At Last!

On Monday, Danaos Corporation announced the restructuring of the company having reached agreement with the banks for the restructuring of its existing debt, the provision of new debt facilities and, lastly, the sale of $200 million of new equity. This gargantuan and time-consuming effort will put the company on sure footing going forward.

First and foremost, under the agreed terms all 14 of the company’s lenders have agreed to provide $426 million of new debt financing to partially fund its existing orderbook. The existing loan facilities of approximately $3 billion have effectively been re-written with amortization and maturities rescheduled, interest margins reduced, and financial covenants, events of default, and guarantee and security packages revised.
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A Call for General Average

Last week, as a consequence of its public disclosure obligations, Danaos Corporation announced that Zim had asked its customers for a 35% across the board reduction in charter hire. In situations like this, one wonders whether public disclosure is a service or disservice. But it does not matter, as it is necessary and essential to the workings of the capital markets.

Zim’s action has unimaginable repercussions for the entire industry. Charter parties, lest any one forgets, are contracts that cannot be unilaterally amended. Ships are built and financed on the expectation of performance of the obligations contained therein. While one could not have anticipated the collapse of the container market, should that allow the liner companies to re-open negotiations and re-structure their commitments? On the other hand, these are extraordinary times. The losses the lines are sustaining are huge and their liquidity is evaporating. How long can they survive?

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One Step Forward One Step Backward and One Tentative Step….

Danaos Corporation reported this week that it had now obtained waivers from all its lenders covering all the prior breaches of financial covenants in its credit facilities as well as any subsequent breaches until October 1st 2010.

Less positive was the news that Zim Integrated Shipping Services stated that it is reducing unilaterally all of its long-term charter payments by 35% commencing September 1st for a period of 3 years. Danaos, which has 6 vessels on charter to Zim for 12-year periods, has not accepted this condition nor has it acquiesced to this reduction. The company is currently in discussions with Zim and is evaluating the situation.

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On the Road?

Last Thursday, Danaos Corporation filed an F-1 registration statement for a follow-on offering. Unlike prior equity deals, there was no press release or announcement of any kind and the statement itself lacked detail. Subsequent to the filing, there has been no further public disclosure.

What we do know is that Deutsche Bank, Citi and Credit Suisse are the joint bookrunning managers for the offering. Proceeds are expected to be used to fund a portion of the newbuilding program and for general corporate purposes.

We suspect that despite the lack of public disclosure, there is a whirlwind of activity behind the scenes as the company and its bankers take to the road. Clearly, if there was a company that needs capital, this is it. Unfortunately, Danaos faces two problems from a marketing perspective. The container market is in the worst state it has ever been in. Also, insiders hold 80% of the shares with little float suggesting the company is neither well-known nor widely held by institutions who would likely be the main buyers of the shares.

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Hard Work, Rewarded

Danaos Corporation announced last week that it has reached agreement with Aegean Baltic Bank acting as agent to its $700 million revolving credit facility with HSH Nordbank, Piraeus Bank and Aegean Baltic, its $60 million credit facility with HSH Nordbank and Dresdner Bank and its $148 million performance guarantee with HSH Nordbank on waiver terms with respect to these facilities.

With this agreement, together with agreements reached earlier this year relating to certain of its other credit facilities, the Company has now obtained waivers through January 31, 2010 covering all prior breaches of financial covenants in its credit facilities as well as any subsequent breaches of these covenants.

The company is now in a position to complete its annual 20-F filing, which will provide greater details on the waivers.

Dividends Anyone?

With the recent collapse of both commodity prices and the BDI, share prices, particularly on the dry side, quickly followed suit. A decline in share price is never good news, but for the high paying dividend companies it was a double-edged sword. As yield and share price track inversely, the nominal dividends on these shares now equate to extraordinary yields. The whispered question on the street is whether the high dividend paying companies, given the poor market and lack of liquidity, will cut their dividends. Thus far two companies have answered this week with a resounding no. OceanFreight declared its 3rd quarter dividend at the current level. And demonstrating even greater confidence, Navios Maritime Partners increased its 3rd quarter dividend by 10% and announced that the 4th quarter dividend would also be increased by a further 4%.
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