Abdalla Al-ayrot
Long only, deep value, special situations

Danaos Corporation: Asymmetric Risk/Reward With Potential 200% Return

Danaos Corporation's (NYSE:DAC) earnings has been distorted since 2008, due to interest rate swaps ("IRS") that the company entered into between 2006 and 2008, with a majority of them having effective dates in late 2008-2010. The 3M USD LIBOR has decreased by more than 500 bps since 2006 (See Exhibit 1), which has led the company to have yearly losses in excess of $100 million on these contracts.

As the IRS start terminating throughout 2014-2016, the company's free cash flow will increase and its EPS will increase by about 150% from 2013 to 2017. (See Exhibit 2)

Exhibit 2 support:

(click to enlarge)

Background and business overview

Danaos Corporation is an international owner of container ships and...

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