Form 6-K Danaos Corp For: Jun 17
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE
ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June 2022
Commission File Number 001-33060
(Translation of registrant's name into English)
c/o Danaos Shipping Co. Ltd.
14 Akti Kondyli
185 45 Piraeus
011 030 210 419 6480
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
|99.1||Proxy Statement for the 2022 Annual Meeting of Stockholders|
Proxy and Notice Cards for the 2022 Annual Meeting of Stockholders
2021 Annual Report
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 17, 2022
|By:||/s/ EVANGELOS CHATZIS|
|Name: Evangelos Chatzis|
|Title: Chief Financial Officer|
14 Akti Kondyli
185 45 Piraeus
Chairman, President and Chief Executive Officer
ANNUAL STOCKHOLDERS MEETING TO BE HELD ON FRIDAY, JULY 29, 2022
c/o Danaos Shipping Co. Ltd.
14 Akti Kondyli
185 45 Piraeus
TO BE HELD ON FRIDAY, JULY 29, 2022
June 16, 2022
c/o Danaos Shipping Co. Ltd.
14 Akti Kondyli
185 45 Piraeus
TO BE HELD ON FRIDAY, JULY 29, 2022
|Executive Officers and Directors:|||||||||||||||||||||||||||
Chairman, President and Chief Executive Officer
Director, Senior Vice President and Chief Operating Officer
Chief Financial Officer and Secretary
Deputy Chief Operating Officer
Myles R. Itkin
All executive officers, directors and director nominees as a group (9 persons)
|5% Beneficial Owners:|||||||||||||||||||||||||||
Danaos Investment Limited as Trustee of the 883 Trust(2)
RBF Capital LLC(3)
|||||Class III Director – Term to Expire in 2025||||||
Nominee for Class III Director – Term to Expire in 2025
|Dr. John Coustas||||||
|||||President, Chief Executive Officer, Chairman and Class I Director – Term to Expire in 2024||||||
|||||Senior Vice President, Chief Operating Officer and Treasurer and Class II Director – Term to Expire in 2023||||||
|||||Class I Director – Term to Expire in 2024||||||
|Myles R. Itkin(2)(4)||||||
|||||Class I Director – Term to Expire in 2024||||||
Dr. John Coustas
Chairman, President and Chief Executive Officer
Director, Senior Vice President, Treasurer and Chief Operating Officer
|Dr. John Coustas||||||
|||||President and Chief Executive Officer|||
Senior Vice President, Chief Operating Officer and Treasurer
|||||Chief Financial Officer and Secretary|||
|||||Deputy Chief Operating Officer|||
DANAOS CORPORATION THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Proxy card for use at the 2022 Annual General Meeting or any adjournment or postponement thereof (the "Meeting") of Stockholders of Danaos Corporation, a Marshall Islands company (the "Company"), to be held on Friday, July 29, 2022 at 10:00 a.m. Greek local time, at the offices of the Company's manager, Danaos Shipping Co. Ltd., 14 Akti Kondyli in Piraeus, Greece 185 45. The person signing on the reverse of this card, being a holder of shares of common stock of the Company, hereby appoints as his/her/its proxy at the Meeting, Dr. John Coustas and Evangelos Chatzis, or either one of them acting alone, with full power of substitution, and directs such proxy to vote (or abstain from voting) at the Meeting all of his, her or its shares of common stock as indicated on the reverse of this card or, to the extent that no such indication is given, to vote as set forth herein, and authorizes such proxy to vote in his discretion on such other business as may properly come before the Meeting. Please indicate on the reverse of this card how the shares of common stock represented by this proxy are to be voted. If this card is returned duly signed but without any indication as to how the shares of common stock are to be voted in respect of any of the resolutions described on the reverse, the stockholder will be deemed to have directed the proxy to vote FOR the election of all the nominees to the Board of Directors and FORProposal Two, the ratification of the appointment of the independent auditors, each as described below. (Continued and to be signed on the reverse side) 1 ------------------ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .---------------- 14475 COMMENTS: 1.1
ANNUAL MEETING OF STOCKHOLDERS OF DANAOS CORPORATION July 29, 2022 NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, Proxy Statement, Proxy Card and Annual Report are available at www.danaos.com/agm Please sign, date and mail your proxy card in the envelope provided as soon as possible. Signature of Stockholder Date: Signature of Stockholder Date: Note:Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. 1.Election of each of the directors listed below to hold office for three years and until such director's respective successor is elected and qualified. O William Repko O Richard Sadler 2. Ratification of appointment of Deloitte Certified Public Accountants, S.A. as the Company's independent auditors for the year ending December 31, 2022. PLEASE INDICATE WITH AN "X" IN THE APPROPRIATE SPACE HOW YOU WISH YOUR SHARES TO BE VOTED. IF NO INDICATION IS GIVEN, PROXIES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS AND FOR PROPOSAL TWO, THE RATIFICATION OF THE APPOINTMENT OF TH E COMPANY’S INDEPENDENT AUDITORS, IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS. TO INCLUDE ANY COMMENTS, USE THE COMMENTS BOX ON THE REVERSE SIDE OF THIS CARD. FORAGAINSTABSTAIN FOR ALL NOMINEES WITHH OLDAUTHORITY FOR ALL NOMINEES FOR ALL EXCEPT (See instructions below) INSTRUCTIONS:To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: NOMINEES: THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x Please detach along perforated line and mail in the envelope provided.------------------ ---------------- 20230000000000000000 0 072922 GO GREEN e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access.
Signature of Stockholder Date: Signature of Stockholder Date: Note:Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. 1.Election of each of the directors listed below to hold office for three years and until such director's respective successor is elected and qualified. O William Repko O Richard Sadler 2. Ratification of appointment of Deloitte Certified Public Accountants, S.A. as the Company's independent auditors for the year ending December 31, 2022. PLEASE INDICATE WITH AN "X" IN THE APPROPRIATE SPACE HOW YOU WISH YOUR SHARES TO BE VOTED. IF NO INDICATION IS GIVEN, PROXIES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS AND FOR PROPOSAL TWO, THE RATIFICATION OF THE APPOINTMENT OF TH E COMPANY’S INDEPENDENT AUDITORS, IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS. TO INCLUDE ANY COMMENTS, USE THE COMMENTS BOX ON THE REVERSE SIDE OF THIS CARD. FORAGAINSTABSTAIN FOR ALL NOMINEES WITHH OLDAUTHORITY FOR ALL NOMINEES FOR ALL EXCEPT (See instructions below) INSTRUCTIONS:To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 NOMINEES: ANNUAL MEETING OF STOCKHOLDERS OF DANAOS CORPORATION July 29, 2022 INTERNET- Access “ www.voteproxy.com ” and follow the on-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page. TELEPHONE- Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. Vote online/phone until 11:59 PM EST the day before the meeting. MAIL- Sign, date and mail your proxy card in the envelope provided as soon as possible. IN PERSON- You may vote your shares in person by attending the Annual Meeting. GO GREEN- e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. PROXY VOTING INSTRUCTIONS Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x ------------------ ---------------- 20230000000000000000 0 072922 COMPANY NUMBER ACCOUNT NUMBER NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, Proxy Statement, Proxy Card and Annual Report are available at www.danaos.com/agm
1.Election of each of the directors listed below to hold office for three years and until such director's respective successor is elected and qualified. William Repko Richard Sadler 2. Ratification of appointment of Deloitte Certified Public Accountants, S.A. as the Company's independent auditors for the year ending December 31, 2022. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR AND “FOR” PROPOSAL 2. NOMINEES: This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. If you want to receive a paper or e-mail copy of the proxy materials you must request one. There is no charge to you for requesting a copy. To facilitate timely delivery please make the request as instructed below before 07/15/22. Please visit www.danaos.com/agm, where the following materials are available for view: • Notice of Annual Meeting of Stockholders • Proxy Statement • Form of Electronic Proxy Card • Annual Report TO REQUEST MATERIAL: TELEPHONE: 888-Proxy-NA (888-776-9962) or 718-921-8562 (for international callers) E-MAIL: [email protected] WEBSITE: https://us.astfinancial.com/proxyservices/requestmaterials.asp TO VOTE:ONLINE: To access your online proxy card, please visit www.voteproxy.com and follow the on-screen instructions or scan the QR code with your smartphone . You may enter your voting instructions at www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting date. IN PERSON: You may vote your shares in person by attending the Annual Meeting. TELEPHONE: To vote by telephone, please visit www.voteproxy.com to view the materials and to obtain the toll free number to call. MAIL: You may request a card by following the instructions above. COMPANY NUMBER ACCOUNT NUMBER CONTROL NUMBER JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 Please note that you cannot use this notice to vote by mail. Important Notice of Availability of Proxy Materials for the Stockholder Meeting of DANAOS CORPORATION To Be Held On July 29, 2022 at 10:00 a.m. Greek local time at the offices of the Company’s manager, Danaos Shipping Co. Ltd., 14 Akti Kondyli in Piraeus, Greece 185 45.
Get informed before you vote *If you choose to vote these shares in person at the meeting, you must request a “legal proxy.” To do so, please follow the instructions at www.ProxyVote.com or request a paper copy of the materials, which will contain the appropriate instructions. Please check the meeting materials for any special requirements for meeting attendance. Smartphone users Point your camera here and vote without entering a control number Your Vote Counts! FLASHID-JOB# For complete information and to vote, visit www.ProxyVote.com Control # Ricky Campana P.O. Box 123456 Suite 500 51 Mercedes Way Edgewood, NY 11717 1 OF 2 322,224 148,294 30# Hextone, Inc. P.O. Box 9142 Farmingdale, NY 11735 XXXX XXXX XXXX XXXX DANAOS CORPORATION 2022 Annual Meeting Vote by July 28, 2022 11:59 PM ET You invested in DANAOS CORPORATION and it's time to vote! You have the right to vote on proposals being presented at the Annual Meeting. This is an important notice regarding the availability of proxy material for the shareholder meeting to be held on July 29, 2022. View the Annual Report, Notice & Proxy Statement online OR you can receive a free paper or email copy of the material(s) by requesting prior to July 17, 2022. If you would like to request a copy of the material(s) for this and/or future shareholder meetings, you may (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to [email protected] If sending an email, please include your control number (indicated below) in the subject line. Unless requested, you will not otherwise receive a paper or email copy. Vote in Person at the Meeting* July 29, 2022 10:00 AM LST At the offices of the Company's manager, Danaos Shipping Co. Ltd., 14 Akti Kondyli in Piraeus, Greece 185 45.
Voting Items Board Recommends THIS IS NOT A VOTABLE BALLOT This is an overview of the proposals being presented at the upcoming shareholder meeting. Please follow the instructions on the reverse side to vote these important matters. Vote at www.ProxyVote.com FLASHID-JOB# Control # XXXX XXXX XXXX XXXX 1.00000 322,224 148,294 Under New York Stock Exchange rules, brokers may vote “routine” matters at their discretion if your voting instructions are not communicated to us at least 10 days before the meeting. We will nevertheless follow your instructions, even if the broker’s discretionary vote has already been given, provided your instructions are received prior to the meeting date. DANAOS CORPORATION 2022 Annual Meeting Vote by July 28, 2022 11:59 PM ET 1. Election of Directors Nominees: 01 William Repko 02 Richard Sadler For 2 Ratification of appointment of Deloitte Certified Public Accountants, S.A. as the Company's independent auditors for the year ending December 31, 2022. For NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
ANNUAL REPORT 2021
World-Class Shipping, Leading-Edge Expertise
Danaos Corporation seeks to remain the premier choice of global seaborne container transportation for its clients by utilizing its solid operational, technical and financial infrastructure. Danaos will continue to provide outstanding customer service, enforce rigorous operational standards, maintain a steadfast commitment to safety and environmental protection, and reward its shareholders. MISSION STATEMENT
In our annual report for 2020, I shared my expectation that 2021 would be a stellar year for Danaos. Indeed, the company’s results surpassed even my most optimistic expectations. Across the container industry, companies realized earnings unseen not just during the last decade, but in many cases, for a company’s entire operating history. In 2021, Danaos reported net income in excess of $1 billion as a result of both fleet operating as well as the appreciation of our investment in ZIM. The current container market has been characterized by well-documented supply chain disruptions. These disruptions and resulting shortage of shipping capacity benefitted the industry and led to extraordinary profits. Thus far in 2022, this dynamic has continued. While it appeared that the COVID-19 pandemic has begun to subside towards the end of 2021, the Omicron variant emerged. Most recently, it is testing China’s “zero COVID” policy and adding fuel to the supply chain disruptions. The global economic recovery has been abruptly clouded by the war in Ukraine, which have exacerbated, supply chain, driven energy prices higher and furthered inflationary pressure. Globally, central banks are considering raising interest rates to tame inflation, which will slow economic growth if not lead to a recession. This will definitely affect demand of finished goods. Regarding the tragedy unfolding in Ukraine, we employ a significant number of Ukrainians onboard our vessels. We are particularly concerned about families of our crews, and we have assisted a significant number of refugees in Greece. I hope that this humanitarian disaster will end soon for the benefit of the people of Ukraine. As for the supply side, the current orderbook has more than doubled since the start of the pandemic, although it is not extraordinary in terms of size and new ordering was concentrated in larger vessel classes. Danaos ordered six 7000 TEU vessels for delivery in 2024, our first orders from shipyards in over 10 years. Importantly, we have invested in the most underbuilt vessel segment where there is minimal capacity with efficient speed to serve the trade. The vessels we ordered will be capable of utilizing methanol as a fuel source, which “future proofs” our investment and creates a significant advantage, FROM THE PRESIDENT & CEO Dear Fellow Shareholders, Dr. John Coustas President & CEO In our annual report for 2020, I shared my expectation that 2021 would be a stellar year for Danaos. Indeed, the company’s results surpassed even my most optimistic expectations. Across the container industry, companies realized earnings unseen not just during the last decade, but in many cases, for a company’s entire operating history. In 2021, Danaos reported net income in excess of $1 billion as a result of both fleet operating as well as the appreciation of our investment in ZIM. DANAOS CORPORATION 6
particularly if fuel prices remain elevated. The wild card on the supply side is the speed reduction that will be mandated by the environmental regulations due to be enacted from 2023 and any voluntary speed reductions that may occur due to the high cost of vessel bunkers. Our chartering strategy insulates us from any near term rate volatility. Indeed, our operating income will be significantly better in 2022 than 2021 solely based on secured contracts. The market has certainly recognized the value of our enterprise and strategy, and our market capitalization surpassed $2 billion. We are pleased to be in the position to return value to our shareholders through our dividend, which we already increased by 50% after initiating it earlier in 2021. We have also retained a strong liquidity position to continue to grow our fleet and increase our earnings potential. I would like to thank all my colleagues and our crews for their dedication and I want to assure you that we will continue undeterred our goal of bringing exceptional results for our shareholders. Dr. John Coustas President & CEO Respectfully, ANNUAL REPORT 2021 7
Danaos delivered strong operational performance in 2021, achieving 98.2% fleet utilization. Despite increased and unbudgeted Covid-related expenses across our crew and port operations and inflationary pressures during the second half of the year, operating expenses increased by only 3.94% compared to our initial budget. Dear fellow shareholders and colleagues, FROM THE SENIOR VICE PRESIDENT & COO Danaos delivered strong operational performance in 2021, achieving 98.2% fleet utilization. Despite increased and unbudgeted Covid-related expenses across our crew and port operations and inflationary pressures during the second half of the year, operating expenses increased by only 3.94% compared to our initial budget. Our high-quality standards have remained unchanged throughout the pandemic, and we once again outpaced the global fleet Deficiencies per Port state control inspection average of 3.0, achieving a rate of just 0.6. The average key performance indicator of our fleet was 9.02 out of a maximum of 10. Finally, we continued to enhance the environmental profile of our fleet and emitted 41.4% less carbon in 2021 compared to the base year of 2008. While managing through various logistical challenges brought on by the pandemic, the shipping industry has continued to serve a vital role in the economy by creating jobs, fostering innovation, and delivering essential goods globally. We take pride in our role in the industry and share a fundamental commitment to all our stakeholders to: • Deliver value to our customers. We will further the tradition of providing container tonnage that meets or exceeds customer expectations. • Invest in our employees. This starts with compensating them fairly. It also includes supporting them through training and education that help develop skills for a rapidly changing industry. We foster diversity and inclusion, dignity and respect. • Deal fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us achieve our goals. • Support the community of seafarers. We respect the people in our industry and protect the environment by embracing sustainable practices across our ships. • Generate long-term value for shareholders, who have provided the capital that allows our company to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders. Each one of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our company, our employees, and our industry. Iraklis Prokopakis Senior Vice President & COO Iraklis Prokopakis Senior Vice President & COO With warm regards, DANAOS CORPORATION 8
0.6 deficiencies per inspection 9.02 out of 10 average performance KPI 41.4% Fleet EOI reduction in 2021 (base year 2008) 98.2% fleet utilization rate ANNUAL REPORT 2021 9
We are pleased to report that 2021 was a stellar year for Danaos. The Company reported record Net Income of $1.05 billion, including a $544 million gain from appreciation of our equity position in ZIM and a one-off debt extinguishment gain of $112 million. Additionally, our Adjusted Net Income of $362 million for 2021 more than doubled compared to 2020. Equally importantly, this trend of improving Adjusted Net Income is set to continue. Our contracted revenue backlog grew by more than 130% to $2.8 billion at the end of 2021 from $1.2 billion at the end of 2020, and our contracted operating revenues alone for 2022 are in excess of $950 million compared to total operating revenues for 2021 of $690 million. Our balance sheet also continued to materially strengthen in 2021. The Company has significantly reduced its leverage over the past four years and intends to steadily continue to do so. As of December 31, 2021, our gross debt, including lease obligations, was $1.38 billion, and our cash position was $129 million. Based on 2021 Adjusted EBITDA of $509 million, our Net Debt / Adjusted EBITDA ratio was 2.5x, a significant improvement when compared to 7.3 x as of the end of 2017. Our current Net Debt to Pro-Forma 2022 Adjusted EBITDA is already below 1.5x and is expected to improve further. At the end of 2021 liquid assets, including the ZIM equity stake, exceeded $550 million. In 2021, the Company concluded a transformative $1.25 billion refinancing of the majority of its debt through a combination of secured debt and a bond offering. The result is an improved debt profile and enhanced free cash flow visibility, positioning the Company to both pursue accretive growth opportunities and return value to our shareholders through dividends. During the second quarter of 2021 the Company announced an annualized dividend of $2 per share, which was recently increased by 50% to an annualized dividend of $3 per share. The Company has also been actively investing in its fleet to enhance its earnings potential. In 2021, we concluded a $334 million investment program to acquire (i) six modern 5,500 TEU eco-design wide beam vessels and (ii) the remaining 51% of our Gemini joint venture interest, taking full ownership of the joint venture’s five vessels. Dear Fellow Shareholders, Evangelos Chatzis Chief Financial Officer FROM THE CHIEF FINANCIAL OFFICER We are pleased to report that 2021 was a stellar year for Danaos. The Company reported record Net Income of $1.05 billion and our balance sheet continued to materially strengthen. DANAOS CORPORATION 10
These acquisitions proved to be well-timed as asset values have increased considerably since we concluded these transactions. We continue to maintain our strong commitment to the integrity of our financial reporting, and we are pleased to report that for 2021 we again had effective controls under the Sarbanes Oxley regulatory framework. I would like to take this opportunity to sincerely thank our Audit Committee and our finance team for their hard work and commitment towards the continuous enhancement of a reliable financial reporting framework. We would also like to extend our gratitude to the crews on board our vessels and to our Manager, Danaos Shipping Co. Ltd. and all its employees for their hard work and their commitment to support our mission to remain the premier provider of global seaborne container transportation, particularly given the very challenging conditions caused by the pandemic. They have continuously helped us to provide high quality and reliable service to our clients while at the same time maintaining operating expenses among the most competitive in the industry. We will continue our efforts to provide best in class services to our valued clients, enforce rigorous operations standards, maintain a steadfast commitment to safety and environmental protection and seek to reward our shareholders. $1.05 billion, compared to $153.6 million for 2020 Record Net Income $334 million capex investments for vessel acquisitions Accretive growth Significant de-leveraging Net Debt/Adjusted EBITDA 2.5 x for 2021 versus 7.3 x for 2017 Evangelos Chatzis Chief Financial Officer Respectfully, ANNUAL REPORT 2021 11
3 1 2 SOCIAL RESPONSIBILITY 1. Afforestation 2. Helmepa - Coastal Clean-up Day 3. Danaos Interns Summer, 2021 DANAOS CORPORATION 12
4 5 6 7 8 “Be the change you want to see in the world” Gandhi 4. Danaos Team - bowling time 5. CMA CGM Nerval transported Lady Liberty’s - Little Sister 6. Danaos Team - Kart time 7. Marathon 2021 8. Danaos Sailing Team ANNUAL REPORT 2021 13
$452 $459 $447 $462 $690 2017 2018 2019 2020 2021 Operating Revenues (1) (Amounts in million US$) $310 $318 $311 $318 $509 2017 2018 2019 2020 2021 Adjusted EBITDA (1) (2) (Amounts in million US$) (1) From continuing operations (2) Adjusted for non-cash and one-off items (refer to our earnings releases and SEC filings) (3) Giving retroactive effect to the reverse stock split of 1-for-14 implemented on May 2, 2019 Results from continuing operations (US dollars in thousands except for share and per share data) 2021 2020 2019 2018 2017 Operating Revenues (1) $689,505 $461,594 $447,244 $458,732 $451,731 Operating Expenses: Vessel operating expenses (135,872) (110,946) (102,502) (104,604) (106,999) General & administrative expenses (43,951) (24,341) (26,837) (26,334) (22,672) Depreciation & amortization (127,098) (112,563) (105,238) (116,994) (121,976) Impairment loss - - - (210,715) - Other operating expenses (24,325) (14,264) (11,593) (12,207) (12,587) Income / (Loss) from Operations $358,259 $199,480 $201,074 $(12,122) $187,497 Net Income / (Loss) $ 1,052,841 $ 153,550 $131,253 $(32,936) $83,905 Diluted Earnings / (Loss) per Share (3) $51.15 $6.45 $8.09 $(3.10) $10.70 Adjusted Net Income (1) (2) $362,257 $170,888 $148,675 $131,186 $114,881 Adjusted Earnings per Share (1) (2) (3) $17.60 $7.18 $9.17 $12.35 $14.64 Adjusted EBITDA (1) (2) $508,803 $318,331 $310,565 $317,848 $310,378 Weighted Average Number of Shares (in thousands) (3) 20,584 23,805 16,221 10,623 7,845 FINANCIAL HIGHLIGHTS DANAOS CORPORATION 14
Dr. John Coustas is our President, Chief Executive Officer and Chairman of our board of directors. He has over 30 years of experience in the shipping industry and assumed management of our company in 1987 from his father Dimitris Coustas, who founded Danaos Shipping in 1972. He has been responsible for our corporate strategy and the management of our affairs since that time. Dr. Coustas is Deputy Chairman of the board of directors of The Swedish Club, a member of the board of directors of the Union of Greek Shipowners and a member of the DNV Council. He holds a degree in Marine Engineering from the National Technical University of Athens as well as a Master’s degree in Computer Science and a Ph.D. in Computer Controls from Imperial College, London. Iraklis Prokopakis is our Senior Vice President, Treasurer, Chief Operating Officer and a member of our board of directors. Mr. Prokopakis joined us in 1998 and has over 40 years of experience in the shipping industry. Prior to entering the shipping industry, Mr. Prokopakis was a captain in the Hellenic Navy. He holds a Bachelor of Science in Mechanical Engineering from Portsmouth University in the United Kingdom, a Master’s degree in Naval Architecture and a Ship Risk Management Diploma from the Massachusetts Institute of Technology in the United States and a post-graduate diploma in business studies from the London School of Economics. Mr. Prokopakis also has a Certificate in Operational Audit of Banks from the Management Center Europe in Brussels and a Safety Risk Management Certificate from Det Norske Veritas. He is a member of the Board of the Hellenic Chamber of Shipping, member of the Owners’ Committee of Skuld P&I club and the Owners’ Committee of the Korean Register of Shipping. Evangelos Chatzis is our Chief Financial Officer and Secretary. Mr. Chatzis has been with Danaos Corporation since 2005 and has over 25 years of experience in corporate finance and the shipping industry. During his years with Danaos he has been actively engaged in the company’s initial public offering in the United States and has led the finance function of the company. Throughout his career he has developed considerable experience in operations, corporate finance, treasury and risk management and international business structuring. Prior to joining Danaos, Evangelos was the Chief Financial Officer of Globe Group of Companies, a public company in Greece engaged in a diverse scope of activities including dry bulk shipping, the textile industry, food production & distribution and real estate. During his years with Globe Group, he was involved in mergers and acquisitions, corporate restructurings and privatizations. He holds a Bachelor of Science degree in Economics from the London School of Economics, a Master’s of Science degree in Shipping & Finance from City University Cass Business School, as well as a post- graduate diploma in Shipping Risk Management from IMD Business School. SENIOR MANAGEMENT & BOARD OF DIRECTORS ANNUAL REPORT 2021 15
Miklόs Konkoly-Thege has been a member of our board of directors since 2006. Mr. Konkoly-Thege began at Det Norske Veritas (‘‘DNV’’), a ship classification society, in 1984. From 1984 through 2002, Mr. Konkoly-Thege served in various capacities with DNV including Chief Operating Officer, Chief Financial Officer and Corporate Controller, Head of Corporate Management Staff and Head of Business Areas. Mr. Konkoly-Thege became President and Chairman of the Executive Board of DNV in 2002 and served in that capacity until his retirement in May 2006. Mr. Konkoly-Thege is a member of the board of directors of Wilhelmsen Technical Solutions AS, Callenberg Technology Group AB and Stena Hungary Holding KFT. Mr. Konkoly-Thege holds a Master of Science degree in civil engineering from Technische Universit¨at Hannover, Germany and an MBA from the University of Minnesota. Dimitris Vastarouchas is our Deputy Chief Operating Officer. Mr. Vastarouchas has been the Technical Manager of our Manager since 2005 and has over 26 years of experience in the shipping industry. Mr. Vastarouchas initially joined our Manager in 1995 and prior to becoming Technical Manager he was the New Buildings Projects and Site Manager, under which capacity he supervised newbuilding projects in Korea for 4,250, 5,500 and 8,500 TEU containerships. He holds a degree in Naval Architecture & Marine Engineering from the National Technical University of Athens, Certificates & Licenses of expertise in the fields of Aerodynamics (C.I.T.), Welding (CSWIP), Marine Coating (FROSIO) and Insurance (North of England P&I). He is also a qualified auditor by Det Norske Veritas and Certified Negotiator by Schranner Negotiations Institute (SNI). Myles R. Itkin has been a member of our board of directors since 2006. Mr. Itkin was the Executive Vice President, Chief Financial Officer and Treasurer of Overseas Shipholding Group, Inc. (‘‘OSG’’), in which capacities he served, with the exception of a promotion from Senior Vice President to Executive Vice President in 2006, from 1995 to 2013. Prior to joining OSG in June 1995, Mr. Itkin was employed by Alliance Capital Management L.P. as Senior Vice President of Finance. Prior to that, he was Vice President of Finance at Northwest Airlines, Inc. Mr. Itkin served on the board of directors of the U.K. P&I Club from 2006 to 2013. Mr. Itkin holds a Bachelor’s degree from Cornell University and an MBA from New York University. SENIOR MANAGEMENT & BOARD OF DIRECTORS DANAOS CORPORATION 16
Petros Christodoulou has been a member of our board of directors since June 2018. Mr. Christodoulou has been a member of the Board of Directors of Guardian Capital Group since 2016 and a member of the Institute of Corporate Directors of Canada. He has also been a member of the Board of Directors of Aegean Baltic Bank since 2017. Mr. Christodoulou was Chief Executive Officer and Chief Financial Officer of Capital Product Partners, an owner of crude, product carriers and containerships, from September 2014 until 2015. From 2012 to 2014, Mr. Christodoulou was the Deputy Chief Executive Officer and Executive Member of the Board of the National Bank of Greece Group, acting as chairman of NBG Asset Management, Astir Palace SA and NBG Bank Assurance. Mr. Christodoulou was a member of the Board of Directors of Hellenic Exchanges SA from 2012 to 2014 and Director General of the Public Debt Management Agency of Greece from 2010 to 2014, acting as its Executive Director from 2010 to 2012. Mr. Christodoulou holds an MBA from Columbia University and a Bachelor of Commerce degree from the Athens School of Commerce and Economics. William C. Repko has been a member of our board of directors since July 2014. Mr. Repko has nearly 40 years of investing, finance and restructuring experience. Mr. Repko retired from Evercore Partners in February 2014 where he had served as a senior advisor, senior managing director and was a co-founder of the firm’s Restructuring and Debt Capital Markets Group since September 2005. Prior to joining Evercore Partners Inc., Mr. Repko served as chairman and head of the Restructuring Group at J.P. Morgan Chase, a leading investment banking firm, where he focused on providing comprehensive solutions to clients’ liquidity and reorganization challenges. In 1973, Mr. Repko joined Manufacturers Hanover Trust Company, a commercial bank, which after a series of mergers became part of J.P. Morgan Chase. Mr. Repko has been named to the Turnaround Management Association (TMA)- sponsored Turnaround, Restructuring and Distressed Investing Industry Hall of Fame. Mr. Repko has served on the Board of Directors of Stellus Capital Investment Corporation (SCM:NYSE) since 2012 and is Chairman of its Compensation Committee and serves on the Audit Committee. Mr. Repko received his B.S. in Finance from Lehigh University. SENIOR MANAGEMENT & BOARD OF DIRECTORS 17 ANNUAL REPORT 2021
0 100 200 300 400 500 600 700 800 900 1.000 1.100 1.200 DJUSMT S&P500 DAC Stock Performance Graph Comparison of Cumulative Total Return Set forth below is a line graph for the period from January 1, 2020 date until March 31, 2022 comparing the yearly percentage change in the cumulative total stockholder return on the Company’s common stock against the cumulative return of the published DJUSMT Index and the S&P 500. STOCKHOLDER RETURN PERFORMANCE PRESENTATION DANAOS CORPORATION 18
Since our initial public offering in the United States in October 2006, our common stock has been listed on the New York Stock Exchange under the symbol “DAC”. As of December 31, 2021, there were 20,716,738 shares of the registrant’s common stock outstanding. U.S. LEGAL COUNCEL Goodwin Procter LLP The New York Times Building 620 Eighth Avenue New York, N.Y. 10018 Tel.: +1 212 459 7257 INDEPENDENT AUDITORS PricewaterhouseCoopers S.A. 268, Kifissias Avenue Athens, 152 32 Greece Tel.: +30 210 687 4400 TRANSFER AGENT American Stock Transfer & Trust Company 6201 15th Avenue, Brooklyn N. Y. 11219 Tel.: +1 718 921 8200 MAILING ADDRESS Danaos Corporation c/o Danaos Shipping Co. Ltd 3, Christaki Kompou Street Peters House 3011, Limassol Cyprus Athens Branch: 14, Akti Kondyli, Piraeus Athens, 185 45 Greece INVESTOR RELATIONS Rose & Company 610 Fifth Avenue, Suite 308 New York, NY 10020 Tel. (212) 517-0810 Email: [email protected] COMPANY CONTACT Evangelos Chatzis Chief Financial Officer Tel.: +30 210 419 6480 E-Mail: [email protected] Iraklis Prokopakis Senior Vice President & COO Tel.: +30 210 419 6480 E-Mail: [email protected] SHAREHOLDER INFORMATION ANNUAL REPORT 2021 19
DANAOS CORPORATION 20-F
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
|¨||REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934|
|x||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021|
|¨||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the transition period from to|
|¨||SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
Date of event requiring this shell company report
Commission file number 001-33060
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Address, Telephone Number and Facsimile Number of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common stock, $0.01 par value per share||DAC||New York Stock Exchange|
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
As of December 31, 2021, there were 20,716,738 shares of the registrant’s common stock outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
x Yes ¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|Large accelerated filer x||Accelerated filer ¨||Non-accelerated filer ¨||Emerging growth company ¨|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP x||International Financial Reporting Standards as issued by the International Accounting Standards Board ¨||Other ¨|
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report:
x Yes ¨ No
TABLE OF CONTENTS
|Item 1. Identity of Directors, Senior Management and Advisers||3|
|Item 2. Offer Statistics and Expected Timetable||3|
|Item 3. Key Information||3|
|Item 4. Information on the Company||30|
|Item 4A. Unresolved Staff Comments||45|
|Item 5. Operating and Financial Review and Prospects||46|
|Item 6. Directors, Senior Management and Employees||75|
|Item 7. Major Shareholders and Related Party Transactions||81|
|Item 8. Financial Information||87|
|Item 9. The Offer and Listing||88|
|Item 10. Additional Information||88|
|Item 11. Quantitative and Qualitative Disclosures About Market Risk||102|
|Item 12. Description of Securities Other than Equity Securities||103|
|Item 13. Defaults, Dividend Arrearages and Delinquencies||104|
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds||104|
|Item 15. Controls and Procedures||104|
|Item 16A. Audit Committee Financial Expert||105|
|Item 16B. Code of Ethics||105|
|Item 16C. Principal Accountant Fees and Services||105|
|Item 16D. Exemptions from the Listing Standards for Audit Committees||106|
|Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers||106|
|Item 16F. Change in Registrant’s Certifying Accountant||106|
|Item 16G. Corporate Governance||106|
|Item 16H. Mine Safety Disclosure||106|
|Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections||107|
|Item 17. Financial Statements||107|
|Item 18. Financial Statements||107|
|Item 19. Exhibits||107|
This annual report contains forward-looking statements based on beliefs of our management. Any statements contained in this annual report that are not historical facts are forward-looking statements as defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events, including:
|·||future operating or financial results;|
|·||the impact of the COVID-19 pandemic and efforts throughout the world to contain its spread;|
|·||pending acquisitions and dispositions, business strategies and expected capital spending;|
|·||operating expenses, availability of crew, number of off-hire days, drydocking requirements and insurance costs;|
|·||general market conditions and container shipping market trends, including charter rates, vessel values and factors affecting supply and demand;|
|·||our financial condition and liquidity, including our ability to comply with covenants in our financing arrangements and to service or refinance our outstanding indebtedness;|
|·||performance by our charterers of their obligations;|
|·||the availability of ships to purchase, the time that it may take to construct new ships, or the useful lives of our ships;|
|·||our ability to obtain financing in the future to fund acquisitions and other general corporate activities;|
|·||our continued ability to enter into multi-year, fixed-rate period charters with our customers;|
|·||our ability to leverage to our advantage our manager’s relationships and reputation in the containership shipping sector of the international shipping industry;|
|·||changes in governmental rules and regulations or actions taken by regulatory authorities;|
|·||potential liability from future litigation; and|
|·||other factors discussed in “Item 3. Key Information—Risk Factors” of this annual report.|
The words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “potential,” “may,” “plan,” “project,” “predict,” and “should” and similar expressions as they relate to us are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. We may also from time to time make forward-looking statements in our periodic reports that we file with the U.S. Securities and Exchange Commission (“SEC”) other information sent to our security holders, and other written materials. Such statements reflect our current views and assumptions and all forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect our future financial results are discussed more fully in “Item 3. Key Information—Risk Factors” and in our other filings with the SEC. We caution readers of this annual report not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements.
Danaos Corporation is a corporation domesticated in the Republic of The Marshall Islands that is referred to in this Annual Report on Form 20-F, together with its subsidiaries, as “Danaos Corporation,” “the Company,” “we,” “us,” or “our.” This report should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, which are included in Item 18 to this annual report.
We use the term “twenty foot equivalent unit,” or “TEU,” the international standard measure of containers, in describing the capacity of our containerships. Unless otherwise indicated, all references to currency amounts in this annual report are in U.S. dollars.
All data regarding our fleet and the terms of our charters is as of February 28, 2022. As of February 28, 2022, we owned 71 containerships aggregating 436,589 TEU in capacity. See “Item 4. Information on the Company—Business Overview—Our Fleet”.
On May 2, 2019, the Company effected a 1-for-14 reverse stock split of the issued and outstanding shares of common stock of the Company. All share and per share data disclosed in this annual report give effect to this reverse stock split.
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Capitalization and Indebtedness
The table below sets forth our consolidated capitalization as of December 31, 2021:
|·||on an actual basis; and|
|·||on an as adjusted basis to reflect, in the period from January 1, 2022 to February 28, 2022, scheduled debt repayments under the $815 Million Senior Secured Credit Facility amounting to $20.4 million, $10.7 million related to our leasing obligations, $0.8 million related to Eurobank facility and $0.5 million related to our SinoPac senior secured credit facility.|
Other than as described above, there have been no material changes to our capitalization from debt or equity issuances, re-capitalizations, special dividends, or debt repayments as adjusted in the table below between January 1, 2022 and February 28, 2022.
|As of December 31, 2021|
|(US Dollars in thousands)|
|Total debt(1) (2)||$||1,378,496||$||1,346,133|
|Preferred stock, par value $0.01 per share; 100,000,000 preferred shares authorized and none issued; actual and as adjusted||—||—|
|Common stock, par value $0.01 per share; 750,000,000 shares authorized; 25,056,009 shares issued and 20,716,738 outstanding actual and as adjusted (3)||207||207|
|Additional paid-in capital(3)||770,676||770,676|
|Accumulated other comprehensive loss||(71,455||)||(71,455||)|
|Total stockholders’ equity||2,088,023||2,088,023|
|(1)||Long-term debt excludes accumulated accrued interest of $30.3 million outstanding as of December 31, 2021. All of the indebtedness reflected in the table is secured and is guaranteed by Danaos Corporation, in the case of indebtedness of our subsidiaries ($77.8 million on an actual basis) and leasing obligations of our subsidiaries ($226.5 million on an actual basis), or by our subsidiaries, in the case of indebtedness of Danaos Corporation ($774.3 million on an actual basis) and Senior Notes due 2028 ($300.0 million on an actual basis). See Note 5 “Fixed Assets, net & Right-of-use Assets” and Note 10 “Long-Term Debt, net” to our consolidated financial statements included elsewhere in this annual report.|
|(2)||Total debt is presented gross of the fair value adjustment and deferred finance costs, which amount to $10.0 million and $32.5 million, respectively.|
|(3)||Actual and as adjusted issued and outstanding common stock include 19,300 shares of restricted stock, which are scheduled to vest on December 31, 2022, subject to satisfaction of the vesting terms.|
|(4)||Does not reflect dividend of $0.75 per share of common stock declared amounting to $15.5 million, which was paid on February 28, 2022 to holders of record as of February 17, 2022.|
Reasons for the Offer and Use of Proceeds
Risk Factor Summary
An investment in our common stock is subject to a number of risks. The following summarizes some, but not all, of these risks. Please carefully consider all of the information discussed in “Item 3. Key Information— Risk Factors” in this annual report for a more thorough description of these and other risks.
Risks Inherent in Our Business
|·||Our profitability and growth depend on the demand for containerships and global economic conditions, and charter rates for containerships may experience volatility or decline.|
|·||The impact of the COVID-19 pandemic and efforts throughout the world to contain its spread, including effects on global economic activity, demand for seaborne transportation of containerized cargo, the ability and willingness of charterers to fulfill their obligations to us, charter rates for containerships, shipyards performing scrubber installations, drydocking and repairs, changing vessel crews and availability of financing.|
|·||The volatile container shipping market and difficulty finding profitable charters for our vessels.|
|·||The failure of our counterparties to meet their obligations under our charter agreements.|
|·||The loss of one of the limited number of customers that account for a large part of our revenues.|
|·||Global economic conditions, and the impact on consumer confidence and consumer spending.|
|·||Disruptions in world financial markets and the resulting governmental action could have a material adverse impact on our results of operations, financial condition and cash flows.|
|·||A decrease in the level of export of goods or an increase in trade protectionism globally could have a material adverse impact on our charterers’ business and could cause a material adverse impact on our business, financial condition, results of operations and cash flows.|
|·||Our profitability and growth depends on our ability to expand relationships with existing charterers and to obtain new time charters, for which we will face substantial competition.|
|·||Containership values, which until recently had been at low levels for a prolonged period of time, may fluctuate substantially and again decline. Depressed vessel values could cause us to incur impairment charges.|
|·||The value of our in investment in ZIM ordinary shares may fluctuate substantially, and affect our results of operations.|
|·||We must make substantial capital expenditures to maintain the operating capacity of our fleet, which may reduce the amount of cash available for other purposes.|
|·||The aging of our fleet may result in increased operating costs in the future.|
|·||Increased competition in technology could reduce our charter hire income and our vessels’ values.|
|·||We rely on our information systems to conduct our business, and failure to protect these systems against security breaches, or the failure or unavailability of these systems, could adversely affect our business and results of operations.|
|·||Due to our lack of diversification, adverse developments in the containership transportation business could reduce our ability to meet our payment obligations and our profitability.|
Risks Related to our Financing Arrangements
|·||Our ability to comply with various financial and collateral covenants in our credit facilities and other financing arrangements.|
|·||Substantial debt levels could limit our flexibility to obtain additional financing and our ability to service our outstanding indebtedness will depend on our future operating performance.|
|·||The terms of the $300 million aggregate principal amount of 8.500% Senior Notes due 2028 (the “Senior Notes”) issued by Danaos Corporation on February 11, 2021 contain covenants limiting our financial and operating flexibility.|
|·||Our ability to obtain additional debt financing for future acquisitions of vessels may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.|
|·||We are exposed to volatility in, and related to the phasing out of, LIBOR and to exchange rate fluctuations.|
|·||We may enter into derivative contracts to hedge our exposure to fluctuations in interest rates, which could result in higher than market interest rates and charges against our income.|
Environmental, Regulatory and Other Industry Related Risks
|·||We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our cash flows and net income.|
|·||Increased inspection procedures, tighter import and export controls and new security regulations could cause disruption of our containership business.|
|·||Uncertainties related to compliance with sanctions and embargo laws.|
|·||Governments could requisition our vessels during a period of war or emergency, maritime claimants could arrest our vessels and we may be impacted by terrorist attacks or acts of piracy or have contraband smuggled onto our vessels.|
|·||Our insurance may be insufficient to cover losses due to the shipping industry’s operational risks.|
|·||Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect our business.|
Risks Relating to Our Key Employees and Our Manager
|·||Our business depends upon certain employees who may not necessarily continue to work for us.|
|·||The provisions in our restrictive covenant agreement with our chief executive officer restricting his ability to compete with us, like restrictive covenants generally, may not be enforceable.|
|·||We depend on our Manager to operate our business. Our Manager is a privately held company about which there is little publicly available information.|
Risk Related to Investment in a Marshall Islands Corporation
|·||We are a Marshall Islands corporation, which jurisdiction does not have well-developed corporate laws. It also may be difficult to enforce service of process or judgments against us, our officers and directors.|
|·||We may have to pay tax on U.S.-source income or become a passive foreign investment company.|
Risks Inherent in Our Business
Our profitability and growth depend on the demand for containerships and global economic conditions, and the impact of consumer confidence and consumer spending on containerized shipping volume and charter rates. Charter hire rates for containerships may experience volatility or decline, which would, in turn, adversely affect our profitability.
The ocean-going container shipping industry, from which we derive all of our revenues, is both cyclical and volatile in terms of charter hire rates and profitability. Charter rates are impacted by various factors, including the level of global trade, including exports from China to Europe and the United States, resulting demand for the seaborne transportation of containerized cargoes and containership capacity. After reaching highs in 2005, containership charters declined severely in 2008 and 2009 due to the effects of the economic crisis and generally remained weak until the second half of 2020, since which time there has been robust demand for seaborne transportation of containerized cargo, with freight volumes and freight rates rebounding sharply. The benchmark rates have increased in all quoted size sectors, with the benchmark one-year daily rate of a 4,400 TEU Panamax containership, which was $36,000 in May 2008, $24,600 at the end of December 2020 and at an all-time high of $100,000 at the end of 2021. Variations in containership charter rates, which may again decline to low levels, result from changes in the supply and demand for ship capacity and changes in the supply and demand for the major products transported by containerships. Demand for our vessels depends on demand for the shipment of cargoes in containers and, in turn, containerships. The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. Any slowdown in the global economy, including due to events such as the coronavirus variant outbreaks, and disruptions in the credit markets or changes in consumer preferences may again reduce demand for products shipped in containers and, in turn, containership capacity.
Factors that influence demand for containership capacity include:
|·||supply and demand for products suitable for shipping in containers;|
|·||changes in global production of products transported by containerships;|
|·||the distance that container cargo products are to be moved by sea;|
|·||the globalization of manufacturing;|
|·||global and regional economic and political conditions;|
|·||developments in international trade;|
|·||changes in seaborne and other transportation patterns, including changes in the distances over which containerized cargoes are transported and steaming speed of vessels;|
|·||environmental and other regulatory developments; and|
|·||currency exchange rates.|
Factors that influence the supply of containership capacity include:
|·||the number of new building deliveries;|
|·||the scrapping rate of older containerships;|
|·||the price of steel and other raw materials;|
|·||changes in environmental and other regulations that may limit the useful life of containerships;|
|·||the number of containerships that are out of service; and|
Consumer purchases of discretionary items, many of which are transported by sea in containers, generally decline during periods where disposable income is adversely affected or there is economic uncertainty and, as a result, liner company customers may ship fewer containers or may ship containers only at reduced rates. In addition, a change in consumer behavior that results in reduced purchases of goods in connection with any easing of the pandemic, or otherwise, could have a similar effect. Any such decrease in shipping volume could adversely impact our liner company customers and, in turn, demand for containerships. Such decreases in recent years, led to declines in charter rates and vessel values in the containership sector and increased counterparty risk associated with the charters for our vessels, including defaults by certain of our customers.
Our ability to recharter our containerships upon the expiration or termination of their current charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the prevailing state of the charter market for containerships. As of February 28, 2022, the charters for 7 of our vessels (excluding two vessels, which we agreed to sell in 2022) expire in 2022. If the charter market has weakened when our vessels’ charters expire, we may be forced to recharter the containerships, if we were able to recharter such vessels at all, at reduced rates and possibly at rates whereby we incur a loss. If we were unable to recharter our vessels on favorable terms, we may potentially scrap certain of such vessels, which may reduce our earnings or make our earnings volatile. The same issues will exist to the extent we acquire additional containerships and attempt to obtain multi-year charter arrangements as part of an acquisition and financing plan. The containership market also affects the value of our vessels, which follow the trends of freight rates and containership charter rates.
We may have difficulty securing profitable employment for our vessels in the containership market.
Of our 71 vessels, as of February 28, 2022, 7 of our vessels (excluding two vessels, which we agreed to sell in 2022) are employed on time charters expiring in 2022. Depending on the state of the containership charter market when we are seeking to employ these vessels, we may be unable to secure employment for these vessels at attractive rates, or at all, when, if applicable, their charters expire. Although we do not receive any revenues from our vessels while not employed, as was also the case for certain of our vessels for periods in recent years, we are required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. If we cannot re-charter our vessels profitably, our results of operations and operating cash flow will be adversely affected.
We are dependent on the ability and willingness of our charterers to honor their commitments to us for all of our revenues and the failure of our counterparties to meet their obligations under our charter agreements could cause us to suffer losses or otherwise adversely affect our business.
We derive all of our revenues from the payment of charter hire by our charterers. Each of our 71 containerships is currently employed under time or bareboat charters with 17 liner companies, with 72% of our revenues in 2021 generated from six such companies. We could lose a charterer or the benefits of a time charter if:
|·||the charterer fails to make charter payments to us because of its financial inability, disagreements with us, defaults on a payment or otherwise;|
|·||the charterer exercises certain specific limited rights to terminate the charter;|
|·||we do not take delivery of any newbuilding containership we may contract for at the agreed time; or|
|·||the charterer terminates the charter because the ship fails to meet certain guaranteed speed and fuel consumption requirements and we are unable to rectify the situation or otherwise reach a mutually acceptable settlement.|
In 2016, Hanjin Shipping cancelled the charters for eight of our vessels after it filed for court receivership in September 2016 and in July 2016 we agreed to modifications to the charters for 13 of our vessels with HMM with substantial charter rate reductions.
If we lose a time charter, we may be unable to re-deploy the related vessel on terms as favorable to us or at all. We would not receive any revenues from such a vessel while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel.
The time charters on which we deploy our containerships may provide for charter rates that are above market rates prevailing at any particular time. The ability and willingness of each of our counterparties to perform its obligations under their time charters with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the container shipping industry and the overall financial condition of the counterparty. The likelihood of a charterer seeking to renegotiate or defaulting on its charter with us may be heightened to the extent such customers are not able to utilize the vessels under charter from us, and instead leave such chartered vessels idle. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure may be at lower rates, particularly if weaker charter markets are then prevailing.
If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, as part of a court-supervised restructuring or otherwise, we could sustain significant reductions in revenue and earnings which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to comply with the covenants and refinance our credit facilities. In such an event, we could be unable to service our debt and other obligations.
We depend upon a limited number of customers for a large part of our revenues. The loss of these customers could adversely affect us.
Our customers in the containership sector consist of a limited number of liner operators. The percentage of our revenues derived from these customers has varied in past years. In the past several years, CMA CGM, HMM, Yang Ming, MSC and ZIM have represented substantial amounts of our revenue. In 2021, approximately 72% of our operating revenues were generated by six customers, including 30% from CMA CGM and 17% from HMM, and in 2020 approximately 88% of our operating revenues were derived from six customers. As of February 28, 2022, we have charters for fifteen of our vessels with CMA CGM, for eight of our vessels with each of MSC and COSCO, for six of our vessels with each of Maersk and ZIM, for five of our vessels with each of OOCL and HMM, for four of our vessels with ONE, for three of our vessels with each of Yang Ming and Hapag Lloyd, for two of our vessels with PIL and for one of our vessels with each of TS Lines, KMTC, Niledutch, Samudera, SITC and Evergreen. We expect that a limited number of liner companies may continue to generate a substantial portion of our revenues. If any of these liner operators cease doing business or do not fulfill their obligations under their charters for our vessels, as was the case with Hanjin Shipping and HMM in 2016 for instance, due to financial pressure on these liner companies from any significant decreases in demand for the seaborne transport of containerized cargo or otherwise, our results of operations and cash flows, and ability to comply with covenants in our financing arrangements, could be adversely affected. Further, if we encounter any difficulties in our relationships with these charterers, our results of operations, cash flows, and financial condition could be adversely affected.
Containership values may again experience significant declines and over time may fluctuate substantially. Depressed vessel values could cause us to incur impairment charges for our vessels, or to incur a loss if these values are low at a time we are attempting to dispose of a vessel.
Containership market values can fluctuate substantially over time, and may again experience significant declines as they have in past years, due to a number of different factors, including:
|·||prevailing economic conditions in the markets in which containerships operate;|
|·||changes in and the level of world trade;|
|·||the supply of containership capacity;|
|·||prevailing charter rates; and|
|·||the cost of retrofitting or modifying existing ships, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.|
As of December 31, 2018 and December 31, 2016, we recorded an impairment loss of $210.7 million and $415.1 million, respectively, for our older vessels, and we have incurred impairment charges in prior years as well. In the future, if the market values of our vessels or other assets again experience deterioration or we lose the benefits of the existing charter arrangements for any of our vessels and cannot replace such arrangements with charters at comparable rates, we may be required to record additional impairment charges in our financial statements, which could adversely affect our results of operations. Any impairment charges incurred as a result of declines in charter rates could negatively affect our financial condition and results of operations. In addition, if we sell any vessel at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel’s carrying amount on our financial statements, resulting in a loss and a reduction in earnings.
The value of our in investment in ZIM ordinary shares may fluctuate substantially, which may increase the volatility of our earnings.
The trading price of ZIM’s ordinary shares on the NYSE and the corresponding value of our investment in ZIM ordinary shares, which was recorded in our balance sheet at $423.0 million as of December 31, 2021, may continue to fluctuate, as it has since ZIM’s initial public offering in January 2021, or decline substantially due to factors affecting the container shipping industry generally or ZIM specifically, which are outside of our control. For the year ended December 31, 2021, we recognized $543.65 million of gain on ZIM ordinary shares, of which $422.97 million was an unrealized gain related to the 7,186,950 ZIM ordinary shares that we continue to hold as of February 28, 2022, and received dividends on these shares amounting to $34.34 million (before income taxes on such dividends). We recognize all fluctuations in the fair value of our investment in ZIM ordinary shares in our consolidated statements of income, which may increase the volatility of our earnings. In addition, there can be no assurance that ZIM will continue to pay dividends or at what price we will be able to sell any ZIM ordinary shares which we elect to sell in the future, and therefore the amount of net proceeds received by us from our investment.
The COVID-19 virus pandemic and the resulting disruptions to the global economy and the container shipping industry could negatively affect our business, financial performance and our results of operations, including our ability to obtain charters and financing.
The outbreak of the COVID-19 virus has in 2020 led a number of countries, ports and organizations to take measures against its spread, such as quarantines and restrictions on travel. Such measures were taken initially in China, including Chinese ports, where we conduct a significant amount of our operations, and have since expanded to other countries globally covering most ports where we conduct business. These measures have and will likely continue to cause severe trade disruptions due to, among other things, the unavailability of personnel, supply chain disruption, interruptions of production and closure of businesses and facilities and reduced consumer demand. The duration and severity of this global health emergency and related disruptions remains uncertain.
The COVID-19 pandemic and the global response thereto has introduced uncertainty in a number of areas of our business, including our operational, commercial and financial activities. The severe impact of the pandemic on global economic activity resulted in a global recession and negatively affected global demand for the seaborne transportation of containerized cargoes in the first half of 2020, before demand recovered in the second half of 2020. If such conditions persist and again negatively affect demand for seaborne transportation of containerized cargoes, it could have a material adverse effect on our ability to secure charters at profitable rates, in a timely fashion without a period of off-hire, or at all, particularly for our vessels with charters expiring in 2022, as demand for additional charters could be significantly affected. Of our 71 vessels as of February 28, 2022, 7 vessels, 5 of which are below 6,500 TEU in capacity, are employed on time charters expiring in 2022. Container freight rates were volatile and containership charter market rates declined significantly in the first half of 2020 before significantly improving since that time, but may again decline, including if the negative impact of the pandemic on global economic activity persists for longer than anticipated or its easing impacts demand for the shipment of containerized goods due to shifts in consumer behavior or otherwise. Containerized trade was estimated to have increased by 6.5% in 2021 after it declined by 3.0% in 2020 compared to an estimated increase in global gross domestic product (“GDP”) of 5.9% in 2021, reflecting the effects of partial recovery from the COVID-19 pandemic. In general, container trade is correlated with global GDP, with container trade growing somewhat faster than global GDP over the past decade and accordingly a decline in global GDP, due to an extended period of COVID-19 related restrictions or otherwise, would be likely to cause container trade, and in turn charter rates and vessel values, to again decline.
These factors could also have a material adverse effect on the business of our liner company charterers, which could adversely affect their ability and willingness to perform their obligations under our existing charters as well as decreasing demand for future charters. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant reductions in revenue and earnings, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to comply with the covenants in, or refinance, our credit facilities.
Until such time as the uncertainty surrounding the ability to contain the spread of COVID-19 abates, our business and the shipping industry as a whole may again be impacted by reduced demand for containerized shipping services, and continued disruptions from a reduced workforce and delays in crew changes as a result of quarantines applicable in numerous countries and ports and delays of vessels as a result of port checks due to cases, or suspected cases, of COVID-19 amongst crew, as well as delays in scheduled drydockings, intermediate or special surveys of vessels and scheduled and unscheduled ship repairs and upgrades, including the installation of scrubbers and ballast water treatment equipment. For example, we have experienced delays in Chinese shipyards related to the scheduled installations of the scrubbers on our vessels and delays in carrying of dry-docking repairs, which resulted in incremental off-hire time of our vessels ultimately leading to decreased operating revenue. In addition, travel restrictions imposed on a global level caused disruptions in scheduled crew changes on our vessels and delays in carrying out certain hull repairs and maintenance during the first quarter of 2020, which disruptions could continue to affect our operations.
The impact of COVID-19 on credit markets and financial institutions could also result in increased interest rate spreads and other costs of, and difficulty in obtaining, bank financing, including to refinance existing credit facilities and to finance the purchase price of additional vessel acquisitions, which could limit our ability to grow our business in line with our strategy.
Any prolonged slowdown in the global economy may again negatively impact worldwide demand for products transported by containerships, as it did in the first half of 2020, adversely affect the liquidity and financial position of our charterers and may decrease rechartering hire rates for our vessels, as could any decrease in demand for consumer products and other containerized cargo as the pandemic abates or otherwise. This could result in reductions in our revenue and the market value of our vessels, which could materially adversely affect our business and results of operations, as well as our ability to service or refinance our debt and comply with financial covenants of our credit facilities.
Disruptions in world financial markets and the resulting governmental action could have a material adverse impact on our results of operations, financial condition and cash flows.
The global economy has generally improved recently but remains subject to significant downside economic risks, as well as geopolitical risks, the emergence of populist and protectionist political movements in advanced economies and extraordinary events such as the ongoing coronavirus outbreak, which may negatively impact global economic growth, disrupt financial markets, and may lead to weaker consumer demand. A slowdown in the global economy may result in a decrease in worldwide demand for products transported by containerships. These issues, along with the re-pricing of credit risk and the difficulties being experienced by some financial institutions have made, and will likely continue to make, it difficult to obtain financing in the shipping industry. As a result of past disruptions in the credit markets, the cost of obtaining bank financing in the shipping industry has increased as many lenders have increased interest rates, enacted tighter lending standards, required more restrictive terms, including higher collateral ratios for advances, shorter maturities and smaller loan amounts, refused to refinance existing debt at maturity at all or on terms similar to our current debt. Furthermore, certain banks that have historically been significant lenders to the shipping industry have reduced or ceased lending activities in the shipping industry. We cannot be certain that financing will be available on acceptable terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due. In the absence of available financing, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our revenues and results of operations.
We face risks attendant to changes in economic environments, changes in interest rates, and any instability in the banking and securities markets around the world, among other factors. Major market disruptions and adverse changes in market conditions and the regulatory climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under any future financial arrangements.
In addition, as a result of the economic situation in Greece, which has been slowly recovering from the sovereign debt crisis and the related austerity measures implemented by the Greek government, our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees. Furthermore, the change in the Greek government and potential shift in its policies may undermine Greece’s political and economic stability, which may adversely affect our operations and those of our Manager located in Greece. We also face the risk that strikes, work stoppages, civil unrest and violence within Greece may disrupt our shoreside operations and those of our Manager located in Greece.
If global economic conditions weaken, particularly in Europe and in the Asia Pacific region, it could have a material adverse effect on our business, financial condition and results of operations.
Global economic conditions impact worldwide demand for various goods and, thus, container shipping. In particular, we anticipate a significant number of the port calls made by our vessels will continue to involve the loading or unloading of containers in ports in the Asia Pacific region. As a result, negative changes in economic conditions in any Asia Pacific country, in particular China which has been one of the world’s fastest growing economies in recent years, can have a significant impact on the demand for container shipping. However, if China’s pace of growth declines and other countries in the Asia Pacific region experience slower or negative economic growth in the future, this may negatively affect the economies of the United States and the European Union, or “EU”, and thus, may negatively impact container shipping demand. For example, the introduction of tariffs on selected imported goods mainly from Asia has provoked retaliatory measures from the affected countries, including China, which may create impediments to trade. Risks remaining from the recent recovery in Europe, including the possibility of sovereign debt defaults by EU member countries, including Greece, and any resulting weakness of the Euro, including against the Chinese renminbi, could adversely affect European consumer demand, particularly for goods imported, many of which are shipped in containerized form, from China and elsewhere in Asia, and reduce the availability of trade financing which is vital to the conduct of international shipping. In addition, the charters that we enter into with Chinese customers, including the charters we currently have with COSCO for eight of our vessels, may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our vessels chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse effect on our business, results of operations and financial condition. Our business, financial condition, results of operations, as well as our future prospects, will likely be materially and adversely affected by an economic downturn in any of these countries.
In addition, public health threats, such as the coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, including China, could adversely impact our operations, and the operations of our customers.
A decrease in the level of export of goods, in particular from Asia, or an increase in trade protectionism globally, including from the United States, could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our business, financial condition, results of operations and cash flows.
Our operations expose us to the risk that increased trade protectionism from the United States, China or other nations adversely affect our business. Governments may turn to trade barriers to protect or revive their domestic industries in the face of foreign imports, thereby depressing the demand for shipping. Restrictions on imports, including in the form of tariffs, could have a major impact on global trade and demand for shipping. Trade protectionism in the markets that our charterers serve may cause an increase in the cost of exported goods, the length of time required to deliver goods and the risks associated with exporting goods and, as a result, a decline in the volume of exported goods and demand for shipping.
In recent years, the United States instituted large tariffs on a wide variety of goods, including from China, which led to retaliatory tariffs from leaders of other countries including China. These policy pronouncements created significant uncertainty about the future relationship between the United States and China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs and has led to concerns regarding the potential for an extended trade war. Tensions over trade and other matters remain high between the U.S. and China, and it is currently unclear what policies the current U.S. administration will pursue. Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade and, in particular, trade between the United States and other countries, including China.
Our containerships are deployed on routes involving containerized trade in and out of emerging markets, and our charterers’ container shipping and business revenue may be derived from the shipment of goods from Asia to various overseas export markets, including the United States and Europe. Any reduction in or hindrance to the output of Asia-based exporters could have a material adverse effect on the growth rate of Asia’s exports and on our charterers’ business.
Furthermore, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and containing capital outflows. These policies may have the effect of reducing the supply of goods available for exports and the level of international trading and may, in turn, result in a decrease in demand for container shipping. In addition, reforms in China for a gradual shift to a “market economy” including with respect to the prices of certain commodities, are unprecedented or experimental and may be subject to revision, change or abolition and if these reforms are reversed or amended, the level of imports to and exports from China could be adversely affected.
Any new or increased trade barriers or restrictions on trade would have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. Such adverse developments could in turn have a material adverse effect on our business, financial condition, results of operations, cash flow, and our ability to service or refinance our debt.
Demand for the seaborne transport of products in containers has a significant impact on the financial performance of liner companies and, in turn, demand for containerships and our charter counterparty risk.
Demand for the seaborne transportation of products in containers, which is significantly impacted by global economic activity, remained at relatively low levels for a prolonged period from the onset of the global economic crisis of 2008 and 2009 until the second half of 2020. Consequently, during this period, the cargo volumes and freight rates achieved by liner companies, with which all of the existing vessels in our fleet are chartered, declined sharply, reducing liner company profitability and, at times, failing to cover the costs of liner companies operating vessels on their shipping lines. In response to such reduced cargo volume and freight rates, the number of vessels being actively deployed by liner companies decreased, before increasing alongside cargo volume and freight rates since the second half of 2020.
Any decline in demand for the services of our liner company customers could reduce demand for containerships and increase the likelihood of one or more of our customers being unable or unwilling to pay us the contracted charterhire rates under the charters for our vessels, such as we agreed with HMM in 2016 and ZIM in 2014 and Hanjin Shipping’s cancellation of long-term charters for eight of our vessels in 2016. We generate all of our revenues from these charters and if our charterers fail to meet their obligations to us, we would sustain significant reductions in revenue and earnings, which could materially adversely affect our business and results of operations, as well as our ability to comply with covenants in our credit facilities.
An over-supply of containership capacity may adversely affect charter rates and our ability to recharter our containerships at profitable rates or at all and, in turn, reduce our profitability.
While the size of the containership order book has declined from the historic highs reached in mid-2008, it increased in 2021 and at the end of 2021 newbuilding containerships representing approximately 23% of the existing global fleet capacity at that time, and a higher percentage of large containerships. Notwithstanding that some orders may be cancelled or delayed, the size of the orderbook will likely result in an increase in the size of the world containership fleet over the next few years. An over-supply of containership capacity, particularly in conjunction with any decline in the level of demand for the seaborne transport of containers, could negatively affect charter rates, which continued liner company consolidation may accentuate. We do not hedge against our exposure to changes in charter rates, due to increased supply of containerships or otherwise. As such, if the charter rate environment is weak when the current charters for our containerships expire or are terminated, we may only be able to recharter those containerships at reduced or unprofitable rates or we may not be able to charter those vessels at all.
Our profitability and growth depends on our ability to expand relationships with existing charterers and to obtain new time charters, for which we will face substantial competition from established companies with significant resources as well as new entrants.
One of our objectives is, when market conditions warrant, to acquire additional containerships in conjunction with entering into additional multi-year, fixed-rate time charters for these vessels, such as the vessels we acquired in 2020 and 2021. We employ our vessels in highly competitive markets that are capital intensive and highly fragmented, with a highly competitive process for obtaining new multi-year time charters that generally involves an intensive screening process and competitive bids, and often extends for several months. Generally, we compete for charters based on price, customer relationship, operating expertise, professional reputation and the size, age and condition of our vessels. In recent years, during the downturn in the containership charter market, other containership owners chartered their vessels to liner companies at extremely low rates, including at unprofitable levels, increasing the price pressure when competing to secure employment for our containerships. Container shipping charters are awarded based upon a variety of factors relating to the vessel operator, including:
|·||shipping industry relationships and reputation for customer service and safety;|
|·||container shipping experience and quality of ship operations (including cost effectiveness);|
|·||quality and experience of seafaring crew;|
|·||the ability to finance containerships at competitive rates and financial stability in general;|
|·||relationships with shipyards and the ability to get suitable berths;|
|·||construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;|
|·||willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and|
|·||competitiveness of the bid in terms of overall price.|
We face substantial competition from a number of experienced companies, including state-sponsored entities and major shipping companies. Some of these competitors have significantly greater financial resources than we do and can therefore operate larger fleets and may be able to offer better charter rates. We anticipate that other marine transportation companies may also enter the containership sector, including many with strong reputations and extensive resources and experience. This increased competition may cause greater price competition for time charters and, in stronger market conditions, for secondhand vessels and newbuildings.
In addition, a number of our competitors in the containership sector, including several that are among the largest charter owners of containerships in the world, have been established in the form of a German KG (Kommanditgesellschaft), which provides tax benefits to private investors. Although the German tax law was amended to significantly restrict the tax benefits to taxpayers who invest in these entities after November 10, 2005, the tax benefits afforded to all investors in the KG-model shipping entities continue to be significant, and such entities may continue to be attractive investments. Their focus on these tax benefits allows the KG-model shipping entities more flexibility in offering lower charter rates to liner companies. Further, since the charter rate is generally considered to be one of the principal factors in a charterer’s decision to charter a vessel, the rates offered by these sizeable competitors can have a depressing effect throughout the charter market.
As a result of these factors, we may be unable to compete successfully with established companies with greater resources or new entrants for charters at a profitable level, or at all, which would have a material adverse effect on our business, results of operations and financial condition.
We may have more difficulty entering into multi-year, fixed-rate time charters if a more active short-term or spot container shipping market develops.
One of our principal strategies is to enter into multi-year, fixed-rate containership time charters particularly in strong charter rate environments, although in weaker charter rate environments, we would generally expect to target somewhat shorter charter terms, particularly for smaller vessels. As more vessels become available for the spot or short-term market, we may have difficulty entering into additional multi-year, fixed-rate time charters for our containerships due to the increased supply of containerships and the possibility of lower rates in the spot market and, as a result, our cash flows may be subject to instability in the long-term. A more active short-term or spot market may require us to enter into charters based on changing market rates, as opposed to contracts based on a fixed rate, which could result in a decrease in our cash flows and net income in periods when the market for container shipping is depressed or insufficient funds are available to cover our financing costs for related containerships.
Delays in deliveries of any newbuilding vessels we may order or any secondhand vessels we may agree to acquire could harm our business.
Delays in the delivery of any newbuilding containerships we may order or any secondhand vessels we may agree to acquire, would delay our receipt of revenues under any arranged time charters and could result in the cancellation of such time charters or other liabilities under such charters, and therefore adversely affect our anticipated results of operations. The delivery of any newbuilding containership could also be delayed because of, among other things:
|·||work stoppages or other labor disturbances or other events that disrupt the operations of the shipyard building the vessels;|
|·||quality or engineering problems;|
|·||changes in governmental regulations or maritime self-regulatory organization standards;|
|·||lack of raw materials;|
|·||bankruptcy or other financial crisis of the shipyard building the vessel;|
|·||our inability to obtain requisite financing or make timely payments;|
|·||a backlog of orders at the shipyard building the vessel;|
|·||hostilities or political or economic disturbances in the countries where the containerships are being built;|
|·||weather interference or catastrophic event, such as a major earthquake or fire;|
|·||our requests for changes to the original vessel specifications;|
|·||requests from the liner companies, with which we have arranged charters for such vessels, to delay construction and delivery of such vessels due to weak economic conditions and container shipping demand;|
|·||shortages of or delays in the receipt of necessary construction materials, such as steel;|
|·||our inability to obtain requisite permits or approvals; or|
|·||a dispute with the shipyard building the vessel.|
The shipbuilders with which we contract for any newbuilding may be affected by instability in the financial markets and other market conditions, including with respect to the fluctuating price of commodities and currency exchange rates. In addition, the refund guarantors under any newbuilding contracts we enter into, which would be banks, financial institutions and other credit agencies, may also be affected by financial market conditions in the same manner as our lenders and, as a result, in weak market conditions may be unable or unwilling to meet their obligations under their refund guarantees. If shipbuilders or refund guarantors are unable or unwilling to meet their obligations to us, this will impact our acquisition of vessels and may materially and adversely affect our operations and our obligations under our financing arrangements.
The delivery of any secondhand containership we may agree to acquire could be delayed because of, among other things, hostilities or political disturbances, non-performance of the purchase agreement with respect to the vessels by the seller, our inability to obtain requisite permits, approvals or financing or damage to or destruction of the vessels while being operated by the seller prior to the delivery date.
We may have difficulty properly managing our growth through acquisitions of additional vessels and we may not realize the expected benefits from these acquisitions, which may have an adverse effect on our financial condition and performance.
To the extent market conditions warrant and we are able to obtain sufficient financing for such purposes, we intend to grow our business by ordering newbuilding containerships and through selective acquisitions of additional vessels. Future growth will primarily depend on:
|·||locating and acquiring suitable vessels;|
|·||identifying and consummating vessel acquisitions or joint ventures relating to vessel acquisitions;|
|·||enlarging our customer base;|
|·||developments in the charter markets in which we operate that make it attractive for us to expand our fleet;|
|·||managing any expansion;|
|·||the operations of the shipyard building any newbuilding containerships we may order; and|
|·||obtaining required financing on acceptable terms.|
During periods in which charter rates are high, vessel values generally are high as well, as is the case currently, and it may be difficult to acquire vessels at favorable prices at those times. In addition, growing any business by acquisition presents numerous risks, such as managing relationships with customers and integrating newly acquired assets into existing infrastructure. We cannot give any assurance that we will be successful in executing any growth plans or that we will not incur significant expenses and losses in connection with any future growth efforts.
We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and pay dividends to our stockholders.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries, including the subsidiaries that hold our investment in ZIM ordinary shares. As a result, our ability to pay our contractual obligations and pay dividends to our stockholders in the future depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by our financing arrangements, a claim or other action by a third party, including a creditor, or by the law of their respective jurisdictions of incorporation which regulates the payment of dividends by companies. Any limitations on our ability to receive cash from our subsidiaries may negatively affect our cash flows and ability to pay dividends to our stockholders.
If we are unable to fund our capital expenditures for additional vessels, we may not be able to grow our fleet.
We would have to make substantial capital expenditures to grow our fleet. We have no remaining borrowing availability under our existing credit facilities or other financing arrangements. In order to fund capital expenditures for future fleet growth, we generally plan to use equity and debt financing. Our ability to access the capital markets through future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions, conditions in the containership charter market and contingencies and uncertainties that are beyond our control. Our failure to obtain funds for future capital expenditures could limit our ability to grow our fleet.
We must make substantial capital expenditures to maintain the operating capacity of our fleet, which may reduce the amount of cash available for other purposes, including the payment of dividends to our stockholders.
Maintenance capital expenditures include capital expenditures associated with modifying an existing vessel or acquiring a new vessel to the extent these expenditures are incurred to maintain the operating capacity of our existing fleet. These expenditures could increase as a result of changes in the cost of labor and materials; customer requirements; increases in our fleet size or the cost of replacement vessels; governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and competitive standards. Significant capital expenditures, including to maintain the operating capacity of our fleet, may reduce the cash available for other purposes, including the payment of dividends to our stockholders.
The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings and cash flows.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our fleet ages, we may incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of a vessel may also require expenditures for alterations or the addition of new equipment to our vessels, and may restrict the type of activities in which our vessels may engage. Our current fleet of 71 containerships had an average age (weighted by TEU capacity) of approximately 13.3 years as of December 31, 2021, and we cannot assure you that, as our vessels age, market conditions will justify such expenditures or will enable us to profitably operate our vessels during the remainder of their expected useful lives.
Increased competition in technology and innovation could reduce our charter hire income and the value of our vessels.
The charter rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed and fuel economy. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new ship designs currently promoted by shipyards as more fuel efficient perform as promoted or containerships are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect the amount of charter-hire payments that we receive for our containerships once their current time charters expire and the resale value of our containerships. This could adversely affect our results of operations.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyberterrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business, results of operations and financial condition, as well as our cash flows.
Because we generate all of our revenues in United States dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could hurt our results of operations.
We generate all of our revenues in United States dollars and for the year ended December 31, 2021, we incurred approximately 24.0% of our vessels’ expenses in currencies other than United States dollars, mainly Euros. This difference could lead to fluctuations in net income due to changes in the value of the United States dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the United States dollar falls in value could increase, thereby decreasing our net income. We have not hedged our currency exposure and, as a result, our U.S. dollar-denominated results of operations and financial condition could suffer.
Due to our lack of diversification, adverse developments in the containership transportation business could reduce our ability to meet our payment obligations and our profitability.
We rely exclusively on the cash flows generated from charters for our vessels that operate in the containership sector of the shipping industry. Due to our lack of diversification, adverse developments in the container shipping industry have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business.
Risks Related to our Financing Arrangements
Containership charter rates and vessel values may affect our ability to comply with various financial and collateral covenants in our credit facilities, and are financing arrangement impose operating and financial restrictions on us.
Our credit facilities and other financing arrangements, which are secured by, among other things, mortgages on our vessels, require us to maintain specified collateral coverage ratios and satisfy financial covenants. See “Item 5. Operating and Financial Review and Prospects—Credit Facilities.” Our ability to comply with covenants and restrictions contained in our financing arrangements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Low containership charter rates, or the failure of our charterers to fulfill their obligations under their charters for our vessels, due to financial pressure on these liner companies from weak demand for the seaborne transport of containerized cargo or otherwise, may adversely affect our ability to comply with these covenants. The market value of containerships is sensitive to, among other things, changes in the charter markets with vessel values deteriorating in times when charter rates are falling and improving when charter rates are anticipated to rise.
If we are unable to meet our covenant compliance obligations under our credit facilities and other financing arrangements, and are unable to reach an agreement with our lenders to obtain compliance waivers, our lenders could then accelerate our indebtedness and foreclose on the vessels in our fleet securing those credit facilities. Any such default could result in cross-defaults under our other credit facilities and financing arrangements, including the Senior Notes, and the consequent acceleration of the indebtedness thereunder and the commencement of similar foreclosure proceedings by other lenders. The loss of any of our vessels would have a material adverse effect on our operating results and financial condition and could impair our ability to operate our business.
In addition, our credit facilities, and any future credit facility we enter into likely will, impose operating and financial restrictions on us and our subsidiaries, including relating to incurrence of debt and liens, making acquisitions and investments and paying dividends on or repurchasing our stock. Therefore, we may need to seek permission from our lenders in order to engage in some actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to finance our future operations or capital requirements, make acquisitions or pursue business opportunities or pay dividends on our shares.
Substantial debt levels could limit our flexibility to obtain additional financing and pursue other business opportunities and our ability to service our outstanding indebtedness will depend on our future operating performance, including the charter rates we receive under charters for our vessels.
We have aggregate principal amount of indebtedness, including leaseback obligations, outstanding of $1.4 billion, as of December 31, 2021. In addition, we may seek to incur substantial additional indebtedness, as market conditions warrant, to grow our fleet to the extent that we are able to obtain such financing. This level of debt could have important consequences to us, including the following:
|·||our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may be unavailable on favorable terms;|
|·||we will need to use a substantial portion of our free cash from operations to make principal and interest payments on our debt, reducing the funds that would otherwise be available for future business opportunities;|
|·||our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and|
|·||our debt level may limit our flexibility in responding to changing business and economic conditions.|
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. In particular, the charter rates we obtain for our vessels, including our vessels on shorter term time charters or other charters expiring in the near future, will have a significant impact on our ability to service our indebtedness. If we do not generate sufficient cash flow to service our debt, we may be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, refinancing our debt or seeking additional equity capital. We may not be able to effect any of these remedies on satisfactory terms, or at all.
In addition, we do not have any additional amounts available for borrowing under our existing credit facilities. Accordingly, we are currently dependent on our cash flows from operations to meet our operating expenses and debt service obligations. If we need additional liquidity and are unable to obtain such liquidity from existing or new lenders or in the capital markets, or if our existing financing arrangements do not permit additional debt that we require (and we are unable to obtain waivers from required lenders), we may be unable to meet our liquidity obligations which could lead to a default under our credit facilities and Senior Notes. Our current financing arrangements also impose, and future financing arrangements may impose, operating and financial restrictions on us that may limit our ability to take certain actions, including the incurrence of additional indebtedness by existing subsidiaries, creating liens on our existing assets and selling capital stock of our existing subsidiaries.
The terms of the Senior Notes contain covenants limiting our financial and operating flexibility.
Covenants contained in the documentation relating to the Senior Notes restricts our ability and the ability of our subsidiaries to, among other things:
|·||pay dividends, make distributions, redeem or repurchase equity interests and make certain other restricted payments or investments;|
|·||incur additional indebtedness or issue certain equity interests;|
|·||merge, consolidate or sell all or substantially all of our assets;|
|·||issue or sell capital stock of some of our subsidiaries;|
|·||create liens on assets; and|
|·||enter into certain transactions with affiliates or related persons.|
All of these limitations are subject to limitations, exceptions and qualifications. These restrictive covenants could limit our ability to pursue our growth plan, restrict our flexibility in planning for, or reacting to, changes in our business and industry and increase our vulnerability to general adverse economic and industry conditions. We may enter into additional financing arrangements in the future which could further restrict our flexibility. Any defaults of covenants contained in the Senior Notes may lead to an event of default under the Senior Notes and the indenture and may lead to cross-defaults under our other indebtedness.
Our ability to obtain additional debt financing for future acquisitions of vessels may be dependent on the performance of our then existing charters and the creditworthiness of our charterers, as well as the perceived impact of emissions by our vessels on the climate.
We have no remaining borrowing availability under our existing credit facilities. We intend, however, to borrow against vessels we may acquire in the future as part of our growth plan. The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing or committing to financing on unattractive terms could have a material adverse effect on our business, results of operations and financial condition.
In 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework by which financial institutions can assess the climate alignment of their ship finance portfolios, called the Poseidon Principles, and additional lenders have subsequently announced their intention to adhere to such principles. If the ships in our fleet are deemed not to satisfy the emissions and other sustainability standards contemplated by the Poseidon Principles, or other Environmental Social Governance (ESG) standards required by lenders or investors, the availability and cost of bank or other financing for such vessels may be adversely affected.
We are exposed to volatility in LIBOR.
Loans advanced under our credit facilities are, generally, advanced at a floating rate based on LIBOR, which has increased recently, after a long period of relative stability at historically low levels, and has been volatile in past years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. LIBOR rates were at historically low levels for an extended period of time and may continue to increase from these low levels. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our interest rate exposure and the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future increase. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate or bunker cost exposure, our hedging strategies may not be effective and we may incur substantial losses.
Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and phasing out of LIBOR may adversely affect the amounts of interest we pay under our debt arrangements and our results of operations.
Regulators and law enforcement agencies in the United Kingdom and elsewhere are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association (the “BBA”) in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR.
On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021 (the “FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. On November 30, 2020 the administrator of LIBOR, ICE Benchmark Administration (“IBA”), announced that it would consult on ceasing to determine one-week and two-month U.S. dollar LIBOR with effect from December 31, 2021 deadline but ceasing to determine the remaining U.S. dollar LIBOR tenors, including three-month LIBOR which most of our loan agreements are based on, on June 30, 2023. The Secured Overnight Financing Rate, or “SOFR”, has been proposed by the Alternative Reference Rate Committee, a committee convened by the U.S. Federal Reserve that includes major market participants and on which regulators participate, as an alternative rate to replace U.S. Dollar LIBOR. It is not possible currently to predict the effect of the FCA Announcement, including any discontinuation or change in the method by which LIBOR rates are determined, or how any such changes or alternative methods for calculating benchmark interest rates would be applied to any particular existing agreement containing terms based on LIBOR, such as our existing loan agreements. Any such changes or developments in the method pursuant to which LIBOR rates are determined may result in an increase in reported LIBOR rates or any alternative rates. If that were to occur, the amount of interest we pay under our credit facilities and any other financing arrangements may be adversely affected which may adversely affect our results of operations.
We may enter into derivative contracts to hedge our exposure to fluctuations in interest rates, which could result in higher than market interest rates and charges against our income.
We do not currently have any interest rate swap arrangements. In the past, however, we have entered into interest rate swaps in substantial aggregate notional amounts, generally for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our credit facilities, which were advanced at floating rates based on LIBOR, as well as interest rate swap agreements converting fixed interest rate exposure under our credit facilities advanced at a fixed rate of interest to floating rates based on LIBOR. Any hedging strategies we choose to employ, may not be effective and we may again incur substantial losses, as we did in 2015 and prior years. Unless we satisfy the requirements to qualify for hedge accounting for interest rate swaps and any other derivative instruments, we would recognize all fluctuations in the fair value of any such contracts in our consolidated Statements of Operations. Recognition of such fluctuations in our statement of operations may increase the volatility of our earnings. Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or results of operations.
Environmental, Regulatory and Other Industry Related Risks
We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our cash flows and net income.
Our business and the operation of our vessels are materially affected by environmental regulation in the form of international, national, state and local laws, regulations, conventions and standards in force in international waters and the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, wastewater discharges and ballast water management, or “BWM”. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such requirements or their impact on the resale price or useful life of our vessels. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. Many environmental requirements are designed to reduce the risk of pollution, such as from oil spills, and our compliance with these requirements could be costly. To comply with these and other regulations, including: (i) the sulfur emission requirements of Annex VI of the International Convention for the Prevention of Marine Pollution from Ships, or “MARPOL”, which instituted a global 0.5% (lowered from 3.5% as of January 1, 2020) sulfur cap on marine fuel consumed by a vessel, unless the vessel is equipped with a scrubber, and (ii) the International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or “BWM Convention”, of the International Maritime Organization, or “IMO”, which requires vessels to install expensive ballast water treatment systems, we may be required to incur additional costs to meet new maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage. Additionally, the increased demand for low sulfur fuels may increase the costs of fuel for our vessels that do not have scrubbers, although our charterers are responsible for the cost of fuel for vessels while under time or bareboat charter on which all of our vessels are currently deployed, and impact the charter rate charterers are willing to pay for vessels without scrubbers. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of doing business and which may materially and adversely affect our operations.
Environmental requirements can also affect the resale value or useful lives of our vessels, could require a reduction in cargo capacity, ship modifications or operational changes or restrictions, could lead to decreased availability of insurance coverage for environmental matters or could result in the denial of access to certain jurisdictional waters or ports or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and natural resource damages liability, in the event that there is a release of petroleum or hazardous materials from our vessels or otherwise in connection with our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels.
The operation of our vessels is also affected by the requirements set forth in the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or the “ISM Code”. The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive “Safety Management System,” or “SMS”, that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Failure to comply with the ISM Code may subject us to increased liability, may decrease available insurance coverage for the affected ships, and may result in denial of access to, or detention in, certain ports.
In connection with a 2001 incident involving the presence of oil on the water on the starboard side of one of our former vessels, the Henry (ex CMA CGM Passiflore), in Long Beach, California, our Manager pled guilty to one count of negligent discharge of oil and one count of obstruction of justice, based on a charge of attempted concealment of the source of the discharge. Consistent with the government’s practice in similar cases, our Manager agreed, among other things, to develop and implement an approved third-party consultant monitored environmental compliance plan. Any violation of this environmental compliance plan or any penalties, restitution or heightened environmental compliance plan requirements that are imposed relating to alleged discharges in any other action involving our fleet or our Manager could negatively affect our operations and business.
Climate change and greenhouse gas restrictions may adversely impact our operations.
Due to concern over the risks of climate change, a number of countries and the IMO, have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the “Kyoto Protocol”, or any amendments or successor agreements. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015, which contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures, did not include any restrictions or other measures specific to shipping emissions. However, restrictions on shipping emissions are likely to continue to be considered and a new treaty may be adopted in the future that includes additional restrictions on shipping emissions to those already adopted under MARPOL. For example, in 2021 the United States announced its commitment to working with the IMO to adopt a goal of achieving zero emissions from international shipping by 2050. Compliance with future changes in laws and regulations relating to climate change could increase the costs of operating and maintaining our ships and could require us to install new emission controls, as well as acquire allowances, pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program.
Increased inspection procedures, tighter import and export controls and new security regulations could cause disruption of our containership business.
International container shipping is subject to security and customs inspection and related procedures in countries of origin, destination, and certain trans-shipment points. These inspection procedures can result in cargo seizure, delays in the loading, offloading, trans-shipment, or delivery of containers, and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, charterers and charter owners.
Since the events of September 11, 2001, U.S. authorities increased container inspection rates and further increases have been contemplated. Government investment in non-intrusive container scanning technology has grown and there is interest in electronic monitoring technology, including so-called “e-seals” and “smart” containers, that would enable remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation. Also, additional vessel security requirements have been imposed including the installation of security alert and automatic information systems on board vessels.
It is further unclear what changes, if any, to the existing inspection and security procedures will ultimately be proposed or implemented, or how any such changes will affect the industry. It is possible that such changes could impose additional financial and legal obligations, including additional responsibility for inspecting and recording the contents of containers and complying with additional security procedures on board vessels, such as those imposed under the ISPS Code. Changes to the inspection and security procedures and container security could result in additional costs and obligations on carriers and may, in certain cases, render the shipment of certain types of goods by container uneconomical or impractical. Additional costs that may arise from current inspection or security procedures or future proposals that may not be fully recoverable from customers through higher rates or security surcharges.
Our vessels may call on ports located in countries that are subject to restrictions imposed by the United States government.
From time to time on charterers’ instructions, our vessels have called and may again call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.
On January 16, 2016, “Implementation Day” for the Iran Joint Comprehensive Plan of Action (JCPOA), the United States lifted its secondary sanctions against Iran which prohibited certain conduct by non-U.S. companies and individuals that occurred entirely outside of U.S. jurisdiction involving specified industry sectors in Iran, including the energy, petrochemical, automotive, financial, banking, mining, shipbuilding and shipping sectors. By lifting the secondary sanctions against Iran, the U.S. government effectively removed U.S. imposed restraints on dealings by non-U.S. companies, such as our Company, and individuals with these formerly targeted Iranian business sectors. Non-U.S. companies continued to be prohibited under U.S. sanctions from (i) knowingly engaging in conduct that seeks to evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran, (ii) exporting, reexporting or transferring to Iran any goods, technology, or services originally exported from the U.S. and/or subject to U.S. export jurisdiction and (iii) conducting transactions with the Iranian or Iran-related individuals and entities that remain or are placed in the future on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List), notwithstanding the lifting of secondary sanctions. However, on August 6, 2018, the U.S. re-imposed an initial round of secondary sanctions and as of November 5, 2018, all of the secondary sanctions the U.S. had suspended under the JCPOA have been re-imposed.
The U.S. government’s primary Iran sanctions have remained in place throughout recent years and as a consequence, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings in or with Iran or its government. In addition, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings with the Government of Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in US dollars or any other currency.
In 2021, 2020 and 2019, no vessels operated by us made any calls to ports in Cuba, Iran, North Korea, Syria or Sudan. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. Additionally, some investors may decide to divest their interest, or not to invest, in the Company simply because we do business with companies that do lawful business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. We may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the “FCPA”. We are subject, however, to the risk that persons and entities whom we engage or their agents may take actions that are determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government of a ship’s registry could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a ship and becomes the owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels may negatively impact our revenues and results of operations.
Terrorist attacks and international hostilities could affect our results of operations and financial condition.
Terrorist attacks such as the attacks on the United States on September 11, 2001 and more recent attacks in other parts of the world, and the continuing response of the United States and other countries to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect our business, results of operations and financial condition. Events in the Middle East and North Africa, including Egypt and Syria, and the conflicts in Iraq, Syria and Afghanistan may lead to additional acts of terrorism, regional conflict and other armed conflicts around the world, which may contribute to economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us, or at all.
Terrorist attacks targeted at sea vessels, such as the October 2002 attack in Yemen on the VLCC Limburg, a ship not related to us, may in the future also negatively affect our operations and financial condition and directly impact our containerships or our customers. Future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession affecting the United States or the entire world. Any of these occurrences could have a material adverse impact on our operating results, revenue and costs.
Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered could affect us. In addition, future hostilities or other political instability in regions where our vessels trade could also affect our trade patterns and adversely affect our operations and performance. The developing conflict between Russia and Ukraine, and related sanctions imposed by the U.S., EU and others, could affect the crewing operations of our Manager, which has crewing offices in St. Petersburg, Odessa and Mariupol, and trade patterns involving ports in the Black Sea or Russia.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Despite leveling off somewhat in the last few years, the frequency of piracy incidents has increased significantly since 2008, particularly in the Gulf of Aden off the coast of Somalia. For example, in January 2010, the Maran Centaurus, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $20 million and was released in January 2010 upon a ransom payment of over $5 million. In addition, crew costs, including costs due to employing onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention or hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition, and results of operations.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels call in ports in South America and other areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or penalties which could have an adverse effect on our business, results of operations, cash flows and financial condition.
Risks inherent in the operation of ocean-going vessels could affect our business and reputation, which could adversely affect our expenses, net income and stock price.
The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
|·||grounding, fire, explosions and collisions;|
|·||cargo and property losses or damage;|
|·||business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, or adverse weather conditions;|
|·||work stoppages or other labor problems with crew members serving on our vessels, substantially all of whom are unionized and covered by collective bargaining agreements; and|
Such occurrences could result in death or injury to persons, loss of property or environmental damage, delays in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business, higher insurance rates, and damage to our reputation and customer relationships generally. Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator.
Our insurance may be insufficient to cover losses that may occur to our property or result from our operations due to the inherent operational risks of the shipping industry.
The operation of any vessel includes risks such as mechanical failure, collision, fire, contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of a marine disaster, including oil spills and other environmental mishaps. There are also liabilities arising from owning and operating vessels in international trade. We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes (i) hull and machinery insurance covering damage to our vessels’ hull and machinery from, among other things, contact with fixed and floating objects, (ii) war risks insurance covering losses associated with the outbreak or escalation of hostilities, and (iii) protection and indemnity (“P&I”) insurance (which includes environmental damage and pollution insurance) covering third-party and crew liabilities such as expenses resulting from the injury or death of crew members, passengers and other third parties, the loss or damage to cargo, third-party claims arising from collisions with other vessels, damage to other third-party property (except where such cover is provided in the hull and machinery policy), pollution arising from oil or other substances and salvage, towing and other related costs.
We can give no assurance that we are adequately insured against all risks or that our insurers will pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement vessel in the event of a loss. Under the terms of our credit facilities, we will be subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the P&I associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs.
In addition, we do not currently carry loss of hire insurance. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business, results of operations and financial condition.
Maritime claimants could arrest our vessels, which could interrupt our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flows and require us to pay large sums of money to have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society which is a member of the International Association of Classification Societies. All of our vessels are certified as being “in class” by Lloyd’s Register of Shipping, Bureau Veritas, NKK, Det Norske Veritas (“DNV”) & Germanischer Lloyd, the Korean Register of Shipping and the American Bureau of Shipping.
Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect our business.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the International Convention for Safety of Life at Sea, or “SOLAS”, and all vessels must be awarded ISM certification.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Each of the vessels in our fleet is on a special survey cycle for hull inspection and a continuous survey cycle for machinery inspection.
If any vessel does not maintain its class or fails any annual, intermediate or special survey, and/or loses its certification, the vessel will be unable to trade between ports and will be unemployable, and we could be in violation of certain covenants in our loan agreements. This would negatively impact our operating results and financial condition.
Risks Relating to Our Key Employees and Our Manager
Our business depends upon certain employees who may not necessarily continue to work for us.
Our future success depends to a significant extent upon our chief executive officer, Dr. John Coustas, and certain members of our senior management and that of our Manager. Dr. Coustas has substantial experience in the container shipping industry and has worked with us and our Manager for many years. He and others employed by us and our Manager are crucial to the execution of our business strategies and to the growth and development of our business. In addition, under the terms of our credit facilities and other financing arrangements, Dr. Coustas ceasing to serve as our Chief Executive Officer and a director of our Company, would give rise to the lenders being able to require us to repay in full debt outstanding under such agreements. If these certain individuals were no longer to be affiliated with us or our Manager, or if we were to otherwise cease to receive advisory services from them, we may be unable to recruit other employees with equivalent talent and experience, and our business and financial condition may suffer as a result.
The provisions in our restrictive covenant agreement with our chief executive officer restricting his ability to compete with us, like restrictive covenants generally, may not be enforceable.
Dr. Coustas, our chief executive officer, has entered into a restrictive covenant agreement with us under which he is precluded during the term of our management agreement with our manager, Danaos Shipping, and for one year thereafter from owning and operating drybulk ships or containerships larger than 2,500 TEUs and from acquiring or investing in a business that owns or operates such vessels. Courts generally do not favor the enforcement of such restrictions, particularly when they involve individuals and could be construed as infringing on their ability to be employed or to earn a livelihood. Our ability to enforce these restrictions, should it ever become necessary, will depend upon the circumstances that exist at the time enforcement is sought. We cannot be assured that a court would enforce the restrictions as written by way of an injunction or that we could necessarily establish a case for damages as a result of a violation of the restrictive covenants.
In addition, DIL as trustee of the 883 Trust and Dr. Coustas are permitted to terminate the restrictive covenant agreement upon the occurrence of certain transactions constituting a “Change of Control” of the Company which are not within the control of Dr. Coustas or DIL, including where Dr. Coustas ceases to be both the Chief Executive Officer of the Company and a director of the Company without his consent in connection with a hostile takeover of the Company by a third party. Upon such an occurrence, the non-competition restrictions on our Manager under our management agreement would also cease to apply.
We depend on our manager to operate our business.
Pursuant to the management agreement and the individual ship management agreements, our Manager and its affiliates provides us with technical, administrative and certain commercial services (including vessel maintenance, crewing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance and financial services). Our operational success will depend significantly upon our Manager’s satisfactory performance of these services. Our business would be harmed if our Manager failed to perform these services satisfactorily. In addition, if the management agreement were to be terminated or if its terms were to be altered, our business could be adversely affected, as we may not be able to immediately replace such services, and even if replacement services were immediately available, the terms offered could be less favorable than the ones currently offered by our Manager. Our management agreement with any new manager may not be as favorable.
Our ability to compete for and enter into new time charters and to expand our relationships with our existing charterers depends largely on our relationship with our Manager and its reputation and relationships in the shipping industry. If our Manager suffers material damage to its reputation or relationships, it may harm our ability to:
|·||renew existing charters upon their expiration;|
|·||obtain new charters;|
|·||successfully interact with shipyards during periods of shipyard construction constraints;|
|·||obtain financing on commercially acceptable terms or at all;|
|·||maintain satisfactory relationships with our charterers and suppliers; or|
|·||successfully execute our business strategies.|
If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business and affect our profitability.
Our manager is a privately held company and there is little or no publicly available information about it.
The ability of our Manager to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair our Manager’s financial strength, and because it is a privately held company, information about its financial strength is not available. As a result, our stockholders might have little advance warning of problems affecting our Manager, even though these problems could have a material adverse effect on us. As part of our reporting obligations as a public company, we will disclose information regarding our Manager that has a material impact on us to the extent that we become aware of such information.
Risks Relating to Investment in a Marshall Islands Corporation
We are a Marshall Islands corporation, and the Marshall Islands does not have a well-developed body of corporate law or a bankruptcy act.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA are similar to provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of The Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of The Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Stockholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public stockholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a U.S. jurisdiction.
The Marshall Islands has no established bankruptcy act, and as a result, any bankruptcy action involving our company would have to be initiated outside the Marshall Islands, and our security holders may find it difficult or impossible to pursue their claims in such other jurisdiction.
It may be difficult to enforce service of process and enforcement of judgments against us and our officers and directors.
We are a Marshall Islands corporation, and our registered office is located outside of the United States in the Marshall Islands. A majority of our directors and officers reside outside of the United States, and a substantial portion of our assets and the assets of our officers and directors are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in the U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws.
There is also substantial doubt that the courts of the Marshall Islands would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. Even if you were successful in bringing an action of this kind, the laws of the Marshall Islands may prevent or restrict you from enforcing a judgment against our assets or our directors and officers.
Risks Relating to Our Common Stock
The market price of our common stock has fluctuated widely and the market price of our common stock may fluctuate in the future.
The market price of our common stock has fluctuated widely since our initial public offering in October 2006 and may continue to do so as a result of many factors, including future share issuances, sales of shares by existing stockholders, our actual results of operations and perceived prospects, the prospects of our competitors and of the shipping industry in general and in particular the containership sector, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general valuations for companies in the shipping industry, particularly the containership sector, changes in general economic or market conditions and broader market fluctuations.
We may not continue to pay dividends on our common stock, particularly if market conditions change.
We reinstated quarterly cash dividend payments on our common stock in 2021; however, there can be no assurance that we will pay dividends or as to the amount of any dividend. Declaration and payment of any future dividend is subject to the discretion of our board of directors. The timing and amount of dividend payments will be dependent upon our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our credit facilities, finance leases and Senior Notes, which include limitations on the amount of dividends and other restricted payments that we may make, the provisions of Marshall Islands law affecting the payment of distributions to stockholders and other factors. Under our credit facilities, we are permitted to pay dividends if, among other things, a default has not occurred and is continuing or would occur as a result of the payment of such dividend, and we remain in compliance with the financial covenants applicable to the obligors thereunder. In addition, we are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make any dividend payments. We cannot assure you that we will continue to pay dividends in the future or the amounts of any such dividends.
Future issuances of equity and equity related securities may result in significant dilution and could adversely affect the market price of our common stock.
We may seek to sell shares in the future to satisfy our capital and operating needs and to finance further growth we may have to issue additional shares of common or preferred stock in addition to any additional debt we may incur. If we sell shares in the future, the prices at which we sell these future shares will vary, and these variations may be significant. We cannot predict the effect that future sales of our common stock or other equity related securities would have on the market price of our common stock.
Sales of our common stock by stockholders, or the perception that these sales may occur, especially by our directors or significant stockholders, may cause our share price to decline.
If our stockholders, in particular our affiliates and significant stockholders, sell substantial amounts of our common stock in the public market, or are perceived by the public market as intending to sell, the trading price of our common stock could decline. In addition, sales of these shares of common stock could impair our ability to raise capital in the future. We have filed shelf registration statements with the SEC registering under the Securities Act close to half of the outstanding shares of our common stock for resale on behalf of existing stockholders, including our executive officers and directors. These shares may be resold in registered transactions and may also be resold subject to the requirements of Rule 144 under the Securities Act. We cannot predict the timing or amount of future sales of these shares of common stock, or the perception that such sales could occur, which may adversely affect prevailing market prices for our common stock.
Certain of our major stockholders will have significant influence over certain matters and may have interests that are different from the interests of our other stockholders.
Certain of our major stockholders may have interests that are different from, or are in addition to, the interests of our other stockholders. In particular, Danaos Investment Limited as Trustee of the 883 Trust (“DIL”), which is affiliated with our Chief Executive Officer, owns approximately 39.0% of our outstanding shares of common stock as of February 28, 2022. There may be real or apparent conflicts of interest with respect to matters affecting such stockholders and their affiliates whose interests in some circumstances may be adverse to our interests.
For so long as a stockholder continues to own a significant percentage of our common stock, it will be able to significantly influence the composition of our Board of Directors and the approval of actions requiring stockholder approval through its voting power. Accordingly, during such period of time, such stockholder will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as such stockholder continues to own a significant percentage of our common stock, it may be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude an unsolicited acquisition of our company. The concentration of ownership could potentially deprive you of an opportunity to receive a premium for your common stock as part of a sale of our company and might affect the market price of our common stock.
Such a stockholder and its affiliates engage in a broad spectrum of activities. In the ordinary course of its business activities, such stockholder may engage in activities where its interests conflict with our interests or those of our stockholders. For example, it may have an interest in our pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to us and our other stockholders. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us or result in agreements that are less favorable to us than terms that would be obtained in arm’s-length negotiations with unaffiliated third-parties.
As a foreign private issuer we are entitled to rely upon exemptions from certain NYSE corporate governance standards, and to the extent we elect to rely on these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
As a foreign private issuer, we are entitled to rely upon exemptions from many of the NYSE’s corporate governance practices. To the extent we rely on any of these exemptions, including to have an employee director on our nominating and corporate governance committee and issue shares without shareholder approval, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
Anti-takeover provisions in our organizational documents, as well as terms of our credit facilities and Senior Notes, could make it difficult for our stockholders to replace or remove our current board of directors or could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of the shares of our common stock.
Several provisions of our articles of incorporation and bylaws could make it difficult for our stockholders to change the composition of our board of directors in any one year, preventing them from changing the composition of our management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable.
|·||authorize our board of directors to issue “blank check” preferred stock without stockholder approval;|
|·||provide for a classified board of directors with staggered, three-year terms;|
|·||prohibit cumulative voting in the election of directors;|
|·||authorize the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3% of the outstanding stock entitled to vote for those directors;|
|·||prohibit stockholder action by written consent unless the written consent is signed by all stockholders entitled to vote on the action;|
|·||establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and|
|·||restrict business combinations with interested stockholders.|
In addition, a “Change of Control”, as defined our Citi/NatWest $815 million Senior Secured Credit Facility, will give rise to a mandatory prepayment in full of our Citi/NatWest $815 million Senior Secured Credit Facility. See “Item 5. Operating and Financial Review and Prospects—Citi/NatWest $815 million Senior Secured Credit Facility.” In addition, the terms of our Senior Notes require us to offer to repurchase all of our outstanding Senior Notes if there is a “change of control” as defined in the indenture for our Senior Notes. See “Item 5. Operating and Financial Review and Prospects—Senior Notes.”
These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
We may have to pay tax on U.S.-source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of a ship owning or chartering corporation, such as ourselves, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S.-source shipping income and as such is subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.
We believe that we and our subsidiaries have previously qualified for this statutory tax exemption and have taken that position for U.S. federal income tax reporting purposes. It is uncertain as to whether we will continue to qualify for this statutory tax exemption, and there are factual circumstances beyond our control that could cause us or our subsidiaries to fail to qualify for the benefit of this tax exemption and thus to be subject to U.S. federal income tax on U.S.-source shipping income. There can be no assurance that we or any of our subsidiaries will qualify for this tax exemption for any year. For example, even assuming, as we expect will be the case, that our shares are regularly and primarily traded on an established securities market in the United States, if stockholders each of whom owns, actually or under applicable attribution rules, 5% or more of our shares own, in the aggregate, 50% or more of our shares, then we and our subsidiaries will generally not be eligible for the Section 883 exemption unless we can establish, in accordance with specified ownership certification procedures, either (i) that a sufficient number of the shares in the closely-held block are owned, directly or under the applicable attribution rules, by “qualified stockholders” (generally, individuals resident in certain non-U.S. jurisdictions) so that the shares in the closely-held block that are not so owned could not constitute 50% or more of our shares for more than half of the days in the relevant tax year or (ii) that qualified stockholders owned more than 50% of our shares for at least half of the days in the relevant taxable year. There can be no assurance that we will be able to establish such ownership by qualified stockholders for any tax year.
If we or our subsidiaries are not entitled to the exemption under Section 883 for any taxable year, we or our subsidiaries would be subject for those years to a 4% U.S. federal income tax on our gross U.S. source shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our stockholders. A number of our charters contain provisions that obligate the charterers to reimburse us for the 4% gross basis tax on our U.S. source shipping income.
If we were treated as a “passive foreign investment company,” certain adverse U.S. federal income tax consequences could result to U.S. stockholders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if at least 75% of its gross income for any taxable year consists of certain types of “passive income,” or at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” In general, U.S. stockholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC. If we are treated as a PFIC for any taxable year, we will provide information to U.S. stockholders to enable them to make certain elections to alleviate certain of the adverse U.S. federal income tax consequences that would arise as a result of holding an interest in a PFIC.
While there are legal uncertainties involved in this determination, including as a result of a decision of the United States Court of Appeals for the Fifth Circuit in Tidewater Inc. and Subsidiaries v. United States, 565 F.3d 299 (5th Cir. 2009) which held that income derived from certain time chartering activities should be treated as rental income rather than services income for purposes of the foreign sales corporation rules under the U.S. Internal Revenue Code, we believe we should not be treated as a PFIC for the taxable year ended December 31, 2021. However, if the principles of the Tidewater decision were applicable to our time charters, we would likely be treated as a PFIC. Moreover, there is no assurance that the nature of our assets, income and operations will not change or that we can avoid being treated as a PFIC for subsequent years.
|Item 4.||Information on the Company|
History and Development of the Company
Danaos Corporation is an international owner of containerships, chartering its vessels to many of the world’s largest liner companies. We are a corporation domesticated in the Republic of The Marshall Islands on October 7, 2005, under the Marshall Islands Business Corporations Act, after having been incorporated as a Liberian company in 1998 in connection with the consolidation of our assets under Danaos Holdings Limited. In connection with our domestication in the Marshall Islands we changed our name from Danaos Holdings Limited to Danaos Corporation.
Our Company’s long history in the shipping industry dates back to the 1960s. Our largest stockholder is DIL, an entity affiliated with our Chief Executive Officer, Dr. John Coustas. Dimitris Coustas, the father of Dr. Coustas, first invested in shipping in 1963 and founded our Manager, in 1972. Since that time it has continuously provided seaborne transportation services under the management of the Coustas family. After assuming management of our company in 1987, Dr. Coustas has focused our strategy on building a large, modern containership fleet to serve the container shipping industry and grown our fleet from three multi-purpose vessels with a capacity of 2,395 TEUs to our current fleet of 71 containerships aggregating 436,589 TEUs as of February 28, 2022.
Danaos Corporation completed its initial public offering and was publicly listed on the New York Stock Exchange in October 2006. In August 2010, we completed a sale of $200 million of common stock, and in 2015 formed our Gemini joint venture. In August 2018, we consummated a comprehensive debt refinancing, which resulted in, among other things, a $551.0 million reduction in our debt. In November 2019, we completed a public offering of our common stock for gross proceeds of $56.5 million, including a significant investment by DIL and the Coustas family. In October 2020 we repurchased 4,339,271 shares of common stock for an aggregate purchase price of $31.1 million in privately negotiated transactions. In February 2021, we sold $300 million of 8.50% senior unsecured notes due 2028 and used the proceeds therefrom, together with proceeds from a new $815 million senior secured credit facility with a four-year term and a new $135 million sale and leaseback arrangement, to implement a $1.25 billion refinancing of a substantial majority of our outstanding senior secured indebtedness in April 2021. On July 1, 2021 we exercised our option to acquire the remaining 51% equity interest in Gemini. See “Item 5. Operating and Financial Review and Prospects.”
Danaos Corporation operates through a number of subsidiaries incorporated in Liberia, Cyprus, Malta, the Republic of the Marshall Islands and Singapore, all of which are wholly owned by Danaos Corporation and either directly or indirectly own the vessels in our fleet. A list of our active subsidiaries as of February 28, 2022 and their jurisdictions of incorporation, is set forth in Exhibit 8 to this Annual Report on Form 20-F.
Our principal executive offices are c/o Danaos Shipping Co. Ltd., Athens Branch, 14 Akti Kondyli, 185 45 Piraeus, Greece. Our telephone number at that address is +30 210 419 6480.
We are an international owner of containerships, chartering our vessels to many of the world’s largest liner companies. As of February 28, 2022, we had a fleet of 71 containerships aggregating 436,589 TEUs.
Our strategy is to charter our containerships under multi-year, fixed-rate period charters to a diverse group of liner companies, including many of the largest companies globally, as measured by TEU capacity. As of February 28, 2022, these customers included CMA-CGM, Hyundai Merchant Marine (“HMM”), MSC, Yang Ming, Hapag Lloyd, ZIM, Maersk, COSCO, OOCL, ONE, PIL, Evergreen, KMTC, Niledutch, Samudera, SITC and TS Lines.
As of December 31, 2021, the average remaining duration of the charters for our 71 containerships was 4.0 years (weighted by aggregate contracted charter hire). As of December 31, 2021, these contracts are expected to provide total contracted revenues of approximately $2.85 billion during their fixed terms, which expire between 2022 and 2028. Our charters have initial terms ranging up to 18 years, which provide us with stable cash flows and high utilization rates. Our fleet ranges in size from 2,200–13,100 TEU, providing us flexibility to serve the diverse needs of our customers.
Danaos is one of the largest containership operating lessors in the world. Since going public in 2006, we have more than tripled our TEU carrying capacity. Today, our fleet includes some of the largest containerships in the world, which are designed with certain technological advances and customized modifications that make them efficient with respect to both voyage speed and loading capability when compared to many existing vessels operating in the containership sector.
We deploy our containership fleet principally under multi-year charters with major liner companies that operate regularly scheduled routes between large commercial ports, although in weaker containership charter markets such as is currently prevailing we charter more of our vessels on shorter term charters so as to be available to take advantage of any increase in charter rates. As of February 28, 2022, our containership fleet was comprised of sixty-nine containerships deployed on time charters, seven of which are scheduled to expire in 2022 (excluding two vessels, which we agreed to sell in 2022) and two containerships deployed on bareboat charters. The average age (weighted by TEU) of the 71 vessels in our containership fleet was approximately 13.4 years as of February 28, 2022. As of December 31, 2021, the average remaining duration of the charters for our containership fleet was 4.0 years (weighted by aggregate contracted charter hire).
The table below provides additional information, as of February 28, 2022, about our fleet of 71 cellular containerships.
|Year||Size||Expiration of||Contracted Employment||Charter||Extension Options(4)|
|Vessel Name||Built||(TEU)||Charter (1)||Charterer||through (2)||Rate (3)||Period||Charter Rate|
|Hyundai Ambition||2012||13,100||June 2024||HMM||June 2024||$||64,918||+ 3 years||$||60,418|
|Hyundai Speed||2012||13,100||June 2024||HMM||June 2024||$||64,918||+ 3 years||$||60,418|
|Hyundai Smart||2012||13,100||May 2024||HMM||May 2024||$||64,918||+ 3 years||$||60,418|
|Hyundai Respect(5)||2012||13,100||March 2024||HMM||March 2024||$||64,918||+ 3 years||$||60,418|
|Hyundai Honour(5)||2012||13,100||February 2024||HMM||February 2024||$||64,918||+ 3 years||$||60,418|
|Express Rome||2011||10,100||May 2022||Hapag Lloyd||May 2022||$||28,000||+ 10 up to 14 months||$||29,000|
|+ 10 up to 14 months||$||30,000|
|Express Berlin||2011||10,100||June 2023||Yang Ming||June 2023||$||27,750||+ 3 months||$||27,750|
|Express Athens||2011||10,100||May 2022||Hapag Lloyd||May 2022||$||28,000||+ 10 up to 14 months||$||29,000|
|+ 10 up to 14 months||$||30,000|
|Le Havre||2006||9,580||June 2028||MSC||August 2023||$||23,000|
|Confidential (10)||June 2028||$||58,500||+4 months||$||58,500|
|Pusan C||2006||9,580||May 2028||MSC||July 2023||$||23,000|
|Confidential (10)||May 2028||$||58,500||+4 months||$||58,500|
|Bremen||2009||9,012||January 2028||MSC||March 2023||$||23,000|
|Confidential (10)||January 2028||$||56,000||+4 months||$||56,000|
|C Hamburg||2009||9,012||January 2028||MSC||March 2023||$||23,000|
|Confidential (10)||January 2028||$||56,000||+4 months||$||56,000|
|Niledutch Lion||2008||8,626||May 2026||Niledutch||May 2022||$||28,000|
|May 2026||$||47,500||+ 4 months||$||47,500|
|Belita (8)||2006||8,533||July 2026||CMA CGM||February 2022||$||25,000|
|July 2026||$||45,000||+ 6 months||$||45,000|
|Charleston||2005||8,533||February 2026||RCL||February 2022||$||30,000|
|PIL||February 2026||$||47,500||+ 4 months||$||47,500|
|CMA CGM Melisande (5)||2012||8,530||May 2024||CMA CGM||November 2023||$||43,000||+ 6 months||$||43,000|
|May 2024 / November 2024||at market (6)||+ 6 months||at market (6)|
|CMA CGM Attila (5)||2011||8,530||October 2023||CMA CGM||April 2023||$||43,000||+ 6 months||$||43,000|
|October 2023 / April 2024||at market (6)||+ 6 months||at market (6)|
|CMA CGM Tancredi (5)||2011||8,530||November 2023||CMA CGM||May 2023||$||43,000||+ 6 months||$||43,000|
|November 2023 / May 2024||at market (6)||+ 6 months||at market (6)|
|CMA CGM Bianca (5)||2011||8,530||January 2024||CMA CGM||July 2023||$||43,000||+ 6 months||$||43,000|
|January 2024 / July 2024||at market (6)||+ 6 months||at market (6)|
|CMA CGM Samson (5)||2011||8,530||March 2024||CMA CGM||September 2023||$||43,000||+ 6 months||$||43,000|
|March 2024 / September 2024||at market (6)||+ 6 months||at market (6)|
|America||2004||8,468||April 2028||MSC||June 2023||$||22,000|
|Confidential (10)||April 2028||$||56,000||+ 4 months||$||56,000|
|Europe||2004||8,468||May 2028||MSC||July 2023||$||22,000|
|Confidential (10)||May 2028||$||56,000||+ 4 months||$||56,000|
|Phoebe||2005||8,463||August 2026||ONE||August 2022||$||24,000|
|August 2026||$||50,000||+ 4 months||$||55,000|
|CMA CGM Moliere||2009||6,500||March 2027||CMA CGM||April 2022||$||110,000|
|Confidential (10)||March 2027||$||55,000||+ 2 months||$||55,000|
|CMA CGM Musset||2010||6,500||October 2022||CMA CGM||April 2022||$||34,350|
|October 2022||at market (6)||+ 6 months||at market (6)|
|CMA CGM Nerval||2010||6,500||December 2022||CMA CGM||June 2022||$||34,350|
|December 2022||at market (6)||+ 6 months||at market (6)|
|CMA CGM Rabelais||2010||6,500||February 2023||CMA CGM||August 2022||$||34,350|
|February 2023||at market (6)||+ 6 months||at market (6)|
|CMA CGM Racine||2010||6,500||March 2023||CMA CGM||September 2022||$||34,350|
|March 2023||at market (6)||+ 6 months||at market (6)|
|YM Mandate||2010||6,500||January 2028||Yang Ming||January 2028||$||26,890 (7)||+ 8 months||$||26,890 (7)|
|YM Maturity||2010||6,500||April 2028||Yang Ming||April 2028||$||26,890 (7)||+ 8 months||$||26,890 (7)|
|Leo C (8)||2002||6,422||August 2022||MSC||August 2022||$||18,000||+ 4 months||$||18,000|
|Catherine C (8)||2001||6,422||November 2022||MSC||November 2022||$||18,000|
|Dimitra C||2002||6,402||January 2023||Hapag Lloyd||January 2023||$||20,000||+ 3 months||$||20,000|
|+ 12 months||$||21,500|
|Zim Savannah (ex Performance)||2002||6,402||May 2024||ZIM||May 2024||$||36,000||+ 6 months||$||36,000|
|Kota Lima(ex Genoa) (5) (8)||2002||5,544||November 2024||PIL||November 2024||$||39,999||+ 4 months||$||39,999|
|+ 10 up to 14 months||$||27,500|
|+ 10 up to 12 months||$||24,000|
|Suez Canal (5) (8)||2002||5,610||March 2023||TS Lines||March 2023||$||30,000||+ 4 months||$||30,000|
|Wide Alpha (9)||2014||5,466||March 2024||ONE||March 2024||$||18,500||+ 3 months||$||18,500|
|Wide Bravo (9)||2014||5,466||June 2025||Maersk||June 2022||$||19,500|
|Confidential (10)||June 2025||$||55,500||+ 4 months||$||55,500|
|Maersk Euphrates (9)||2014||5,466||April 2024||Maersk||April 2024||$||17,500||+ 4 months||$||17,500|
|Wide Hotel (9)||2015||5,466||May 2024||ONE||May 2024||$||18,500||+ 3 months||$||18,500|
|Wide India (9)||2015||5,466||September 2025||Maersk||October 2022||$||19,500|
|Confidential (10)||September 2025||$||53,500||+4 months||$||53,500|
|Wide Juliet (9)||2015||5,466||June 2023||ONE||June 2023||$||19,950||+ 3 months||$||19,950|
|Rio Grande||2008||4,253||November 2024||OOCL||January 2023||$||68,000|
|November 2024||$||17,000||+ 2 months||$||45,000|
|ZIM Sao Paolo||2008||4,253||February 2023||ZIM||February 2023||$||21,150||+ 4 months||$||21,150|
|+ 13 months||$||25,000|
|ZIM Kingston||2008||4,253||April 2023||ZIM||April 2023||$||25,500||+ 4 months||$||25,500|
|ZIM Monaco||2009||4,253||July 2022||ZIM||July 2022||$||20,000||+ 2 months||$||20,000|
|+ 5 months||$||22,000|
|Dalian||2009||4,253||November 2022||KMTC||November 2022||$||30,750||+ 4 months||$||30,750|
|ZIM Luanda||2009||4,253||August 2025||ZIM||August 2025||$||30,000||+ 4 months||$||30,000|
|Seattle C||2007||4,253||November 2024||OOCL||December 2022||$||68,000|
|November 2024||$||17,000||+ 2 months||$||45,000|
|Vancouver||2007||4,253||November 2024||OOCL||January 2023||$||68,000|
|November 2024||$||17,000||+ 2 months||$||45,000|
|Derby D||2004||4,253||January 2027||CMA CGM||March 2022||$||25,000|
|January 2027||$||36,275||+ 3 months||$||36,275|
|Tongala (ex ANL Tongala)||2004||4,253||January 2023||ZIM||January 2023||$||30,750||+ 4 months||$||30,750|
|Dimitris C||2001||3,430||November 2025||CMA CGM||March 2022||$||21,500|
|November 2025||$||40,000||+ 4 months||$||40,000|
|Express Argentina||2010||3,400||May 2023||Maersk||May 2023||$||26,500||+ 4 months||$||26,500|
|Express Brazil||2010||3,400||June 2025||CMA CGM||June 2025||$||37,750||+ 2 months||$||37,750|
|Express France||2010||3,400||September 2025||CMA CGM||September 2025||$||37,750||+ 2 months||$||37,750|
|Express Spain||2011||3,400||January 2025||Cosco||March 2022||$||20,400|
|January 2025||$||40,000||+ 2 months||$||40,000|
|Express Black Sea||2011||3,400||January 2025||Cosco||March 2022||$||21,150|
|January 2025||$||40,000||+ 2 months||$||40,000|
|Singapore||2004||3,314||May 2024||OOCL||November 2022||$||44,000|
|May 2024||$||21,000||+ 6 months||$||37,000|
|Colombo||2004||3,314||January 2025||Cosco||March 2022||$||20,400|
|January 2025||$||40,000||+ 2 months||$||40,000|
|Zebra||2001||2,602||November 2024||Maersk||November 2024||$||32,000||+ 4 months||$||32,000|
|Artotina (ex Danae C)||2001||2,524||April 2025||SITC||April 2022||$||20,000|
|Confidential (10)||April 2025||$||28,000||+2 months||$||28,000|
|Amalia C||1998||2,452||January 2023||OOCL||January 2023||$||24,000||+ 2 months||$||24,000|
|Vladivostok||1997||2,200||March 2025||Maersk||April 2022||$||14,000|
|March 2025||$||28,000||+ 6 months||$||28,000|
|Stride||1997||2,200||January 2025||Evergreen||March 2022||$||14,500|
|Cosco||January 2025||$||26,250||+ 2 months||$||26,250|
|Sprinter||1997||2,200||December 2024||Cosco||December 2024||$||26,250||+ 2 months||$||26,250|
|Future||1997||2,200||December 2024||Cosco||December 2024||$||26,250||+ 2 months||$||26,250|
|Advance||1997||2,200||December 2024||Cosco||December 2024||$||26,250||+ 2 months||$||26,250|
|Bridge||1998||2,200||December 2024||Samudera||June 2022||$||15,000|
|December 2024||$||23,000||+ 6 months||$||23,000|
|Highway||1998||2,200||August 2022||Cosco||August 2022||$||17,000||+ 4 months||$||17,000|
|Progress C||1998||2,200||November 2024||Cosco||November 2024||$||26,250||+ 2 months||$||26,250|
|1.||Earliest date charters could expire. Most charters include options for the charterers to extend their terms as described in the “Extension Options” column.|
|2.||This column indicates the date through which the charter rate set forth in the column to the immediate right of such date is payable. For charters with the same charter rate throughout the fixed term of the charter, this date is the same as the charter expiration date set forth in the “Expiration of Charter” column.|
|3.||Gross charter rate, which does not include charter commissions.|
|4.||At the option of the charterer.|
|5.||A subsidiary of Danaos Corporation holds a leasehold bareboat charter interest in such vessel, pursuant to which such subsidiary will acquire all rights to such vessel at the end of such lease.|
|6.||Daily charter rate for the contracted period of minimum 6 months – maximum 12 months will be the prevailing market rate at that time for such period.|
|7.||Bareboat charter rate.|
|8.||Vessels previously owned by Gemini Shipholdings Corporation, in which Danaos Corporation held a 49% equity interest through the end of the second quarter of 2021. On July 1, 2021, Danaos Corporation exercised its option to acquire the remaining 51% equity interests in Gemini Shipholdings Corporation and now holds 100%.|
|9.||Danaos Corporation entered into an agreement on July 7, 2021, to purchase these vessels. We took delivery of: (i) ‘Maersk Euphrates’ on August 25, 2021, (ii) ‘Wide India’ on September 20, 2021, (iii) ‘Wide Bravo’ on September 23, 2021, (iv) ‘Wide Juliet’ on September 27, 2021, (v) ‘Wide Alpha’ on September 28, 2021, and (vi) ‘Wide Hotel’ on October 6, 2021.|
|10.||Charterer not disclosed due to confidentiality arrangements.|
We have agreed to sell two of our vessels, Catherine C and Leo C, for gross proceeds of $130 million, which are expected to be delivered to the buyer in November 2022.
Gemini Shipholdings Corporation; ZIM
On August 5, 2015, we entered into a Shareholders Agreement (the “Gemini Shareholders Agreement”), with Gemini Shipholdings Corporation (“Gemini”) and Virage International Ltd. (“Virage”), a company controlled by our largest stockholder DIL, in connection with the formation of Gemini to acquire and operate containerships. As of June 30, 2021, Gemini owned five containerships aggregating 32,531 TEU in capacity. We and Virage owned 49% and 51%, respectively, of Gemini’s issued and outstanding share capital. On July 1, 2021 we exercised our option to acquire the remaining 51% equity interest in Gemini from Virage for $86.7 million, which was fully paid in cash in 2021.
On January 27, 2021, ZIM completed its initial public offering and listing on the NYSE of its ordinary shares. We owned 10,186,950 ordinary shares of ZIM following its listing on the NYSE. In 2021, we sold 3,000,000 shares of ZIM resulting in net proceeds of $120.7 million, and owned 7,186,950 ordinary shares of ZIM as of February 28, 2022. The fair value of our remaining 7,186,950 ordinary shares of ZIM was valued at $423.02 million as of December 31, 2021 based on the closing price of ZIM ordinary shares on the NYSE on such date.
As the container shipping industry has grown, the major liner companies have increasingly contracted for containership capacity. As of February 28, 2022, our diverse group of customers in the containership sector included CMA-CGM, HMM, MSC, Yang Ming, Hapag Lloyd, ZIM, Maersk, COSCO, OOCL, ONE, PIL, Evergreen, KMTC, Niledutch, Samudera, SITC and TS Lines.
The containerships in our fleet are primarily deployed under multi-year, fixed-rate time charters having initial terms that range from less than one to 18 years. These charters expire at staggered dates ranging from May 2022 to the second quarter of 2028. We expect that we will be able to re-charter the 7 vessels employed on time charters expiring in 2022 (excluding two vessels, which we agreed to sell in 2022), at rates equivalent to or higher than provided for under their current charters, if the charter rate levels currently prevailing in the market continue throughout 2022, as currently expected. However, there can be no assurance that the current positive trend in charter rates will continue or that the charterers will exercise their options to extend the charters. The staggered expiration of the multi-year, fixed-rate charters for our vessels is both a strategy pursued by our management and a result of the growth in our fleet. Under our time charters, the charterer pays voyage expenses such as port, canal and fuel costs, other than brokerage and address commissions paid by us, and we pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs. We are also responsible for each vessel’s intermediate and special survey costs.
Under the time charters, when a vessel is “off-hire” or not available for service, the charterer is generally not required to pay the hire rate, and we are responsible for all costs. A vessel generally will be deemed to be off-hire if there is an occurrence preventing the full working of the vessel due to, among other things, operational deficiencies, drydockings for repairs, maintenance or inspection, equipment breakdown, delays due to accidents, crewing strikes, labor boycotts, noncompliance with government water pollution regulations or alleged oil spills, arrests or seizures by creditors or our failure to maintain the vessel in compliance with required specifications and standards. In addition, under our time charters, if any vessel is off-hire for more than a certain amount of time (generally between 10-20 days), the charterer has a right to terminate the charter agreement for that vessel. Charterers may also have the right to terminate the time charters in various other circumstances, including but not limited to, outbreaks of war or a change in ownership of the vessel’s owner or manager without the charterer’s approval.
Management of Our Fleet
Our chief executive officer, chief operating officer, chief financial officer and deputy chief operating officer provide strategic management for our company while these officers also supervise, in conjunction with our board of directors, the management of these operations by Danaos Shipping, our Manager. We have a management agreement pursuant to which our Manager and its affiliates provide us and our subsidiaries with technical, administrative and certain commercial services, the term of which expires on December 31, 2024. Our Manager reports to us and our board of directors through our chief executive officer, chief operating officer, chief financial officer and deputy chief operating officer each of which is appointed by our board of directors.
Our Manager is regarded as an innovator in operational and technological aspects in the international shipping community. Danaos Shipping’s strong technological capabilities derive from employing highly educated professionals, its participation and assumption of a leading role in European Community research projects related to shipping, and its close affiliation to Danaos Management Consultants, a ship-management software and services company.
Danaos Shipping achieved early ISM certification of its container fleet in 1995, well ahead of the deadline, and was the first Greek company to receive such certification from DNV, a leading classification society. In 2004, Danaos Shipping received the Lloyd’s List Technical Innovation Award for advances in internet-based telecommunication methods for vessels. In 2015, Danaos Shipping received the Lloyd’s List Intelligence Big Data Award for their “Waves” fleet performance system, which provides advanced performance monitoring, close bunkers control, emissions monitoring, energy management, safety performance monitoring, risk management and advance superintendence for the vessels.
Danaos Shipping maintains the quality of its service by controlling directly the selection and employment of seafarers through its crewing offices in Piraeus, Greece, Russia, as well as in Odessa and Mariupol in Ukraine and in Zanzibar, Tanzania and we assume directly all related crewing, technical and other costs in our operating expenses. Investments in new facilities in Greece by Danaos Shipping enable enhanced training of seafarers and highly reliable infrastructure and services to the vessels.
Historically, Danaos Shipping only infrequently managed vessels other than those in our fleet and in prior years it did not actively manage any other company’s vessels, other than vessels previously owned by Gemini. Danaos Shipping also does not arrange the employment of other vessels and has agreed that, during the term of our management agreement, it will not provide any management services to any other entity without our prior written approval, other than with respect to other entities controlled by Dr. Coustas, our chief executive officer, which do not operate within the containership (larger than 2,500 TEUs) or drybulk sectors of the shipping industry or in the circumstances described below. We believe we have and will derive significant benefits from our relationship with Danaos Shipping.
Dr. Coustas has also personally agreed to the same restrictions on the provision, directly or indirectly, of management services during the term of our management agreement. In addition, our chief executive officer (other than in his capacities with us) and our Manager have separately agreed not, during the term of our management agreement and for one year thereafter, to engage, directly or indirectly, in (i) the ownership or operation of containerships of larger than 2,500 TEUs or (ii) the ownership or operation of any drybulk carriers or (iii) the acquisition of or investment in any business involved in the ownership or operation of containerships of larger than 2,500 TEUs or any drybulk carriers. Notwithstanding these restrictions, if our independent directors decline the opportunity to acquire any such containerships or to acquire or invest in any such business, our chief executive officer will have the right to make, directly or indirectly, any such acquisition or investment during the four-month period following such decision by our independent directors, so long as such acquisition or investment is made on terms no more favorable than those offered to us. In this case, our chief executive officer and our Manager will be permitted to provide management services to such vessels.
Danaos Shipping provides us with administrative, technical and certain commercial management services under a management agreement whose current term expires at the end of 2024. For 2022, our Manager will receive the following fees which are fixed at these levels through the remaining term of the agreement: (i) a daily management fee of $850, (ii) a daily vessel management fee of $425 for vessels on bareboat charter, prorated for the number of calendar days we own each vessel, (iii) a daily vessel management fee of $850 for vessels on time charter, prorated for the number of calendar days we own each vessel, (iv) a fee of 1.25% on all freight, charter hire, ballast bonus and demurrage for each vessel, (v) a fee of 0.5% based on the contract price of any vessel bought or sold by it on our behalf, excluding newbuilding contracts, and (vi) a flat fee of $725,000 per newbuilding vessel, if any, which is capitalized, for the on premises supervision of any newbuilding contracts by selected engineers and others of its staff.
Our Manager has agreed to outsource technical and crew management services to the previous managers Bernhard Shulte Shipmanagement (“BSM”) related to the recently acquired vessels Wide Alpha, Wide Bravo and Wide Juliet and OSM Ship Management Pte. Ltd. (“OSM”) related to the vessels Maersk Euphrates, Wide Hotel and Wide India for the minimum contract period of nine months since each vessel’s delivery date to us with possible extension options. The payment related to these services is an obligation of our Manager.
We operate in markets that are highly competitive and based primarily on supply and demand. Generally, we compete for charters based upon price, customer relationships, operating expertise, professional reputation and size, age and condition of the vessel. Competition for providing containership services comes from a number of experienced shipping companies. In the containership sector, these companies include Atlas Corporation, Zodiac Maritime and Costamare Inc. A number of our competitors in the containership sector have been financed by the German KG (Kommanditgesellschaft) system in the past years, which was based on tax benefits provided to private investors. While the German tax law has been amended to significantly restrict the tax benefits available to taxpayers who invest in such entities after November 10, 2005, the tax benefits afforded to all investors in the KG-financed entities will continue to be significant and such entities may continue to be attractive investments. These tax benefits allow these KG-financed entities to be more flexible in offering lower charter rates to liner companies.
The nature of the containership sector within the larger is such that significant time is necessary to develop the operating expertise and build up a professional reputation to obtain and retain customers. Further, a decline in the availability of secondhand containerships in past years has driven containership businesses to rely on building new containers, which can take several years to complete. We focus on larger TEU capacity containerships, which we believe have fared better than smaller vessels during global downturns in the containership sector. We believe larger containerships, even older containerships if well maintained, provide us with increased flexibility and more stable cash flows than smaller TEU capacity containerships. We believe our large fleet capacity, combined with our long-established business relationships and long-term contracts provide us with an important advantage in the increasingly competitive containership business.
Crewing and Employees
Since May 1, 2015, we have directly employed our Chief Executive Officer, our Chief Operating Officer, our Chief Financial Officer and our Deputy Chief Operating Officer, whose services had been provided to us under our Management Agreement with our Manager, Danaos Shipping until April 30, 2015. As of December 31, 2021, 1,556 people were employed who served on board the vessels in our fleet and 159 people who provided services to us on shore. Other than the officers noted above, there are no other employees of Danaos Corporation or its subsidiaries. In addition, our Manager is responsible for recruiting, either directly or through a crewing agent, the senior officers and all other crew members for our vessels and is reimbursed by us for all crew wages and other crew related expenses. We are not responsible for the compensation of our Manager’s shore-based employees. We believe the streamlining of crewing arrangements through our Manager ensures that all of our vessels will be crewed with experienced crews that have the qualifications and licenses required by international regulations and shipping conventions.
Permits and Authorizations
We are required by various governmental and other agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required by governmental and other agencies depend upon several factors, including the commodity being transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of the vessel. All permits, licenses and certificates currently required to permit our vessels to operate have been obtained. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of doing business.
Inspection by Classification Societies
Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,” signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member.
In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull and machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable, on special equipment classed at intervals of twelve months from the date of commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out on the ship’s hull and machinery, including the electrical plant, and on any special equipment classed at the intervals indicated by the character of classification for the hull. During the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant an one-year grace period for completion of the special survey. Substantial amounts of funds may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period is granted, a shipowner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
The following table lists the next drydockings scheduled for the vessels in our current containership fleet for the next three years:
|Number of vessels||16||10||12|
|*||Does not include vessels under bareboat charters.|
All areas subject to surveys as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are otherwise prescribed. The period between two subsequent surveys of each area must not exceed five years. Vessels under bareboat are drydocked by their charterers.
Most vessels are also drydocked every 30 to 36 months for inspection of their underwater parts and for repairs related to such inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship-owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society which is a member of the International Association of Classification Societies. All of our vessels are certified as being “in class” by Lloyd’s Register of Shipping, Bureau Veritas, NKK, DNV & Germanischer Lloyd and the Korean Register of Shipping.
Risk of Loss and Liability Insurance
The operation of any vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. The U.S. Oil Pollution Act of 1990, or OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market.
While we maintain hull and machinery insurance, war risks insurance, P&I coverage for our containership fleet in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to maintain this level of coverage throughout a vessel’s useful life. Furthermore, while we believe that our insurance coverage will be adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Dr. John Coustas, our chief executive officer, is the Vice Chairman of the Board of Directors of The Swedish Club, our primary provider of insurance, including a substantial portion of our hull & machinery, war risk and P&I insurance.
Hull & Machinery, Loss of Hire and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which covers the risk of particular average, general average, 4/4ths collision liability, contact with fixed and floating objects (FFO) and actual or constructive total loss in accordance with the Nordic Plan for all of our vessels. Our vessels will each be covered up to at least their fair market value after meeting certain deductibles per incident per vessel.
We carried a minimum loss of hire coverage with respect to the America and the Europe, to cover standard requirements of KEXIM until the repayment of our loan in 2016. We carried minimum loss of hire coverage for the Pusan and Le Havre until mid-2018, to cover standard requirements of KEXIM and ABN Amro, the banks that provided financing for our acquisition of these vessels. We also carried a minimum loss of hire coverage with respect to the vessels Hyundai Honour and Hyundai Respect, to cover standard requirements of our sale and leaseback agreement until mid-2020. We do not and will not obtain loss of hire insurance covering the loss of revenue during extended off-hire periods for the other vessels in our fleet, other than with respect to any period during which our vessels are detained due to incidents of piracy, because we believe that this type of coverage is not economical and is of limited value to us, in part because historically our fleet has had a limited number of off-hire days.
Protection and Indemnity Insurance
P&I insurance provides insurance cover to its members in respect of liabilities, costs or expenses incurred by them in their capacity as owner or operator of the respective entered ship and arising out of an event during the period of insurance as a direct consequence of the operation of the ship. This includes third-party liability, crew liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, and except where the cover is provided in the hull and machinery policy, also third-party claims arising from collision with other vessels and damage to other third-party property. Indemnity cover is also provided for liability for the discharge or escape of oil or other substance, or threat of escape of such substances. Other liabilities which include salvage, towing, wreck removal and an omnibus provision are also included. Our P&I insurance is provided by Mutual P&I Associations who are part of the International Group of P&I Clubs.
Our P&I insurance coverage in accordance with the International Group of P&I Club Agreement for pollution will be $1.0 billion per event. Our P&I Excess war risk coverage limit is $500.0 million and in respect of certain war and terrorist risks the liabilities arising from Bio-Chemical etc., the limit is $30.0 million. For passengers and seaman risks, the limit is $3.0 billion, with a sub-limit of $2.0 billion for passenger claims only. The thirteen P&I associations that comprise the International Group insure approximately 90% of the world’s commercial blue-water tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. As a member of a P&I association, that is a member of the International Group, we will be subject to calls payable to the associations based inter-alia on the International Group’s claim records, as well as the individual claims’ records of all other members of the analogous individual associations and their performance. If our insurance providers are not able to obtain reinsurance for port calls in Iran, due to continuing U.S. primary sanctions applicable to U.S. persons facilitating transactions involving Iran, we may have to pay additional premiums with respect to any port calls that our charterers direct our vessels to make in Iran.
Environmental and Other Regulations
Government regulation significantly affects the ownership and operation of our vessels. They are subject to international conventions, national, state and local laws, regulations and standards in force in international waters and the countries in which our vessels may operate or are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, wastewater discharges and BWM. These laws and regulations include OPA, the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Clean Water Act, MARPOL, regulations adopted by the IMO and the EU, various volatile organic compound air emission requirements and various SOLAS amendments, as well as other regulations described below. Compliance with these laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration (country of registry), charterers and, particularly, terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and financial assurances for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with U.S. and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations. Because such laws and regulations are frequently changed and may impose increasingly stricter requirements, any future requirements may limit our ability to do business, increase our operating costs, force the early retirement of some of our vessels, and/or affect their resale value, all of which could have a material adverse effect on our financial condition and results of operations. In addition, a future serious marine incident that causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill, could result in additional legislation or regulation that could negatively affect our profitability.
Environmental Regulation—International Maritime Organization
Our vessels are subject to standards imposed by the IMO (the United Nations agency for maritime safety and the prevention of pollution by ships). The IMO has adopted regulations that are designed to reduce pollution in international waters, both from accidents and from routine operations. These regulations address oil discharges, ballasting and unloading operations, sewage, garbage, and air emissions. For example, Annex III of MARPOL regulates the transportation of marine pollutants, and imposes standards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention. These requirements have been expanded by the International Maritime Dangerous Goods Code, which imposes additional standards for all aspects of the transportation of dangerous goods and marine pollutants by sea.
In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Annex VI, which came into effect on May 19, 2005, set limits on SOx and nitrogen oxide (“NOx”) emissions from vessels and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also included a global cap on the sulfur content of fuel oil and allowed for special areas to be established with more stringent controls on sulfur emissions. Annex VI has been ratified by some, but not all IMO member states, including the Marshall Islands. Pursuant to a Marine Notice issued by the Marshall Islands Maritime Administrator as revised in March 2005, vessels flagged by the Marshall Islands that are subject to Annex VI must obtain an International Air Pollution Prevention Certificate evidencing compliance with Annex VI. We have obtained International Air Pollution Prevention certificates for all of our vessels. Amendments to Annex VI, effective July 2010, set progressively stricter regulations to control SOx and NOx emissions from ships, which present both environmental and health risks. These amendments provided for a progressive reduction in SOx emissions from ships, with a global cap of 0.5% on sulfur in marine fuel used by vessels without scrubbers (reduced from 3.50%) effective from January 1, 2020. Vessels with scrubbers may use fuel with a maximum sulfur content of 3.5%. The Annex VI amendments have also established tiers of stringent NOx emissions standards for new marine engines, depending on their dates of installation. The United States ratified the amendments, and all vessels subject to Annex VI must comply with the amended requirements when entering U.S. ports or operating in U.S. waters. Additionally, more stringent emission standards apply in coastal areas designated by the IMO’s Marine Environment Protection Committee (“MEPC”) as Emission Control Areas (“ECAs”). For SOx, current ECAs in which a 0.1% cap on the sulfur content of fuel is enforced include: (i) the North American ECA, which includes the area extending 200 nautical miles from the Atlantic/Gulf and Pacific Coasts of the United States and Canada, the Hawaiian Islands, and the French territories of St. Pierre and Miquelon; (ii) the US Caribbean ECA, including Puerto Rico and the US Virgin Islands; (iii) the Baltic Sea ECA; and (iv) the North Sea ECA. Similar restrictions on the sulfur content of fuel apply in Icelandic and inland Chinese waters. Specifically, as of January 1, 2019, China expanded the scope of its Domestic Emission Control Areas to include all coastal waters within 12 nautical miles of the mainland. For NOx, current ECAs in which certain requirements exist regarding the engines used by vessels and the attendant NOx emissions, include (i) the North American ECA, and (ii) the US Caribbean ECA. Additionally, two new NOx ECAs, the Baltic Sea and the North Sea, will be enforced for ships constructed (keel laying) on or after January 1, 2021, or existing ships which replace an engine with “non-identical” engines, or install an “additional” engine. We may incur costs to install control equipment on our engines in order to comply with these requirements. Other ECAs may be designated (including the proposed Mediterranean Sea Sox ECA), and the jurisdictions in which our vessels operate may adopt more stringent emission standards independent of IMO.
The operation of our vessels is also affected by the requirements set forth in the ISM Code, which was made effective in July 1998. The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive SMS that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The ISM Code requires that vessel operators obtain a Safety Management Certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with ISM Code requirements for a SMS. No vessel can obtain a certificate unless its operator has been awarded a document of compliance, issued by each flag state, under the ISM Code. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, decrease available insurance coverage for the affected vessels or result in a denial of access to, or detention in, certain ports. Currently, each of the vessels in our fleet is ISM Code-certified. However, there can be no assurance that such certifications will be maintained indefinitely.
In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (“the Bunker Convention”), which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker oil. The Bunker Convention also requires registered owners of ships over a certain size to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). The Bunker Convention entered into force on November 21, 2008. Liability limits under the Bunker Convention were increased as of June 2015. Our entire fleet has been issued a certificate attesting that insurance is in force in accordance with the insurance provisions of the Convention. In jurisdictions where the Bunker Convention has not been adopted, such as the United States, various legislative schemes or common law govern, and liability is either strict or imposed on the basis of fault.
Environmental Regulation—The U.S. Oil Pollution Act of 1990
OPA established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. It applies to discharges of any oil from a vessel, including discharges of fuel oil and lubricants. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in U.S. waters, which include the United States’ territorial sea and its two hundred nautical mile exclusive economic zone. While we do not carry oil as cargo, we do carry fuel oil (or “bunkers”) in our vessels, making our vessels subject to the OPA requirements.
Under OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the discharge of oil results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
|·||natural resources damage and the costs of assessment thereof;|
|·||real and personal property damage;|
|·||net loss of taxes, royalties, rents, fees and other lost revenues;|
|·||lost profits or impairment of earning capacity due to property or natural resources damage; and|
|·||net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.|
OPA preserves the right to recover damages under existing law, including maritime tort law.
Effective November 12, 2019, OPA liability is limited to the greater of $1,200 per gross ton or $997,100 for non-tank vessels, subject to adjustment by the U.S. Coast Guard (“USCG”) for inflation every three years. These limits of liability do not apply if an incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
OPA requires owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet their potential liabilities under OPA. Under the regulations, vessel owners and operators may evidence their financial responsibility by providing proof of insurance, surety bond, self-insurance, or guaranty, and an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA. Under the self-insurance provisions, the shipowner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the USCG regulations by providing a financial guaranty in the required amount.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states which have enacted such legislation have not yet issued implementing regulations defining vessels owners’ responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
We currently maintain, for each of our vessels, oil pollution liability coverage insurance in the amount of $1 billion per incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion. Given the relatively small amount of bunkers our vessels carry, we believe that a spill of oil from the vessels would not be catastrophic. However, under certain circumstances, fire and explosion could result in a catastrophic loss. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our insurance coverage, it would have a severe effect on us and could possibly result in our insolvency.
Title VII of the Coast Guard and Maritime Transportation Act of 2004, or the CGMTA, amended OPA to require the owner or operator of any non-tank vessel of 400 gross tons or more, that carries oil of any kind as a fuel for main propulsion, including bunkers, to have an approved response plan for each vessel. The vessel response plans include detailed information on actions to be taken by vessel personnel to prevent or mitigate any discharge or substantial threat of such a discharge of oil from the vessel due to operational activities or casualties. We have approved response plans for each of our vessels.
Compliance with any new OPA requirements could substantially impact our costs of operation or require us to incur additional expenses.
CERCLA governs spills or releases of hazardous substances other than petroleum or petroleum products. The owner or operator of a ship, vehicle or facility from which there has been a release is liable without regard to fault for the release, and along with other specified parties may be jointly and severally liable for remedial costs. Costs recoverable under CERCLA include cleanup and removal costs, natural resource damages and governmental oversight costs. Liability under CERCLA is generally limited to the greater of $300 per gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0 million for vessels carrying hazardous substances), unless the incident is caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited. The USCG’s financial responsibility regulations under OPA also require vessels to provide evidence of financial responsibility for CERCLA liability in the amount of $300 per gross ton. As noted above, we have provided a financial guaranty in the required amount to the USCG.
Environmental Regulation—The Clean Water Act
The U.S. Clean Water Act (the “CWA”), prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA, discussed above. Under U.S. Environmental Protection Agency (“EPA”) regulations, we are required to obtain a CWA permit regulating and authorizing any discharges of ballast water or other wastewaters incidental to our normal vessel operations if we operate within the three-mile territorial waters or inland waters of the United States. The permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (“VGP”), incorporates U.S. Coast Guard requirements for BWM, as well as supplemental ballast water requirements and limits for 26 other specific discharges. Regulated vessels cannot operate in U.S. waters unless they are covered by the VGP. To do so, owners of commercial vessels greater than 79 feet in length must submit a Notice of Intent (“NOI”), at least 30 days before the vessel operates in U.S. waters. To comply with the VGP, vessel owners and operators may have to install equipment on their vessels to treat ballast water before it is discharged or implement port facility disposal arrangements or procedures at potentially substantial cost. The VGP also requires states to certify the permit, and certain states have imposed more stringent discharge standards as a condition of their certification. Many of the VGP requirements have already been addressed in our vessels’ current ISM Code SMS Plan.
On April 12, 2013, EPA issued the current VGP (the “2013 VGP”). The 2013 VGP contains numeric effluent limits for ballast water discharges that are expressed as maximum concentrations of living organisms per unit of ballast water volume discharged. These requirements correspond with the IMO’s requirements under the BWM Convention, discussed below, and are consistent with the USCG’s 2012 ballast water discharge standards, also described below. The 2013 VGP also includes additional management requirements for non-ballast water discharges and requires the submission of annual reports by all vessels covered by the 2013 VGP. We have submitted NOIs for all of our vessels that operate or potentially operate in U.S. waters and have submitted annual reports for all of our covered vessels. The 2013 VGP was set to expire on December 13, 2018; however, its provisions will remain in effect until the regulations under the 2018 Vessel Incidental Discharge Act (“VIDA”) are final and enforceable. VIDA, signed into law on December 4, 2018, establishes a new framework for the regulation of vessel incidental discharges under CWA Section 312(p). VIDA requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the USCG to develop implementation, compliance, and enforcement regulations within two years of the EPA’s promulgation of its performance standards. All provisions of the 2013 VGP will remain in force and effect until the USCG regulations under VIDA are finalized. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking – Vessel Incident Discharge National Standards of Performance in the Federal Register for public comment. The comment period closed on November 25, 2020.
Environmental Regulation—The Clean Air Act
The Federal Clean Air Act (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to CAA vapor control and recovery standards for cleaning fuel tanks and conducting other operations in regulated port areas and emissions standards for so-called “Category 3” marine diesel engines operating in U.S. waters. Several states regulate emissions from vessel vapor control and recovery operations under federally-approved State Implementation Plans. The California Air Resources Board has adopted clean fuel regulations applicable to all vessels sailing within 24 miles of the California coast whose itineraries call for them to enter any California ports, terminal facilities or internal or estuarine waters. Only marine gas oil or marine diesel oil fuels with 0.1% sulfur content or less will be allowed. If new or more stringent requirements relating to marine fuels or emissions from marine diesel engines or port operations by vessels are adopted by the EPA or any states, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Environmental Regulation—Other Environmental Initiatives
The EU has also adopted legislation that requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings.
The Paris Memorandum of Understanding on Port State Control (“Paris MoU”), to which 27 nations are parties, adopted the “New Inspection Regime” (“NIR”), effective January 1, 2011. The NIR is a significant departure from the previous system, as it is a risk based targeting mechanism that will reward quality vessels with a smaller inspection burden and subject high-risk ships to more in-depth and frequent inspections. The inspection record of a vessel, its age and type, the Voluntary IMO Member State Audit Scheme, and the performance of the flag State and recognized organizations are used to develop the risk profile of a vessel.
The EU MRV (Monitoring, Reporting, Verification) regulation entered into force on July 1, 2015, and require ship owners and operators to annually monitor, report and verify carbon dioxide emissions for vessels larger than 5,000 gross tonnage calling at any EU, Norway and Iceland port. Data collection takes place on a per voyage basis and started on January 1, 2018. The reported carbon dioxide emissions, together with additional data, are to be verified by independent certified bodies and sent to a central database managed by the European Maritime Safety Agency (“EMSA”). Since the year 2019, it is mandatory for the companies to submit an approved by an independent verifier emissions report to the European Commission and to the responsible authorities of the flag states. The aggregated ship emission and efficiency data is published by the European Commission.
The U.S. National Invasive Species Act (“NISA”), was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in foreign ports. Under NISA, the USCG adopted regulations in July 2004 imposing mandatory BWM practices for all vessels equipped with ballast water tanks entering U.S. waters. These requirements can be met by performing mid-ocean ballast exchange, by retaining ballast water on board the ship, or by using environmentally sound alternative BWM methods approved by the USCG. (However, mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope crude oil.) Mid-ocean ballast exchange is the primary method for compliance with the USCG regulations, since holding ballast water can prevent ships from performing cargo operations upon arrival in the United States, and alternative methods are still under development. Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or safety concerns may discharge minimum amounts of ballast water (in areas other than the Great Lakes and the Hudson River), provided that they comply with record keeping requirements and document the reasons they could not follow the required BWM requirements. On March 23, 2012 the USCG adopted ballast water discharge standards that set maximum acceptable discharge limits for living organisms and established standards for BWM systems. The regulations became effective on June 21, 2012 and were phased in between January 1, 2014 and January 1, 2016 for existing vessels, depending on the size of their ballast water tanks and their next drydocking date. As of the date of this report, the USCG has approved forty BWM systems. Certain of our vessels have obtained extensions for drydocking and will install the BWM systems in the next scheduled dry-docking date and certain vessels will install the BWM systems afloat by the end of 2022.
In the past absence of federal standards, states enacted legislation or regulations to address invasive species through ballast water and hull cleaning management and permitting requirements. Michigan’s BWM legislation was upheld by the Sixth Circuit Court of Appeals, and California enacted legislation extending its BWM program to regulate the management of “hull fouling” organisms attached to vessels and adopted regulations limiting the number of organisms in ballast water discharges. Other states may proceed with the enactment of requirements similar to those of California and Michigan or the adoption of requirements that are more stringent than the EPA and USCG requirements. We could incur additional costs to comply with additional USCG or state BWM requirements.
At the international level, the IMO adopted the BWM Convention in February 2004. The Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention took effect on September 8, 2017. Many of the implementation dates originally contained in the BWM Convention had already passed prior to its effectiveness, so that the period for installation of mandatory ballast water exchange requirements would be very short, with several thousand ships per year needing to install compliant systems. Consequently, the IMO Assembly passed a resolution in December 2013 revising the dates for implementation of the BWM requirements so that they are triggered by the entry into force date. In effect, this makes all vessels constructed before September 8, 2017 “existing” vessels, allowing for the installation of BWM systems on such vessels at the first renewal survey following entry into force of the BWM Convention. In July 2017, the implementation scheme was further changed to require vessels with International Oil Pollution Prevention (“IOPP”) certificates expiring between September 8, 2017 and September 8, 2019 to comply at their second IOPP renewal. All ships must have installed a ballast water treatment system by September 8, 2024.
The Kyoto Protocol entered into force in February 2005 and required adopting countries to implement national programs to reduce emissions of certain greenhouse gases, but emissions from international shipping were not subject to the Kyoto Protocol. The second commitment period of the Kyoto Protocol expired in 2020. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015 contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. However, restrictions on shipping emissions are likely to continue to be considered and a new treaty may be adopted in the future that includes restrictions on shipping emissions. The IMO’s MEPC adopted two new sets of mandatory requirements to address greenhouse gas emissions from vessels at its July 2011 meeting. The Energy Efficiency Design Index (“EEDI”) establishes a minimum energy efficiency level per capacity mile and is applicable to new vessels. The Ship Energy Efficiency Management Plan (“SEEMP”) is applicable to currently operating vessels of 400 metric tons and above and we are in compliance. These requirements entered into force in January 2013 and could cause us to incur additional compliance costs in the future. MARPOL amendments released in November 2020 and adopted in June 2021 will build on the EEDI and SEEMP and require ships to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index and reduce operational carbon intensity reductions based on a new operational carbon intensity indicator, in line with the IMO strategy which aims to reduce carbon intensity of international shipping by 40% by 2030. The USCG plans to develop and propose regulations to implement these provisions in the United States. The IMO is also considering the development of market based mechanisms to reduce greenhouse gas emissions from vessels, as well as sustainable development goals for marine transportation, but it is impossible to predict the likelihood that such measures might be adopted or their potential impacts on our operations at this time. In 2015, the EU adopted a regulation requiring large vessels (over 5,000 gross tons) calling at EU ports to monitor, report and verify their carbon dioxide emissions, which went into effect in January 2018. Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU or individual countries in which we operate or any international treaty adopted to succeed the Kyoto Protocol could require us to make significant financial expenditures or otherwise limit our operations that we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affect to the extent that climate change may result in sea level changes or more intense weather events.
On June 29, 2017, the Global Industry Alliance, or the GIA, was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program- IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, shipowners, operators, classification societies, and oil companies, signed to launch the GIA.
In addition, the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in 2021 the United States announced its commitment to working with the IMO to adopt a goal of achieving zero emissions from international shipping by 2050. Additional legislation or regulation applicable to the operation of our ships that may be implemented in the future could negatively affect our profitability.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002 (“MTSA”) came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a chapter of the convention dealing specifically with maritime security. The chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security (“ISPS”) Code.
The ISPS Code is designed to protect ports and international shipping against terrorism. To trade internationally a vessel must obtain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. To obtain an ISSC a vessel must meet certain requirements, including:
|·||on-board installation of automatic identification systems to enhance vessel-to-vessel and vessel-to-shore communications;|
|·||on-board installation of ship security alert systems that do not sound on the vessel but alert the authorities on shore;|
|·||the development of vessel security plans;|
|·||identification numbers to be permanently marked on a vessel’s hull;|
|·||a continuous synopsis record to be maintained on board showing the vessel’s history, including the vessel ownership, flag state registration, and port registrations; and|
|·||compliance with flag state security certification requirements.|
In addition, as of January 1, 2009, every company and/or registered owner is required to have an identification number which conforms to the IMO Unique Company and Registered Owner Identification Number Scheme. Our Manager has also complied with this requirement.
The U.S. Coast Guard regulations are intended to align with international maritime security standards and exempt non-U.S. vessels that have a valid ISSC attesting to the vessel’s compliance with SOLAS security requirements and the ISPS Code from the requirement to have a U.S. Coast Guard approved vessel security plan. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code and have ensured that our vessels are compliant with all applicable security requirements. Our fleet, as part of our continuous improvement cycle, is reviewing ship security plans and is maintaining best management practices during passage through security risk areas.
IMO Cyber security
The Maritime Safety Committee, at its 98th session in June 2017, also adopted Resolution MSC.428(98)—Maritime Cyber Risk Management in Safety Management Systems. The resolution encourages administrations to ensure that cyber risks are appropriately addressed in existing SMS no later than the first annual verification of the company’s Document of Compliance after January 1, 2021. Owners risk having ships detained if they have not included cyber security in the ISM Code SMS on their ships by January 1, 2021.
Vessel Recycling Regulations
The EU has also recently adopted a regulation that seeks to facilitate the ratification of the IMO Recycling Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The new regulation applies to vessels flying the flag of an EU member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an inventory of hazardous materials that complies with the requirements of the new regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel’s flag verifying the inventory. The new regulation took effect on non-EU-flagged vessels calling on EU ports of call beginning on December 31, 2020.
Our containerships primarily operate under multi-year charters and therefore are not subject to the effect of seasonal variations in demand.
We have no freehold or leasehold interest in any real property. We occupy space at 3, Christaki Kompou Street, Peters House, 3300, Limassol, Cyprus and 14 Akti Kondyli, 185 45 Piraeus, Greece that is owned by our manager, Danaos Shipping, and which is provided to us as part of the services we receive under our management agreement.
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—Risk Factors” and elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements.
Our business is to provide international seaborne transportation services by operating vessels in the containership sector of the shipping industry. As of February 28, 2022, we had a fleet of 71 containerships aggregating 436,589 TEUs, making us among the largest containership charter owners in the world, based on total TEU capacity. We have agreed to sell two of these vessels Catherine C and Leo C for gross proceeds of $130 million. The vessels are expected to be delivered to the buyer in November 2022.
We primarily deploy our containerships on multi-year, fixed-rate charters to take advantage of the stable cash flows and high utilization rates typically associated with multi-year charters, although in weaker containership charter markets we charter more of our vessels on shorter term charters so as to be able to take advantage of any increase in charter rates. As of February 28, 2022, 69 of the 71 containerships in our fleet were employed on time charters, of which 7 expire in 2022 (excluding two vessels, which we agreed to sell in 2022), and 2 containerships were employed on bareboat charters. Our containerships are generally employed on multi-year charters to large liner companies that charter-in vessels on a multi-year basis as part of their business strategies. As of February 28, 2022, our diverse group of customers in the containership sector included CMA CGM, MSC, HMM, ZIM, Hapag Lloyd, Maersk, Yang Ming, COSCO, OOCL, ONE, PIL, Evergreen, KMTC, Niledutch, Samudera, SITC and TS lines.
The average number of containerships in our fleet for the years ended December 31, 2021, 2020 and 2019 was 64.2, 57.3 and 55.0, respectively.
Our operations are managed by Danaos Shipping, our manager, under the supervision of our officers and our board of directors. We believe our manager has built a strong reputation in the shipping community by providing customized, high-quality operational services in an efficient manner for both new and older vessels. We have a management agreement pursuant to which our manager and its affiliates provide us and our subsidiaries with technical, administrative and certain commercial services. The term of this agreement expires on December 31, 2024 (subject to certain termination rights described in “Item 7. Major Shareholders and Related Party Transactions”). Our manager is ultimately owned by DIL, which is also our largest stockholder. Our Manager has agreed to outsource technical and crew management services to the previous managers Bernhard Shulte Shipmanagement (“BSM”) related to the recently acquired vessels Wide Alpha, Wide Bravo and Wide Juliet and OSM Ship Management Pte. Ltd. (“OSM”) related to the vessels Maersk Euphrates, Wide Hotel and Wide India for the minimum contract period of nine months since each vessel’s delivery date to us with possible extension options. The payment related to these services is an obligation of our Manager.
Acquisition of Vessels
On July 1, 2021, we exercised our option to acquire the remaining 51% equity interest in Gemini from Virage for $86.7 million cash consideration. Since July 1, 2021 we fully consolidate the following vessel owning subsidiaries of Gemini:
|Averto Shipping S.A.||Suez Canal||2002||5,610|
|Sinoi Marine Ltd.||Kota Lima (ex Genoa)||2002||5,544|
|Kingsland International Shipping Limited||Catherine C||2001||6,422|
|Leo Shipping and Trading S.A.||Leo C||2002||6,422|
|Springer Shipping Co.||Belita||2006||8,533|
On July 7, 2021, we entered into an agreement to acquire six 5,466 TEU sister vessels with their existing charter agreements for an aggregate gross purchase price amounting to $260.0 million. The following vessels were acquired:
|Company||Vessel Name||Year Built||TEU||Date of vessel delivery|
|Oceancarrier (No. 4) Corp.||Wide Alpha||2014||5,466||September 28, 2021|
|Oceancarrier (No. 5) Corp.||Wide Bravo||2014||5,466||September 23, 2021|
|Oceancarrier (No. 6) Corp.||Maersk Euphrates||2014||5,466||August 25, 2021|
|Oceancarrier (No. 8) Corp.||Wide India||2015||5,466||September 20, 2021|
|Oceancarrier (No. 9) Corp.||Wide Juliet||2015||5,466||September 27, 2021|
|Oceancarrier (No. 7) Corp.||Wide Hotel||2015||5,466||October 6, 2021|
2021 Debt Refinancing
On April 12, 2021, we consummated the refinancing of the 2018 Credit Facilities. We utilized the proceeds from the new $815 million facility with Citibank/NatWest, the proceeds from the new $135 million sale and leaseback agreement with Oriental Fleet related to the vessels CMA CGM Tancredi, CMA CGM Samson, CMA CGM Bianca, CMA CGM Melisande and CMA CGM Attila and the net proceeds from the $300 million Senior Notes, to refinance the existing 2018 facilities and Sinosure Cexim —Citibank —ABM Amro facility. The Citibank/NatWest $815 million senior secured credit facility with four year term is repayable in sixteen quarterly instalments of $20.4 million each together with a balloon payment of $489.0 million at maturity. This credit facility bears interest at LIBOR plus a margin of 2.50%. On February 11, 2021, we completed an offering of $300 million aggregate principal amount of our 8.500% Senior Notes due 2028. See “—2021 Debt Refinancing” and “—Senior Notes.”
Effects of COVID-19
The COVID-19 pandemic initially negatively affected global demand for the seaborne transportation of containerized cargoes. Global seaborne container trade declined in 2020, with an estimated impact of around 1% in TEU terms. Liner companies initially responded to these circumstances by reducing service and cutting sailings, which increased idle containership fleet capacity in the first half of 2020 to a peak of 12%. As a result, container freight rates were volatile and containership charter market rates declined significantly in the first half of 2020. However, the ability of the liner companies to consistently manage capacity addressed the drop in volumes at the onset of the pandemic, which alleviated pressure on our customers’ cash flows, many of whom have since reported strong profitability, and stabilized and increased freight rates. The second half of 2020 and 2021 has seen robust demand for seaborne transportation of containerized cargo, with freight volumes and freight rates rebounding sharply. The growth of e-commerce, together with the grounding of aircraft resulting from travel restrictions, has shifted significant shipping volume to seaborne containers. The resulting demand for containerships has resulted in negligible vessel capacity available in certain size segments as of December 31, 2021, increasing charter rates for all segments and enabling us to recharter many of our smaller vessels which had charters expiring during this year at higher rates. Many liner operators and containership owners reported improved results in the second half of 2020 and in 2021, due in part to improving container shipping industry market conditions. Our operating revenues increased to $689.5 million in the year ended December 31, 2021 compared to $461.6 million in the year ended December 31, 2020.
COVID-19 related travel restrictions imposed on a global level also caused disruptions in scheduled crew changes on our vessels, caused an increase in remuneration of our crew on the vessels and delays in carrying out of certain hull repairs and maintenance in 2020, which disruptions could continue to affect our operations. During the first quarter of 2020, we experienced delays in Chinese shipyards related to the scheduled installations of the scrubbers on certain of our vessels and delays in carrying out dry-docking repairs, which resulted in incremental 188 off-hire days of our vessels ultimately leading to decreased operating revenue by approximately $3.2 million compared to our expectations. The average daily operating cost per vessel per day for vessels on time charter for the year ended December 31, 2021 increased to $5,986 compared to $5,586 per vessel per day for the year ended December 31, 2020, mainly due to the COVID-19 related increase in crew remuneration in the year ended December 31, 2021.
The COVID-19 pandemic continues to unfold and may negatively affect our business in the future, financial performance and results of our operations, as it did in the first half of 2020. The extent of any such effects depends on factors beyond our control and cannot be predicted with certainty. See “—Impact of COVID-19 on our Business.”
Factors Affecting Our Results of Operations
Our financial results are largely driven by the following factors:
|·||Number of Vessels in Our Fleet. The number of vessels in our fleet, and their TEU capacity, is the primary factor in determining the level of our revenues. Aggregate expenses also increase as the size of our fleet increases. Vessel acquisitions and dispositions will have a direct impact on the number of vessels in our fleet. From time to time we have sold, generally older, vessels in our fleet.|
|·||Charter Rates. Aside from the number of vessels in our fleet, the charter rates we obtain for these vessels are the principal drivers of our revenues. Charter rates are based primarily on demand for capacity as well as the available supply of containership capacity at the time we enter into the charters for our vessels. As a result of macroeconomic conditions affecting trade flow between ports served by liner companies and economic conditions in the industries which use liner shipping services, charter rates can fluctuate significantly. Although the multi-year charters on which we deploy many of our containerships make us less susceptible to cyclical containership charter rates than vessels operated on shorter-term charters, we are exposed to varying charter rate environments when our chartering arrangements expire or we lose a charter such as occurred with the charter cancellations by Hanjin Shipping in 2016, and we seek to deploy our containerships under new charters. The staggered maturities of our containership charters also reduce our exposure to any stage in the shipping cycle. As of February 28, 2022, the charters for seven of our vessels are scheduled to expire in 2022 (excluding two vessels, which we agreed to sell in 2022). We expect that we will be able to re-charter these vessels at rates equivalent to or higher than provided for under their current charters, if the charter rate levels currently prevailing in the market continue throughout 2022, as currently expected. However, there can be no assurance that the current positive trend in charter rates will continue or that the charterers will exercise their options to extend the charters. Charter rate levels have improved in the second half of 2020 and in 2021 to levels higher than were prevailing when we entered into the charters for a number of our vessels which are expiring in 2022.|
|·||Utilization of Our Fleet. Due to the multi-year charters under which they are often operated, our containerships have consistently been deployed at high levels of utilization. During 2021, our fleet utilization was 98.2%, compared to 96.3% in 2020 and 98.3% in 2019. In addition, the amount of time our vessels spend in drydock undergoing repairs or undergoing maintenance and upgrade work affects our results of operations. Historically, our fleet has had a limited number of off-hire days. For example, there were 292, 286 and 153 total off-hire days for our entire fleet during the years ended December 31, 2021, 2020 and 2019, respectively, other than for scheduled drydockings and special surveys. An increase in annual off-hire days could reduce our utilization. The efficiency with which suitable employment is secured, the ability to minimize off-hire days and the amount of time spent positioning vessels also affects our results of operations. If the utilization patterns of our containership fleet changes our financial results would be affected.|
|·||Expenses. Our ability to control our fixed and variable expenses, including those for commission expenses, crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses also affects our financial results. In addition, factors beyond our control, such as developments relating to market premiums for insurance and the value of the U.S. dollar compared to currencies in which certain of our expenses, primarily crew wages, are denominated can cause our vessel operating expenses to increase.|
In addition to those factors described above affecting our operating results, our net income is significantly affected by our financing arrangements, including any interest rate swap arrangements, and, accordingly, prevailing interest rates and the interest rates and other financing terms we may obtain in the future. Realized and unrealized changes in the fair value of our investment in ZIM securities, including with respect to dividends paid by ZIM, also significantly impacted our net income in 2021, and may continue to impact our results of operations in the future. See “—Liquidity and Capital Resources—ZIM and HMM Securities.”
The following table presents the contracted utilization of our operating fleet of 71 vessels as of December 31, 2021:
|Contracted revenue (in millions) (1)||$||850.9||$||1,304.8||$||514.8||$||182.3||$||2,852.8|
|Number of vessels whose charters are set to expire in the respective period(2)||8||37||16||10||71|
|TEU’s on expiring charters in the respective period||50,328||231,780||76,608||77,873||436,589|
|Contracted operating days (3)||24,345||33,367||10,884||3,664||72,260|
|Total operating days (3)||25,496||49,958||49,733||45,967||171,154|
|Contracted operating days/Total operating days||95.5||%||66.8||%||21.9||%||8.0||%||42.2||%|
|(1)||Annual revenue calculations are based on an assumed 364 revenue days per annum, based on contracted charter rates from our current charter agreements. Additionally, the revenues above reflect an estimate of off-hire days to perform periodic maintenance. If actual off-hire days are greater than estimated, these would decrease the level of revenues above. Although these revenues are based on contractual charter rates, any contract is subject to performance by our counterparties and us. See “— Operating Revenues,” including the contracted revenue table presented therein, for more information regarding our contracted revenues.|
|(2)||Refers to the incremental number of vessels with charters expiring within the respective period.|
|(3)||Operating days calculations are based on an assumed 364 operating days per annum. Additionally, the operating days above reflect an estimate of off-hire days to perform periodic maintenance. If actual off-hire days are greater than estimated, these would decrease the amount of operating days above.|
Our operating revenues are driven primarily by the number of vessels in our fleet, the number of operating days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under time charters which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and dispositions, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels and the levels of supply and demand in the containership charter market. Vessels operating in the spot market generate revenues that are less predictable but can allow increased profit margins to be captured during periods of improving charter rates.
Revenues from multi-year period charters comprised a substantial portion of our revenues for the years ended December 31, 2021, 2020 and 2019. The revenues relating to our multi-year charters will be affected by any additional vessels subject to multi-year charters we may acquire in the future, as well as by the disposition of any such vessel in our fleet. Our revenues will also be affected if any of our charterers cancel a multi-year charter or fail to perform at existing contracted rates. Our multi-year charter agreements have been contracted in varying rate environments and expire at different times. Generally, we do not employ our vessels under voyage charters under which a shipowner, in return for a fixed sum, agrees to transport cargo from one or more loading ports to one or more destinations and assumes all vessel operating costs and voyage expenses.
Our expected revenues as of December 31, 2021, based on contracted charter rates, from our charter arrangements for our containerships is shown in the table below. Although these expected revenues are based on contracted charter rates, any contract is subject to performance by the counterparties. If the charterers are unable or unwilling to make charter payments to us, our results of operations and financial condition will be materially adversely affected. See “Item 3. Key Information—Risk Factors—We are dependent on the ability and willingness of our charterers to honor their commitments to us for all of our revenues and the failure of our counterparties to meet their obligations under our charter agreements could cause us to suffer losses or otherwise adversely affect our business.”
Contracted Revenue from Charters as of December 31, 2021(1)
(Amounts in millions of U.S. dollars)
|Number of Vessels||2022||2023 – 2024||2025–2026||2027–2028||Total|
|(1)||Annual revenue calculations are based on an assumed 364 revenue days per annum representing contracted revenues, based on contracted charter rates from our current charter agreements. Although these revenues are based on contractual charter rates, any contract is subject to performance by the counter parties and us. Additionally, the revenues above reflect an estimate of off-hire days to perform periodic maintenance. If actual off-hire days are greater than estimated, these would decrease the level of revenues above.|
As of February 28, 2022 we have seven vessels employed on charters expiring in 2022 (excluding two vessels, which we agreed to sell in 2022). Vessels operating in the spot market generate revenues that are less predictable than vessels on period charters, although this chartering strategy can enable vessel owners to capture increased profit margins during periods of improvements in charter rates. Deployment of vessels in the spot market creates exposure, however, to the risk of declining charter rates, as spot rates may be higher or lower than those rates at which a vessel could have been time chartered for a longer period.
Amortization of Time Charters Assumed on Acquisition of Vessels
Eleven of our vessel additions in 2021 were acquired with attached time charter agreements, which were below market terms prevailing at their acquisition date. As the present value of the contractual cash flows of these time charter agreements assumed was lower than its current fair value, the difference was recorded as unearned revenue. Such liabilities are amortized as an increase in revenue over the period of each time charter assumed. Amortization of these time charter agreements resulted in an increase of our revenue by $27.6 million in the period ended December 31, 2021. Significant assumptions used in calculation of the fair value of the time charters assumed include daily time charter rate prevailing in the market for the similar size of the vessels available before the acquisition for a similar charter durations (including the estimated time charter expiry date). Other assumptions used are the discount rate based on the weighted average cost of capital for the shipping industry close to the acquisition date and the estimated average off-hire rate.
Voyage expenses include port and canal charges, bunker (fuel) expenses (bunker costs are normally covered by our charterers, except in certain cases such as vessel re-positioning), address commissions and brokerage commissions. Under time charters and bareboat charters, such as those on which we charter our containerships, the charterers bear the voyage expenses other than brokerage and address commissions and fees. As such, voyage expenses represent a relatively small portion of our vessels’ overall expenses.
From time to time, in accordance with industry practice and in respect of the charters for our containerships we pay brokerage commissions of approximately 0.75% to 2.5% of the total daily charter hire rate under the charters to unaffiliated ship brokers associated with the charterers, depending on the number of brokers involved with arranging the charter. We also pay address commissions of 1.25% up to 5.0% to a limited number of our charterers. Our manager also receives a fee of 0.5% based on the contract price of any vessel bought or sold by it on our behalf, excluding newbuilding contracts. In 2021, 2020 and 2019 we paid a fee to our manager of 1.25% on all freight, charter hire, ballast bonus and demurrage for each vessel. In 2022, this fee will remain at 1.25%.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Aggregate expenses increase as the size of our fleet increases. Factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market premiums for insurance, may also cause these expenses to increase. In addition, a substantial portion of our vessel operating expenses, primarily crew wages, are in currencies other than the U.S. dollar and any gain or loss we incur as a result of the U.S. dollar fluctuating in value against these currencies is included in vessel operating expenses. We fund our manager in advance with amounts it will need to pay our fleet’s vessel operating expenses.
Under time charters, such as those on which we charter all but two of the containerships in our fleet as of February 28, 2022, we pay for vessel operating expenses. Under bareboat charters, such as those on which we chartered the remaining two containerships in our fleet, our charterers bear substantially all vessel operating expenses, including the costs of crewing, insurance, surveys, drydockings, maintenance and repairs.
Amortization of Deferred Drydocking and Special Survey Costs
We follow the deferral method of accounting for special survey and drydocking costs, whereby actual costs incurred are deferred and are amortized on a straight-line basis over the period until the next scheduled survey and drydocking, which is two and a half years. If special survey or drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written off. The amortization periods reflect the estimated useful economic life of the deferred charge, which is the period between each special survey and drydocking.
Major overhaul performed during drydocking is differentiated from normal operating repairs and maintenance. The related costs for inspections that are required for the vessel’s certification under the requirement of the classification society are categorized as drydock costs. A vessel at drydock performs certain assessments, inspections, refurbishments, replacements and alterations within a safe non-operational environment that allows for complete shutdown of certain machinery and equipment, navigational, ballast (keep the vessel upright) and safety systems, access to major underwater components of vessel (rudder, propeller, thrusters and anti-corrosion systems), which are not accessible during vessel operations, as well as hull treatment and paints. In addition, specialized equipment is required to access and maneuver vessel components, which are not available at regular ports.
Repairs and maintenance normally performed during operation either at port or at sea have the purpose of minimizing wear and tear to the vessel caused by a particular incident or normal wear and tear. Repair and maintenance costs are expensed as incurred.
There was no impairment loss in the years ended December 31, 2021, 2020 and 2019. See “Critical Accounting Estimates—Impairment of Long-lived Assets.”
We depreciate our containerships on a straight-line basis over their estimated remaining useful economic lives. We estimated the useful lives of our containerships to be 30 years from the year built. Depreciation is based on cost, less the estimated scrap value of $300 per ton for all vessels.
General and Administrative Expenses
We paid our manager the following fees for 2021, 2020 and 2019: (i) a daily management fee of $850, (ii) a daily vessel management fee of $425 for vessels on bareboat charter, pro rated for the number of calendar days we own each vessel, (iii) a daily vessel management fee of $850 for vessels on time charter, pro rated for the number of calendar days we own each vessel. Our executive officers received an aggregate of €1.8 million ($2.1 million), €1.5 million ($1.8 million) and €1.5 million ($1.7 million) in cash compensation for the years ended December 31, 2021, 2020 and 2019, respectively. We also recognized non-cash share-based compensation expense in respect of awards to our executive officers of $11.8 million, $1.0 million and $3.6 million in the years ended December 31, 2021, 2020, and 2019, respectively.
For 2022, we will pay a fee of $850 per day, a fee of $425 per vessel per day for vessels on bareboat charter and a fee of $850 per vessel per day for vessels on time charter.
Furthermore, general and administrative expenses include audit fees, legal fees, board remuneration, executive officers compensation, directors & officers insurance, stock exchange fees and other general and administrative expenses.
Other Income/(Expenses), Net
In each of the years ended December 31, 2021, 2020 and 2019, we recorded net other income of $4.5 million, $0.6 million and $0.6 million, respectively.
Interest Expense, Interest Income and Other finance expenses
We have incurred interest expense on outstanding indebtedness under our credit facilities which we included in interest expense. We also incurred financing costs in connection with establishing those facilities, which is included in other finance expenses. Further, we earn interest on cash deposits in interest bearing accounts and on interest bearing securities, which we include in interest income. We will incur additional interest expense in the future on our outstanding borrowings and under future borrowings. See “—2021 Debt Refinancing” for a description of our recent refinancing, including the Troubled Debt Restructuring (TDR) accounting applied from the closing date (the “2018 Refinancing Closing Date”) of our debt financing in 2018 (the “2018 Refinancing”), which reduced the aggregate amount of debt outstanding under our credit facilities and the interest expense recognized in our statement of operations.
Gain on investments
The gain on investments of $578.0 million in the year ended December 31, 2021 consists of the change in fair value of our shareholding interest in ZIM of $543.7 million and dividends recognized on ZIM ordinary shares of $34.3 million. ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In 2021, we sold 3,000,000 ordinary shares of ZIM resulting in net proceeds of $120.7 million. For the year ended December 31, 2021, the unrealized gain related to the ZIM ordinary shares still held on December 31, 2021 amounted to $422.97 million. Our remaining shareholding interest of 7,186,950 ordinary shares has been fair valued at $423.02 million as of December 31, 2021, based on the closing price of ZIM’s ordinary shares on the NYSE on that date compared to the book value of these shares of $75 thousand as of December 31, 2020.
Gain on Debt Extinguishment
We have recorded a net gain on debt extinguishment of $111.6 million in the year ended December 31, 2021 related to the refinancing of our loan facilities.
Equity income on investments
Equity income on investments increased by $61.7 million to $68.0 million in the year ended December 31, 2021 compared to $6.3 million in the year ended December 31, 2020 mainly due to the non-cash gain of $64.1 million recognized on our acquisition of the remaining 51% equity interest in Gemini on July 1, 2021.
Unrealized Gain/(Loss) and Realized Loss on Derivatives
We currently have no outstanding interest rate swaps agreements. In past years, we had interest rate swaps agreements generally based on the forecasted delivery of vessels we contracted for and our debt financing needs associated therewith. All changes in the fair value of our cash flow interest rate swap agreements were recorded in earnings under “Loss on derivatives”.
We evaluated whether it is probable that the previously hedged forecasted interest payments prior to June 30, 2012 are probable to not occur in the originally specified time period. We have concluded that the previously hedged forecasted interest payments are probable of occurring. Therefore, unrealized gains or losses in accumulated other comprehensive loss associated with the previously designated cash flow interest rate swaps will remain frozen in accumulated other comprehensive loss and recognized in earnings when the interest payments will be recognized. An amount of $3.6 million was reclassified from Accumulated Other Comprehensive Loss into earnings for each of the years ended December 31, 2021, 2020 and 2019, representing amortization of deferred realized losses on cash flow hedges over the depreciable life of the vessels.
We recorded income taxes of $5.9 million in the year ended December 31, 2021 related to the taxes withheld on dividend income earned.
Results of Operations
The following table presents selected consolidated financial and other data of Danaos Corporation and its consolidated subsidiaries for each of the three years in the three year period ended December 31, 2021. The selected consolidated financial data of Danaos Corporation as of December 31, 2021 and 2020 and each of the three years ended December 31, 2021 is derived from our consolidated financial statements and notes thereto included elsewhere in this Form 20-F, which have been prepared in accordance with U.S. generally accepted accounting principles, or “U.S. GAAP”, and have been audited by PricewaterhouseCoopers S.A., an independent registered public accounting firm. Our audited consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the years ended December 31, 2021, 2020 and 2019, and the consolidated balance sheets at December 31, 2021 and 2020, together with the notes thereto, are included in “Item 18. Financial Statements” and should be read in their entirety.
|Year ended December 31,|
|In thousands, except per share amounts and|
|STATEMENT OF INCOME|
|Income from operations||358,259||199,480||201,074|
|Total other income/(expenses), net||700,472||(45,930||)||(69,821||)|
|PER SHARE DATA(1)|
|Basic earnings/(loss) per share of common stock||$||51.75||$||6.51||$||8.29|
|Diluted earnings/(loss) per share of common stock||$||51.15||$||6.45||$||8.09|
|Basic weighted average number of shares (in thousands)||20,345||23,589||15,835|
|Diluted weighted average number of shares (in thousands)||20,584||23,805||16,221|
|Dividends declared per share||$||1.50||—||—|
|CASH FLOW DATA|
|Net cash provided by operating activities||$||428,111||$||265,679||$||219,878|
|Net cash used in investing activities||(143,148||)||(170,736||)||(21,360||)|
|Net cash used in financing activities||(220,870||)||(168,450||)||(136,623||)|
|Net increase/(decrease) in cash, cash equivalents and restricted cash||64,093||(73,507||)||61,895|
|Number of vessels at period end||71||60||55|
|TEU capacity at period end||436,589||371,262||327,616|
|(1)||Basic and diluted earnings per share, basic and diluted weighted average number of shares, common stock shares outstanding and common stock at par value give retroactive effect to the 1-for-14 reverse stock split effected on May 2, 2019 for all periods presented.|
Year ended December 31, 2021 compared to the year ended December 31, 2020
During the year ended December 31, 2021, Danaos had an average of 64.2 containerships compared to 57.3 containerships during the year ended December 31, 2020. Our fleet utilization for the year ended December 31, 2021 was 98.2% compared to 96.3% for the year ended December 31, 2020. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 97.2% in the year ended December 31, 2020.
Operating revenues increased by 49.4%, or $227.9 million, to $689.5 million in the year ended December 31, 2021 from $461.6 million in the year ended December 31, 2020.
Operating revenues for the year ended December 31, 2021 reflect:
|·||a $107.9 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 mainly as a result of higher charter rates and improved fleet utilization;|
|·||a $55.7 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the incremental revenue generated by newly acquired vessels;|
|·||a $36.7 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to higher non-cash revenue recognition in accordance with US GAAP; and|
|·||a $27.6 million increase in revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to amortization of assumed time charters.|
Voyage expenses increased by $10.0 million to $24.3 million in the year ended December 31, 2021 from $14.3 million in the year ended December 31, 2020 primarily as a result of the increase in commissions due to the increase in revenue per vessel and the increase in the average number of vessels in our fleet.
Vessel Operating Expenses
Vessel operating expenses increased by $25.0 million to $135.9 million in the year ended December 31, 2021 from $110.9 million in the year ended December 31, 2020, primarily as a result of the increase in the average number of vessels in our fleet and an increase in the average daily operating cost for vessels on time charters to $5,986 per vessel per day for the year ended December 31, 2021 compared to $5,586 per vessel per day for the year ended December 31, 2020. The average daily operating cost increased mainly due to the COVID-19 related increase in crew remuneration in the year ended December 31, 2021. Management believes that our daily operating cost remains among the most competitive in the industry.
Depreciation expense increased by 15.2%, or $15.4 million, to $116.9 million in the year ended December 31, 2021 from $101.5 million in the year ended December 31, 2020 mainly due to our recent acquisition of sixteen vessels and installation of scrubbers on nine of our vessels in the year ended December 31, 2020.
Amortization of Deferred Drydocking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs decreased by $0.8 million to $10.2 million in the year ended December 31, 2021 from $11.0 million in the year ended December 31, 2020.
General and Administrative Expenses
General and administrative expenses increased by $19.6 million to $43.9 million in the year ended December 31, 2021, from $24.3 million in the year ended December 31, 2020. The increase was mainly attributable to increased management fees due to the increased size of our fleet and increased stock-based compensation.
Interest Expense, Interest Income and Other Finance Expenses
Interest expense increased by 29.0%, or $15.5 million, to $69.0 million in the year ended December 31, 2021 from $53.5 million in the year ended December 31, 2020. The increase in interest expense is a combined result of:
|·||a $5.9 million decrease in interest expense due to a decrease in our debt service cost by approximately 0.25%, while our average indebtedness also decreased by $41.8 million between the two periods (average indebtedness of $1,478.1 million in the year ended December 31, 2021, compared to average indebtedness of $1,519.9 million in the year ended December 31, 2020);|
|·||a $22.3 million reduction in the recognition through our income statement of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were refinanced on April 12, 2021. As a result of the refinancing, the recognition of such accumulated interest has been decreased; and|
|·||a $0.9 million decrease in the amortization of deferred finance costs and debt discount related to our debt.|
Net proceeds from the issuance of our $300 million Senior Notes in February 2021 together with the net proceeds from a new $815 million senior secured credit facility and a new $135 million leaseback arrangement, each of which was drawn down on April 12, 2021, were used to refinance a substantial majority of our then outstanding indebtedness.
As of December 31, 2021, our outstanding debt, gross of deferred finance costs, was $1,142.0 million, which includes $300 million aggregate principal amount of our Senior Notes, and our leaseback obligation was $226.5 million. These balances compare to debt of $1,368.1 million and a leaseback obligation of $123.4 million as of December 31, 2020.
Interest income increased by $5.6 million to $12.2 million in the year ended December 31, 2021 compared to $6.6 million in the year ended December 31, 2020, mainly as a result of full collection of accrued interest on ZIM and HMM bonds, which were redeemed by the issuers thereof in 2021.
Other finance costs, net decreased by $1.0 million to $1.3 million in the year ended December 31, 2021 compared to $2.3 million in the year ended December 31, 2020 due to the decreased finance costs on the refinanced debt.
Gain on investments
The gain on investments of $578.0 million in the year ended December 31, 2021 consists of the change in fair value of our shareholding interest in ZIM of $543.7 million and dividends recognized on ZIM ordinary shares of $34.3 million. ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In 2021, we sold 3,000,000 ordinary shares of ZIM resulting in net proceeds of $120.7 million. For the year ended December 31, 2021, the unrealized gain related to the ZIM ordinary shares still held on December 31, 2021 amounted to $422.97 million. Our remaining shareholding interest of 7,186,950 ordinary shares has been fair valued at $423.02 million as of December 31, 2021, based on the closing price of ZIM’s ordinary shares on the NYSE on that date compared to the book value of these shares of $75 thousand as of December 31, 2020.
Gain on debt extinguishment
The gain on debt extinguishment of $111.6 million in the year ended December 31, 2021 related to our debt refinancing on April 12, 2021.
Equity income on investments
Equity income on investments increased by $61.7 million to $68.0 million in the year ended December 31, 2021 compared to $6.3 million in the year ended December 31, 2020 mainly due to the non-cash gain of $64.1 million recognized on our acquisition of the remaining 51% equity interest in Gemini on July 1, 2021.
Loss on Derivatives
Amortization of deferred realized losses on interest rate swaps remained stable at $3.6 million in each of the years ended December 31, 2021 and December 31, 2020.
Other income/(expenses), net
Other income, net was $4.5 million in the year ended December 31, 2021 compared to $0.6 million of income in the year ended December 31, 2020. The increase was mainly due to the collection from Hanjin Shipping of $3.9 million as a partial payment of common benefit claim and interest.