Seaspan's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.29.14 | About: Seaspan Corporation (SSW)

Seaspan Corporation (NYSE:SSW)

Q1 2014 Results Earnings Conference Call

April 29, 2014 8:30 AM ET

Executives

Gerry Wang - Co-Chairman, Co-Founder and CEO

Sai Chu - Chief Financial Officer

Analysts

Ken Hoexter - Merrill Lynch

Keith Mori - Barclays

Seth Lowry - Citi

Gregory Lewis - Credit Suisse

Benjamin Nolan - Stifel

Michael Webber - Wells Fargo

Operator

Welcome to the Seaspan Corporation Conference Call to discuss the financial results for the quarter ending March 31, 2014. Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder 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 will open the call for questions. I will now turn the call over to Sai Chu. Please go ahead.

Sai Chu

Thanks, Operator. Good morning, everyone, and thank you for joining us today. Before we begin please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements contained in the first quarter of 2014 earnings release and earnings webcast presentation slides, available on our website at www.seaspancorp.com, as well as in our annual report on Form 20-F for the year ended December 31, 2013, filed with the SEC.

I'd also like to remind you that during this call we will discuss certain non-GAAP financial measures, including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings and normalized earnings per share.

In regards to such financial measures and for reconciliations of such measures to the most closely comparable U.S. GAAP measures, please refer to our earnings release.

I will now pass the call over to Gerry who will discuss our first quarter highlights, as well as some more recent developments.

Gerry Wang

Thank you, Sai. Please turn to slide three of the webcast presentation. In Q1 we continued to deliver on our stated strategy. We continue to grow our fleet, investing in modern fuel-efficient vessels. We ended into long-term time charters with high-quality customers. We raise capital funds, our growth which improved our financial flexibility and further diversified our sources of capital.

I will now review our results for the first quarter in more detail. First, we ended the quarter with 72 vessels in our operating fleet and 74 vessels in our managed fleet. We took delivery of our first SAVER design containership the Hanjin Buddha, which commenced a 10-year time charter with Hanjin Shipping at the end of March. Our operating fleet achieved 98.9% utilization for the quarter and continued to generate stable cash flows from long-term time charters.

Second, we entered into time charters with MOL and continue to expand our fleet with exercise of option to build four 10,000 TEU SAVER design vessels at YZJ. We have now finalized charters with MOL for additional six vessels for a total of 10,000 TEU newbuild vessels to be constructed at YZJ part of which will be owned by Seaspan.

We are in discussion with our customers to secure long-term time charters for the remaining four times 10,000 TEU fuel-efficient eco-class vessels which are being constructed at YZJ, two of these vessels will be retained by Seaspan.

Third, we completed several important financing transactions since the beginning of the year that raise approximately $470 million of capital that we intend to use primarily refund the growth of our high-quality fleet which is Sai will discuss in more detail.

I will now turn the call over to Sai to discuss our quarterly financial results. Sai, please?

Sai Chu

Thanks Gerry. Please turn to slide four, where I will discuss our results for Q1 2014 compared to Q1 2013. Seaspan has one of largest order books in the industry totaling approximately $1.8 billion, which has been entered into that bottom part of the cycle.

On delivery these vessels are expected to generate shareholder through stable cash flows from the long-term charters. However, we have raised capital early to fund this newbuild program, anticipate this will impact our certain key financial metrics as the ships deliver through to 2016.

Revenues increased by $3.1 million, 1.9%. Increase was primarily due to increase charter revenue from two 4600 that delivered in mid-2013 and Hanjin Buddha we had at the end of Q1, as well as 172 fewer unscheduled off-hire days Q1.

These increases were partially offset by lower rates on certain vessels that were re-chartered during 2013 and by 10 days of schedule dry-docking to the MOL Emerald commence during the quarter. Vessel utilization was 98.9% compared to 96.1%. Improvement in utilization was primarily results of 172 fewer unscheduled off-hire off charter days.

Ship OpEx was $41.3 million, an increase of $3.7 million or 9.9%, approximately $2.3 million of the increase is due to increases in crew wages and expenses, which were the results of raises for ship officers that took effect in Q3 2013 and Q1 this quarter, as well as an increase in Seaspan's officer headcount of approximately 4% due to expansion of our fleet, as well as ownership and managed days increased by 3.1%.

For the rest of this year we do not anticipate a material increase in crew wages and salaries other than those related to the increased fleet size as another four 10K which are schedule to deliver over the next three months -- quarters.

In addition, other component of ship OpEx primarily lube, storage, repairs and maintenance were increases of size of our fleet increases. Remaining increase is primarily due to timing increases in store spare, repairs, maintenance. For the rest of the year we expect to ship quarterly ship OpEx to increase marginally in each quarter and really in line with our scheduled newbuild delivery.

Our G&A expenses for the quarter were $8 million, an increase of $10,000. No significant changes in G&A is primarily timing.

Adjusted EBITDA was $124 million consistent with the prior year. Cash available for distribution were $68 million, an increase of just over $1 million or 1.6%. Adjusted EBITDA was relatively flat as increase operating expenses and reduce time charter revenue on certain vessels, which re-chartered in 2013 were offset by increase operating cash flows from the two 4600 that were delivered mid-2013 and from the Hanjin Buddha delivery, as well as production in unscheduled off-hire days.

Cash available for distribution to common shareholders increased in the quarter due to the preceding factors combined with the reduction and interest expense at hedge rate and an increase in interest income partially offset by an increase in dividends paid on our preferred shares due to an increase in a number outstanding.

Our normalized EPS was $0.18 compared to $0.21 was negatively impacted by the fact that we raise capital to fund installment in our newbuild program and advanced deliveries scheduled through to 2016.

Normalized net earnings increased for the quarter but decrease on a per share basis due to an increase in the number of our Series D and our new issuance Series E preferred shares, and from an increase in our weighted average common share count to increase due to Q4 2013 common share offering.

The DRIP and from the compounding effect of the dividend on the Series A preferred shares. These shares are automatically converted into common shares during the quarter to strengthen our share price which was much higher than the $15 threshold for 30 days prior to the conversion.

Our Board declared a Q1 dividend of $0.0345 of the common share, which represents a 10% increase over the prior quarter and is our fifth dividend increase from Q2 2010. This is a sustainable dividend level, balances return to shareholders while allowing us to maintain financial flexibility to take advantage of attractive opportunities that exists in current market.

Please turn to slide five, for our balance sheet information where we will compare Q1 2014 to Q4 last year. With decline of approximately $190 million for current assets over the same period, it was primarily due to the decline in our cash, cash equivalents including short-term investments, partially offset by a smaller increase in working capital.

During the quarter, we invested approximately $140 million of newbuild fleet. It was funded by draws on senior debt, cash on hand. Our debt and capital leases declined by approximately $235 million, with the refinancing expansion about $1 billion IPO facility and schedule repayments on our loans leases.

We had draws on our credit facilities secured by newbuild vessels and by certain vessels that were previously pledged as collateral for the $1 billion facility. Consistent with our stated strategy, Seaspan’s capital structure has continued to evolve since the beginning of the year. We took further steps to position our company for the significant newbuild program to approve our financial flexibility.

In January, Series A preferred shares automatically converted into 23 million common shares as the share price was higher than $10 million, $15 million for the 30 days prior to conversion, increasing our common share of market capital to over $2 billion.

We also closed the refinancing extension of our $1 billion IPO facility. The outstanding balance would be reduced to $434 million. Maturity extended by four years to May 2019 and the interest rate was adjusted to current market levels. Repayment of approximately $600 billion on our IPO facility was partially funded by the drawdown, existing $340 million facility.

This was our first major refinancing since our IPO and we are very pleased with the execution. We appreciate the continued support of syndicate of bank financing partners in achieving this important milestone. In February, we issued a new series of preferred shares, Series E and that proceeds were approximately $130 million.

In April, we close our first senior unsecured public notes offering for net proceeds of approximately $340 million. We believe this is one of the largest unrated unsecured baby bond at $25 per offering and understand it is the first baby bond for the shipping industry.

There was significant demand for this offering, which further diversifies our investor base and capital services sources. This financing improves our financial flexibility and the proceeds may be used to create a pool of unencumbered assets.

Please refer to slide six for our latest forward guidance. After taking delivery of the Hanjin Buddha and in Q1, we have another four vessels scheduled for delivery, one in Q2, two in Q3 and one in Q4. For our newbuild fleet, we have to take delivery in 2015, 14,000 vessels chartered at Yang Ming, two 10,000 vessels to MOL and two 10,000, which we are currently working on charters board.

During 2016, we have two 14,000 TEU vessels that will be chartered at Yang Ming, another one vessel that will be chartered to MOL. The remainder of this year, we expect to invest approximately $400 million in our newbuild fleet. These installments will be funded from existing debt facilities, facilities to be secured with the remainder to be funded from cash on hand.

Expect to fund the rest of our newbuild fleets scheduled to deliver during 2015 and ’16, with the combination of debt facilities currently in place to be obtained and the remainder from cash on hand and other sources.

For the rest of this year, we expect to total approximately 80 dry-docking days with about 40 in Q2 and 20 days in Q3 and Q4. This is expected to increase to about 240 days next year and 200 days in 2016. Each of these items remains subject to adjustments.

I would now like to turn the call back over to Gerry.

Gerry Wang

Thanks, Sai. Please turn to slide seven, where I will briefly discuss industry fundamentals. There has not been a material change to market fundamentals during Q1. But it was mentioned here that we recently announced merger agreements between CSAV and Hapag-Lloyd, both customers of Seaspan, would create the fourth largest liner operator with a combined fleet of over 200 ships and with over 5% global market share.

On the supply side, we expect tonnage growth of about 5% for the year 2014. Major operators continue to manage supplies through widespread slow-streaming and incremental iteming of ships. The order book remains at approximately 23% of effective loading capacity or about 28% per annum on average. Vessel scrapping levels remain high particularly for the 80s and the 90s build ships.

On the demand side, we expect global containership volumes to grow by around 5% to 6% in 2014 as per various forecasts. The freight rate environment remains volatile from trade lane to trade lane. And the charter rates for short-term charters have not changed significantly since the beginning of the year.

Our customers demand for large eco-class containerships continues with a desire to reduce operating cost rather than to increase market share. Since bunker costs are 30% to 45% of an operator’s operating costs, modernizing their fleets with large, modern, fuel-efficient vessels such as those built using Seaspan's SAVER design concept remains a top priority. At same time, we continue to expect that liner operators would continue to outsource a large part of their fleet.

Our customers see us as a trusted operator and a partner due to our proven track record of building and operating large modern containerships. We believe we are well positioned to continue to capture a large portion of newbuild growth opportunities and believe our focus strategy and the market position would translate to long-term shareholder value.

Please turn to slide eight. Slide eight depicts the staggered maturity profile of our charter portfolio. The average remaining charter lengths of our operating fleets is approximately five years. We have only vessel that is up for re-charter for the year 2014, representing less than 1% of expected 2014 revenue.

And we expect to take delivery of another four 10000 TEU SAVER design vessels during the remainder of the year. As I mentioned earlier, we have formalized charters with MOL for a total of 10 units or 10 tons of 10,000 newbuild vessels to be constructed at YZJ, five of which will be owned by Seaspan.

We are pleased to have completed this transaction to expand our relationship with MOL, one of the premier liner operators in the industry. In addition, we recently exercise options to build four units of 10000 TEU SAVER designs, sister vessels at YZJ, two of which will be retained by Seaspan. These vessels will be scheduled to deliver by 2016 and we are in discussions with liner operators to secure long-term sound charters.

Please turn to slide nine, where I will reiterate our vision for the future like before. We believe Seaspan is well-positioned to continue to enhance its leadership position and create shareholder value over the long term. We will continue to pursue fleet growth with the controlled and balanced approach, being patient and disciplined, and using our financial strength and technical and operational leadership position to capitalize on our opportunities that meet our strict criteria. Our core focus will remain on designing, owning and chartering large, modern fuel efficient containerships to creditworthy customers. We have a history of returning capital to shareholders and we remain committed to sustainably increase our common share dividend over the long term as we continue to optimistically grow our business.

As a ship leasing franchise, we consider it to be critical to consistently maintain a strong balance sheet in order to take advantage of technicality of the market conditions, diversifying our capital structure and enhancing our financial strength, including maintaining appropriate leverage will remain one of our top priorities. A result may be muted in the short term as we continue to invest in new vessels for future. However, we expect our strong base and cash flows from existing charters as well as future growth will enable our franchise to be strong for the long-term value of our shareholders. Operator, please open up for questions?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Ken Hoexter from Merrill Lynch. Please go ahead.

Ken Hoexter - Merrill Lynch

Great. Good morning. Gerry, great job on the expansion and [continue access] (ph) to the capital, but just a quick question on your thought on the supply side. You mentioned on the growth of the fleet. What about the case of retirements on the original Panamax vessel, do think we'll start seeing those -- the owners of those turning those back as they can or does it get more difficult to recharter those in the market? Can you just give a little bit of thought on that?

Gerry Wang

On the supply side, we see -- we are looking at total 5% to 6% deliveries every year. On the Panamax vessels, obviously the market is very dynamic. And recently, we have seen some more activities actually coming from the requirements of demand from South Africa. So it's hard to -- really to predict what will happen during the remainder of the year or for the next year, but we do see some increased activities. As I mentioned, part of it is from South Africa trade, and we’ll also see inter-Asia trade pick up little bit. The Japanese economy is moving up. The Chinese economy is quite stable at 7%, 8%.

So the future, I'm still optimistic, this is a cyclical business and the old 1980s built and the early 1990s built will -- due to the graveyards will diminish the Panamax sector in terms of the total number of vessels. So we see few order books for that sector and little demand for Panamax vessels for various trades such as Africa, inter-Asia, and Indian Ocean trade. So we are optimistic sooner or later the cycle will come back, the demand for Panamax vessels will restore to a certain level as always been the case. And we believe the situation will be like this if not next year, the year after next; it's just a matter of time. So we are patient and we have nothing except for one ship to be re-chartered during this year. We have nothing come up till the end of 2015. So we'll keep our fingers crossed, and we will see how things go.

Ken Hoexter - Merrill Lynch

Wonderful. So it’s definitely not as bad as you described even some of his younger, maybe even early 2000 vessels, but just moving up the other 10,000 that you’ve got chartered to be built but don’t yet have contracts. Can you talk how discussions are going for those or did you choose, now since you already chartered out till 2016, do you want to wait on those negotiations to see what happens to the rate in the interim?

Gerry Wang

Ken, our strategy is we are talking to three, four operators right now. We try to deliver cherry-picking (indiscernible) charter rate the ones that (indiscernible) charter is very important for us. We want to have the right partner with us. Can you remember we had 100% charter hire collections record which reflect the quality of charters that we have and that 100% charter revenue collection record is very valuable parameter for the company. So we will make sure that we stick to that and at the end if good package comes up, then we will go ahead and do it right away if not then we just sit and wait because at the end of the day we believe we have 17 of those vessels which performed very well, the first ship has completed the transpacific trade and the performance, the fuel consumption, loadibility have been invested as what we designed for. We are very pleased with that.

And the second ship was delivered as a matter of fact this afternoon from the shipyard ahead of the time as well. So we just want to take our time. If the right business come out, we will move right away, if not, then we get to wait little bit, but looks like there is a lot of interest expressed in these type of vessels. And so we are very happy with the decisions we have made and we will see what happens next three to six months, then we will go from there.

Ken Hoexter - Merrill Lynch

Thank you. I appreciate for those answers. Thanks for the time.

Gerry Wang

Thanks.

Operator

Thank you. And our next question comes from Keith Mori from Barclays. Please go ahead.

Keith Mori - Barclays

Thanks for taking my call gentlemen. Just wanted to touch on the cascading and where we are in the process, Gerry, you speak to your customers very often, do you think we are towards the end of the cascading impact, and are you going to see a little bit more relief and less volatility in the freight rate over the next 12 to 18 months possibly with some of the consolidation going on?

Gerry Wang

I totally agree, and I think the consolidation especially for the PC and the CSAV Hapag-Lloyd will take away some of the volatility of pricing of the freight rate with more and more alliance driven decision making or freight rates determination process to be more dominating the marketplace.

So you will see less ups and downs and so stability will become more evident. Whether or not, we see that immediately, it remains to be seen but we are optimistic the industry will become more stable as a result of the consolidation.

As for the cascading situation like anytime at the cycle, it’s always over done whether for too many new vessels or too many old vessels, over killing is part of life in business. And I think as we explain to you, the first caller, Ken, even for the Panamax size vessels. We see increase in demand from traffic going to South Africa, inter-Asia trades and Indian Ocean demand.

So hopefully that’s a sign of the slowing down of the cascading impact from bigger ships to smaller vessels. The industry is anytime going to -- adjustments on the tonnage, size and the number of vessels, the speed, all those things. And so we’ll keep our fingers crossed. We don’t have any Panamax vessels except for one facing the market condition for almost next two years. So we can afford to sit and wait and see what happens. So that’s the luxury we have compared with our peers and others in the industry.

Keith Mori - Barclays

That’s great color. And I guess, I’d like to just move maybe to the larger ship sizes and supply. We’ve seen a lot of ordering last year, little bit less so far this year and a little bit more ordering in a speculative range with no long-term charters attached. As we see that freight rates remain low and demand is still kind of weak in the major trade lane, do you think the ordering activity will be slower this year, maybe that will give you cause for new ship deliveries at Seaspan?

Gerry Wang

I think the newbuilding activities will be moderate this year and possibly because like what you said last year was kind of active. And we pretty much follow the similar situation and we believe the bottom of the market is already tough and the ship prices have gone up quite a bit depending on the sizes, the type of vessels you look at. If you look at drybulk, it’s substantially up. Tankers is also 10%, 20% up, container ships is also 10%, 15% up.

So naturally you want to adjust then and wait and see. I mean, you don’t want to jump too fast and do too much there. So that’s pretty much the mood in the industry. And we’re no exception for that. But you will see some growth from our side because primarily because the customers have been really discussing with us for some newbuilding requirements on the larger size, 18,000 TEUs, 19,000 TEUs, 10,000 TEUs.

We’re one of the very few operators, independent owners that has the influence in the market place that our customers want to do business with. So we’ll keep our fingers cross. So I think for the remaining of this year, I think we’re still at some growth, not in terms of the number of vessels, probably a larger size, 18,000 TEUs, 19,000 TEUs. But in dollar figures, I would think we won’t be too far compared with last year.

Keith Mori - Barclays

Okay. That’s helpful. And then last one for me, Sai, I just want to touch on the joint venture, you recently did a presentation where you presented that the newbuild revenue and EBITDA projections for our Seaspan, is that the same profit level that we should think about the joint venture and then the 15% equity income that Seaspan will collect and maybe if you could also touch on any of the management fees you’ll receive?

Sai Chu

Thanks Keith. Yeah, I mean, we’re buying same ships under the same contracts for charter rates and the OpEx, it would be managed by Seaspan. So the joint venture will generate generally the same type of returns although they may adopt a different type of leverage because we just have slightly different covenants. In terms of the fees that Seaspan generates, we do earn a fee for the supervision of the newbuild in addition to the daily fee of about $668 per day, I believe, over and above the operating expenses.

Keith Mori - Barclays

Okay. That’s helpful. Thank you very much Sai.

Sai Chu

Thank you.

Operator

Thank you. And our next question comes from Christian Wetherbee from Citi. Please go ahead.

Seth Lowry - Citi

Good morning. This is Seth Lowry in for Chris. If I could continue on GCI, you have a couple of changes in your ROFR rights coming up. How might we think about your co-investment opportunities going forward? Should we expect to Seaspan to start maybe finding and funding more opportunities on their own going forward?

Gerry Wang

Actually a couple of comments for this. Firstly, our relationship with GCI, with Carlyle have been fantastic. We've been working together very smoothly and very closely and we're extremely happy with the relationship that we have with Carlyle.

Secondly, we believe the future, the growth opportunity is ahead of us and still very capital-intensive, especially when I commented we're looking at large size vessels like 18,000, 19,000 TEUs. They're very, very capital intensive, partnership with Carlyle would be benefiting both parties for the type of transactions. So we'll continue to work together for the foreseeable future

Seth Lowry - Citi

Okay. So even in the absence of your right of first refusal, we could expect some meaningful co-investment going forward. I mean, I guess, in particular asking after that March breakpoint, I think when your ROFR actually completely goes away?

Gerry Wang

While we still have some time in our hands and obviously, our [box] (ph) will take off that in due cost and from the management perspective, I have stated very clearly the relationship is great and there is a mutual need there to work with each other to deal with those high capital intensive project.

Seth Lowry - Citi

Okay. Great. And then if I can just switch gears on my last question. It looks like the liners have gotten incrementally more aggressive this year in operating their capacity through pools and growing alliances, if rates don't materialize over the peak season, somewhere late fall, do you think that catalyzes future sale leaseback this year?

Gerry Wang

I would think. So, I think pretty much the alliances are in full swing, even though they are not 100% but they are 80%, 90% there, certain things already going forward regardless of their approval process and there are so many things we can work together anyway.

So some can be a little bit loose, some can be a little bit tight. So regardless the, that's just the trends, that's just the form of the market, that is fully moving forward and I see no way going back to the old loose individualistic situations.

And going forward, just like the airline business, all you see will be various forms of alliances. So that ideally will add to the stability of at least the freight rate determinations, so there will be no free riders, there will be no individual actions because the freight rate is under pressure.

But you look at the whole industry, the utilization, the load factor helping 85%, 90%, one would think the industry should make a lot of money, generally speaking, if you compare with other industries, if you are at 75% you should be able to breakeven. Anything above that for the utilization should be in a position to make money.

The liner business has been very different possibly because of the fragmentation, the individualistic actions. I think the consolidation, those are forms of alliances that will finalize, take care of that loose situations and you will see more collective actions in a positive way. So, hopefully, that would help bringing the next stability for the industry going forward

Seth Lowry - Citi

Okay. Great. Thanks a lot. I’ll turn it over.

Gerry Wang

Thank you.

Operator

Thank you. And our next question comes from Gregory Lewis from Credit Suisse. Please go ahead.

Gregory Lewis - Credit Suisse

Thank you.

Gerry Wang

Hi Greg.

Gregory Lewis - Credit Suisse

Hi. Gerry, when you think about the CSAV and Hapag-Lloyd merger and as we look at previous consolidation cycles in the liner industry? Do you see this in the last couple of years of weakness as a potential for, alliances are great they, whether they really work or not remains to be seen? Do we think we could be entering a period over the next two years where we could actually see some consolidation of some of the liner companies whether in Asia or Europe?

Gerry Wang

My view on this thing is, these are, as you know, I talk to the liner operators CEOs quite frequently. So I've been certainly involved in a lot of conversations working with them, dealing with them and also amongst their own discussions strategically. Maybe one other thing is that the actual merger and acquisitions probably would be limited, but the alliances would be sort of working together with more stronger ties versus pretty loose relationships for the alliances.

So alliances will work together more closely, not just for the vessel we are sharing but also for freight rate determination, for sharing the same terminals or sharing the same bank of few suppliers. And I've seen the partners are working together much closer than before. I've been in the industry for a fully 30 years; I've never seen the operators working so closely with each other.

The cooperation, the level, the detail of expense have really been unprecedented, I guess partly because they realize if they're working individualistically they will be defeated one by one and those powerful shippers, i.e. the forwarders, big guys like Wal-Mart and others can figure out ways to get the best in terms of freight rate determination by defeating them one by one. So they have no choice but work together, united for a lot of things. And that's just how I feel. But the actual merger acquisitions will be limited, but the working relationships will be closer.

Gregory Lewis - Credit Suisse

Okay. Well, I guess we’ll keep our fingers cross. Sai, when you are talking to banks, have you noticed an increase in the willingness from not only European banks but Asian banks as well. To provide more finance to the shipping, I mean, we’re hearing that maybe some banks that have kind of been quite have been loosening up with their willing to lend and we’re actually seeing an acceleration of banks willing to lend money into the shipping market. Is that something that you’re seeing, or we’re not really seeing any momentum gain from the ship financing side?

Sai Chu

Hey. Greg, thanks. That’s a good question, I think that the -- I can’t speak for other company’s but I just know from Seaspan’s point of view, the access to availability of ship finance is very, very good. We have strong demand to fund our deal. Margins continue to improve for us. So it is reflected of really good opportunities and banks recognize a strong credit. They continue to focus in on those company’s that have good access to capital, really executed a good strategy throughout time and building up of the capital structure but also the credit strength of the company.

So, we benefited from forming throughout the cycle and we’re seeing again very strong demand and lower margin for our deal. In addition, I mean, clearly it’s a good time to invest in the industry because the asset values for the LTVs are just, over time going to improve for those banks that to grow -- the companies that continue to grow in the cycle. So from Seaspan’s point of view, we’re very pleased with the market access.

Gregory Lewis - Credit Suisse

Okay. Great. And just sort of you mentioned maybe the margins are coming in a little bit on the lending side. Do you have any sense -- I mean, have they contracted 50 basis points, is it something along those lines or from peak or…?

Gerry Wang

Yeah. I would say that just from the last year it’s come in at least 50 basis points for the deal that we’ve been working on. Again, we focus on the strongest credit counterparties and we structure our deals well in addition to the amount of capital that we’ve raised, I mean it gives the banks a lot of comfort that they are well positioned and we’ve done a good job for our shareholders as well in seeking out these types of opportunities.

Gregory Lewis - Credit Suisse

Yes. Well, and I guess long-term contracts don't hurt either.

Gerry Wang

Long-term exactly and given this is what the nightmare is of public company and we’ve executed very well.

Gregory Lewis - Credit Suisse

Okay, guys. Thank you for the time.

Gerry Wang

Thanks Greg.

Operator

(Operator Instructions) And our next question comes from Ben Nolan from Stifel. Please go ahead.

Benjamin Nolan - Stifel

Yeah. Thanks. Gerry, you mentioned the possibility of moving up a little bit in the interim to the size of the asset into the 18,000, 20,000 TEU vessels. Obviously, that's also a healthy step change in terms of the cost of the ship. Is that something that you guys would do on a speculative basis or semi-speculative basis, similar to some of the more recent transactions you've done, or is that something that you only undertake in the event of firm charters in place upon the order?

Gerry Wang

Yes, for the 18,000, 19,000, 20,000 TEUs will be typically back-to-back situation unlike 10,000 TEUs which are like Boeing 737 kind of easy to fix type, but the 18,000, 19,000 would be purely project-oriented.

Benjamin Nolan - Stifel

Okay. That makes sense. And then the other thing well on the same lines in terms of the charters in that point of view. Most of the recent charters that you guys have fixed on your asset, on the new assets have been primarily with Asian liner companies, but there haven’t been much activity as it relate with the two Chinese line of measures. Are you saying that they’re beginning to turn a little bit more towards domestic capital providers and are not as in the market, call it for capital that you’ve guys or others may provide?

Gerry Wang

Interesting enough, they haven’t done much to be honest. And obviously they are looking at various opportunities right now. And I haven’t seen that pattern being formed and being talking and working with them all the time and it just a matter of timing and the projects themselves. So there’s nothing there to suggest they solely rely on domestic financing and domestic builders. To be honest, the Chinese financing for U.S. dollars is actually more expensive than the asset commercial market. So I don’t see that pattern being established at all.

Benjamin Nolan - Stifel

Okay. Perfect. And then the last question for me and maybe for you Sai. Obviously you guys have been pretty active really all over the capital structure with respect to how you are looking to fund your growth and even with the most recent unsecured bond offering. Could you maybe talk, make sure how you think about where you are in your capital structure currently and where the best -- other than bank financiers, I think it's obvious -- where the best availability of capital is, lowest price currently, and how you might go about financing your fleet on a go-forward basis?

Sai Chu

Hi Ben. I think that what we’ve executed is really just a balance and diversified approach to raising capital because it’s not just simply priced. And prices are important but it’s also having the right term in financing and generating returns to our shareholders. So we have one of the most diversified advanced capital structures. And I think we’re quite pleased with how we have executed over the last nine years and opened up some new markets and investors.

And I think going forward, we’ll continue to be quite balanced in raising our capital and opportunistic ahead of the curve. We’ve got a very large order book and we’ve financed each chunk of it. And we’re a larger company and today our capital structure is about $8 billion.

So they have to continue that to really manage that capital structure to find new investors. And ultimately we look at our weighted average cost of capital and we’re quite pleased with how we are situated relative to our peers. So again I think that we don’t really need to actually raise any capital for quite sometime but we’ll continue to be opportunistic to fund the growth in our position.

Benjamin Nolan - Stifel

Okay. And I guess just sort of follow-on on that. It looks like you have, what close to $900 million, almost $1 billion worth of financing that you are expecting to get but has yet to be locked down. Could you maybe just give me an update on where that is with respect to bank financing that is expected but not yet there?

Sai Chu

Yeah. I mean, in terms of bank financing we have several deals that we are looking at today. I won’t be surprised if we ended up closing two or three deals in our next quarter or so. And then it’s just a continuous process. There continue to be really strong demand from banks throughout North America, Europe and Asia for our deals.

So again I’d expect that we’ll pull down a few hundred million by the end of the year. And then next year we’ll continue to bring down a few hundred million more in the bank market. We may layer on other types of capital in that period as well.

Benjamin Nolan - Stifel

Okay. Perfect. That's it for me. I appreciate your time guys.

Sai Chu

Excellent.

Operator

Thank you. And our next question is from Michael Webber from Wells Fargo. Please go ahead.

Michael Webber - Wells Fargo

Hey guys. This is Donald McLee on for Michael. All of my questions have been addressed, but thanks for the time.

Gerry Wang

Thank you.

Operator

Thank you. And I’m not showing any further questions at this time, I would now like to turn the call back to Gerry Wang for any further remark.

Gerry Wang

Thank you very much again for joining on the call. We look forward to you speaking to you again in the next quarter. Enjoy the summer. Thank you very much. Bye-bye. Thank you.

Operator

Ladies and gentlemen, thank you all for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

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Seaspan (SSW): Q1 EPS of $0.18 misses by $0.04. Revenue of $168M (+1.9% Y/Y) misses by $2.29M.