greg Lewis – Credit Suisse

Okay but what I mean is in other words, if I am looking at EPS on a fully diluted basis going forward, is that going to be included when you are determining what your earnings per share are?

Gerry Wang

Yes, you should convert it; it is based on $15.

Greg Lewis – Credit Suisse

Okay, it is going to be based on the $15 and right now 100 million has been issued?

Gerry Wang

Yes, up to 100,000 shares have been issued but –

Greg Lewis – Credit Suisse

Okay, and then I guess Gerry I am not sure regarding the fleet, do you have any vessels right now that are being idle?

Gerry Wang

You mean vessels what?

Greg Lewis – Credit Suisse

Idle that are simply you know, off work, on hire but not really being employed?

Sai Chu

In the winter time, in the wet seasons, we would always have ships waiting for one week or two weeks for rescheduling. We have several ships for a couple of weeks of adjustments but we don’t see any prolonged idling happening as of yet.

Greg Lewis – Credit Suisse

Okay, but in the event the ships are idle, are they cheaper to operate? In other words, could we see your vessel operating expense to be lower if the ships are idle as opposed to operating?

Gerry Wang

Yes, the primary spending is on the lubricating oil, when the engines are not running then the lubricating oil (inaudible) is a minimum. So, there is a little bit benefit there. There is not much and at the end of the day, I think the bottom line is we are not in charge of the scheduling of the commercial operations starting to look (inaudible), then we get paid on a daily basis regardless of whether the ship has been left idling or (inaudible) and that kind of issues and we focus on making sure our ships are performing, the engines are ready and the crew members are doing their job. So that has been our focus, to take care of the ships.

Greg Lewis – Credit Suisse

Okay, so in other words there will be no opportunity to save on lower utilization, there will be no opportunity to save on the operating expense side because there is going to be lower utilization?

Gerry Wang

The setting will be a minimum there.

Greg Lewis – Credit Suisse

Okay.

Sai Chu

No because it will be on charter once you are ready to go.

Greg Lewis – Credit Suisse

Okay, thank you.

Gerry Wang

Okay.

Operator

We will take our next question from Urs Dur from Lazard Capital Markets.

Urs Dur – Lazard Capital Markets

Hi all, hello.

Sai Chu

Hello.

Urs Dur – Lazard Capital Markets

Can you hear me?

Sai Chu

We hear you well.

Urs Dur – Lazard Capital Markets

Okay, good. I guess my main question is how long can the charter market stay at these depressed levels before one of your contract counterparties faces bankruptcy?

Sai Chu

As far as our problems are concerned, we feel confident with what we have. As I said, 70% of our revenue comes from COSCO and China Shipping and 20% from Mitsui O.S.K. and (inaudible) those are very strong charters. In addition we have Maersk [ph] and CSAV taking up the remaining 10% of the revenue. We are comfortable with the mix we have and we fully expect them to perform. Those are companies that have just come from record profits over the last two and half years from 2006 to 2007 and the first eight months of 2008. I just had the opportunity to sit down with the CEO of China Shipping Container Lines a couple of days ago, basically he told me that as far as the opportunities are concerned, they are fully positioned for the downturn and with (inaudible) is a major issue at this point in time. Although this situation continued to worsen for a long period of time, we will see some considerable schedules to be developed over time. As far as our charter mix is concerned, we feel quite comfortable.

Urs Dur – Lazard Capital Markets

Okay very good, it is just a very stressful time I think that is what a lot of people are worried about and Sai, on the preferred, maybe if you can remind us of the conversions at $15, they don’t convert until earliest 2014, can you go over again the company’s position in regards to how the conversion can be executed?

Sai Chu

Conversion is automatic if it is $32 or above. If it is right over $15 the company has the option to convert it.

Urs Dur – Lazard Capital Markets

Right.

Sai Chu

But if it is below the –

Urs Dur – Lazard Capital Markets

To control that is what the company does, right?

Sai Chu

The company controls the conversion.

Urs Dur – Lazard Capital Markets

Right.

Sai Chu

If it is below $15, then you pay $15, you know, effectively 115% of the difference. So if you have $2 dollars below $15, you have to pay $0.30 premium, so $15.30 to take it out.

Urs Dur – Lazard Capital Markets

Okay guys, I think that is about the point in regards to how we should consider EPS looking forward. I mean you will have to look at it dilutive but at this point in time that is the way it is.

Sai Chu

Yes.

Urs Dur – Lazard Capital Markets

Okay, thank you very much and greetings from Dubai, no cranes are moving here, anyway take care.

Sai Chu

Yes, thanks a lot.

Operator

(Operator instructions) we will take our next question comes from Miles McCann [ph] from Cantor Fitzgerald.

Miles McCann – Cantor Fitzgerald

Good morning guys.

Sai Chu

Good morning Miller.

Miles McCann – Cantor Fitzgerald

Hi. My question was just about delivery delays that you were talking about from four vessels of ’06 to ’09, when can we expect more information, more detail on which ships and what the new dates are?

Sai Chu

Those delays have been worked out with the charters and builders as a pretty much a routine of (inaudible), as I said we have been doing the delivery schedule adjustments all the time, as in good times and bad times and average times so we cannot go specific on which vessel, which charter, which shipyard due to the (inaudible) management that we have because they will want to express to you that we continue to maintain very strong relationships with our customers and they have worked very well with us to ensure our delivery schedule reflect current market conditions and we will continue to observe the market conditions and we realize that the delivery schedules tend to be dynamic and subject to change and as I said at this point in time we expect to take delivery of 69 [ph] vessels instead of 12 vessels during the year of 2009.

I want to mention that one thing that we did that is very (inaudible) we have 12 deliveries in November and December of the year. As you know, we want ships to be one year younger instead of older and to avoid January and February typically that is the slow season in between the Christmas and the Chinese New Year. We held our charters in that regards in the next (inaudible) delivered out of the shipyards and the ships can be there to be load the cargo and revenue falls down [ph]. So that is what we have done and we will continue to do that and we have done that a number of times in the past.

Miles McCann – Cantor Fitzgerald

Okay but you will still see announcing when you say delivery of the ships, you just won’t give any guidance to investors on what the new delivery schedule is?

Sai Chu

I will start to give the guidance depending on the market conditions and the changes in the sector but generally in this point of time, given our weak markets the deliveries that will be pushed forward and during that the market deliveries will be advanced and so on. We expect to have 59 vessels this year and we will see what happens for the year 2010 and 2011 and going forward but in general we have the freedom and flexibility to expand our delivery from 2010, 2011, 2012 additional six to nine months in our hands in our options to deal with.

Miles McCann – Cantor Fitzgerald

So just to confirm, you have no equity funding requirements this year anymore?

Sai Chu

No, nothing for us.

Miles McCann – Cantor Fitzgerald

Okay and then my question under the new technical management agreement, you had two new vessel classes that are coming in the next three years, the 5100 TEU and the 4520, what are the daily expenses on those two ships?

Sai Chu

I don’t have the numbers exactly in front of me to give them to you. I think we will email it to you.

Gerry Wang

Yes, we will send that out to you, it is also in the 6-K filing that was done just before the end of last year.

Miles McCann – Cantor Fitzgerald

Okay I know but those were under old levels so I just wanted to know what – have they been increased?

Gerry Wang

No, those are the new ones.

Miles McCann – Cantor Fitzgerald

Those are the new ones, okay.

Gerry Wang

They have been taken on December 31, 2008 [ph].

Miles McCann – Cantor Fitzgerald

Yes, I have that number I just wanted to know if it increased with everything else.

Gerry Wang

No, that is the number.

Miles McCann – Cantor Fitzgerald

Alright, that’s all, thank you.

Sai Chu

Okay thanks.

Operator

We will take our next question from Arnia Sadersam [ph] from Maxim Group.

Arnia Sadersam – Maxim Group

Hi, I just want to point out – hello, can you hear me?

Sai Chu

Yes, go ahead.

Arnia Sadersam – Maxim Group

Hi, I just want to follow up on the counterparty risk, and any of your clients, trying to re-negotiate the rates?

Sai Chu

As I have said, as far as our customers are concerned, the seven charters that we have. We have not had any cancellation request or charter rate or charter fears in re-negotiations so far. And as far as our charter is concerned, our charter party is concerned, we don’t have any contractual issues as of now.

Arnia Sadersam – Maxim Group

Thank you.

Sai Chu

Thank you.

Operator

And at this time, we have no further time for questions, I would like to turn the conference back over to your presenters for any additional or closing remarks.

Gerry Wang

Yes, I just want to say a few words before we finish up this conference call. First of all, I want to thank you very much for participating in this call. The company is well positioned for the challenges it has and you are fully aware of the market conditions especially with regards to the capital market conditions, and the management and Board are fully prepared and our philosophy is to prepare for the worst and hope for the best and we are in position to do the best that we can. We have time in our hands, we have the flexible capital structure in our hands, and we look forward to the challenges and myself and Sai are looking forward to speaking to you at the next call. Thank you very much.

Operator

This concludes today’s presentation. Thank you for your participation. You may now disconnect.

Gerry Wang

Thank you.

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Source: Seaspan Corporation Q4 2008 Earnings Call Transcript
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