(Author's note: If you want a copy of the models used in this article, please send me a message with your email-address, so I can send it to you)
Key takeaways from the analysis:
- The risk Danaos Corporation's biggest counterparties defaulting on their obligations to the company is insignificant.
- ZIM is the only counterparty that posses a risk of not honoring its obligations toward Danaos Corporation, as the company is undergoing a restructuring. ZIM account for less than 6% of contracted TEU in 2014 to 2017.
Methodology: As the company doesn't provide detailed charter rates by ship it isn't possible to make a 100% precise counterparty exposure analysis for outsiders. In order to make an as precise as possible analyses from the data that the company provides to the public, I have chosen to measure the counterparty risk as how big a % of contracted TEU that each counterparty account for.
Exhibit 1 is a chart detailing the counterparty exposure of Danaos Corporation, as a % of weighted contracted TEU in the period 2014-2017.
Danaos is most exposed to Hyundai, CMA-CGM, Hanjin and China Shipping all account for over 10% of the company's contracted TEU. After analyzing the counterparties in detail, I have come to the conclusion that the risk of the companies defaulting on their liabilities to Danaos Corporation is insignificant.
ZIM, which is owned by Israel Corporation is currently undergoing a restructuring. ZIM accounts for 5.51%, 5.63%, 5.75% and 5.85% of Danaos Corporation's contracted TEU in the period 2014-17 One can find ZIM's financial statements on Israel Corporation's Investors Relation section on their website. It's showing progress with a decreasing operating loss, but might not be able to honour its obligations towards Danaos Corporation if the restructuring turns out bad. However, with ZIM accounting for less than 6% of contracted revenue a worst case scenario of ZIM not being able to honour any of its obligations towards Danaos Corporation, is insignificant to the previously presented long thesis.
Additional disclosure: Abdalla Al-ayrot manages money on behalf of several investors and these investors might be long the stock mentioned in this article.