CORRESP 1 filename1.htm

 

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, New York 10178

 

July 17, 2019

 

Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 3561
Washington, D.C. 20549

Attn.:

Aamira Chaudhry

 

Lyn Shenk

 

RE:          Danaos Corp
Form 20-F for the Year Ended December 31, 2018
Filed March 5, 2019
File No. 001-33060

 

Dear Ms. Chaudhry and Mr. Shenk,

 

As outside counsel to, and on behalf of, Danaos Corporation (the “Company”), we are providing the following response from the Company to the Staff’s comment letter dated July 3, 2019 (the “Comment Letter”) relating to the above-captioned Annual Report on Form 20-F (the “Annual Report”) of the Company. Please note that for the Staff’s convenience, we have recited the Staff’s comment and provided the Company’s response to it immediately thereafter.

 

Form 20-F for Fiscal Year Ended December 31, 2018

 

Notes to the Consolidated Financial Statements

Note 7. Other Non-Current Assets, page F-27

 

1. Please tell us the material terms of your investments in the debt securities of ZIM and HMM, whether the debtors met those terms in 2018, and how you determined their fair value as of December 31, 2018. To the extent the investments accrue unpaid interest, please tell us whether and how you recognized such amounts and the basis for determining that such amounts were collectible.

 

Response:  The material terms of the Company’s investments in the debt securities of ZIM and HMM are as follows:

 

 

 

ZIM Notes
Series 1

 

ZIM Notes
Series 2

 

HMM
Notes 1

 

HMM
Notes 2

 

Issuance date

 

July 16, 2014

 

July 16, 2014

 

July 18, 2016

 

July 18, 2016

 

Nominal Principal amount as of December 31, 2018

 

$8,525,396

 

$41,094,900

 

$19,856,375

 

$6,169,483

 

Maturity date

 

June 2023

 

June 2023

 

July 2024

 

December 2022

 

Cash interest rate

 

3% p.a. Payable quarterly

 

3% p.a. Payable quarterly

 

Not applicable

 

Not applicable

 

Required PIK Interest

 

Not applicable

 

2% p.a. with deferred cash payment on maturity

 

3% p.a. with deferred cash payment at maturity

 

3% p.a. with deferred cash payment at maturity

 

Redemption date(s)

 

Subject to available cash flow in accordance with corporate cash mechanism and/or fully at maturity

 

Fully at maturity

 

Amortizing subject to available cash flow and/or fully at maturity

 

Fully at maturity

 

 

 

During the year ended December 31, 2018 and as of December 31, 2018, both ZIM and HMM were in compliance with the terms and covenants of the applicable notes. Other than the terms outlined above, which are described on page 66 of the Company’s Annual Report under the caption “Item 5. Operating and Financial Review and Prospects-Liquidity and Capital Resources,” there are no other significant terms of the notes.

 

The fair values of the ZIM and HMM notes as of December 31, 2018 were based on a weighted combination of (1) a quoted (non-binding) price from a third party broker, (2) a yield-to-maturity (YTM) analysis for a similar bond(s) (distressed, unsecured high-yield bond(s)) in an active market and (3) for ZIM only, the YTM for corporate bonds issued by ZIM as published by Bloomberg. The Company weights each of these fair value data points, with the largest weighting on the third party broker quote.

 

The fair value data points and weighting for the ZIM notes as of December 31, 2018 are as follows:

 

 

 

YTM

 

Weight

 

Contribution to
Average YTM

 

YTM - comparable bond

 

21.6

%

20

%

4.3

%

Third party broker quote

 

35.0

%

60

%

21.0

%

YTM — ZIM’s bonds (Bloomberg)

 

30.1

%

20

%

6.0

%

Average

 

 

 

 

 

31.3

%

 

The fair value data points and weighting for the HMM notes as of December 31, 2018 are as follows:

 

 

 

YTM

 

Weight

 

Contribution to
Average YTM

 

YTM - comparable bond

 

21.6

%

30

%

6.5

%

Third party broker quote

 

35.1

%

70

%

24.5

%

Average

 

 

 

 

 

31.0

%

 

 

For the ZIM Series 1 Notes and Series 2 Notes, cash interest is accrued and recognized in the income statement on a quarterly basis and through December 31, 2018, ZIM has paid all cash interest on a timely basis.  For the notes that have required paid-in-kind (PIK) interest that will be paid at maturity, and such interest is probable of being collected, the interest is accrued at its stated rate and recognized in the Company’s income statement on a quarterly basis and is compounded (on an annual or quarterly basis, as applicable) into the principal amount of the respective notes. The Company actively monitors the financial statements, with a focus on the operating results, EBITDA and the liquidity positions, of both ZIM and HMM and, more importantly, the Company has active charter party agreements that require ongoing cash settlements by both entities. Through December 31, 2018, ZIM and HMM are paying in accordance with their charter party agreements, which together with the timely payment of cash interest by ZIM, are the primary bases for determining that the accrued unpaid interest is collectible.

 

******

 

On behalf of the Company, please allow us to express our appreciation of your attention to this matter.  Should you have any questions or comments with respect to this response letter, please contact Evangelos Chatzis of the Company at + 30 210 419 6404 or Finn Murphy of Morgan, Lewis & Bockius LLP at 212-309-6704.

 

 

Sincerely,

 

 

 

/s/ Finn Murphy

 

Finn Murphy

 

 

Cc:

Evangelos Chatzis, Danaos Corporation

 

 

 

Despina Marinou, PricewaterhouseCoopers S.A.