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Executives

Sai Chu – Chief Financial Officer

Gerry Wang – Chief Executive Officer

Analysts

Greg Lewis – Credit Suisse

Ken Hoexter – Merrill Lynch

[Baskin Majors] – Citi Investment Research

Noah Parquette – Cantor Fitzgerald

Seaspan Corp. (SSW) Q2 2009 Earnings Call August 6, 2009 8:30 AM ET

Operator

Welcome to the Seaspan Corporation conference call to discuss the financial results for the three and six-month period ended June 30th, 2009. Hosting the call today is Gerry Wang, Chief Executive Officer of the 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 will open up the call to question and answers. I will now turn the call over to Sai Chu.

Sai Chu

Before we begin, please allow me to remind you that this presentation contains certain forward-looking statements as such term is defined in Section 21-E of the Securities Exchange Act of 1934 as amended concerning future events in 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 whether because of future events, new information, a change in our views or our expectations or otherwise. We make no prediction or statement about the performance of our common and subordinated shares.

I will now turn the call over to Gerry.

Gerry Wang

Good morning from Vancouver, B.C., Canada. Please turn to slide three. Slide three summarizes Seaspan's second quarter financial and operational highlights which reflect the performance of Seaspan's fully time-chartered fleet. In terms of financial performance, we reported revenue of $69.8 million, normalized earnings of $18.7 million and cash available for distribution of $39 million.

It was another smooth quarter. During the second quarter our fleet continued to perform well, achieving strong utilization of 99.9%, importantly, with no major incidents related to piracy, collisions or the environment. During the second quarter we also continued to grow our fleet. We took delivery of four additional vessels, increasing our operating fleet to 39 vessels. Consistent with our strategy, all four vessels commenced long-term fixed rate time-charters with CSAV, CSCL and MOL. The duration of these contracts ranges from 6 to 12 years.

For the second quarter, we declared a dividend of $0.10 per share, increasing cumulative dividends declared since our IPO in August 2005 to $6.29 per share. It is important to note that the $0.10 per share dividend represents a conservative [PI] ratio of about 20% and it reflects our current focus on redeploying Seaspan's growing cash flow to help fund our new building program.

I would like to highlight that this precautionary measure combined with other actions we have taken including the $200 million pre-per share insurance and the delivery deferral of certain of our new [delivery] vessels has improved the company's capital structure and has strengthened its financial flexibility to weather the unprecedented storm, specifically, the proactive steps the company has taken has enabled the company to ensure that it has secured committed financing for substantially all of the capital needed to finance our significant contracted fleet growth.

Regarding our debt, we have committed facilities for the debt component of all 68 vessels, have no credit facilities maturing until 2015 and remain in compliance with all covenants.

Please turn to turn slide four. I will review the company's customer relation ventures and contracted revenue stream. Seaspan's fleet of 68 ships consists of an operating fleet of 39 ships plus new building orders of 29 ships to be delivered over approximately the next three years.

Our [Peking] fleet has charter durations averaging eight years with maturities staggered over a period of 15 years with the earliest contractual renewal occurring in 2011. All 39 ships of our operating fleet remain fully secured on time charters and our customers continue to perform in accordance with our charter agreements.

Our future deliveries of 29 newbuilding ships remain committed to charters with 16 ships to COSCO, three to MOL, seven to K-Line, two to CSAV and one to CSCL under time charters of 11 years on average. When all contract newbuilding vessels are delivered, our operational fleet will have expanded to 68 ships, exceeding 400 ton TEU carrying capacity, ranking Seaspan as one of the largest independent container ship owners in the world.

Our annual revenue is anticipated to rise to approximately $700 million upon delivery of full fleet of 68 vessels compared with $229 million for the year of 2008. Upon delivery of all newbuilding, approximately 70% of our contractual revenue will be derived from COSCO and China Shipping of China and approximately 20% from MOL K-Line of Japan. The remaining 10% of our contracted revenue will be from Hapag-Lloyd, Maersk and CSAV combined.

Please now turn to slide five where I will review our recent customer developments. As detailed in our earnings press release, we exercised options to defer the delivery of 11 vessels for periods ranging from 2 to 15 months. We also are in the process of finalizing the delivery deferral of two additional vessels for a period of approximately nine months.

The delivery deferrals enable us to best serve our customers during our challenging time for the container ship industry and are consistent with our focus on increasing Seaspan's financial flexibility. It has been reported that two of our customers, CSAV and Hapag-Lloyd, have taken steps to restructure or increase their financial strength.

Regarding CSAV, we currently have two 4250 TEU vessels on charter to them with an additional two 4250 TEU vessels to be delivered to them next year. Upon delivery of these two additional vessels, our revenue from CSAV will represent approximately 3% of $7 billion in total revenue expected from our fully delivered fleet of 68 vessels under the current time-charters.

During the first quarter of 2009, we became aware from media reports of the downgrade of CSAV's counterparty credit rating by major credit rating agencies. And in the second quarter of 2009, we declined to participate in the restructuring plan of CSAV.

However, we are aware that since that time, CSAV has proceeded with its plan. To date, CSAV has performed in accordance with the time-charters for CSAV Loncomilla and CSAV and Lumaco, the two 4250 TEU ships that are currently under charter to CSAV.

Regarding Hapag-Lloyd, we currently have nine 4250 TEU vessels on charter to them. Our revenue from Hapag-Lloyd represents 6% of approximately $7 billion in total revenue expected from our fully delivered fleet of 68 vessels under their current time-charters.

We are aware from media that shareholders of Hapag-Lloyd have agreed in principle to capital and financing measures intended to support and safeguard the company over the long-term. On July the 30th, 2009, we received the request from Hapag-Lloyd for suggestions on how we can continue our charter agreements with them on amended terms and for a meeting to discuss the same.

Consistent with our standard policy, we do not intend to enter into renegotiating discussions of the main terms of our charter agreements with our charters. Worth noting here, to date, Hapag-Lloyd has made payments in accordance with the charter parties for the nine vessels on charter to them. We continue to expect the governing charter parties to be fully performed.

Before turning the call over to Sai, our CFO, I would like to highlight the following points. Firstly, while the global economic environment remains extremely uncertain and challenging, we have recently seen some positive developments such as liner companies raising rates in the Asia to Europe trade and the volume picking up in those trades.

Secondly, with that said, we cannot predict where these positive trends will continue and the ultimately affect the current industry then will have on our customers.

Thirdly, we believe Seaspan's conservative business model centered on our weighted portfolio of [showing] charters with long duration six to eight contracts, will continue to provide long-term value to our shareholders.

Lastly, we also believe that the proactive measures that we have taken over the last 12 months to reduce the company's capital needs will help protect our leading franchise to weather the unprecedented storm and to strengthen the company's long-term prospects.

Now I would like to turn the call to Mr. Sai Chu, our CFO. Sai, please?

Sai Chu

Thanks, Gerry. Please turn to slide six. Revenue increased 27% for Q2 to $70 million from $55 million last year and 22% to $133 million for the six months from $109 million last year. The increases were primarily attributable to the delivery of nine vessels between August 2008 and May 2009, three of which occurred in April and one in May of this quarter.

During Q2, we operated a fleet of 39 vessels compared to 30 in Q2 of last year. We continue to achieve strong fleet utilization with 99.9% for Q2, compared to 98.8% last year and 99.9% for the six months, compared to 98.9% in 2008 and 99.3%, historically. Four days of off hire were incurred for Q2 and five days for the six months, which impacted revenue at total of $73,000 and $93,000, respectively.

We reported a 19% increase to $39 million for Q2 for distributable cash, compared to $33 million last year. And an increase of 13% to $74 million for the six-month period, compared to $65 million last year.

Total operating expenses for Q2 were up 34% to $39 million, compared to $29 million for 2008. For the six months, total operating expenses were up by 30% to $74 million, compared to $57 million for 2008. Higher operating expenses were due to the operations of a larger fleet and an increase in the technical fees.

EBITDA increased 21% to $48.5 million for Q2, compared to $40 million last year. For the six month period, EBITDA increased 15% to $92 million, compared to $80 million last year.

We reported net income of $112 million, or basic $1.62 per share for Q2 versus net income of $85 million, or $1.32 per share last year. Our review of the amounts includes items which we believe are not representative of operating results, including the effect of interest rate swaps and other items.

We accrued $1.1 million in Q2 for accounting purposes, which is a deemed value for the options we exercised for the delivery deferral options. We do not believe its representative of operating performance. Accordingly, the normalized figures I will quote excludes the option costs and the effect of interest rate swaps and other items.

Normalized net earnings for the quarter would have increased from the comparable quarter by $500,000 or 2%, to $20 million for the quarter versus $19 million for Q2 last year. For the six-month period normalized net earnings increased 4% to $38 million from $37 million for Q2 last year.

Normalized EPS for the quarter and six months was $0.25 and $0.30 respectively, compared to $0.50 and $0.60 for the comparable periods last year. The increases were due to additional shares issued in our April 2008 equity offering and a non-cash dividend accrued to preferred shareholders.

Turning to slide seven, as of Q2, we maintained a strong cash balance of $63 million with current assets totaling $70 million. Total assets were $3.4 billion, of which $3.3 billion is comprised of operating vessels and newbuild installments. We've drawn debt of $792 million for operating fleet and $972 million to fund our newbuild program.

As of June 2009, Seaspan has secured $3.9 million in long-term credit facilities. As a result of this success, the debt portion of our fleet has been fully funded. Our banking group consists of a diverse group of leading international banks.

As a reminder, we do not have traditional value maintenance clauses in any of our debt agreements, although the decline of market values may limit the availability of the undrawn amounts in our $1.3 billion facility. Based on a June 2009 valuation, we currently would not be able to access the remaining $268 million available under this facility if we submitted a drawing request.

We have sufficient debt capacity so that the temporary loss of the $268 million does not require us to obtain additional debt to fund the debt portion of our remaining CapEx. Our earliest maturity is in 2015, and we are in full compliance with all of our covenants.

In order to ensure the company's balance sheet strength, we've taken proactive measures. Specifically during the first six months of 2009, we've closed the first $100 million tranche under our $200 million preferred share issuance. Two stage financing was entered into with certain members of the Washington family as well as other co-founders at a premium to the market. The second tranche of $100 million is expected to close in the fourth quarter.

Based on our success from these initiatives, as well as our options to defer delivery of 11 vessels, we have reduced and deferred our equity needs approximately $180 million to $240 million over the next 20 to 24-month period beginning in late 2010 or early 2011, compared to the $900 million requirement we had in Q3 of last year. Going forward, we will continue to seek opportunities to further increase our financial flexibilities.

That concludes the formal discussion, so pleased to open up the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first call comes from Greg Lewis – Credit Suisse

Greg Lewis – Credit Suisse

Sai, could you talk a little bit more about the $268 million of debt you're unable to withdraw because of vessel values and sort of what increases would be needed in vessel values to make those funds available?

Sai Chu

Well first off, I think that it is based on the vessel values, so if we did put the additional security into the facility we could potentially access that remaining portion. In terms of the valuation thing, I think that values have declined but again, it would have to pick up for us to access it. We don't really need it because we have excess debt capacity.

Greg Lewis – Credit Suisse

So now like, I mean it's – so in other words, in doing these valuations it's not like you're able to attach the existing charters on those vessels?

Sai Chu

For that facility, they are on a charter-free basis.

Greg Lewis – Credit Suisse

And then another question, the $1.1 million expansible for the deferral delays, when we look out over the next three to four quarters, is that going to be a continuing expense?

Sai Chu

No. It's actually, for accounting purposes, it's a deemed option value in the event that we didn't exercise the options, we would have had to pay approximately $100,000 per ship. So for accounting purposes, we couldn't capitalize that. We don't have to pay it today. It's only $100,000 per ship at the time that we actually deliver the ship.

Greg Lewis – Credit Suisse

And then lastly, Gerry, you mentioned the issues surrounding Hapag-Lloyd. You have a couple vessels that the Hapag-Lloyd vessels have options that enable them to sort of expend. I know that it's pretty difficult for H&L to get out of those contracts, whether it be payments or early notification. But at what point do you sort of try to balance maintaining a good customer relationship with some of the liner companies as opposed to just simply not negotiating existing charters?

Gerry Wang

Well, Greg, like everything else, in a relationship there's always a balance. But we believe the relationship should be centered on first of all performing the contractual obligations as per the agreements. We realize there are difficulties going on and when we had all the tough times a couple of years ago when the [accruing] costs, operating costs were going through the roof, frankly we required to resolve them and it was just part of running the business. And this business is always cyclical because this is up, this is down, and in the long-term contracts, the fixed rate should always be complied with. And as the tradition of shipping business, that's the essence of long-term contract with a fixed rate and Hapag-Lloyd is a great company and they have strong ownership, strong shareholders and they have a strong German presence, a de facto German flagship line, national shipping line. And we fully expect them to comply with the governing charter parties and to finish the contracts nicely. So that's our expectation.

Operator

Our next question comes from Ken Hoexter – Merrill Lynch.

Ken Hoexter – Merrill Lynch

Sai can you talk a bit about how much debt you do have access to right now?

Sai Chu

We have a remaining debt available of $2.4 billion.

Ken Hoexter – Merrill Lynch

And what's your CapEx going into '09, '10 and '11 after all the deferrals and everything else?

Sai Chu

The total CapEx is going to be for the rest of '09 about half a billion. For 2010 it's going to be $540 million. For 2011 somewhere in the about 800 and 2012 is about 400.

Ken Hoexter – Merrill Lynch

So when you look at the $500 million that's coming up at the end of this year you've got the two – another $100 million of the equity that you can get from the other half of the agreement and where does the other $400 million come from, that $2.4 billion you've got available debt capacity?

Sai Chu

Yes.

Ken Hoexter – Merrill Lynch

So what are the – if you've got 268 million that was – that had vessel value tests on it, what is the – what are the covenant restrictions on that $2.4 billion giving you access, are there any vessel value or anything else?

Sai Chu

No the 1.3 million is the only facility where we have –

Gerry Wang

It was the revolver.

Sai Chu

The limitation and we only look at the vessel values prior to drawing. Once we draw the amounts, then we really have no further requirements on the value maintenance [parts]. All the other facilities do not have that. There are no restrictions as long as we're in compliance with all of our debt covenants which we are.

Ken Hoexter – Merrill Lynch

And what are those? Are those EBITDA tests? And interest rate coverage?

Sai Chu

There's coverage ratios. There's a gearing ratio.

Ken Hoexter – Merrill Lynch

And fully in compliance with all of those covenants as of right now?

Sai Chu

That's correct.

Ken Hoexter – Merrill Lynch

And then Gerry you had mentioned awhile back that despite what we're seeing in the market today, some of the Chinese carriers might view this as an opportunity to take market share and maybe expand. Are you seeing some carriers that are looking to buy some of these extra vessels and looking for you to get involved in any way? Where are the discussions right now – I take it all the moves to defer all vessels have ended now, right? I mean all the moves to defer everything has finished?

Gerry Wang

Ken, you're right, the first phase of the deferrals is finished and all the documents have been signed off. We still have a couple of ships that we are in the final stage of obtaining the signatures. Other than that they're already done and that we're making decisions on a couple of vessels with two, three months extensions that we may not exercise. The options for that couple of ships come up towards the end of this year.

The market is changing a little bit, it can be – volume has picked up, the [ferry] rates as you know have been increased starting from July the 1st on average a [ferry] rate increase of about $150 was applied and it was a huge success and the liner measures are collectively thinking about the second raise starting from mid-August for the peak season. The volume's now been shown, especially from Asia to Europe our ships – I checked yesterday – are loading approximately 90%, 95% utilization.

By the way out of 39 ships we have in the operating fleet, none of our ships is idling or laid up or anything so they are fully operational and they're working, which is a good sign that the market is seeing some positive trends and it could be seasonal but the end of the year compared with last year of this point in time, we're still seeing approximately, depending on trades, between 10% to 15% drop. But month-to-month we're seeing from March about a 10% increase, from March to April, April to May.

So that's pretty substantial. Probably a part of the reasoning is the euro has become stronger, the U.S. dollar has weakened and the European trade as predicted, I think you've heard me talking about it, and currency plays a major part in this business is the consumers they're buying things. If things are cheap they'll buy and container business, you know 90%, 95% of the goods are the basic consumer products.

I don't think that much elasticity building vis-à-vis the salaries and those things there. They're just basic consumer products and you go to Wal-Mart that's what you see there. And you look at the retail – Walmarts, K-Marts, those outlets, you see the volumes picking up over the last two to three months. So that's consistent with the volumes we're seeing on the container trades across the board, especially Asia to Europe I just want to highlight that.

So at the end of the day there's a positive sign there as far as the Chinese operative concerns, China Shipping and COSCO, there is – they're quite aggressive frankly and obviously they're in discussions with us and I've spent a lot of time talking with them as to how to take advantage of the downturn. Ken, as you know Seaspan was born during the Asia financial crisis, during that time. We did very well taking advantage of the opportunities there and we're looking at the opportunities in today's market.

But we believe in terms of asset values, probably sometime towards the end of this year, beginning of next year, we'll be sort of the bottom. At this point of time the value's still held up and the sellers are still hesitant, the banks still not there to arrest the ships and to do the foreclosures. So we'll wait and in the meantime we're preparing ourselves for the opportunities ahead of us.

And as I said before, our portfolio of charters, we're very comfortable with the performance and the future created with this that we have with 70% coming from COSCO China shipping, 20% from MOL K-Line Japanese majors. They're all in pretty good shape right now and going forward we believe our contracts with them are very solid.

Ken Hoexter – Merrill Lynch

Gerry, just two follow-ups real quick on that, though, utilization, you said it was up 90%, 94%. It's at 90%, 95% as far as loading now, where is that coming from? What was that just a little bit ago or a year ago?

Gerry Wang

From North China, South China to Europe.

Ken Hoexter – Merrill Lynch

No, I'm saying what rate of utilization had that been at, what did it drop down to?

Gerry Wang

Last year was – this point of time, last year as 90%, 95% as well.

Ken Hoexter – Merrill Lynch

So it's unchanged year-over-year?

Gerry Wang

No, there's a couple reasons behind it. Number one, the demand volumes have picked up, number two, the liner majors are working together right now instead of you send one ship with 60%, 50% load factor, I send a ship with a load factor, why not work together to park a couple of ships and to utilize the space that we commonly have to achieve the maximum load factor. There's another reason which is technical and, Ken, as you know, in the container business, ship costs, the charter costs account for, depending on the size and the operators and a few costs, approximately 15% to 20% of the overall trading cost.

So parking our ship there is fairly cheap compared with operating the ship. You have to pay for fuel costs, which accounts for 35% to 40% depending on the fuel price. Then the stevedore and loading discharging, then the cost of boxes and internal handling, warehousing, the terminal charges, all those things account for the rest. So the liner majors are really working together right now.

First time in my life I've seen companies like Maersk working with CMA in a joint service and Evergreen working with China Shipping and COSCO in joint services. Those two companies have been working solo for a long time so there's a reason why they want to consolidate their routes and their trades in order to achieve the best economics.

So that's sort of the silver lining. It's part of the resilience of the line operators. These guys have been through ups and downs and they fully understand the cyclicality beauty in the business and they're working together.

Another major to take, as you know, they're really delivering a lot of short-term charter vessels. As soon as they come up for renewal they won't take them so that explains the effective supply of ships in the industry. It's not as much as what you would add up of all the ships available. Those ships that are coming out off charters will likely be parked there or chartered at very low rates and that shouldn't be a conduit for the effective supply because line majors have no obligations to utilize them and it will take that away.

The effective supply is not as scary as the numerical addition of all the ships available. I think the wildcard is really on the demand side and on the demand side we have all the various factors affecting that, you know, the global economy because shipping, as you know is a drive demand. Then you have the currency issue then you have the fuel costs because the fuel cost affects the speed of the ships, therefore still [stimulate] the economy if the fuel cost is high and political situations.

The Suez Canal has trouble. People will send ships through Cape of Good Hope therefore more ships will be required and all those things will come into play. But as far as supply is concerned, the liner majors has done a great job in terms of effectively mitigating the total supply that they have to operate with.

Ken Hoexter – Merrill Lynch

Gerry, you mentioned that Europe to Asia was picking up, or Asia to Europe. Are you seeing anything on the Asia to U.S. line? And that's the end of my questions.

Gerry Wang

Yes, Asia to U.S. is also picking up but not as much as Asia to Europe. We're looking at probably 75% to 80% load factor versus last year at this point in time 90% to 95%.

Sai Chu

I'm sorry I just wanted to clarify, the remaining debt capacity is $1.4 billion and the remaining CapEx is about $2 billion to $2.1 billion. The remaining funding is coming from the second tranche of the press and the pick as well and offered in cash flows.

Operator

Our next question comes from Matthew Troy – Citi Investment Research.

[Baskin Majors] – Citi Investment Research

I'm looking at the order book and I was hoping I could get you guys' take from a high level both on the industry and maybe drill down a little more into Seaspan as specific. It's still roughly 40%, maybe a little more of the fleet in water. Can you give me some thoughts on what with delay, how much of that eventually turns into cancellations? And how much capacity in the next two or three years you guys are expecting to hit the water?

Gerry Wang

Well on the delays, the deferrals of deliveries are fully effective. When you look at what is happening, what do we have happen in terms of deliveries, probably you see over 40% of the scheduled deliveries for the year 2009 will be push to 2010. I would say similar percentage to be pushed to '11 and '11 to '12. Then it depends on, of course, the market conditions at that point in time and the financing conditions as well because a lot of ships have been delayed not because of the profitability associated with those ships. It has more to do with the financing availability. We don't have money to pay the shipyards and the ships are not going to be delivered.

So there are various factors there and from an economic perspective what would happen? Our feeling is the fee buildup of newbuilding deliveries for '09, '10, '11 will be extended to '12, '13, '14. In other words, the three-year problem will be becoming a six-year problem. Therefore the newbuilding deliveries have less impact on the overall supply situation.

And the other point to look at from a different angle would be you have to look at the effective supply that was the word I used a couple of minutes ago, because at end of the day we have two components of ships in the business. The first component would be the ships that are owned by independent owners like Seaspan and a lot of the majors would have typical medium to long-term charters for the flexibility and they're paying for the flexibility.

For example the short-term charters are the most expensive ships and the charters are paying for the optionality. Those ships that are coming out of charter, the liner majors, the charters have no obligation to operate them so they will be parked somewhere or seeking for the low charter rates and that should be taken away from the effective supply.

And the second component would be the ships owned by the liner majors and/or the long-term charters such as ships that Seaspan owns and have on charter to them and those folks aren't operating those ships and so that's sort of the real supply for lack of better expression. So the real supply is actually not that bad if you look at the number of ships that are out of charters that are parked, idling in Hong Kong, Singapore and elsewhere.

So that's the sort of the comment I want to make to make it clear we should not just look at the other ships and having them out but to use that as a supply. Liner majors for charters are not going to be chartering a ship if they know they cannot make money out of that ship.

[Baskin Majors] – Citi Investment Research

So I mean you're talking about the financing not being there and then going to delays. Is it the assumption that time essentially corrects the financing problem or do you expect some of that to end up being canceled from a funding standpoint?

Gerry Wang

Our cancelations will be there. There will be some conversions as well for container ships to tankers and dry bulkers, and again the dynamics issue, depending on the well being of the tanker market and the bulker market, right now the bulk market is pretty good so a lot of discussions right now taking place to convert those container slots into dry bulkers. And the offshore market is pretty strong and there are discussions to convert the big container ships into offshore drilling rigs for example.

So those things are always happening and at the end it is hard to predict how many ships will be converted into different types, how many ships will be canceled, but one thing that is certain is that the deliveries will not be as many as scheduled and you're going to see approximately 40%, 50% of the ships being deferred on a yearly basis. And as I said, that three-year buildup, three-year problem will likely become a five, six-year problem on the supply side on new ships.

[Baskin Majors] – Citi Investment Research

One more question on Seaspan specific here, on your capital raise, I guess you don't need additional non-debt capital until the end of 2010 at least from what you've disclosed.

Gerry Wang

Yes, most likely depending on the delivery schedules and everything else, most likely would be Q1 2011.

[Baskin Majors] – Citi Investment Research

Q1 2011. So in the meantime is this something that you guys are looking to do as soon as possible or if the opportunity arises or should we not expect to hear anything until we approach that particular timeline then?

Sai Chu

Well, we're constantly evaluating different alternatives as we've said from October that we would actively look at all alternatives to reduce or eliminate the equity need. And we are working on transactions that will provide additional capital and possibly reduce some of the equity need.

[Baskin Majors] – Citi Investment Research

Okay, so the story is the same there more or less?

Sai Chu

Yes, I think the reality is we've taken some pretty strong measures to give us additional financial strength and flexibility and time to work it out. So as those things develop we'll certainly discuss it with the market as they come due.

[Baskin Majors] – Citi Investment Research

You guys just had an evaluation done it sounds like from your disclosure on the debt capacity. Can you give us any color on where that came in, maybe to what something at year end or even this time last year would have been valued at with [equity]?

Gerry Wang

Well basically it was to do with the revolver that we had at one point, $3 billion. The nature of a revolves is that when you have excess cash you put it in and when you need it you use that as a revolving facility because typically we do not want to hold onto too much cash. You put it back there and it is the buffer. It is the revolving facility that we always have.

There are certain requirements and one requirement will be periodical evaluations then before you do a new drawdown then you have to give them a valuation on a [charter-free] basis to see if you can do it. But what has been drawn has no impact so as far as our situation is concerned we have about $270 million still left on the revolving facility but we don't need it anyway. So we have plenty of other facilities there that we can draw on because we're – it doesn't have any impact at all on the debt facilities that are available to us to fund the future CapEx through [comp].

[Baskin Majors] – Citi Investment Research

I guess my question was more geared around trying to peg where vessel valuations are coming in relative to end of the year or year ago. I'm just –

Gerry Wang

Well, the values have come down. In the end I mean, the value is always cyclical and it's hard to tell. The brokers even have a difficult time to assess the values and they're using tons of assumptions to protect themselves, which is understandable. But at the end of it, as far as Seaspan is concerned, the ship valuation has very little impact on us.

Operator

Our final question comes from Noah Parquette – Cantor Fitzgerald.

Noah Parquette – Cantor Fitzgerald

I guess on those nine Hapag-Lloyd ships, you said that it accounts for about 6% of your fully delivered fleet revenue? Do you have a number for current revenue?

Gerry Wang

It's about 20%.

Noah Parquette – Cantor Fitzgerald

About 20%?

Gerry Wang

Yes.

Noah Parquette – Cantor Fitzgerald

Now just hypothetically, just assuming something happened there and you were forced to re-charter those ships at market rates, would you still be comfortable paying the 10% dividend or is that something you would reconsider?

Gerry Wang

A dividend question is a difficult question to answer, frankly. It's a quarter-to-quarter decision making process. Our board will have to look at everything else, the equity market conditions, our own cash flow requirements, our own CapEx requirements and everything else and we realize the importance of dividends. Then they will have to make sure that the well being of the franchise is maintained and Hapag-Lloyd, that situation obviously is difficult time for them to go through and we believe at the end that Hapag-Lloyd is a great franchise and have strong ownership.

They have strong German flagship perception there and I think at the end the Germans understand the business is cyclical. There's up, there's down and we fully expect the company to survive through this cycle and we fully expect them to honor the contractual obligations under the charter bodies. At the present time we fully realize that they're going through some tough times.

Noah Parquette – Cantor Fitzgerald

And they have a bunch of extension options. When do the first of those charter options come up?

Gerry Wang

They have to give us two-year prior delivery notice plus and our penalty built in. Right now you're looking at the dollar figures on the penalty it makes it uneconomical for them to even consider it.

Noah Parquette – Cantor Fitzgerald

Have they given any notice for any of the ships or do we still have two years?

Gerry Wang

No.

Noah Parquette – Cantor Fitzgerald

And then just to clarify, on the $258 million of capacity that you lost there's no other debt facilities that have this – there's no other room for more capacity to be lost anymore, right?

Gerry Wang

Correct.

Sai Chu

Yes, that was the only facility that we had the market value and [answer] issue.

Gerry Wang

It was primarily because of the revolving feature.

Noah Parquette – Cantor Fitzgerald

Right. And then obviously you've done a great job at kind of delaying your delivery schedule. Is there any sort of details that you can give in terms of specific ships or how many ships?

Gerry Wang

Yes, we'll give you details later on once all the paperwork is finalized and we have the intention to give fairly precise delivery dates for those ships to be delivered over the next three years.

Noah Parquette – Cantor Fitzgerald

And is it something that we can expect before the next earnings call or is that?

Gerry Wang

Yes, sure, before next earnings call is for certain.

Noah Parquette – Cantor Fitzgerald

And then just my last question, a modeling question, how much capitalized interest expense did you have during the quarter?

Sai Chu

Capitalized interest? I don't have that off the top of my head. I'll get back to you on that.

Operator

Gentlemen, I'd like to turn the call back over to you.

Gerry Wang

Thank you. Thanks for your time and interest in Seaspan by participating in this conference call. We've been through tough times and this is an unprecedented period of time that we're going through, but we believe our conservative model provides the strength and the flexibility that we need to go through a tough time like this.

And the management and our board and sponsors are determined to fight through, to survive through this cycle and we will work very hard to continue to plan and execute according to our strategy and we're looking forward to your continued support in our franchise. Again, thank you very much for your time and interest in this call and in Seaspan. Thank you.

Operator

And that does conclude our conference. We thank you for your participation.

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Source: Seaspan Corp. Q2 2009 Earnings Call Transcript
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