UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2023
Commission
File Number:
(Translation of registrant's name into English)
c/o Global Ship Lease Services Limited
(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): [ ].
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
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): [ ].
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K
Attached as Exhibit 99.1 to this Report on Form 6-K (this “Report”) is Management’s Discussion and Analysis of Financial Results of Operations and the unaudited interim consolidated financial statements, and the accompanying notes thereto, for the six months ended June 30, 2023, of the Global Ship Lease, Inc. (the “Company”).
The information contained in Exhibit 99.1 to this Report is hereby incorporated by reference into the Company's registration statements on Form F-3 (File Nos. 333-231509, 333-258800 and 333-267468) and on Form S-8 (File Nos. 333-258992 and 333-264113).
SIGNATURES
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.
GLOBAL SHIP LEASE, INC. (registrant) | ||
Dated: August 3, 2023 | By: | /s/ Ian J. Webber |
Ian J. Webber | ||
Chief Executive Officer |
Exhibit 99.1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of financial condition and results of operations of Global Ship Lease, Inc. for the six month periods ended June 30, 2023 and 2022. The following discussion and analysis should be read in conjunction with our interim unaudited condensed consolidated financial statements and the related notes thereto, included in this report, the discussion and analysis included in our Annual Report on Form 20-F for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission, or the SEC, on March 23, 2023 (the “Annual Report”), and other financial information appearing elsewhere in this report. We prepare our financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The following discussion and analysis contain forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in the section entitled “Risk Factors” included in our Annual Report.
Unless the context otherwise requires, references to the “Company”, “we”, “us”, “our” or “Global Ship Lease” refer to Global Ship Lease, Inc., “Technomar” refers to Technomar Shipping Inc., our principal ship technical manager and “Conchart” refers to Conchart Commercial Inc. our commercial ship manager, “Managers” refers to Technomar and Conchart, together. Unless otherwise indicated, all references to “$” and “dollars” are to U.S. dollars. We use the term “TEU”, meaning twenty-foot equivalent unit, the international standard measure of container size, in describing volumes in world container trade and other measures, including the capacity of our containerships, which we also refer to as ships. Unless otherwise indicated, we calculate the average age of our ships on a weighted average basis, based on TEU capacity.
Cautionary Statement Regarding Forward-Looking Statements
This discussion and analysis contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as "anticipate", "believe", "continue", "estimate", "expect", "intend", "may", "ongoing", "plan", "potential", "predict", “should”, "project", "will" or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that these projections included in these forward-looking statements will come to pass. Actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.
The risks and uncertainties include, but are not limited to:
• | future operating or financial results; |
• | expectations regarding the strength of future growth of the container shipping industry, including the rates of annual demand and supply growth; |
• | geo-political events such as the conflict in Ukraine; |
• | the length and severity of the ongoing outbreak of the novel coronavirus (COVID-19) around the world and governmental responses thereto; |
• | the financial condition of our charterers and their ability and willingness to pay charterhire to us in accordance with the charters and our expectations regarding the same; |
• | the overall health and condition of the U.S. and global financial markets; |
• | our financial condition and liquidity, including our ability to obtain additional financing to fund capital expenditures, vessel acquisitions and for other general corporate purposes and our ability to meet our financial covenants and repay our borrowings; |
• | our expectations relating to dividend payments and expectations of our ability to make such payments including the availability of cash and the impact of constraints under our loan agreements and financing arrangements; |
• | future acquisitions, business strategy and expected capital spending; |
• | operating expenses, availability of key employees, crew, number of off-hire days, drydocking and survey requirements, costs of regulatory compliance, insurance costs and general and administrative costs; |
• | general market conditions and shipping industry trends, including charter rates and factors affecting supply and demand; |
• | assumptions regarding interest rates and inflation; |
• | changes in the rate of growth of global and various regional economies; |
1 |
• | risks incidental to vessel operation, including piracy, discharge of pollutants and vessel accidents and damage including total or constructive total loss; |
• | estimated future capital expenditures needed to preserve our capital base; |
• | our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the useful lives of our vessels; |
• | our continued ability to enter into or renew charters including the re-chartering of vessels on the expiry of existing charters, or to secure profitable employment for our vessels in the spot market; |
• | our ability to realize expected benefits from our acquisition of secondhand vessels; |
• | our ability to capitalize on our management’s and directors’ relationships and reputations in the containership industry to its advantage; |
• | changes in governmental and classification societies’ rules and regulations or actions taken by regulatory authorities; |
• | expectations about the availability of insurance on commercially reasonable terms; |
• | changes in laws and regulations (including environmental rules and regulations); and |
• | potential liability from future litigation; |
• | other important factors described from time to time in the reports we file with the SEC. |
Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons specifically as described in our filings with the SEC. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this communication. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks that we describe in the reports we will file from time to time with the SEC after the date of this communication.
Overview
We are a containership owner, incorporated in the Marshall Islands. We commenced operations in December 2007 with a business of owning and chartering out containerships under fixed rate charters to container liner companies.
As of June 30, 2023, we owned 68 vessels, with a total carrying capacity of 375,406 TEU with an average age, weighted by TEU capacity, of 16.7 years.
Our financial results are largely driven by the following factors:
· | the continued performance of our counterparties to our charter agreements; |
· | the number of vessels in our fleet and their charter rates; |
· | the terms under which we recharter our vessels once the existing time charters have expired; |
· | the number of days that our vessels are utilized and not subject to drydocking, special surveys, capitalized enhancements or otherwise are off-hire; |
· | our ability to control our costs, including ship operating costs, ship management fees, insurance costs, drydock costs, general, administrative, capitalized expenses ,other expenses and interest and financing costs. Ship operating costs may vary from month to month depending on a number of factors, including the timing of purchases of spares and stores and of crew changes; |
· | impairment of our vessels and other non-current assets; and |
· | access to, and the pricing and other terms of, our financing arrangements. |
The average remaining term of our charters as at June 30, 2023, to the mid-point of redelivery, including options under our control and other than if a redelivery notice has been received, was 2.3 years on a TEU-weighted basis. The charter rate that we will achieve on the renewal of an expiring charter will be affected by market conditions at that time. As discussed further below, operational matters such as off-hire days for planned maintenance or for unexpected accidents and incidents also affect the actual amount of revenues we receive.
2 |
The container shipping industry is cyclical and subject to significant volatility. The industry suffered a cyclical downturn, as a result of the Global Financial Crisis in 2008 – 2009, through 2016 and many container shipping companies reported substantial losses. Financial performance subsequently improved; however, the industry remained under pressure due to oversupply of container ship capacity. Early 2020 saw a substantial downturn, triggered by the global COVID-19 pandemic, followed by a robust recovery for the industry - with a spike in earnings, and subsequently in asset values, commencing in late 2020 and continuing through the first half of 2022. However, the market currently faces macro uncertainty and negative sentiment - due to the conflict in Ukraine, and elevated inflation globally, among other things - which are placing downward pressure on consumer demand and containerized cargo volumes, causing charter market earnings and asset values to normalize. All charter payments have been received on a timely basis in 2022 and year-to-date 2023 and, as of June 30, 2023, receipt of charter hire was up to-date. If our existing charterers were to be unable to make charter payments to us, our results of operations and financial condition would be materially adversely affected. If our existing charters with our charterers were terminated and we were required to recharter at lower rates or if we were unable to find new charters due to market conditions, our results of operations and financial condition would be materially adversely affected.
Vessel Management
Under each of our time charters, we are responsible for the operation and technical management of each vessel, which includes crewing, provision of lubricating oils, maintaining the vessel, periodic drydocking and performing work required by regulations. The day-to-day crewing and technical management of our vessels are provided by our ship managers pursuant to the terms of ship management agreements.
As of the date of this report, all of our ship technical management agreements are with Technomar, a company of which our Executive Chairman is the Founder, Managing Director, and majority beneficial owner, for a daily management fee. The manager provides all day-to-day ship technical management, including crewing, purchasing stores, lubricating oils and spare parts, paying wages, pensions and insurance for the crew, and organizing other vessel operating necessities, including the arrangement and management of drydocking. Six vessels (“Third-Party Managed Vessels”), which were purchased by us in July 2021 were previously managed by another third-party ship manager with those management agreements terminating between May and July 2023.
We pay Technomar a daily management fee of Euro 750 from January 1, 2023, compared to Euro 715 for 2022, per vessel, payable in U.S. dollars, which, in addition to the technical ship management services noted above, includes administrative support services provided to the Global Ship Lease group, including accounting and financial reporting, treasury management services and legal services.
We paid $200,000 per annum per vessel for technical management services for the Third-Party Managed Vessels and $4,000 per month per vessel for crew services for these vessels.
In addition, each of our vessel-owning subsidiaries for the Third-Party Managed Vessels entered into a Supervision Agreement with Technomar, pursuant to which Technomar supervised the third-party manager. Technomar also undertook the provision of Technical, Drydock, Insurance, Freight and Claims Handling Services as well as accounting, administrative & support services. Pursuant to the Supervision Agreements, we paid a supervision fee of $157.50 per day (effective from January 1, 2023) per vessel ($150.00 prior to January 1, 2023). The Supervision Agreements terminated when the underlying management agreement terminated between May and July 2023.
Conchart Commercial Inc. provides commercial management services to us pursuant to commercial management agreements. Our Executive Chairman is the sole beneficial owner of Conchart. Under the commercial management agreements, Conchart, is responsible for (i) marketing of our vessels, (ii) seeking and negotiating employment of our vessels, (iii) advise us on market developments, developments of new rules and regulations, (iv) assisting in calculation of hires, freights, demurrage and/or dispatch monies and collection any sums related to the operation of vessels, (v) communicating with agents, and (vi) negotiating sale and purchase transactions.
We, as per commercial management agreements have agreed to pay to the commercial manager who shall be named broker in each memorandum of agreement (or equivalent agreement) providing for the sale of all vessels and purchase of some vessels, a commission of 1.00% based on the sale and purchase price for any sale and purchase of a vessel, which shall be payable upon request of the commercial manager.
Technomar and Conchart are related parties of ours.
See “Item 4. Information on the Company - B. Business Overview - Management of Our Fleet” in our Annual Report for a more detailed description of our ship management agreements.
3 |
Operating Fleet
The table below provides certain information about our fleet of 68 containerships as of June 30, 2023.
Vessel Name
|
Capacity in TEUs | Lightweight (tons) | Year Built | Charterer | Earliest Charter Expiry Date | Latest Charter Expiry Date(2) | Daily Charter Rate $ |
CMA CGM Thalassa | 11,040 | 38,577 | 2008 | CMA CGM | 4Q25 | 2Q26 | 47,200 |
ZIM Norfolk (ex UASC Al Khor) (1) | 9,115 | 31,764 | 2015 | ZIM | 2Q27 | 4Q27 | 65,000 |
Anthea Y (1) | 9,115 | 31,890 | 2015 | COSCO(3) | 3Q25 | 4Q25(3) | 38,000 (3) |
ZIM Xiamen (ex Maira XL)(1) | 9,115 | 31,820 | 2015 | ZIM | 3Q27 | 4Q27 | 65,000 |
MSC Tianjin | 8,603 | 34,325 | 2005 | MSC | 2Q24 | 3Q24 | 19,000 |
MSC Qingdao (4) | 8,603 | 34,609 | 2004 | MSC | 2Q24 | 2Q25 | 23,000 |
GSL Ningbo | 8,603 | 34,340 | 2004 | MSC | 3Q27 | 4Q27 (5) | 22,500 (5) |
tbr GSL Alexandra | 8,544 | 37,777 | 2004 | Confidential | 3Q25 | 3Q26 | Confidential (6) |
tbr GSL Sofia | 8,544 | 37,777 | 2003 | Confidential | 3Q25 | 3Q26 | Confidential (6) |
tbr GSL Effie | 8,544 | 37,777 | 2003 | Confidential | 3Q25 | 3Q26 | Confidential (6) |
GSL Lydia | 8,544 | 37,777 | 2003 | Confidential | 2Q25 | 4Q26 | Confidential (6) |
GSL Eleni | 7,847 | 29,261 | 2004 | Maersk | 3Q24 | 1Q25 (7) | 16,500 (7) |
GSL Kalliopi | 7,847 | 29,105 | 2004 | Maersk | 3Q24 | 4Q24 (7) | 18,900 (7) |
GSL Grania | 7,847 | 29,190 | 2004 | Maersk | 3Q24 | 1Q25 (7) | 17,750 (7) |
Mary (1) | 6,927 | 23,424 | 2013 | CMA CGM (8) | 4Q28 | 1Q31 (8) | 25,910 (8) |
Kristina (1) | 6,927 | 23,421 | 2013 | CMA CGM (8) | 3Q29 | 3Q31 (8) | 25,910 (8) |
Katherine (1) | 6,927 | 23,403 | 2013 | CMA CGM (8) | 1Q29 | 2Q31 (8) | 25,910 (8) |
Alexandra (1) | 6,927 | 23,348 | 2013 | CMA CGM (8) | 2Q29 | 3Q31 (8) | 25,910 (8) |
Alexis (1) | 6,882 | 23,919 | 2015 | CMA CGM (8) | 2Q29 | 3Q31 (8) | 25,910 (8) |
Olivia I (1) | 6,882 | 23,864 | 2015 | CMA CGM (8) | 2Q29 | 2Q31 (8) | 25,910 (8) |
GSL Christen | 6,840 | 27,954 | 2002 | Maersk | 3Q23 | 1Q24 | 35,000 |
GSL Nicoletta | 6,840 | 28,070 | 2002 | Maersk | 3Q24 | 1Q25 | 35,750 |
CMA CGM Berlioz | 6,621 | 26,776 | 2001 | CMA CGM | 4Q25 | 2Q26 | 37,750 |
Agios Dimitrios(4) | 6,572 | 24,931 | 2011 | MSC | 4Q23 | 3Q24 | 20,000 |
GSL Vinia | 6,080 | 23,737 | 2004 | Maersk | 3Q24 | 1Q25 | 13,250 |
GSL Christel Elisabeth | 6,080 | 23,745 | 2004 | Maersk | 2Q24 | 1Q25 | 13,250 |
GSL Dorothea | 5,992 | 24,243 | 2001 | Maersk | 3Q24 | 3Q26 | 18,600 (9) |
GSL Arcadia | 6,008 | 24,858 | 2000 | Maersk | 2Q24 | 1Q26 | 18,600 (9) |
GSL Violetta | 6,008 | 24,873 | 2000 | Maersk | 4Q24 | 4Q25 | 18,600 (9) |
GSL Maria | 6,008 | 24,414 | 2001 | Maersk | 4Q24 | 1Q27 | 18,600 (9) |
GSL MYNY | 6,008 | 24,873 | 2000 | Maersk | 3Q24 | 1Q26 | 18,600 (9) |
GSL Melita | 6,008 | 24,848 | 2001 | Maersk | 3Q24 | 3Q26 | 18,600 (9) |
GSL Tegea | 5,992 | 24,308 | 2001 | Maersk | 3Q24 | 3Q26 | 18,600 (9) |
Tasman | 5,936 | 25,010 | 2000 | Maersk | 4Q23 | 2Q24 | 20,000 |
ZIM Europe | 5,936 | 25,010 | 2000 | ZIM | 1Q24 | 2Q24 | 24,250 |
Ian H | 5,936 | 25,128 | 2000 | ZIM | 2Q24 | 4Q24 | 32,500 |
GSL Tripoli | 5,470 | 22,259 | 2009 | Maersk | 4Q24 | 4Q27 | 36,500 (10) |
GSL Kithira | 5,470 | 22,108 | 2009 | Maersk | 4Q24 | 1Q28 | 36,500 (10) |
GSL Tinos | 5,470 | 22,067 | 2010 | Maersk | 4Q24 | 4Q27 | 36,500 (10) |
GSL Syros | 5,470 | 22,098 | 2010 | Maersk | 4Q24 | 4Q27 | 36,500 (10) |
Dolphin II | 5,095 | 20,596 | 2007 | OOCL | 1Q25 | 3Q25 | 53,500 |
Orca I | 5,095 | 20,633 | 2006 | Maersk | 2Q24 | 4Q25 | 21,000 (11) |
CMA CGM Alcazar | 5,089 | 20,087 | 2007 | CMA CGM | 3Q26 | 1Q27 | 35,500 |
GSL Chateau d’If | 5,089 | 19,994 | 2007 | CMA CGM | 4Q26 | 1Q27 | 35,500 |
GSL Susan | 4,363 | 17,309 | 2008 | CMA CGM | 3Q27 | 1Q28 | Confidential (12) |
CMA CGM Jamaica | 4,298 | 17,272 | 2006 | CMA CGM | 1Q28 | 2Q28 | Confidential (12) |
CMA CGM Sambhar | 4,045 | 17,429 | 2006 | CMA CGM | 1Q28 | 2Q28 | Confidential (12) |
CMA CGM America | 4,045 | 17,428 | 2006 | CMA CGM | 1Q28 | 2Q28 | Confidential (12) |
GSL Rossi | 3,421 | 16,420 | 2012 | ZIM | 1Q26 | 3Q26 | 38,875 (13) |
GSL Alice | 3,421 | 16,543 | 2014 | CMA CGM | 2Q25 | 2Q25 | 20,500 (14) |
GSL Eleftheria | 3,404 | 16,642 | 2013 | Maersk | 3Q25 | 4Q25 | 37,975 |
GSL Melina | 3,404 | 16,703 | 2013 | Hapag-Lloyd | 2Q24 | 3Q24 | 21,000 |
GSL Valerie | 2,824 | 11,971 | 2005 | ZIM | 1Q25 | 3Q25 | 35,600 (15) |
Matson Molokai | 2,824 | 11,949 | 2007 | Matson | 2Q25 | 3Q25 | 36,500 |
GSL Lalo | 2,824 | 11,950 | 2006 | MSC | 1Q24 | 2Q24 | 17,500 |
GSL Mercer | 2,824 | 11,970 | 2007 | ONE | 4Q24 | 2Q25 | 35,750 |
Athena | 2,762 | 13,538 | 2003 | Hapag-Lloyd | 2Q24 | 2Q24 | 21,500 |
4 |
GSL Elizabeth | 2,741 | 11,507 | 2006 | ONE | 3Q23 | 3Q23 | 18,750 |
tbr GSL Chloe | 2,546 | 12,212 | 2012 | ONE | 4Q24 | 1Q25 | 33,000 |
GSL Maren | 2,546 | 12,243 | 2014 | Swire | 1Q24 | 2Q24 | 18,200(16) |
Maira | 2,506 | 11,453 | 2000 | Hapag-Lloyd | 3Q23 | 4Q23 | 17,750 |
Nikolas | 2,506 | 11,370 | 2000 | CMA CGM | 1Q24 | 1Q24 | 16,750 |
Newyorker | 2,506 | 11,463 | 2001 | CMA CGM | 1Q24 | 3Q24 | 20,700 |
Manet | 2,272 | 11,727 | 2001 | OOCL | 4Q24 | 2Q25 | 32,000 |
Keta | 2,207 | 11,731 | 2003 | CMA CGM | 1Q25 | 1Q25 | 25,000 |
Julie | 2,207 | 11,731 | 2002 | Footnote (17) | 2Q25 | 3Q25 | Footnote (17) |
Kumasi | 2,207 | 11,791 | 2002 | Wan Hai | 1Q25 | 2Q25 | 38,000 |
Akiteta | 2,207 | 11,731 | 2002 | OOCL | 4Q24 | 1Q25 | 32,000 |
(1) | Modern design, high reefer capacity, fuel-efficient vessel. |
(2) | In many instances charterers have the option to extend a charter beyond the nominal latest expiry date by the amount of time that the vessel was off hire during the course of that charter. This additional charter time (“Offhire Extension”) is computed at the end of the initially contracted charter period. The Latest Charter Expiry Dates shown in this table have been adjusted to reflect offhire accrued up to the date of issuance of this release plus estimated offhire scheduled to occur during the remaining lifetimes of the respective charters. However, as actual offhire can only be calculated at the end of each charter, in some cases actual Offhire Extensions – if invoked by charterers – may exceed the Latest Charter Expiry Dates indicated. |
(3) | Anthea Y was forward fixed to a leading liner operator for a period of 24 months +/- 30 days, with the new charter to commence upon expiry of the existing charter in 3Q or 4Q23. |
(4) | MSC Qingdao & Agios Dimitrios are fitted with Exhaust Gas Cleaning Systems (“scrubbers”). |
(5) | GSL Ningbo chartered to MSC at $22,500 per day to July 2023. Thereafter, the charter has been extended by 48 to 52 months, at $22,500 per day. |
(6) | Tbr GSL Alexandra, tbr GSL Sofia, tbr GSL Effie and GSL Lydia delivered in 2Q23. Contract cover for each vessel is for a minimum firm period 24 months from the date each vessel is delivered, with charterers holding one year extension options at confidential rates. |
(7) | GSL Eleni (delivered 2Q 2019) is chartered for five years; GSL Kalliopi (delivered 4Q 2019) and GSL Grania (delivered 3Q 2019) are chartered for three years plus two successive periods of one year each, at the option of the charterer. The first of these extension options was exercised for both vessels in 2Q 2022 and commenced for GSL Grania and for GSL Kalliopi in 3Q and in 4Q 2022, respectively. The second of these extension options was exercised for both vessels in 2Q 2023 and will commence for both vessels in 3Q23. During the option periods the charter rates for GSL Kalliopi and GSL Grania are $18,900 per day and $17,750 per day respectively. |
(8) | Mary, Kristina, Katherine, Alexandra, Alexis, Olivia I were forward fixed to Hapag-Lloyd for five years, followed by two periods of 12 months each at the option of the charterer. The new charters are scheduled to commence as each of the existing charters expire, on a staggered basis, between approximately late 2023 and late 2024, following the expiration of existing charters. |
(9) | GSL Maria, GSL Violetta, GSL Arcadia, GSL MYNY, GSL Melita, GSL Tegea and GSL Dorothea. Contract cover for each ship is for a firm period of at least three years from the date each vessel was delivered, with charterers holding a one-year extension option on each charter (at a rate of $12,900 per day), followed by a second option (at a rate of $12,700 per day) with the period determined by – and terminating prior to – each vessel’s 25th year drydocking & special survey. |
(10) | GSL Tripoli, GSL Kithira, GSL Tinos, and GSL Syros. Ultra-high reefer ships of 5,470 TEU each. Contract cover on each ship is for a firm period of three years, from their delivery dates in 2021, at a rate of $36,500 per day, with a period of an additional three years (at $17,250 per day) at charterers’ option. |
(11) | Orca I. Chartered at $21,000 per day through to the median expiry of the charter in 2Q2024; thereafter the charterer has the option to charter the vessel for a further 12-14 months at the same rate. |
(12) | GSL Susan, CMA CGM Jamaica, CMA CGM Sambhar and CMA CGM America. In July 2022, these four vessels were each forward fixed for five years +/- 45 days at confidential charter rates. The new charter for GSL Susan commenced in 4Q 2022, while the charters for the remaining three vessels commenced in late 1Q 2023. |
(13) | GSL Rossi. Chartered at an average rate of $38,875 per day-$42,750 for the first 18 months, $38,000 for the next 18 months and $35,000 for the remaining period. |
(14) | GSL Alice. Chartered at $20,500 per day for a period of 24 months +/- 30 days at the option of charterer. The new charter commenced in May 2023. |
(15) | GSL Valerie. Chartered at an average rate of $35,600 per day-$40,000 for the first 12 months, $36,000 for the next 12 months and $32,000 for the remaining period. |
(16) | GSL Maren. Charter extended to Westwood (Swire) for a period of 11 to 14 months, commenced at the end of 1Q 2023 at a rate of $17,200 per day for the first 2 months and for the remaining period at a rate of $18,200. |
(17) | Julie was forward fixed to a leading liner company for a period of 24 months +/- 30 days at the option of the charterer at confidential charter rate. The new charter commenced in 3Q 2023, after the vessel’s scheduled drydock. |
5 |
Recent and Other Developments
In May 2023, we contracted to purchase four 8,544 TEU vessels for an aggregate purchase price of $123.3 million. The vessels are chartered to a leading liner operator for a minimum firm period of 24 months, followed by a 12-month extension at the charterer’s option. The vessels were delivered in May and June 2023. In May 2023, we entered into a new credit facility for $76.0 million to partially finance the purchase price. The remaining purchase price was financed by cash on hand.
As of the date of this report all of our loan agreements (except for the sale and lease back agreement with Neptune) have been amended and restated to take into effect the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and the relevant provisions on a replacement rate. In addition, our interest rate caps have automatically transited to 1-month Compounded SOFR on July 1, 2023 at a level of 0.64%.
Share Buyback
During the six month period ended June 30, 2023, we repurchased 967,242 Class A common shares at an average price of $17.56 per share for a total of $17.0 million under the authorized program of $40.0 million for opportunistic share repurchases. Approximately $3.0 million of that program remains available. Subsequent to June 30, 2023, the Board of Directors authorized a further $40.0 million for such repurchases for a total of approximately $43.0 million of authorization capacity remaining.
Critical Accounting Policies
The interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates in the application of our accounting policies based on the best assumptions, judgments and opinions of management. Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. All significant accounting policies are as described in our Annual Report.
For a further description of our significant accounting policies, please see note 2 to the interim unaudited condensed consolidated financial statements included elsewhere in this report.
(a) | Use of estimates |
The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions and/or conditions.
(b) | Vessels in operation |
Vessels are generally recorded at their historical cost, which consists of the acquisition price and any material expenses incurred upon acquisition, adjusted for the fair value of intangible assets or liabilities associated with above or below market charters attached to the vessels at acquisition. Vessels acquired in a corporate transaction accounted for as an asset acquisition are stated at the acquisition price, which consists of consideration paid, plus transaction costs considering pro rata allocation based on vessels fair value at the acquisition date. Vessels acquired in a corporate transaction accounted for as a business combination are recorded at fair value.
Subsequent expenditures for major improvements and upgrades are capitalized, provided they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels.
Borrowing costs incurred during the construction of vessels or as part of the prefinancing of the acquisition of vessels are capitalized. There was no capitalized interest for the six months ended June 30, 2023 and June 30, 2022.
Vessels are stated less accumulated depreciation and impairment, if applicable. Vessels are depreciated to their estimated residual value using the straight-line method over their estimated useful lives which are reviewed on an ongoing basis to ensure they reflect current technology, service potential and vessel structure. The useful lives are estimated to be 30 years from original delivery by the shipyard.
Management estimates the residual values of our container vessels based on a scrap value cost of steel times the weight of the vessel noted in lightweight tons (LWT). Residual values are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revision of residual values affect the depreciable amount of the vessels and affects depreciation expense in the period of the revision and future periods. Management estimated the residual values of our vessels based on scrap rate of $400 per LWT.
6 |
For any vessel group which is impaired, the impairment charge is recorded against the cost of the vessel and the accumulated depreciation as at the date of impairment is removed from the accounts.
The cost and related accumulated depreciation of assets retired or sold are removed from the accounts at the time of sale or retirement and any gain or loss is included in the interim unaudited condensed Consolidated Statements of Income.
(c) | Impairment of Long-lived assets |
Tangible fixed assets, such as vessels, that are held and used or to be disposed of by us are reviewed for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. In these circumstances, we perform step one of the impairment test by comparing the undiscounted projected net operating cash flows for each vessel group to its carrying value. A vessel group comprises the vessel, the unamortized portion of deferred drydocking related to the vessel and the related carrying value of the intangible asset or liability (if any) with respect to the time charter attached to the vessel at its purchase. If the undiscounted projected net operating cash flows of the vessel group are less than its carrying amount, management proceeds to step two of the impairment assessment by comparing the vessel group’s carrying amount to its fair value, including any applicable charter, and an impairment loss is recorded equal to the difference between the vessel group’s carrying value and fair value. Fair value is determined with the assistance from valuations obtained from third party independent ship brokers.
We use a number of assumptions in projecting our undiscounted net operating cash flows analysis including, among others, (i) revenue assumptions for charter rates on expiry of existing charters, which are based on forecast charter rates, where relevant, in the four years from the date of the impairment test and a reversion to the historical mean of time charter rates for each vessel thereafter (ii) off-hire days, which are based on actual off-hire statistics for our fleet (iii) operating costs, based on current levels escalated over time based on long term trends (iv) dry docking frequency, duration and cost (v) estimated useful life, which is assessed as a total of 30 years from original delivery by the shipyard and (vi) scrap values.
Revenue assumptions are based on contracted charter rates up to the end of the existing contract of each vessel, and thereafter, estimated time charter rates for the remaining life of the vessel. The estimated time charter rate used for non-contracted revenue days of each vessel is considered a significant assumption. Recognizing that the container shipping industry is cyclical and subject to significant volatility based on factors beyond our control, management believes that using forecast charter rates in the four years from the date of the impairment assessment and a reversion to the historical mean of time charter rates thereafter, represents a reasonable benchmark for the estimated time charter rates for the non-contracted revenue days, and takes into account the volatility and cyclicality of the market.
During the six months ended June 30, 2023 and 2022, we evaluated the impact of current economic situation on the recoverability of all our vessel groups and have determined that there were no events or changes in circumstances which indicated that their carrying amounts may not be recoverable. Accordingly, there were no triggering events and no impairment test was performed for the six months ended June 30, 2023 and 2022.
(d) | Intangible assets and liabilities-charter agreements |
Our intangible assets and liabilities consist of unfavorable lease terms on charter agreements acquired in assets acquisitions. When intangible assets or liabilities associated with the acquisition of a vessel are identified, they are recorded at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where charter rates are higher than market charter rates, an intangible asset is recorded, based on the difference between the acquired charter rate and the market charter rate for an equivalent vessel and equivalent duration of charter party at the date the vessel is delivered. Where charter rates are less than market charter rates, an intangible liability is recorded, based on the difference between the acquired charter rate and the market charter rate for an equivalent vessel. The determination of the fair value of acquired assets and liabilities requires us to make significant assumptions and estimates of many variables including market charter rates (including duration), the level of utilization of its vessels and its weighted average cost-of capital. The estimated market charter rate (including duration) is considered a significant assumption. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on our financial position and results of operations. The amortizable value of favorable and unfavorable leases is amortized over the remaining life of the relevant lease term and the amortization expense or income respectively is included under the caption “Amortization of intangible liabilities -charter agreements” in the interim unaudited condensed Consolidated Statements of Income. For any vessel group which is impaired, the impairment charge is recorded against the cost of the vessel and the accumulated depreciation as at the date of impairment is removed from the accounts.
7 |
(e) | Revenue recognition and related expenses |
We charter out our vessels on time charters which involve placing a vessel at a charterer’s disposal for a specified period of time during which the charterer uses the vessel in return for the payment of a specified daily hire rate. Such charters are accounted for as operating leases and therefore revenue is recognized on a straight-line basis as the average revenues over the rental periods of such charter agreements, as service is performed. Cash received in excess of earned revenue is recorded as deferred revenue. If a time charter contains one or more consecutive option periods, then subject to the options being exercisable solely by us, the time charter revenue will be recognized on a straight-line basis over the total remaining life of the time charter, including any options which are more likely than not to be exercised. If a time charter is modified, including the agreement of a direct continuation at a different rate, the time charter revenue will be recognized on a straight-line basis over the total remaining life of the time charter from the date of modification. During the periods ended June 30, 2023, and 2022, an amount of $1,785 and $2,911, respectively, has been recorded in time charter-revenues for such modifications and revenues recognized on a straight-line basis. Any difference between the charter rate invoiced and the time charter revenue recognized is classified as, or released from, deferred revenue. As of June 30, 2023, current and non-current portion from implementing the straight-line basis, amounting to $7,535 ($6,487 as for December 31, 2022) and $21,824 ($21,144 as for December 31, 2022), respectively, are presented in the interim condensed unaudited Consolidated Balance Sheets in the line item “Prepaid expenses and other current assets” and “Other non-current assets”, respectively.
Revenues are recorded net of address commissions, which represent a discount provided directly to the charterer based on a fixed percentage of the agreed upon charter rate. Charter revenue received in advance which relates to the period after a balance sheet date is recorded as deferred revenue within current liabilities until the respective charter services are rendered.
Under time charter arrangements we, as owner, are responsible for all the operating expenses of the vessels, such as crew costs, insurance, repairs and maintenance, and such costs are expensed as incurred and are included in vessel operating expenses.
Commission paid to brokers to facilitate the agreement of a new charter are included in time charter and voyage expenses as are certain expenses related to a voyage, such as the costs of bunker fuel consumed when a vessel is off-hire or idle.
Leases: In cases of lease agreements where we act as the lessee, we recognize an operating lease asset and a corresponding lease liability on the interim unaudited condensed Consolidated Balance Sheets. Following initial recognition and with regards to subsequent measurement we remeasure lease liability and right of use asset at each reporting date.
Leases where we act as the lessor are classified as either operating or sales-type / direct financing leases.
In cases of lease agreements where we act as the lessor under an operating lease, we keep the underlying asset on the interim unaudited condensed Consolidated Balance Sheets and continue to depreciate the assets over their useful life. In cases of lease agreements where we act as the lessor under a sales-type / direct financing lease, we derecognize the underlying asset and record a net investment in the lease. We act as a lessor under operating leases in connection with all of our charter out – bareboat-out arrangements.
In cases of sale and leaseback transactions, if the transfer of the asset to the lessor does not qualify as a sale, then the transaction constitutes a failed sale and leaseback and is accounted for as a financial liability. For a sale to have occurred, the control of the asset would need to be transferred to the lessor, and the lessor would need to obtain substantially all the benefits from the use of the asset. We have entered into six agreements which qualify as failed sale and leaseback transactions as we are required to repurchase the vessels at the end of the lease term and we have accounted for the six agreements as financing transactions.
We elected the practical expedient which allows us to treat the lease and non-lease components as a single lease component for the leases where the timing and pattern of transfer for the non-lease component and the associated lease component to the lessees are the same and the lease component, if accounted for separately, would be classified as an operating lease. The combined component is therefore accounted for as an operating lease under ASC 842, as the lease components are the predominant characteristics.
8 |
(f) | Fair Value Measurement and Financial Instruments |
Financial instruments carried on the interim unaudited condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash, time deposits, trade receivables and payables, other receivables and other liabilities and long-term debt. The particular recognition methods applicable to each class of financial instrument are disclosed in the applicable significant policy description of each item or included below as applicable.
Fair value measurement: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
During the six months ended June 30, 2023, we evaluated the impact of current economic situation on the recoverability of all our vessel groups and have determined that there were no events or changes in circumstances which indicated that their carrying amounts may not be recoverable. Accordingly, there was no triggering event and no impairment test was performed for six months ending June 30, 2023.
Through the latter part of 2022, we noted that charter rates in the spot market had come under pressure and accordingly determined that events occurred, and circumstances had changed, which indicated that potential impairment of the Company’s long-lived assets could exist. These indicators included continued volatility in the spot market and the related impact of the current container sector on management’s expectation for future revenues. As a result, step one of the impairment assessments of each of the vessel groups was performed as at December 31, 2022 and step two of the impairment analysis was required for one vessel of the group, as its undiscounted projected net operating cash flows did not exceed its carrying value. As a result, we recorded an impairment loss of $3.0 million for one vessel asset group with a total aggregate carrying amount of $9.0 million which was written down to its fair value of $6.0 million.
In December 2021, we purchased interest rate caps with an aggregate notional amount of $484.1 million, which amortizes over time as our outstanding debt balances decline. In February 2022, we further hedged our exposure by putting in place two USD one-month LIBOR interest rate caps of 0.75% through fourth quarter 2026, on $507.9 million of our floating rate debt. The second interest rate cap was not designated as a cash flow hedge and therefore the positive fair value adjustment of $1,417 as at June 30, 2023 was recorded through interim unaudited condensed Consolidated Statements of Income ($2,084 positive fair value adjustment as at June 30, 2022). ASC 815-20-25-13a stipulates that an entity may designate either all or certain future interest payments on variable-rate debt as the hedged exposure in a cash flow hedge relationship. We are designating certain future interest payments on our outstanding variable-rate debt as the hedged item in this relationship. Under ASC 815-20-25-106e, “for cash flow hedges of the interest payments on only a portion of the principal amount of the interest-bearing asset or liability, the notional amount of the interest rate cap designated as the hedging instrument matches the principal amount of the portion of the asset or liability on which the hedged interest payments are based”. In this case, we have designated only a portion of our outstanding debt (initially, $253.9 million) as the hedged item, and any interest payments beyond the notional amount of the interest rate cap in any given period are not designated as being hedged.
We assess the effectiveness of the hedges on an ongoing basis. The amounts included in accumulated other comprehensive income (OCI) will be reclassified to interest expense should the hedge no longer be considered effective.
The objective of the hedges is to reduce the variability of cash flows associated with the interest rates relating to our variable rate borrowings. When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs). As of June 30, 2023, and December 31, 2022, the Company recorded a derivative asset of $56.9 million and $63.5 million, respectively.
9 |
Financial Risk Management: Our activities expose us to a variety of financial risks including fluctuations in, time charter rates, credit and interest rates risk. Risk management is carried out under policies approved by executive management. Guidelines are established for overall risk management, as well as specific areas of operations.
Credit risk: We closely monitor our credit exposure to customers, financial institutions and counter-parties for credit risk. We have entered into commercial management agreement with Conchart, pursuant to which Conchart has agreed to provide commercial management services to us, including the negotiation, on behalf of us, vessel employment contracts. Conchart has policies in place to ensure that it trades with customers and counterparties with an appropriate credit history.
Financial instruments that potentially subject us to concentrations of credit risk are accounts receivable cash and cash equivalents and time deposits. We do not believe our exposure to credit risk is likely to have a material adverse effect on our financial position, results of operations or cash flows.
Liquidity Risk: Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. We monitor cash balances appropriately to meet working capital needs.
Foreign Exchange Risk: Foreign currency transactions are translated into the measurement currency rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the interim unaudited condensed Consolidated Statements of Income.
(g) | Derivative instruments |
The Company is exposed to interest rate risk relating to its variable rate borrowings. In December 2021, the Company purchased an amortized interest rate cap with an aggregate notional amount of $484.1 million (“December 2021 hedging"), which amount reduces over time as the Company’s outstanding debt balances amortize. The objective of the hedges is to reduce the variability of cash flows associated with the interest relating to its variable rate borrowings.
At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objective and the strategy for undertaking various hedging transactions. The Company also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
This transaction is designated as a cash flow hedge, and under ASU 2017-12, cash flow hedge accounting allows all changes in fair value to be recorded through Other Comprehensive Income once hedge effectiveness has been established. Under ASC 815-30-35-38, amounts in accumulated other comprehensive income shall be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings (i.e., each quarter) and shall be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
The premium paid related to this derivative was classified in the interim unaudited condensed Consolidated Statements of Cash Flows as operating activities in the line item “Derivative asset”. The premium shall be amortized into earnings “on a systematic and rational basis over the period in which the hedged transaction affects earnings” (ASC 815-30-35-41A); that is, the Company will expense the premium over the life of the interest rate cap in accordance with the “caplet method,” as described in Derivatives Implementation Group (DIG) Issue G20. DIG Issue G20 dictates that the cost of the interest rate cap is recognized on earnings over time, based on the value of each periodic caplet. The cost per period will change as the caplet for that period changes in value. Given that the interest rate cap is forward-starting, expensing of the premium will not begin until the effective start date of the interest rate cap, in order to match potential cap revenue with the cap expenses in the period in which they are incurred.
In February 2022, the Company purchased two additional amortized interest rate caps with an aggregate notional amount of $507.9 million. The first interest rate cap of $253.9 million which has been designated as a cash flow hedge, has the same accounting treatment as described above for the December 2021 hedging. The second interest rate cap was not designated as a cash flow hedge and therefore the negative fair value adjustment of $1.4 million as at June 30, 2023 ($6.6 million positive fair value adjustment as at June 30, 2022) was recorded through our interim unaudited condensed Consolidated Statements of Income. ASC 815-20-25-13a stipulates that an entity may designate either all or certain future interest payments on variable-rate debt as the hedged exposure in a cash flow hedge relationship. In this case, we have designated only a portion of its outstanding debt (initially, $253.9 million) as the hedged item, and any interest payments beyond the notional amount of the interest rate cap in any given period are not designated as being hedged .
10 |
The amounts included in accumulated other comprehensive income (OCI) will be reclassified to interest expense should the hedge no longer be considered effective. As of June 30, 2023, and December 31, 2022, following a quantitative assessment, part of the hedge was no longer considered effective and an amount of $176 and $1,091 was reclassified from other comprehensive income (OCI) to the interim unaudited condensed Consolidated Statements of Income. No amount of ineffectiveness was included in net income for the six months period ended June 30, 2022. The Company will continue to assess the effectiveness of the hedge on an ongoing basis.
(h) | Recent accounting pronouncements |
We do not believe that any recently issued, but not yet effective, accounting pronouncements would have a material impact on our interim unaudited condensed consolidated financial statements.
Results of Operations
Financial Results for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
The following table presents interim unaudited condensed consolidated revenues and expenses for the six month periods ended June 30, 2023 and 2022. This information was derived from the interim unaudited condensed consolidated financial statements of operations of Global Ship Lease for the respective periods.
(Expressed in millions of U.S. dollars except share data)
Six months ended June 30, | ||||||
2023 | 2022 | |||||
OPERATING REVENUES | ||||||
Time charter revenues (include related party revenues of $nil and $66.9 million for each of the periods ended June 30, 2023 and 2022, respectively) |
|
316.3 | 284.7 | |||
Amortization of intangible liabilities-charter agreements (include related party amortization of intangible liabilities-charter agreements of $nil and $5.4 million for each of the periods ended June 30, 2023 and 2022, respectively) |
5.1 | 23.4 | ||||
Total Operating Revenues | 321.4 | 308.1 | ||||
OPERATING EXPENSES | ||||||
Vessel operating expenses (include related party vessel operating expenses of $8.9 million and $8.6 million for each of the periods ended June 30, 2023 and 2022, respectively) | 86.2 | 80.9 | ||||
Time charter and voyage expenses (include related party time charter and voyage expenses of $3.7 million and $3.0 million for each of the periods ended June 30, 2023 and 2022, respectively) |
12.1 | 9.5 | ||||
Depreciation and amortization | 43.4 | 40.1 | ||||
General and administrative expenses | 9.5 | 10.3 | ||||
Operating Income | 170.2 | 167.3 | ||||
NON-OPERATING INCOME/(EXPENSES) | ||||||
Interest income | 4.4 | 0.5 | ||||
Interest and other finance expenses (include acceleration of deferred financing costs of $0.1 million and prepayment fees, acceleration of deferred financing costs and premium of $19.1 million for each of the periods ended June 30, 2023 and 2022, respectively) |
(22.0) | (48.7) | ||||
Other income, net | 1.2 | 0.3 | ||||
Fair value adjustment on derivative asset | (1.4) | 6.6 | ||||
Total non-operating expenses | (17.8) | (41.3) | ||||
Income before income taxes | 152.4 | 126.0 | ||||
Income taxes | - | - | ||||
Net Income | 152.4 | 126.0 | ||||
Earnings allocated to Series B Preferred Shares | (4.8) | (4.8) | ||||
Net Income available to Common Shareholders | $ | 147.6 | $ | 121.2 |
11 |
Revenue and Utilization
Revenue from fixed-rate, mainly long-term, time-charters was $321.4 million in the six months ended June 30, 2023, up $13.3 million (or 4.3%) on revenue of $308.1 million for the prior year period. The increase in revenue is principally due to (i) a 0.1% increase in ownership days, due to the four vessels acquired after June 30, 2022, offset by one vessel sold, resulting in 11,773 ownership days in the six months ended June 30, 2023, compared to 11,765 days in the same period of 2022, and (ii) increased revenue on charter renewals at higher rates on a number of vessels, offset by (i) a $18.4 million credit from amortization of intangible liabilities arising on below-market charters attached to acquired vessels and (ii) by a net increase in offhire and idle days; there were 630 such days in the first half of 2023, of which 436 were for scheduled drydockings, compared to 575 days in the prior year period of which 309 were for scheduled drydockings. Utilization for the six months ended June 30, 2023 was 94.6% compared to utilization of 95.1% in the same period of the prior year.
The table below shows fleet utilization for the six month periods ended June 30, 2023 and 2022.
Six months ended | |||
June 30, | June 30, | ||
2023 | 2022 | ||
Days | |||
Ownership days | 11,773 | 11,765 | |
Planned offhire - scheduled dry-dock | (436) | (309) | |
Unplanned offhire | (174) | (236) | |
Idle time | (20) | (30) | |
Operating days | 11,143 | 11,190 | |
Utilization | 94.6% | 95.1% |
As of June 30, 2023, two drydockings were in progress. In 2023, we anticipate four further drydockings, including for three of the four recently purchased ships.
Vessel Operating Expenses
Vessel operating expenses, which are primarily the costs of crew, lubricating oil, repairs, maintenance, insurance and technical management fees, were up 6.6% to $86.2 million for the six months ended June 30, 2023, compared to $80.9 million in the comparative period. The increase of $5.3 million was mainly due to (i) high inflation impact on all categories, (ii) increase in repairs, spares and maintenance expenses for planned main engine maintenance and overhaul of diesel generators as well as main engine annual spares delivery, (iii) increased crew expenses as salaries were driven higher due to limited crew supply as a consequence of current container market conditions, worldwide inflation and higher crew travel expenses due to increased number of crew changes and higher airfare prices, (iv) increased cost of lubricant consumption due to higher average prices and (v) increase in management fees effected since January 1, 2023. The average cost per ownership day for the six months period ended June 30, 2023 was $7,319, compared to $6,875 for the prior year period, up $444 per day, or 6.5%.
Time Charter and Voyage Expenses
Time charter and voyage expenses comprise mainly commission paid to ship brokers, the cost of bunker fuel for owner’s account when a ship is off-hire or idle and miscellaneous owner’s costs associated with a ship’s voyage. For the six months ended June 30, 2023, time charter and voyage expenses were $12.1 million, or an average of $1,031 per day, compared to $9.5 million in the comparative period, or $804 per day, an increase of $227 per ownership day, or 28.2%. The increase was mainly due to increased commissions on charter renewals at higher rates, higher costs for bunker fuel for owner’s account due to increase in off hire days and additional voyage administration costs and additional operational requests from charterers.
Depreciation and Amortization
Depreciation for the six months ended June 30, 2023 was $43.4 million, compared to $40.1 million in the comparative period. The increase was mainly due to net addition of three vessels in 2023, and 14 drydockings completed after June 30, 2022.
12 |
General and Administrative Expenses
For the six months ended June 30, 2023, general and administrative expenses were $9.5 million, compared to $10.3 million in the comparative period. The decrease was mainly due to lower stock-based compensation expense in the first quarter of 2023 and a one-off expense that occurred in first quarter of 2022 due to social security charges related to vesting of shares under the Omnibus Incentive Plan. The average general and administrative expense per ownership day for the six months period ended June 30, 2023 was $807, compared to $875 in the comparative period, a decrease of $68 or 7.8%.
Interest Expense and Interest Income
Debt as at June 30, 2023 totaled $925.3 million, comprising $491.3 million of secured bank debt collateralized by vessels, $310.6 million of our 5.69% Senior Secured Notes due 2027 (the “2027 USPP Notes”) collateralized by vessels and $123.4 million under sale and leaseback financing transactions. As of June 30, 2023, five of our vessels were unencumbered.
Debt as at June 30, 2022 totaled $1,125.7 million, comprising $526.7 million of secured bank debt collateralized by vessels, $350.0 million of 2027 USPP Notes collateralized by vessels, $160.0 million under sale and leaseback financing transactions and $89.0 million of unsecured indebtedness on our 8.00% Senior Unsecured Notes (the “2024 Notes”) which were fully redeemed in July 2022. As of June 30, 2022, five of our vessels were unencumbered.
Interest and other finance expenses for the six months ended June 30, 2023 was $22.0 million, down from $48.7 million for the comparative period. The decrease is mainly due to (i) a prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of the Hayfin Credit Facility, (ii) the non-cash write off of deferred financing charges of $0.3 million on the full repayment of our Hellenic Credit Facility and (iii) $0.6 million premium paid on the redemption in April of $28.5 million of 2024 Notes and (iv) a prepayment fee and the associated non-cash write off of deferred financing charges of $4.1 million on the full repayment of our Blue Ocean Junior Credit Facility, all of which took place in the six months ended June 30 2022.
Interest income for the six months period ended June 30, 2023 was $4.4 million, compared to $0.5 million for the comparative period.
Other Income, Net
Other income, net was $1.2 million for the six month period ended June 30, 2023, compared to $0.3 million for the comparative period.
Fair value adjustment on derivatives
In December 2021, we entered into a USD 1 month LIBOR interest rate cap of 0.75% through fourth quarter 2026 on $484.1 million of floating rate debt, which reduces over time and represented approximately half of the outstanding floating rate debt. In February 2022, we entered into two additional USD 1-month LIBOR interest rate caps of 0.75% through fourth quarter 2026 on the remaining balance of $507.9 million of floating rate debt. The second interest rate cap was not designated as a cash flow hedge and therefore the negative fair value adjustment of $1.4 million for the six months ended June 30, 2023 was recorded through our interim unaudited condensed consolidated statements of income as compared to the positive fair value adjustment of $6.6 million for the six months ended June 30, 2022. These interest rate caps have automatically transited to 1-month Compounded SOFR on July 1, 2023 at a level of 0.64%.
Earnings Allocated to Preferred Shares
The Series B Preferred Shares, carry a coupon of 8.75%, the cost of which for the six months ended June 30, 2023 was $4.8 million the same as in the comparative period.
Net Income Available to Common Shareholders
Net income available to common shareholders for the six months ended June 30, 2023 was $147.6 million, after $1.4 million negative fair value adjustment on derivatives. Net income available to common shareholders for the six months ended June 30, 2022 was $121.2 million, after $6.6 million positive fair value adjustment on derivatives, a prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of our Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of our Hellenic Credit Facility, $0.6 million premium paid on the redemption in April 2022 of $28.5 million of 2024 Notes and a prepayment fee and the associated non-cash write off of deferred financing charges of $4.1 million on the full repayment of our Blue Ocean Junior Credit Facility.
Earnings per share for the six months ended June 30, 2023, was $4.15, an increase of 25.4% from the earnings per share for the comparative period, which was $3.31.
13 |
Liquidity and Capital Resources
Our net cash flow from operating activities derives from revenue received under our charter contracts, which varies directly with the number of vessels under charter, days on-hire and charter rates, less operating expenses including crew costs, lubricating oil costs, costs of repairs and maintenance, insurance premiums, general and administrative expenses, interest and other financing costs. In addition, each of our vessels is subject to a drydock approximately every five years. Eight drydockings were completed during the six months ended June 30, 2023 and two more drydockings were in progress as of June 30, 2023.
The main factor affecting our operating cash flow in a period is the timing of the receipt of charterhire, which is due to be paid two weeks or one month in advance and, other than from any asset sales and purchases, are the payments for costs of drydockings and vessel upgrades, the timing of the payment of interest, which is mainly quarterly and amortization of our debt.
Our credit facilities require that we maintain certain levels of minimum liquidities and on group basis we maintain $20.0 million minimum liquidity at each quarter. In addition, we intend to declare and make quarterly dividend payments amounting to approximately $2.4 million per quarter on our Series B Preferred Shares on a perpetual basis and in accordance with the Certificate of Designation governing the terms of our Series B Preferred Shares, based on the amount outstanding as of June 30, 2023. Finally, we may, in the discretion of our Board of Directors, declare and pay dividends on our common shares, subject to, among other things, any applicable restrictions contained in our current and future agreements governing our indebtedness, including our credit facilities, and available cash flow.
On May 10, 2023 we announced a dividend of $0.375 per Class A common share from the earnings of the first quarter 2023, paid on June 2, 2023 to common shareholders of record as of May 24, 2023, amounting to $13.3 million. On August 3, 2023, we announced a dividend of $0.375 per Class A common share from the earnings of the second quarter 2023 to be paid on September 4, 2023 to common shareholders of record as of August 23, 2023.
Other than costs for drydockings and compliance with environmental and decarbonization regulations, there are no other current material commitments for capital expenditures or other known and reasonably likely material cash requirements other than in respect of our growth strategy.
All our revenues are denominated in U.S. dollars and a portion of our expenses are denominated in currencies other than U.S. dollars. As of June 30, 2023, we had $259.0 million in cash and cash equivalents, including $161.9 million restricted cash and time deposits of $12.6 million and from free available cash $23.0 million are associated with credit facilities minimum liquidity covenants. Our cash and cash equivalents are mainly held in U.S. dollars, with relatively small amounts of UK pounds sterling and Euros. We regularly review the amount of cash and cash equivalents held in different jurisdictions to determine the amounts necessary to fund our operations and their growth initiatives and amounts needed to service our indebtedness and related obligations. If these amounts are moved out of their original jurisdictions, we may be subject to taxation.
Due to our charter coverage and nature of our operating and financial costs, our cashflows are predictable and visible, at least in the near to medium term. We have policies in place to control treasury activities within the group.
For example, all new credit facilities must be approved by our Board of Directors, and cash deposits can only be made with institutions meeting certain credit metrics and up to predetermined limits by institution.
Our floating rate debt is represented by drawings under a number of secured credit facilities. In December 2021, we hedged our exposure to a potential rising interest rate environment by putting in place a USD one-month LIBOR interest rate cap of 0.75% through fourth quarter 2026, on $484.1 million of our floating rate debt, which reduces over time and represents approximately half of the then outstanding floating rate debt. In February 2022, we entered into a further USD one-month LIBOR interest rate caps of 0.75% through fourth quarter 2026 on $507.9 million of remaining floating rate debt, which also reduces over time and represented approximately half of the outstanding floating rate. These interest rate caps have automatically transited to 1-month Compounded SOFR on July 1, 2023 at a level of 0.64%.
14 |
The following table presents cash flow information derived from the interim unaudited condensed consolidated statements of cash flows of Global Ship Lease for the six month periods ended June 30, 2023 and 2022.
Six months ended June 30, | |||||
2023 |
2022 | ||||
Cash flows from operating activities: | |||||
Net income | $ | 152.4 | $ | 125.9 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||||
Depreciation and amortization | $ | 43.4 | $ | 40.1 | |
Amounts reclassified from other comprehensive income | (0.2) | — | |||
Amortization of derivative asset’s premium | 1.9 | 0.1 | |||
Amortization of deferred financing costs | 2.8 | 6.1 | |||
Amortization of original issue premium on repurchase of notes | — | 0.3 | |||
Amortization of intangible liabilities-charter agreements | (5.0) | (23.4) | |||
Fair value adjustment on derivative asset | 1.4 | (6.6) | |||
Prepayment fees on debt repayment | — | 15.2 | |||
Stock-based compensation expense | 5.2 | 5.7 | |||
Changes in operating assets and liabilities: | |||||
Increase in accounts receivable and other assets | $ | (2.5) | $ | (6.2) | |
Increase in inventories | (1.2) | (0.5) | |||
Increase in derivative asset | — | (15.4) | |||
Decrease in accounts payable and other liabilities | (10.7) | (1.0) | |||
Decrease in related parties' balances, net | 0.8 | 2.2 | |||
Increase in deferred revenue | 12.2 | 0.6 | |||
Unrealized foreign exchange loss | – | – | |||
Net cash provided by operating activities | $ | 200.5 | $ | 143.1 | |
Cash flows from investing activities: | |||||
Acquisition of vessels | $ | (123.3) | $ | — | |
Cash paid for vessel expenditures | (4.5) | (3.2) | |||
Advances for vessel acquisitions and other additions | (5.9) | (2.3) | |||
Cash paid for drydockings | (18.3) | (15.3) | |||
Net proceeds from sale of vessel | 5.9 | — | |||
Time deposits (acquired)/withdrawal | (4.0) | 0.1 | |||
Net cash used in investing activities | $ | (150.1) | $ | (20.7) | |
Cash flows from financing activities: | |||||
Repurchase of 2024 Notes, including premium | $ | — | $ | (29.1) | |
Proceeds from drawdown of credit facilities | 76.0 | 60.0 | |||
Proceeds from 2027 USPP Notes | — | 350.0 | |||
Repayment of credit facilities/sale and leaseback | (100.3) | (79.9) | |||
Repayment of refinanced debt, including prepayment fees | — | (276.6) | |||
Deferred financing costs paid | (1.1) | (9.3) | |||
Cancellation of Class A common shares | (17.0) | (4.9) | |||
Class A common shares-dividend paid | (26.7) | (23.1) | |||
Series B preferred shares-dividends paid | (4.8) | (4.8) | |||
Net cash used in financing activities | $ | (73.9) | $ | (17.7) | |
Net (decrease)/increase in cash and cash equivalents and restricted cash | (23.5) | 104.7 | |||
Cash and cash equivalents and restricted cash at beginning of the period | 269.9 | 195.6 | |||
Cash and cash equivalents and restricted cash at end of the period | $ | 246.4 | $ | 300.3 | |
Supplementary Cash Flow Information: | |||||
Cash paid for interest | 33.3 | 25.3 | |||
Cash received from interest rate caps | 15.9 | 0.3 | |||
Non-cash investing activities: | |||||
Unpaid capitalized expenses | 12.0 | 8.2 | |||
Unpaid drydocking expenses | 16.2 | 7.4 | |||
Non-cash financing activities: | |||||
Unpaid deferred financing costs | — | 0.3 | |||
Unrealized (loss)/gain on derivative assets | (5.2) | 22.9 |
15 |
Net Cash provided by operating activities for the six months ended June 30, 2023 compared to the six months ended June 30, 2022
Net cash provided by operating activities was $200.5 million for the six months ended June 30, 2023 reflecting mainly net income of $152.4 million, adjusted for depreciation and amortization of $43.4 million, amortization of derivative asset’s premium of $1.9 million, amounts reclassified from other comprehensive income (OCI) of $0.2 million, amortization of deferred financing costs of $2.8 million, amortization of intangible liabilities of $5.0 million, fair value adjustment on derivative of $1.4 million, stock-based compensation expense of $5.2 million, plus increase in working capital, including deferred revenue, of $1.0 million.
Net cash provided by operating activities was $143.1 million for the six months ended June 30, 2022 reflecting mainly net income of $125.9 million, adjusted for depreciation and amortization of $40.1 million, amortization of derivative asset’s premium of $0.1 million, amortization of deferred financing costs and original issue premium on repurchase of notes of $6.4 million, amortization of intangible liabilities of $23.4 million, fair value adjustment on derivative of $6.6 million, stock-based compensation expense of $5.7 million, prepayment fees of $15.2 million plus decrease in working capital, including deferred revenue, of $20.3 million.
Cash used in investing activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022
Cash used in investing activities was $150.1 million for the six months ended June 30, 2023, as compared to $20.7 million for the same period in 2022. Cash used in investing activities for the six months ended June 30, 2023 was the result of (i) $123.3 million for the acquisition of four vessels, (ii) $10.4 million for improvements on all vessels, (iii) $18.3 million for regulatory drydockings, (iv) $5.9 million net proceeds from sale of one vessel and (v) $4.0 million time deposits placed. The principal reason for the decrease is additional investment in new vessels, additional spending on vessel improvements and additional time deposits placed.
Cash used in investing activities was $20.7 million for the six months ended June 30, 2022. Cash used in investing activities for the six months ended June 30, 2022 was the result of (i) $5.5 million for improvements on all vessels, (ii) $15.3 million for regulatory drydockings and (iii) $0.1 million time deposit withdrawal.
Cash used in financing activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022
Cash used in financing activities was $73.9 million for the six months period ended June 30, 2023. Cash used in financing activities for the six months ended June 30, 2023 was the result of (i) $100.3 million amortization of debt, (ii) $1.1 million costs incurred in connection with a new credit facility, (iii) $4.8 million and $26.7 million in dividends related to the Series B Preferred Shares and Class A common shares, respectively, (iv) $17.0 million for the repurchase of Class A common shares and (v) $76.0 million from drawdown under a new credit facility.
Cash used in financing activities was $17.7 million for the six months ended June 30, 2022. Cash used in financing activities for the six months ended June 30, 2022 was the result of (i) $356.5 million amortization of debt including prepayment fees; (ii) $9.3 million costs incurred in connection with new credit facilities; (iii) $29.1 million of repurchases of our 2024 Notes, including premium; (iv) $4.8 million and $23.1 million in dividends related to the Series B Preferred Shares and Class A common shares, respectively; (v) $4.9 million for the repurchase of Class A common shares; and (vi) $410.0 million from drawdowns under new credit facilities and 2027 USPP Notes (a) for the refinancing of our Hayfin Credit Facility using a portion of the net proceeds of our 2027 USPP Notes for the full prepayment of the remaining outstanding balance of $197.6 plus a prepayment fee of $11.3 million; and (b) for the full prepayment on June, 24, 2022, of our Hellenic Bank Credit Facility using a portion of the net proceeds from the 2027 USPP Notes.
In July 2022 we fully redeemed the remaining outstanding 2024 Notes of $89.0 million aggregate principal amount at a price of 102.00% of the principal amount plus accrued and unpaid interest.
16 |
Indebtedness
Our indebtedness as of June 30, 2023 comprised:
Lender | 30/6/2023 | Collateral vessels | Interest Rate | Final maturity date | |||
Chailease Credit Facility | 3.0 | Maira, Nikolas, Newyorker | LIBOR plus 4.2% | March 31, 2025 | |||
Syndicated Senior Secured Credit Facility (CACIB, ABN, First-Citizens & Trust Company, Siemens, CTBC, Bank Sinopac, Palatine) | 165.2 | Dolphin II, Athena, Kristina, Katherine, Agios Dimitrios, Alexandra, Alexis, Olivia I, Orca, Mary | SOFR plus 3.0% plus Credit Adjustment Spread (“CAS”) of 0.21% | December 24, 2026 | |||
E.SUN, MICB, Cathay, Taishin Credit Facility | 37.5 | Dolphin II, Athena, Orca | LIBOR plus 2.75% | July 13, 2026 | |||
CACIB, CTBC, Sinopac Facility | 41.5 | ZIM Xiamen (ex Maira XL) | LIBOR plus 2.75% | April 14, 2026 | |||
Deutsche Credit Facility | 42.4 | ZIM Norfolk (ex UASC Al Khor) | LIBOR plus 3.25% | April 30, 2026 | |||
HCOB Credit Facility | 32.8 | GSL Arcadia, GSL Maria, GSL Dorothea, GSL Tegea, GSL Melita, GSL MYNY | LIBOR plus 3.5% | April-July, 2025 | |||
2027 USPP Notes | 310.6 | 20 vessels | Interpolated interest rate of 2.84% plus margin of 2.85% | July 15, 2027 | |||
Sinopac Credit Facility | 9.1 | GSL Valerie | LIBOR plus 3.25% | September 2, 2026 | |||
Finance Lease with CMBFL | 37.8 | Anthea Y | LIBOR plus 3.25% | May 27, 2028 | |||
Finance Lease with Neptune | 8.4 | GSL Violetta | LIBOR plus 4.64% | February 13, 2026 | |||
Finance Lease with CMBFL | 77.1 | GSL Tripoli, GSL Syros, GSL Tinos, GSL Kithira | LIBOR plus 3.25% | September, 2027 | |||
HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility | 83.9 | Borealis vessels | LIBOR plus 3.25% | July, 2026 | |||
Macquarie Credit Facility | 76.0 | tbr GSL Sofia, tbr GSL Effie, tbr GSL Alexandra, GSL Lydia | SOFR plus 3.5% | May, 2026 | |||
925.3 |
Credit Facilities and other Financing Arrangements
As of the date of this report all of our loan agreements (except for the sale and lease back agreement with Neptune) have been amended and restated to take into effect the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and the relevant provisions on a replacement rate. In addition, our interest rate caps have automatically transited to 1-month Compounded SOFR on July 1, 2023 at a level of 0.64%.
Macquarie Credit Facility
On May 18, 2023, we via our subsidiaries Global Ship Lease 72 LLC, Global Ship Lease 73 LLC, Global Ship Lease 74 LLC and Global Ship Lease 75 LLC entered into a new credit facility agreement with Macquarie Bank Limited (“Macquarie”) for an amount of $76.0 million to finance part of the acquisition cost of the four 8,544 TEU vessels for an aggregate purchase price of $123.3 million. The vessels were delivered during the second quarter of 2023.
All four tranches were drawdown in the second quarter of 2023 and the credit facility has a maturity in May 2026.
The facility is repayable in two equal consecutive quarterly instalments of $5.0 million, six equal consecutive quarterly instalments of $6.0 million and one quarterly instalment of $3.0 million and two equal consecutive quarterly instalments of $1.0 million with a final balloon of $25.0 million payable three years after the first utilisation date.
This facility’s interest rate is SOFR plus a margin of 3.50% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $76.0 million.
17 |
5.69% Senior Secured Notes due 2027
On June 16, 2022, Knausen Holding LLC (the "Issuer"), an indirect wholly-owned subsidiary of us, closed on the private placement of $350.0 million of privately rated/investment grade 5.69% Senior Secured Notes due 2027 (the “2027 Secured Notes”) to a limited number of accredited investors. The fixed interest rate was determined on June 1, 2022, based on the interpolated interest rate of 2.84% plus a margin 2.85%.
We used the net proceeds from the private placement for the repayment of the remaining outstanding balances on our New Hayfin Credit Facility and the Hellenic Bank Credit Facility (releasing five unencumbered vessels), and our 2024 Notes. The remaining amount of net proceeds were allocated for general corporate purposes.
An amount equal to 15% per annum of the original principal balance of each Note shall be paid in equal quarterly installments on the 15th day of each of January, April, July, and October starting October 15, 2022, and the remaining unpaid principal balance shall be due and payable on the maturity date of July 15, 2027. Interest accrues on the unpaid balance of the Notes, payable quarterly on the 15th day of January, April, July, and October in each year, such interest commencing and accruing on and from June 14, 2022.
The 2027 Secured Notes are senior obligations of the Issuer, secured by first priority mortgages on 20 identified vessels owned by subsidiaries of the Issuer (the “Subsidiary Guarantors”) and certain other associated assets and contract rights, as well as share pledges over the Subsidiary Guarantors. In addition, the 2027 Secured Notes are fully and unconditionally guaranteed by us.
As of June 30, 2023, the outstanding balance of this facility was $310.6 million.
$60.0 Million E.SUN, MICB, Cathay, Taishin Credit Facility
On December 30, 2021, we, via our subsidiaries Zeus One Marine LLC, Hephaestus Marine LLC and Pericles Marine LLC, entered into a new syndicated senior secured debt facility with E.SUN Commercial Bank Ltd (“E.SUN”), Cathay United Bank (“Cathay”), Mega International Commercial Bank Co. Ltd (“MICB”) and Taishin International Bank (“Taishin”). We, using a portion of the net proceeds from this credit facility fully prepaid the outstanding amount of the Blue Ocean Junior Credit facility, amounting to $26.2 million plus a prepayment fee of $4.0 million. All three tranches were drawn down in January 2022.
The facility is repayable in eight equal consecutive quarterly instalments of $4.5 million and ten equal consecutive quarterly instalments of $2.4 million.
This facility bears interest at LIBOR plus a margin of 2.75% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $37.5 million.
$12.0 Million Sinopac Capital International Credit Facility
On August 27, 2021, we, via our subsidiary Global Ship Lease 42 LLC entered into a secured credit facility for an amount of $12.0 million with Sinopac Capital International (HK) Limited (“Sinopac Credit Facility”), partially used to fully refinance the Hayfin Credit Facility. The full amount was drawn down in September 2021 and the credit facility has a maturity in September 2026.
The facility is repayable in 20 equal consecutive quarterly instalments of $0.4 million with a final balloon of $3.6 million payable together with the final instalment.
This facility bears interest at LIBOR plus a margin of 3.25% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $9.1 million.
$140.0 Million HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility
On July 6, 2021, we entered into a facility with Credit Agricole Corporate and Investment Bank (“CACIB”), Hamburg Commercial Bank AG (“HCOB”), E.Sun Commercial Bank, Ltd (“ESUN”), CTBC Bank Co. Ltd. (“CTBC”) and Taishin International Bank (“Taishin”) for a total of $140.0 million to finance the acquisition of the Twelve Vessels. The full amount was drawdown in July 2021 and the credit facility has a maturity in July 2026.
The facility is repayable in six equal consecutive quarterly instalments of $8.0 million, eight equal consecutive quarterly instalments of $5.4 million and six equal consecutive quarterly instalments of $2.2 million with a final balloon of $35.6 million payable together with the final instalment. On March 23, 2023, due to the sale of GSL Amstel, we additionally repaid $2.8 million out of which $1.0 million deducted from the balloon instalment, and the vessel was released as collateral under the Company’s $140.0 million HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility.
18 |
This facility bears interest at LIBOR plus a margin of 3.25% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $83.9 million.
$51.7 Million Deutsche Bank AG Credit Facility
On May 6, 2021, we, via our subsidiary Laertis Marine LLC, entered into a secured facility for an amount of $51.7 million with Deutsche Bank AG in order to refinance one of the three previous tranches of the $180.5 million Deutsche, CIT, HCOB, Entrust, Blue Ocean Credit Facility, that had a maturity date on June 30, 2022, of an amount $48.5 million.
The facility is repayable in 20 equal consecutive quarterly instalments of $1.2 million with a final balloon of $28.4 million payable together with the final instalment.
This facility bears interest at LIBOR plus a margin of 3.25% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $42.4 million.
$64.2 Million Hamburg Commercial Bank AG Credit Facility
On April 15, 2021, we entered into a Senior Secured term loan facility with Hamburg Commercial Bank AG (the “HCOB Credit Facility”) for an amount of up to $64.2 million in order to finance the acquisition of six out of the Seven Vessels.
Tranche A, E and F amounting to $32.1 million were drawn down in April 2021 and have a maturity date in April 2025, Tranche B and D amounting to $21.4 million were drawn down in May 2021 and have a maturity date in May 2025, and Tranche C amounting to $10.7 million was drawn down in July 2021 and has a maturity date in July 2025.
Each Tranche of the facility is repayable in 16 equal consecutive quarterly instalments of $0.7 million.
This facility bears interest at LIBOR plus a margin of 3.50% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $32.8 million.
$51.7 Million CACIB, Bank Sinopac, CTBC Credit Facility
On April 13, 2021, we, via our subsidiary Penelope Marine LLC entered into a secured facility for an amount of $51.7 million in order to refinance one of the three previous tranches of the $180.5 million Deutsche, CIT, HCOB, Entrust, Blue Ocean Credit Facility, that had a maturity date on June 30, 2022, of an amount $48.6 million. The secured credit facility has a maturity in April 2026.
The lenders are Credit Agricole Corporate and Investment Bank (“CACIB”), Bank Sinopac Co. Ltd. (“Bank Sinopac”) and CTBC Bank Co. Ltd. (“CTBC”).
The facility is repayable in 20 equal consecutive quarterly instalments of $1.3 million with a final balloon of $26.2 million payable together with the final instalment.
This facility bears interest at LIBOR plus a margin of 2.75% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this facility was $41.5 million.
$9.0 Million Chailease Credit Facility
On February 26, 2020, we, via our subsidiaries, Athena Marine LLC, Aphrodite Marine LLC and Aris Marine LLC, entered into a secured term facility agreement with Chailease International Financial Services Pte., Ltd. for an amount of $9.0 million. The Chailease Bank Facility was used for the refinance of DVB Credit Facility.
The facility is repayable in 36 consecutive monthly instalments $0.2 million and 24 monthly instalments of $0.1 million with a final balloon of $1.3 million payable together with the final instalment.
This facility bears interest at LIBOR plus a margin of 4.20% per annum.
As of June 30, 2023, the outstanding balance of this facility was $3.0 million.
19 |
$268.0 Million Syndicated Senior Secured Credit Facility (CACIB, ABN, First-Citizens & Trust Company, Siemens, CTBC, Bank Sinopac, Palatine)
On September 19, 2019, we entered into a Syndicated Senior Secured Credit Facility in order to refinance existing credit facilities that had a maturity date in December 2020, of an amount $224.3 million.
The Senior Syndicated Secured Credit Facility was agreed to be borrowed in two tranches. The Lenders are Credit Agricole Corporate and Investment Bank (“CACIB”), ABN Amro Bank N.V. (“ABN”), First-Citizens & Trust Company, Siemens Financial Services, Inc (“Siemens”), CTBC Bank Co. Ltd. (“CTBC”), Bank Sinopac Ltd. (“Bank Sinopac”) and Banque Palatine (“Palatine”).
Tranche A amounting to $230.0 million was drawn down in full on September 24, 2019 and is scheduled to be repaid in 20 consecutive quarterly instalments of $5.2 million starting from December 12, 2019 and a balloon payment of $126.0 million payable on September 24, 2024.
Tranche B amounts to $38.0 million was drawn down in full on February 10, 2020 and is scheduled to be repaid in 20 consecutive quarterly instalments of $1.0 million and a balloon payment of $18.0 million payable in the termination date on the fifth anniversary from the utilization date of Tranche A, which falls in September 24, 2024. In January 2022, we agreed a new senior secured debt facility to refinance its outstanding Syndicated Senior Secured Credit Facility, which extended the maturity date from September 2024 to December 2026, amended certain covenants in our favor at an unchanged rate of LIBOR + 3.00%. On July 1, 2022, the interest rate is SOFR plus a margin of 3.00% plus Credit Adjustment Spread (“CAS”) and is payable at each quarter end date.
As of June 30, 2023, the outstanding balance of this facility was $165.2 million.
$120.0 Million Sale and Leaseback agreements – CMBFL Four Vessels
On August 26, 2021, we, via our subsidiaries Global Ship Lease 68 LLC, Global Ship Lease 69 LLC, Global Ship Lease 70 LLC and Global Ship Lease 71 LLC, entered into four $30.0 million sale and leaseback agreements with CMB Financial Leasing Co. Ltd. (“CMBFL”) to finance the acquisition of the Four Vessels. As at September 30, 2021, we had drawdown a total of $90.0 million. The drawdown for the fourth vessel, amounting to $30.0 million, took place on October 13, 2021 together with the delivery of this vessel. We have a purchase obligation to acquire the Four Vessels at the end of their lease terms and under ASC 842-40, the transaction has been accounted for as a failed sale. In accordance with ASC 842-40, we did not derecognize the respective vessels from its balance sheet and accounted for the amounts received under the sale and leaseback agreement as financial liabilities.
Each sale and leaseback agreement is repayable in 12 equal consecutive quarterly instalments of $1.6 million and 12 equal consecutive quarterly instalments of $0.3 million with a repurchase obligation of $7.0 million on the final repayment date.
The sale and leaseback agreements for the three vessels mature in September 2027 and for the fourth vessel in October 2027 and bear interest at LIBOR plus a margin of 3.25% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of these sale and lease back agreements was $77.1 million.
$54.0 Million Sale and Leaseback agreement – CMBFL
On May 20, 2021, we, via our subsidiary Telemachus Marine LLC entered into a $54.0 million, sale and leaseback agreement with CMB Financial Leasing Co. Ltd. (“CMBFL”) to refinance one of the three previous tranches of the $180.5 million Deutsche, CIT, HCOB, Entrust, Blue Ocean Credit Facility, that had a maturity date on June 30, 2022, of an amount $46.6 million. We have a purchase obligation to acquire the vessel at the end of the lease term and under ASC 842-40, the transaction has been accounted for as a failed sale. In accordance with ASC 842-40, we did not derecognize the respective vessel from its balance sheet and accounted for the amount received under the sale and leaseback agreement as a financial liability.
The sale and leaseback agreement will be repayable in eight equal consecutive quarterly instalments of $2.0 million each and 20 equal consecutive quarterly instalments of $0.9 million with a repurchase obligation of $19.98 million on the final repayment date.
The sale and leaseback agreement matures in May 2028 and bears interest at LIBOR plus a margin of 3.25% per annum payable quarterly in arrears.
20 |
In May 2021, on the actual delivery date of the vessel, we drew $54.0 million, which represented vessel purchase price $75.0 million less advanced hire of $21.0 million, which advanced hire neither bore any interest nor was refundable and was set off against payment of the purchase price payable to us by the unrelated third party under this agreement.
As of June 30, 2023, the outstanding balance of this sale and leaseback agreement was $37.8 million.
$14.7 Million Sale and Leaseback agreement – Neptune Maritime Leasing
On May 12, 2021, we, via our subsidiary GSL Violetta LLC entered into a $14.7 million sale and leaseback agreement with Neptune Maritime Leasing (“Neptune”) to finance the acquisition of GSL Violetta delivered in April 2021.We have a purchase obligation to acquire the vessel at the end of the lease term and under ASC 842-40, the transaction has been accounted for as a failed sale. In accordance with ASC 842-40, we did not derecognize the respective vessel from our balance sheet and accounted for the amount received under the sale and leaseback agreement as a financial liability. In May 2021, we drew $14.7 million under this agreement.
The sale and leaseback agreement will be repayable in 15 equal consecutive quarterly instalments of $0.8 million each and four equal consecutive quarterly instalments of $0.5 million with a repurchase obligation of $1.0 million on the last repayment date.
The sale and leaseback agreement matures in February 2026 and bears interest at LIBOR plus a margin of 4.64% per annum payable quarterly in arrears.
As of June 30, 2023, the outstanding balance of this sale and leaseback agreement was $8.4 million.
Covenants and Security
The agreements governing our indebtedness contain certain financial covenants, which require us to maintain, among other things:
· | minimum liquidity at the borrower (vessel-owned or finance lessor) level and minimum liquidity of at least $20.0 million at the group level; and |
· | minimum market value of collateral vessels for each credit facility or vessels under each financing obligation, as applicable, such that the aggregate market value of such vessels related to each such agreement is between 120% and 143%, depending on the particular credit facility or financing obligation, of the aggregate principal amount outstanding under such debt agreement, or, if we do not meet such threshold, to provide additional security to eliminate the shortfall. |
The agreements governing our indebtedness also contain undertakings limiting or restricting us from, among other things:
· | incurring additional indebtedness or issuing certain preferred stock; |
· | making any substantial change to the general nature of our business; |
· | paying dividends; |
· | redeeming or repurchasing capital stock; |
· | selling the collateral vessel, if applicable; |
· | entering into certain transactions other than arm’s length transactions; |
· | acquiring a company, shares or securities or a business or undertaking; |
· | effecting a change of control of us, entering into any amalgamation, demerger, merger, consolidation or corporate reconstruction, or selling all or substantially all of our properties or assets; |
· | experiencing any change in the position of Executive Chairman; and |
· | changing the flag, class or technical or commercial management of the vessel mortgaged under such facility or terminating or materially amending the management agreement relating to such vessel. |
Our secured credit facilities and 2027 USPP Notes are generally secured by, among other things:
· | a first priority mortgage over the relevant collateralized vessels; |
· | first priority assignment of earnings and insurances from the mortgaged vessels; |
· | pledge of the earnings account of the mortgaged vessel; |
· | pledge of the equity interest of each of the vessel-owning subsidiaries; and |
· | corporate guarantees. |
As at June 30, 2023 we were in compliance with all of the financial covenants in the agreements governing our indebtedness.
21 |
Debt repaid in 2023
On March 23, 2023, due to the sale of GSL Amstel, we additionally repaid $2.8 million out of which $1.0 million deducted from the balloon instalment, and the vessel was released as collateral under our $140.0 Million HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility.
Leverage
Debt as at June 30, 2023 totaled $925.3 million, comprising $491.3 million of secured bank debt collateralized by vessels, $310.6 million of 2027 USPP Notes collateralized by vessels and $123.4 million under sale and leaseback financing transactions. As of June 30, 2023, five of our vessels were unencumbered.
We believe that funds generated by the business and retained will be sufficient to meet our operating needs for the next twelve months, including working capital requirements, drydocking costs, interest and debt repayment obligations.
As market conditions warrant, we may from time to time, depending upon market conditions and the provisions on our facilities/notes, seek to opportunistically prepay our outstanding indebtedness.
Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our floating-rate borrowings. Significant increases in interest rates could adversely affect our results of operations and our ability to service our own debt.
Interest rate risk mainly will apply to any future debt facility on floating rate since as of June 30, 2023 all of our outstanding loan balances on floating interest rates are hedged.
Sensitivity Analysis
Our analysis of the potential effects of variations in market interest rates is based on a sensitivity analysis, which models the effects of potential market interest rate changes on our financial condition and results of operations. The following sensitivity analysis may have limited use as a benchmark and should not be viewed as a forecast as it does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.
Currently we are fully hedged on our floating rate debt of $614.7 million.
Foreign Currency Exchange Risk
The shipping industry’s functional currency is the U.S. dollar. All of our revenues and the majority of our operating costs are in U.S. dollars. In the future, we do not expect to be exposed to any significant extent to the impact of changes in foreign currency exchange rates. Consequently, we do not presently intend to enter into derivative instruments to hedge the foreign currency translation of assets or liabilities or foreign currency transactions or to use financial instruments for trading or other speculative purposes.
Inflation
Historically, with the exception of rising costs associated with the employment of international crews for our ships and the impact of global oil prices on the cost of lubricating oil, we had not experienced a significant impact on ship operating expenses, drydocking expenses and general and administrative expenses. Currently, due to the conflict in Ukraine and the new macroeconomic environment, among other factors, there is inflationary pressure which may, in turn, increase certain of our other operating expenses, such as the cost of spares and supplies, transportation costs and other expenses, in addition to drydocking expenses and general and administrative expenses.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
22 |
GLOBAL SHIP LEASE, INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JUNE 30, 2023
GLOBAL SHIP LEASE, INC.
Global Ship Lease, Inc.
Interim Unaudited Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
As of | ||||||||
Note | June 30, 2023 |
December 31, 2022 | ||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Time deposits | ||||||||
Restricted cash | ||||||||
Accounts receivable, net | ||||||||
Inventories | ||||||||
Prepaid expenses and other current assets | ||||||||
Derivative asset | 5 | |||||||
Due from related parties | 7 | |||||||
Total current assets | $ | $ | ||||||
NON - CURRENT ASSETS | ||||||||
Vessels in operation | 3 | $ | $ | |||||
Advances for vessels acquisitions and other additions | 3 | |||||||
Deferred charges, net | ||||||||
Other non-current assets | 2g | |||||||
Derivative asset, net of current portion | 5 | |||||||
Restricted cash, net of current portion | ||||||||
Total non - current assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Current portion of long - term debt | 6 | |||||||
Current portion of deferred revenue | ||||||||
Due to related parties | 7 | |||||||
Total current liabilities | $ | $ | ||||||
LONG - TERM LIABILITIES | ||||||||
Long - term debt, net of current portion and deferred financing costs | 6 | $ | $ | |||||
Intangible liabilities - charter agreements | 4 | |||||||
Deferred revenue, net of current portion | ||||||||
Total non - current liabilities | ||||||||
Total liabilities | $ | $ | ||||||
Commitments and Contingencies | 8 | |||||||
SHAREHOLDERS' EQUITY | ||||||||
Class A common shares - authorized shares with a $par value shares issued and outstanding (2022 - shares) |
9 | $ | $ | |||||
Series B Preferred Shares - authorized shares with a $ par value shares issued and outstanding (2022 - shares) |
9 | |||||||
Additional paid in capital | ||||||||
Retained Earnings | ||||||||
Accumulated other comprehensive income | ||||||||
Total shareholders' equity | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | $ |
See accompanying notes to interim unaudited condensed consolidated financial statements
F-1 |
Global Ship Lease, Inc.
Interim Unaudited Condensed Consolidated Statements of Income
(Expressed in thousands of U.S. dollars except share and per share data)
Six months ended June 30, | ||||||
Note |
2023 | 2022 | ||||
OPERATING REVENUES | ||||||
Time charter
revenues (include related party revenues of $nil
and $ |
$ | $ | ||||
Amortization of
intangible liabilities-charter agreements (includes related party amortization of intangible liabilities-charter agreements of
$nil
and $ |
4 |
|||||
Total Operating Revenues | ||||||
OPERATING EXPENSES | ||||||
Vessel operating expenses (include related party vessel operating expenses of $ of the periods ended June 30, 2023 and 2022, respectively) |
7 |
|||||
Time charter and voyage expenses (include related party time charter and voyage expenses of $ |
7 |
|||||
Depreciation and amortization | 3 | |||||
General and administrative expenses | ||||||
Operating Income | ||||||
NON-OPERATING INCOME/(EXPENSES) | ||||||
Interest income | ||||||
Interest
and other finance expenses (include acceleration of deferred financing costs of $ deferred
financing costs and premium of $ |
( |
( | ||||
Other income, net | ||||||
Fair value adjustment on derivative asset | 5 | ( |
||||
Total non-operating expenses | ( |
( | ||||
Income before income taxes | ||||||
Income taxes | ( |
|||||
Net Income | $ | $ | ||||
Earnings allocated to Series B Preferred Shares | 9 | ( |
( | |||
Net Income available to Common Shareholders | $ | $ | ||||
Earnings per Share | ||||||
Weighted average number of Class A common shares outstanding | ||||||
Basic | 11 | |||||
Diluted | 11 | |||||
Net Earnings per Class A common share | ||||||
Basic | 11 | $ | $ | |||
Diluted | 11 | $ | $ |
See accompanying notes to interim unaudited condensed consolidated financial statements
F-2 |
Global Ship Lease, Inc.
Interim Unaudited Condensed Consolidated Statements of Comprehensive Income
(Expressed in thousands of U.S. dollars)
Six months ended June 30, | |||||||
Note |
2023 | 2022 | |||||
Net Income available to Common Shareholders | $ | $ | |||||
Other comprehensive income: | |||||||
Cash Flow Hedge: | |||||||
Unrealized (loss)/gain on derivative assets | 5 | ( |
|||||
Amortization of interest rate cap premium | |||||||
Amounts reclassified to earnings | ( |
||||||
Total Other Comprehensive (Loss)/Income | ( |
||||||
Total Comprehensive Income | $ | $ |
See accompanying notes to interim unaudited condensed consolidated financial statements
F-3 |
Global Ship Lease, Inc.
Interim Unaudited Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
Six months ended June 30, | ||||||
Note |
2023 | 2022 | ||||
Cash flows from operating activities: | ||||||
Net Income | $ | $ | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 3 | |||||
Amounts reclassified from other comprehensive income | ( |
|||||
Amortization of derivative asset’s premium | ||||||
Amortization of deferred financing costs | 6 | |||||
Amortization of original issue premium on repurchase of notes | ||||||
Amortization of intangible liabilities - charter agreements | 4 | ( |
( | |||
Fair value adjustment on derivative asset | 5 | ( | ||||
Prepayment fees on debt repayment | 6 | |||||
Stock-based compensation expense | 10 | |||||
Changes in operating assets and liabilities: | ||||||
Increase in accounts receivable and other assets | ( |
( | ||||
Increase in inventories | ( |
( | ||||
Increase in derivative asset | 5 | ( | ||||
Decrease in accounts payable and other liabilities | ( |
( | ||||
Decrease in related parties' balances, net | 7 | |||||
Increase in deferred revenue | ||||||
Unrealized foreign exchange loss | ||||||
Net cash provided by operating activities | $ | $ | ||||
Cash flows from investing activities: | ||||||
Acquisition of vessels | ( |
|||||
Cash paid for vessel expenditures | ( |
( | ||||
Advances for vessels acquisitions and other additions | ( |
( | ||||
Cash paid for drydockings | ( |
( | ||||
Net proceeds from sale of vessel | ||||||
Time deposits (acquired)/withdrawal | ( |
|||||
Net cash used in investing activities | $ | ( |
$ | ( | ||
Cash flows from financing activities: | ||||||
Repurchase of 2024 Notes, including premium | 6 | ( | ||||
Proceeds from drawdown of credit facilities | 6 | |||||
Proceeds from 2027 Secured Notes | 6 | |||||
Repayment of credit facilities/sale and leaseback | 6 | ( |
( | |||
Repayment of refinanced debt, including prepayment fees | 6 | ( | ||||
Deferred financing costs paid | ( |
( | ||||
Cancellation of Class A common shares | 9 | ( |
( | |||
Class A common shares - dividend paid | 9 | ( |
( | |||
Series B Preferred Shares - dividend paid | 9 | ( |
( | |||
Net cash used in financing activities | $ | ( |
$ | ( | ||
Net (decrease)/increase in cash and cash equivalents and restricted cash | ( |
|||||
Cash and cash equivalents and restricted cash at beginning of the period |
||||||
Cash and cash equivalents and restricted cash at end of the period |
$ |
$ |
||||
Supplementary Cash Flow Information: | ||||||
Cash paid for interest | $ | $ | ||||
Cash received from interest rate caps | ||||||
Non-cash investing activities: | ||||||
Unpaid capitalized expenses | ||||||
Unpaid drydocking expenses | ||||||
Non-cash financing activities: | ||||||
Unpaid deferred financing costs | ||||||
Unrealized (loss)/gain on derivative assets | ( |
See accompanying notes to interim unaudited condensed consolidated financial statements
F-4 |
Global Ship Lease, Inc.
Interim Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
Number of Common Shares at par value $ | Number of Series B Preferred Shares at par value $ |
Common Shares | Series B Preferred Shares | Series C Preferred Shares | Additional paid-in capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Shareholders' Equity | |
Balance at December 31, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
$ | ||
Stock-based compensation expense (Note 10) | – | ||||||||
Other comprehensive income | – | – | |||||||
Net Income for the period | – | – | |||||||
Series B Preferred Shares dividend (Note 9) | – | – | ( |
( | |||||
Class A common shares dividend (Note 9) | – | – | ( |
( | |||||
Balance at March 31, 2022 |
$ |
$
|
$
|
$ |
$ |
$ |
$ | ||
Stock-based compensation expense (Note 10) | – | – | |||||||
Cancellation of Class A common shares (Note 9) | ( |
– | ( |
( |
( | ||||
Other comprehensive income | – | – | |||||||
Net Income for the period | – | – | |||||||
Series B Preferred Shares dividend (Note 9) | – | – | ( |
( | |||||
Class A common shares dividend (Note 9) | – | – | ( |
( | |||||
Balance at June 30, 2022 |
$ |
$
|
$
|
$ |
$ |
$ |
$ |
Number of Common Shares at par value $ | Number of Series B Preferred Shares at par value $ |
Common Shares | Series B Preferred Shares | Series C Preferred Shares | Additional paid-in capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Shareholders' Equity | |
Balance at December 31, 2022 |
$
|
$
|
$
|
$
|
$
|
$
|
$
| ||
Stock-based compensation expense (Note 10) | – | ||||||||
Cancellation of Class A common shares (Note 9) | – |
( |
|
|
( |
( | |||
Issuance of Series B Preferred shares, net of offering costs (Note 9) |
– | – | |||||||
Other comprehensive loss | – | – | ( |
( | |||||
Net Income for the period | – | – | |||||||
Series B Preferred Shares dividend (Note 9) | – | – | ( |
( | |||||
Class A common shares dividend (Note 9) | – | – | ( |
( | |||||
Balance at March 31, 2023 |
$
|
$
|
$
|
$
|
$
|
$
|
$
| ||
Stock-based compensation expense (Note 10) | – | ||||||||
Cancellation of Class A common shares (Note 9) | – |
( |
( |
( | |||||
Other comprehensive income | – | – | |||||||
Net Income for the period | – | – | |||||||
Series B Preferred Shares dividend (Note 9) | – | – | ( |
( | |||||
Class A common shares dividend (Note 9) | – | – | ( |
( | |||||
Balance at June 30, 2023 |
$
|
$
|
$
|
$
|
$
|
$
|
$
|
See accompanying notes to interim unaudited condensed consolidated financial statements
F-5 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
(Expressed in thousands of U.S. dollars except share data)
1.Description of Business
The Company’s business is to own and charter out containerships to leading liner companies.
On August 14, 2008, Global Ship Lease, Inc. (the “Company”) merged indirectly with Marathon Acquisition Corp., a company then listed on The American Stock Exchange, and with the pre-existing Global Ship Lease, Inc. GSL Holdings, Inc. was the surviving entity (the “Marathon Merger”), changed its name to Global Ship Lease, Inc. and became listed on The New York Stock Exchange (the “NYSE”).
On November 15,
2018, the Company completed a transformative transaction and acquired Poseidon Containers’
In
2021, the Company purchased
During
the second quarter of 2023, the Company purchased
With
these transactions and following the sale of GSL Amstel on March 23, 2023, the Company’s fleet comprises
The following table provides information about the 68 vessels owned as at June 30, 2023.
Company Name (1) | Country of Incorporation | Vessel Name | Capacity in TEUs (2) | Year Built | Earliest Charter Expiry Date |
Global Ship Lease 54 LLC | |||||
Laertis Marine LLC | |||||
Penelope Marine LLC | |||||
Telemachus Marine LLC (3) | |||||
Global Ship Lease 53 LLC | |||||
Global Ship Lease 52 LLC | |||||
Global Ship Lease 43 LLC | |||||
Global Ship Lease 72 LLC | |||||
Global Ship Lease 73 LLC | |||||
Global Ship Lease 74 LLC | |||||
Global Ship Lease 75 LLC | |||||
Global Ship Lease 30 Limited | |||||
Global Ship Lease 31 Limited | |||||
Global Ship Lease 32 Limited | |||||
Alexander Marine LLC | |||||
Hector Marine LLC | |||||
Ikaros Marine LLC | |||||
Philippos Marine LLC | |||||
Aristoteles Marine LLC | |||||
Menelaos Marine LLC | |||||
Global Ship Lease 35 LLC | |||||
Global Ship Lease 36 LLC | |||||
Global Ship Lease 48 LLC | |||||
Leonidas Marine LLC | |||||
Global Ship Lease 33 LLC | |||||
Global Ship Lease 34 LLC |
F-6 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
1. Description of Business (continued)
Company Name (1) | Country of Incorporation | Vessel Name | Capacity in TEUs (2) | Year Built | Earliest Charter Expiry Date |
GSL Arcadia LLC | |||||
GSL Melita LLC | |||||
GSL Maria LLC | |||||
GSL Violetta LLC (3) | |||||
GSL Tegea LLC | |||||
GSL Dorothea LLC | |||||
GSL MYNY LLC | |||||
Tasman Marine LLC | |||||
Hudson Marine LLC | |||||
Drake Marine LLC | |||||
Global Ship Lease 68 LLC (3) | |||||
Global Ship Lease 69 LLC (3) | |||||
Global Ship Lease 70 LLC (3) | |||||
Global Ship Lease 71 LLC (3) | |||||
Hephaestus Marine LLC | |||||
Zeus One Marine LLC | |||||
Global Ship Lease 47 LLC | |||||
GSL Alcazar Inc. | |||||
Global Ship Lease 55 LLC | |||||
Global Ship Lease 50 LLC | |||||
Global Ship Lease 49 LLC | |||||
Global Ship Lease 51 LLC | |||||
Global Ship Lease 57 LLC | |||||
Global Ship Lease 58 LLC | |||||
Global Ship Lease 59 LLC | |||||
Global Ship Lease 60 LLC | |||||
Global Ship Lease 61 LLC | |||||
Global Ship Lease 62 LLC | |||||
Global Ship Lease 63 LLC | |||||
Global Ship Lease 42 LLC | |||||
Pericles Marine LLC | |||||
Global Ship Lease 64 LLC | |||||
Global Ship Lease 65 LLC | |||||
Global Ship Lease 66 LLC | |||||
Aris Marine LLC | |||||
Aphrodite Marine LLC | |||||
Athena Marine LLC | |||||
Global Ship Lease 38 LLC | |||||
Global Ship Lease 40 LLC | |||||
Global Ship Lease 41 LLC | |||||
Global Ship Lease 45 LLC | |||||
Global Ship Lease 44 LLC |
F-7 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
1. | Description of Business (continued) |
(1) | All subsidiaries are 100% owned, either directly or indirectly; |
(2) | Twenty-foot Equivalent Units; |
(3) | Currently, under a sale and leaseback transaction (see note 2g); |
(4) | Anthea Y was forward fixed to a leading liner operator for a period of 24 months +/- 30 days, with the new charter to commence upon expiry of the existing charter in 3Q or 4Q23. |
(5) | GSL Ningbo was forward fixed to a leading liner company for minimum 48 months - maximum 52 months. The new charter is scheduled to commence in 3Q 2023; |
(6) | Tbr GSL Alexandra, tbr GSL Sofia, tbr GSL Effie and GSL Lydia delivered in 2Q23 and were chartered for a period of minimum 24 months - maximum 28 months, plus additional added drydocking days in accordance plus 12 months in charterer’s option +/- 30 days. |
(7) | GSL Eleni delivered 2Q2019 and is chartered for five years; GSL Kalliopi (delivered 4Q2019) and GSL Grania (delivered 3Q2019) are chartered for three years plus two successive periods of one year each at the option of the charterer. The first of these extension options was exercised for both vessels in 2Q 2022 and commenced for GSL Grania and for GSL Kalliopi in 3Q and in 4Q 2022, respectively. The second of these extension options was exercised for both vessels in 2Q 2023 and will commence for both vessels in 3Q23; |
(8) | Mary, Kristina, Katherine, Alexandra, Alexis, Olivia I were forward fixed to a leading liner company for 60 months +/- 45 days, after which the charterer has the option to extend each charter for a further two years. The new charters are scheduled to commence as each of the existing charters expire, between approximately late 2023 and late 2024 following the expiration of the existing charters; |
(9) | GSL Arcadia, GSL Melita, GSL Maria, GSL Violetta, GSL Tegea, GSL Dorothea, GSL MYNY. Thereafter, the charterer has the option to extend each charter for a further 12 months, after which they have the option to extend each charter for a second time - for a period concluding immediately prior to each respective vessel’s 25th year drydocking and special survey; |
(10) | Tasman. 12-month extension at charterer’s option was exercised in 2Q 2022 and commenced in 3Q 2022; |
(11) | GSL Kithira, GSL Tripoli, GSL Syros, GSL Tinos were chartered for a period of three years from their delivery dates in 2021, after which the charterer has the option to extend each charter for a further three years; |
(12) | Orca I. After the initial firm period of the charter, the charterer has the option to extend the charter for a further 12-14 months; |
(13) | GSL Susan, CMA CGM Jamaica, CMA CGM Sambhar and CMA CGM America were each forward fixed to a leading liner company for a period of five years with up to +/- 45 days in charterer’s option. The new charter for GSL Susan commenced in October 2022, while the remaining charters commenced in March 2023; |
(14) | “tbr” means “to be renamed”; |
(15) | GSL Maren. Charter extended for a period of 11 to 14 months and commenced at the end of 1Q 2023; |
(16) | Julie. Julie was forward fixed to a leading liner company for a period 24 months +/- 30 days in charterer’s option. The new charter is scheduled to commence in 3Q23. |
2. Summary of Significant Accounting Policies and Disclosures
(a) Basis of Presentation
The accompanying financial information is unaudited and reflects all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair statement of financial position and results of operations for the periods presented. The financial information does not include all disclosures required under United States Generally Accepted Accounting Principles (“US GAAP”) for annual financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as of December 31, 2022 filed with the Securities and Exchange Commission on March 23, 2023 in the Company’s Annual Report on Form 20-F.
During the three months ended September 30, 2022, the Company identified adjustments to the valuation of share-based compensation. The Company evaluated the adjustments from both a quantitative and qualitative perspective and determined the related impacts were not material to any previously issued annual or interim financial statements; however, the Company has determined to revise prior periods, as follows.
The Company corrected the valuation of share based compensation, which resulted in an increase in share based compensation expense under the caption of “General and administrative expenses” amounted to $ as of June 30, 2022, respectively. for the three months ended March 31, 2022 and $ for the six months ended June 30, 2022, a decrease in net income of $ for the three months ended March 31, 2022, $ for the three months ended June 30, 2022 and $ for the six months ended June 30, 2022, an increase in “Additional paid-in capital” and a decrease in “Retained Earnings” of $ as of March 31, 2022 and $
F-8 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
Adoption of new accounting standards
In March 2020, the FASB issued ASU 2020-4, “Reference Rate Reform (Topic 848)” (“ASU 2020-4”), which provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The ASU 2020-4 was effective for the Company beginning on March 12, 2020 and the Company applied the amendments prospectively through December 31, 2022. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, in December 2022 the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848)”. The amendments of this update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Currently, the Company has various other contracts that reference LIBOR. The Company has modified one contract to replace LIBOR with SOFR and elected to apply the modification accounting. There was no impact to the Company’s interim unaudited condensed consolidated financial statements for the period ended June 30, 2023, as a result of adopting this standard.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a pandemic. Since the beginning of calendar year 2020, the outbreak of COVID-19 pandemic has resulted in the implementation of numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus, including, among others, business closures, quarantines, travel restrictions, and physical distancing requirements. These actions have caused substantial disruptions in the global economy and the shipping industry, as well as significant volatility in the financial markets, the severity and duration of which remains uncertain.
Although the incidence and severity of COVID-19 and its variants have diminished over time, periodic spikes in incidence occur. Many nations worldwide have significantly eased or eliminated restrictions that were enacted at the outset of the outbreak of COVID-19. In May 2023, the World Health Organization expressed that COVID-19 is now an established and ongoing health issue which no longer constitutes a public health emergency of international concern. While the global risk assessment remains high, there is evidence of reducing risks to human health driven mainly by high population-level immunity from infection, vaccination, or both, but the continued uncertainties associated with the COVID-19 pandemic worldwide may still cause an adverse impact on the global economy and the rate environment for the Company’s vessels may deteriorate and its operations and cash flows may be negatively impacted.
While the Company cannot predict the long-term economic impact of the COVID-19 pandemic, it will continue to actively monitor the situation and may take further actions to alter the Company’s business operations that it determines are in the best interests of its employees, customers, partners, suppliers, and stakeholders, or as required by authorities in the jurisdictions where the Company operates. As a result, many of the Company’s estimates and assumptions required increased judgement and carry a higher degree of variability and volatility. The ultimate effects that any such alterations or modifications may have on the Company’s business are not clear, including any potential negative effects on its business operations and financial results.
(b) Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial information include the financial statements of the Company and its wholly owned subsidiaries; the Company has no other interests. All significant intercompany balances and transactions have been eliminated in the Company’s interim unaudited condensed consolidated financial statements.
(c) Use of estimates
The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions and/or conditions.
F-9 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(d) Vessels in operation
Vessels are generally recorded at their historical cost, which consists of the acquisition price and any material expenses incurred upon acquisition, adjusted for the fair value of intangible assets or liabilities associated with above or below market charters attached to the vessels at acquisition. See Intangible Assets and Liabilities at note 2(e) below. Vessels acquired in a corporate transaction accounted for as an asset acquisition are stated at the acquisition price, which consists of consideration paid, plus transaction costs, considering pro rata allocation based on vessels fair value at the acquisition date. Vessels acquired in a corporate transaction accounted for as a business combination are recorded at fair value. Vessels acquired as part of the Marathon Merger in 2008 were accounted for under ASC 805, which required that the vessels be recorded at fair value, less the negative goodwill arising as a result of the accounting for the merger.
Subsequent expenditures for major improvements and upgrades are capitalized, provided they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels.
Borrowing
costs incurred during the construction of vessels or as part of the prefinancing of the acquisition of vessels are capitalized. There
was
Vessels
are stated less accumulated depreciation and impairment, if applicable. Vessels are depreciated to their estimated residual value using
the straight-line method over their estimated useful lives which are reviewed on an ongoing basis to ensure they reflect current technology,
service potential and vessel structure. The useful lives are estimated to be
Management
estimates the residual values of the Company’s container vessels based on a scrap value cost of steel times the weight of the vessel
noted in lightweight tons (LWT). Residual values are periodically reviewed and revised to recognize changes in conditions, new regulations
or other reasons. Revision of residual values affect the depreciable amount of the vessels and affects depreciation expense in the period
of the revision and future periods. Management estimated the residual values of its vessels based on scrap rate of $
For any vessel group which is impaired, the impairment charge is recorded against the cost of the vessel and the accumulated depreciation as at the date of impairment is removed from the accounts.
The cost and related accumulated depreciation of assets retired or sold are removed from the accounts at the time of sale or retirement and any gain or loss is included in the interim unaudited condensed Consolidated Statements of Income.
(e) Intangible assets and liabilities - charter agreements
The Company’s intangible assets and liabilities consist of unfavorable lease terms on charter agreements acquired in assets acquisitions. When intangible assets or liabilities associated with the acquisition of a vessel are identified, they are recorded at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where charter rates are higher than market charter rates, an intangible asset is recorded, based on the difference between the acquired charter rate and the market charter rate for an equivalent vessel and equivalent duration of charter party at the date the vessel is delivered. Where charter rates are less than market charter rates, an intangible liability is recorded, based on the difference between the acquired charter rate and the market charter rate for an equivalent vessel. The determination of the fair value of acquired assets and liabilities requires the Company to make significant assumptions and estimates of many variables including market charter rates (including duration), the level of utilization of its vessels and its weighted average cost-of capital. The estimated market charter rate (including duration) is considered a significant assumption. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on the Company’s financial position and results of operations. The amortizable value of favorable and unfavorable leases is amortized over the remaining life of the relevant lease term and the amortization expense or income respectively is included under the caption “Amortization of intangible liabilities-charter agreements” in the interim unaudited condensed Consolidated Statements of Income. For any vessel group which is impaired, the impairment charge is recorded against the cost of the vessel and the accumulated depreciation as at the date of impairment is removed from the accounts.
F-10 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(f) Impairment of Long-lived assets
Tangible fixed assets, such as vessels, that are held and used or to be disposed of by the Company are reviewed for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. In these circumstances, the Company performs step one of the impairment test by comparing the undiscounted projected net operating cash flows for each vessel group to its carrying value. A vessel group comprises the vessel, the unamortized portion of deferred drydocking related to the vessel and the related carrying value of the intangible asset or liability (if any) with respect to the time charter attached to the vessel at its purchase. If the undiscounted projected net operating cash flows of the vessel group are less than its carrying amount, management proceeds to step two of the impairment assessment by comparing the vessel group’s carrying amount to its fair value, including any applicable charter, and an impairment loss is recorded equal to the difference between the vessel group’s carrying value and fair value. Fair value is determined with the assistance from valuations obtained from third party independent ship brokers.
The Company uses a number of assumptions in projecting its undiscounted net operating cash flows analysis including, among others, (i) revenue assumptions for charter rates on expiry of existing charters, which are based on forecast charter rates, where relevant, in the four years from the date of the impairment test and a reversion to the historical mean of time charter rates for each vessel thereafter (ii) off-hire days, which are based on actual off-hire statistics for the Company’s fleet (iii) operating costs, based on current levels escalated over time based on long term trends (iv) dry docking frequency, duration and cost (v) estimated useful life, which is assessed as a total of 30 years from original delivery by the shipyard and (vi) scrap values.
Revenue assumptions are based on contracted charter rates up to the end of the existing contract of each vessel, and thereafter, estimated time charter rates for the remaining life of the vessel. The estimated time charter rate used for non-contracted revenue days of each vessel is considered a significant assumption. Recognizing that the container shipping industry is cyclical and subject to significant volatility based on factors beyond the Company’s control, management believes that using forecast charter rates in the four years from the date of the impairment assessment and a reversion to the historical mean of time charter rates thereafter, represents a reasonable benchmark for the estimated time charter rates for the non-contracted revenue days, and takes into account the volatility and cyclicality of the market.
During the six months ended June 30, 2023, and 2022, the Company evaluated the impact of the current economic situation on the recoverability of all its vessel groups and has determined that there were no events or changes in circumstances which indicated that their carrying amounts may not be recoverable. Accordingly, there were no triggering events and no impairment test was performed for the six months ended June 30, 2023 and 2022.
(g) Revenue recognition and related expense
The
Company charters out its vessels on time charters which involves placing a vessel at a charterer’s disposal for a specified period
of time during which the charterer uses the vessel in return for the payment of a specified daily hire rate. Such charters are accounted
for as operating leases and therefore revenue is recognized on a straight-line basis as the average revenues over the rental periods
of such charter agreements, as service is performed. Cash received in excess of earned revenue is recorded as deferred revenue. If a
time charter contains one or more consecutive option periods, then subject to the options being exercisable solely by the Company, the
time charter revenue will be recognized on a straight-line basis over the total remaining life of the time charter, including any options
which are more likely than not to be exercised. If a time charter is modified, including the agreement of a direct continuation at a
different rate, the time charter revenue will be recognized on a straight-line basis over the total remaining life of the time charter from
the date of modification. During the periods ended June 30, 2023, and 2022, an amount of $
F-11 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(g) Revenue recognition and related expense (continued)
Revenues are recorded net of address commissions, which represent a discount provided directly to the charterer based on a fixed percentage of the agreed upon charter rate. Charter revenue received in advance which relates to the period after a balance sheet date is recorded as deferred revenue within current liabilities until the respective charter services are rendered.
Under time charter arrangements the Company, as owner, is responsible for all the operating expenses of the vessels, such as crew costs, insurance, repairs and maintenance, and such costs are expensed as incurred and are included in vessel operating expenses.
Commission paid to brokers to facilitate the agreement of a new charter are included in time charter and voyage expenses as are certain expenses related to a voyage, such as the costs of bunker fuel consumed when a vessel is off-hire or idle.
Leases: In cases of lease agreements where the Company acts as the lessee, the Company recognizes an operating lease asset and a corresponding lease liability on the interim unaudited condensed Consolidated Balance Sheets. Following initial recognition and with regards to subsequent measurement the Company remeasures lease liability and right of use asset at each reporting date.
Leases where the Company acts as the lessor are classified as either operating or sales-type / direct financing leases.
In cases of lease agreements where the Company acts as the lessor under an operating lease, the Company keeps the underlying asset on the interim unaudited condensed Consolidated Balance Sheets and continues to depreciate the assets over its useful life. In cases of lease agreements where the Company acts as the lessor under a sales-type / direct financing lease, the Company derecognizes the underlying asset and records a net investment in the lease. The Company acts as a lessor under operating leases in connection with all of its charter out – bareboat-out arrangements.
In
cases of sale and leaseback transactions, if the transfer of the asset to the lessor does not qualify as a sale, then the transaction
constitutes a failed sale and leaseback and is accounted for as a financial liability. For a sale to have occurred, the control of the
asset would need to be transferred to the lessor, and the lessor would need to obtain substantially all the benefits from the use of
the asset. During 2021, the Company entered into
The Company elected the practical expedient which allows the Company to treat the lease and non-lease components as a single lease component for the leases where the timing and pattern of transfer for the non-lease component and the associated lease component to the lessees are the same and the lease component, if accounted for separately, would be classified as an operating lease. The combined component is therefore accounted for as an operating lease under ASC 842, as the lease components are the predominant characteristics.
(h) Fair Value Measurement and Financial Instruments
Financial instruments carried on the interim unaudited condensed Consolidated Balance Sheets include cash and cash equivalents, time deposits, restricted cash, trade receivables and payables, other receivables and other liabilities and long-term debt. The particular recognition methods applicable to each class of financial instrument are disclosed in the applicable significant policy description of each item or included below as applicable.
Fair value measurement: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgement.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
F-12 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(h) Fair Value Measurement and Financial Instruments (continued)
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
During the six months ended June 30, 2023, the Company evaluated the impact of current economic situation on the recoverability of all its vessel groups and has determined that there were no events or changes in circumstances which indicated that their carrying amounts may not be recoverable. Accordingly, there were no triggering events and no impairment test was performed for the six months ended June 30, 2023.
Through
the latter part of 2022, the Company noted that charter rates in the spot market had come under pressure and accordingly determined that
events occurred, and circumstances had changed, which indicated that potential impairment of the Company’s long-lived assets could
exist. These indicators included continued volatility in the spot market and the related impact of the current container sector on management’s
expectation for future revenues. As a result, step one of the impairment assessment of each of the vessel groups was performed as at
December 31, 2022 and step two of the impairment analysis was required for one vessel of the group, as its undiscounted projected net
operating cash flows did not exceed its carrying value. As a result, the Company recorded an impairment loss of $
In
December 2021, the Company purchased interest rate caps with an aggregate notional amount of $
The Company assesses the effectiveness of the hedges on an ongoing basis. The amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered effective.
The
objective of the hedges is to reduce the variability of cash flows associated with the interest rates relating to the Company’s
variable rate borrowings. When derivatives are used, the Company is exposed to credit loss in the event of non-performance by the counterparties;
however, non-performance is not anticipated. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative
instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are
based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs).
As of June 30, 2023 and December 31, 2022, the Company recorded a derivative asset of $
Financial Risk Management: The Company activities expose it to a variety of financial risks including fluctuations in, time charter rates, credit and interest rates risk. Risk management is carried out under policies approved by executive management. Guidelines are established for overall risk management, as well as specific areas of operations.
Credit risk: The Company closely monitors its credit exposure to customers and counter-parties for credit risk. The Company has entered into commercial management agreement with Conchart Commercial Inc. (“Conchart”), pursuant to which Conchart has agreed to provide commercial management services to the Company, including the negotiation, on behalf of the Company, vessel employment contracts (see note 7). Conchart has policies in place to ensure that it trades with customers and counterparties with an appropriate credit history.
F-13 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(h) Fair Value Measurement and Financial Instruments (continued)
Credit risk (continued)
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable, cash and cash equivalents and time deposits. The Company does not believe its exposure to credit risk is likely to have a material adverse effect on its financial position, results of operations or cash flows.
Liquidity Risk: Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Company monitors cash balances appropriately to meet working capital needs.
Foreign Exchange Risk: Foreign currency transactions are translated into the measurement currency rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the interim unaudited condensed Consolidated Statements of Income.
(i) Derivative instruments
The
Company is exposed to interest rate risk relating to its variable rate borrowings. In December 2021, the Company purchased interest rate
caps with an aggregate notional amount of $
At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objective and the strategy for undertaking various hedging transactions. The Company also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
This Transaction is designated as a cash flow hedge, and under ASU 2017-12, cash flow hedge accounting allows all changes in fair value to be recorded through Other Comprehensive Income once hedge effectiveness has been established. Under ASC 815-30-35-38, amounts in accumulated other comprehensive income shall be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings (i.e., each quarter) and shall be presented in the same income statement line item as the earnings effect of the hedged item in accordance with paragraph 815-20-45-1A.
The premium paid related to this derivative was classified in the interim unaudited condensed Consolidated Statements of Cash Flows as operating activities in the line item “Derivative asset”. The premium shall be amortized into earnings “on a systematic and rational basis over the period in which the hedged transaction affects earnings” (ASC 815-30-35-41A); that is, the Company will expense the premium over the life of the interest rate cap in accordance with the “caplet method,” as described in Derivatives Implementation Group (DIG) Issue G20. DIG Issue G20 dictates that the cost of the interest rate cap is recognized on earnings over time, based on the value of each periodic caplet. The cost per period will change as the caplet for that period changes in value. Given that the interest rate cap is forward-starting, expensing of the premium will not begin until the effective start date of the interest rate cap, in order to match potential cap revenue with the cap expenses in the period in which they are incurred.
In
February 2022, the Company further purchased two interest rate caps with an aggregate notional amount of $
F-14 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
2. Summary of Significant Accounting Policies and Disclosures (continued)
(i) Derivative instruments (continued)
The
amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered
effective. As of June 30, 2023, and December 31, 2022, following a quantitative assessment, part of the hedge was no longer considered
effective and an amount of $
(j) Recent accounting pronouncements
The Company does not believe that any recently issued, but not yet effective, accounting pronouncements would have a material impact on its interim unaudited condensed consolidated financial statements.
3. Vessels in Operation
Vessel Cost, as adjusted for |
Accumulated |
Net Book | ||||||
Impairment charges | Depreciation | Value | ||||||
As of January 1, 2022 | $ | $ | ( |
$ | ||||
Additions | – | |||||||
Depreciation | – | ( |
( | |||||
Impairment loss | ( |
( | ||||||
As of December 31, 2022 | $ | $ | ( |
$ | ||||
Additions | – | |||||||
Disposals | ( |
( | ||||||
Depreciation | – | ( |
( | |||||
As of June 30, 2023 | $ | $ | ( |
$ |
As of June 30, 2023, and December 31, 2022, the Company had made additions for vessel expenditures and ballast water treatments.
2023 Vessels acquisitions
In May and June 2023, the Company took delivery of the four 8,544 TEU Vessels as per below:
Name | Capacity in TEUs | Year Built | Purchase Price | Delivery date |
tbr GSL Alexandra | $ |
|||
tbr GSL Sofia | $ |
|||
tbr GSL Effie | $ |
|||
GSL Lydia | $ |
2023 Sale of Vessel
On
March 23, 2023, the Company sold GSL Amstel for net proceeds of $
F-15 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
3. | Vessels in Operation (continued) |
Impairment
The Company has evaluated the impact of current economic situation on the recoverability of all its other vessel groups and has determined that there were no events or changes in circumstances which indicated that their carrying amounts may not be recoverable. Accordingly, there was no triggering event and no impairment test was performed during the six months ended June 30, 2023.
Through
the latter part of 2022, the Company noted that charter rates in the spot market had come under pressure and accordingly determined that
events occurred, and circumstances had changed, which indicated that potential impairment of the Company’s long-lived assets could
exist. These indicators included continued volatility in the spot market and the related impact of the current container sector on management’s
expectation for future revenues. As a result, step one of the impairment assessment of each of the vessel groups was performed as at
December 31, 2022 and step two of the impairment analysis was required for one vessel group, as the undiscounted projected net operating
cash flows did not exceed the carrying value. As a result, the Company recorded an impairment loss of $
Collateral
As
of June 30, 2023,
Advances for vessels acquisitions and other additions
As
of June 30, 2023, and December 31, 2022, there were no advances for vessel acquisitions, as all vessels had been delivered as at these
dates. As of June 30, 2023, and December 31, 2022, the Company had advances for other vessel additions and ballast water treatment systems
totalling $
4. Intangible Liabilities - Charter Agreements
Intangible Liabilities – Charter Agreements as of June 30, 2023, and December 31, 2022, consisted of the following:
June 30, 2023 |
December 31, 2022 | ||||
Opening balance | $ | $ | |||
Disposals (*) | ( |
||||
Amortization | ( |
( | |||
Total | $ | $ |
(*) |
Intangible liabilities are related to (i) acquisition of the Seven, the Twelve and the Four Vessels, and (ii) management’s estimate of the fair value of below-market charters on August 14, 2008, the date of the Marathon Merger (see note 1). These intangible liabilities are being amortized over the remaining life of the relevant lease terms and the amortization income is included under the caption “Amortization of intangible liabilities-charter agreements” in the interim unaudited condensed Consolidated Statements of Income.
Amortization
income of intangible liabilities-charter agreements for each of the six months ended June 30, 2023, and 2022 was $
F-16 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
4. Intangible Liabilities - Charter Agreements (continued)
The aggregate amortization of the intangible liabilities in each of the 12-month periods up to June 30, 2026, is estimated to be as follows:
Amount | ||
June 30, 2024 | $ | |
June 30, 2025 | ||
June 30, 2026 | ||
$ |
The
weighted average useful lives are
5. Derivative Asset
In
December 2021, the Company purchased interest rate caps with an aggregate notional amount of $
In
February 2022, the Company further hedged its exposure to a potential rising interest rate environment by putting in place two USD
one-month LIBOR interest rate caps of
June 30, 2023 |
December 31, 2022 | ||||
Opening balance | $ | $ | |||
Derivative asset premium | |||||
Unrealized (loss)/gain on derivative assets | ( |
||||
Fair value adjustment on derivative asset | ( |
||||
Closing balance | $ | $ | |||
Less: Current portion of derivative assets | ( |
( | |||
Non-current portion of derivative assets | $ | $ |
The
amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered
effective. The Company assesses the effectiveness of the hedges on an ongoing basis. As of June 30, 2023, and December 31, 2022, following
a quantitative assessment, part of the hedge was no longer considered effective and an amount of $
F-17 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. Long-Term Debt
Long-term debt as of June 30, 2023 and December 31, 2022 consisted of the following:
Facilities | June 30, 2023 |
December 31, 2022 | |||
Macquarie loan (a) | $ | $ | |||
2027 Secured Notes (b) | |||||
E.SUN, MICB, Cathay, Taishin Credit Facility (c) | |||||
Sinopac Credit Facility (d) | |||||
HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility (e) | |||||
Deutsche Credit Facility (f) | |||||
HCOB Credit Facility (g) | |||||
CACIB, Bank Sinopac, CTBC Credit Facility (h) | |||||
Chailease Credit Facility (i) | |||||
Syndicated Senior Secured Credit Facility (CACIB, ABN, First-Citizens & Trust Company, Siemens, CTBC, Bank Sinopac, Palatine) (j) | |||||
Total credit facilities | $ | $ | |||
Sale and Leaseback Agreement CMBFL - $120,000 (k) | |||||
Sale and Leaseback Agreement CMBFL - $54,000 (l) | |||||
Sale and Leaseback Agreement - Neptune $14,735 (m) | |||||
Total Sale and Leaseback Agreements | $ | $ | |||
Total borrowings | $ | $ | |||
Less: Current portion of long-term debt | ( |
( | |||
Less: Current portion of Sale and Leaseback Agreements (k,l,m) | ( |
( | |||
Less: Deferred financing costs (s) | ( |
( | |||
Non-current portion of Long-Term Debt | $ | $ |
a) | Macquarie Credit Facility |
On
All
The
facility is repayable in
This
facility’s interest rate is
As
of June 30, 2023, the outstanding balance of this facility was $
F-18 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. | Long-Term Debt (continued) |
b) | 5.69% Senior Secured Notes due 2027 |
On
The
Company used the net proceeds from the private placement
The
2027 Secured Notes are senior obligations of the Issuer, secured by first priority mortgages on
As
of June 30, 2023, the outstanding balance of this facility was $
c) | $60.0 Million E.SUN, MICB, Cathay, Taishin Credit Facility |
On
The facility
is repayable in
This facility bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
d) | $12.0 Million Sinopac Capital International Credit Facility |
On
The facility
is repayable in
This facility
bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
F-19 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. | Long-Term Debt (continued) |
e) | $140.0 Million HCOB, CACIB, ESUN, CTBC, Taishin Credit Facility |
On
The facility
is repayable in
This facility
bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
f) | $51.7 Million Deutsche Bank AG Credit Facility |
On
The facility
is repayable in
This facility
bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
g) | $64.2 Million Hamburg Commercial Bank AG Credit Facility |
On
Tranche A, E
and F amounting to $
Each Tranche
of the facility is repayable in
This facility
bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
h) | $51.7 Million CACIB, Bank Sinopac, CTBC Credit Facility |
On
The lenders are Credit Agricole Corporate and Investment Bank (“CACIB”), Bank Sinopac Co. Ltd. (“Bank Sinopac”) and CTBC Bank Co. Ltd. (“CTBC”).
F-20 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. | Long-Term Debt (continued) |
h) | $51.7 Million CACIB, Bank Sinopac, CTBC Credit Facility (continued) |
The
facility is repayable in
This
facility bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
i) | $9.0 Million Chailease Credit Facility |
On
The facility
is repayable in 36 consecutive
This facility
bears interest at
As
of June 30, 2023, the outstanding balance of this facility was $
j) | $268.0 Million Syndicated Senior Secured Credit Facility (CACIB, ABN, First-Citizens & Trust Company, Siemens, CTBC, Bank Sinopac, Palatine) |
On
The Senior Syndicated
Secured Credit Facility was agreed to be borrowed in
Tranche A amounting
to $
Tranche B amounts
to $
As
of June 30, 2023, the outstanding balance of this facility was $
k) | $120.0 Million Sale and Leaseback agreements - CMBFL Four Vessels |
On
F-21 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. | Long-Term Debt (continued) |
k) | $120.0 Million Sale and Leaseback agreements - CMBFL Four Vessels (continued) |
Each
sale and leaseback agreement is repayable in
The sale and
leaseback agreements for the
As
of June 30, 2023, the outstanding balance of these sale and lease back agreements was $
l) | $54.0 Million Sale and Leaseback agreement - CMBFL |
On
The sale and
leaseback agreement will be repayable in
The sale and
leaseback agreement matures in
In
As
of June 30, 2023, the outstanding balance of this sale and leaseback agreement was $
m) | $14.7 Million Sale and Leaseback agreement - Neptune Maritime Leasing |
On
The sale and
leaseback agreement will be repayable in
The sale and
leaseback agreement matures in
As
of June 30, 2023, the outstanding balance of this sale and leaseback agreement was $
F-22 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. | Long-Term Debt (continued) |
n) | $236.2 Million Senior secured loan facility with Hayfin Capital Management, LLP |
On
As of June 30, 2023, the outstanding balance of this facility was $nil .
o) | Redemption of 8.00% Senior Unsecured Notes due 2024 |
On November 19, 2019,
the Company completed the sale of $
The Company had the
option to redeem the 2024 Notes for cash, in whole or in part, at any time (i) on or after December 31, 2021 and prior to December 31,
2022, at a price equal to
On November 27, 2019, the Company entered into an “At Market Issuance Sales Agreement” with B. Riley FBR, Inc. (the “Agent”) under which and in accordance with the Company’s instructions, the Agent could offer and sell from time to time newly issued 2024 Notes.
In July 2021, the Company
agreed to purchase the Twelve Vessels for an aggregate purchase price of $
On
April 5, 2022 the Company completed the partial redemption of $
As of June 30, 2023, the outstanding aggregate principal amount of the 2024 notes was $nil.
p) | $38.5 Million Blue Ocean Junior Credit Facility |
On
The Company fully
drew down the facility on September
23, 2019 and it was scheduled to be repaid in a single instalment on the termination date which fell on
F-23 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. Long-Term Debt (continued)
p) | $38.5 Million Blue Ocean Junior Credit Facility (continued) |
During the year ended
December 31, 2021, the Company used a portion of the net proceeds from the at-the-market issuance programs to prepay an amount of $
On January 19, 2022,
the Company used a portion of the net proceeds from the new facility agreement entered on December 30, 2021 with E.SUN, MICB, Cathay,
Taishin, to fully prepay the amount of $
As of June 30, 2023, the outstanding balance of this facility was $nil.
q) | $59.0 Million Hellenic Bank Credit Facility |
On
An initial tranche
of $
A second tranche
of $
The third tranche
of $
On
This facility
bears interest at
On
As of June 30, 2023, the outstanding balance of this facility was $nil.
r) | Repayment Schedule |
Maturities of long-term debt for the periods subsequent to June 30, 2023, are as follows:
Payment due by period ended | Amount | |
June 30, 2024 | ||
June 30, 2025 | ||
June 30, 2026 | ||
June 30, 2027 | ||
June 30, 2028 and thereafter | ||
$ |
F-24 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
6. Long-Term Debt (continued)
s) | Deferred Financing Costs |
June 30, 2023 |
December 31, 2022 | ||||
Opening balance | $ | $ | |||
Expenditure in the period | |||||
Amortization included within interest expense | ( |
( | |||
Closing balance | $ | $ |
During
2023, total costs amounting to $
During
2022, total costs amounting to $
For
the periods ended June 30, 2023 and 2022, the Company recognized a total of $
t) | Debt covenants-securities |
7. Related Party Transactions
CMA CGM was presented as a related party as it was a shareholder, owning Class A common shares of the Company. As of May 27, 2022, CMA CGM following the sale of its shares, is not anymore Company’s shareholder. Related party revenue and expenses recorded on Interim Unaudited Condensed Consolidated Statements of Income for CMA CGM are up to May 27, 2022.
Time Charter Agreements
A
number of the Company’s time charter arrangements were with CMA CGM, representing
Ship Management Agreements
Technomar
Shipping Inc. (“Technomar”) is presented as a related party, as the Company’s Executive Chairman is a significant shareholder.
The Company has currently a number of ship management agreements with Technomar under which the ship manager is responsible for all day-to-day
ship management, including crewing, purchasing stores, lubricating oils and spare parts, paying wages, pensions and insurance for the
crew, and organizing other ship operating necessities, including the arrangement and management of dry-docking. As of December 31, 2022,
Technomar provided all day-to-day technical ship management services for all but five (excluding GSL Amstel which was sold in March 23,
2023) of the Twelve Vessels. Management agreements of another third-party ship manager of these five vessels were terminated between
May and July 2023. From that dates and onwards Technomar manages the
F-25 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
7. | Related Party Transactions (continued) |
Ship Management Agreements (continued)
The
management fees charged to the Company by Technomar for the six months ended June 30, 2023, amounted to $
Conchart
Commercial Inc. (“Conchart”) provides commercial management services to the Company pursuant to commercial management agreements.
The Company’s Executive Chairman is the sole beneficial owner of Conchart. Under the management agreements, Conchart, is responsible
for (i) marketing of the Company’s vessels, (ii) seeking and negotiating employment of the Company’s vessels, (iii) advise
the Company on market developments, developments of new rules and regulations, (iv) assisting in calculation of hires, freights, demurrage
and/or dispatch monies and collection any sums related to the operation of vessels, (v) communicating with agents, and (vi) negotiating
sale and purchase transactions. For the
The
fees charged to the Company by Conchart for the six months ended June 30, 2023 amounted to $
The
Company as per commercial management agreements has agreed to pay to the commercial manager who shall be named broker in each memorandum
of agreement (or equivalent agreement) providing for the sale of all vessels and purchase of some vessels, a commission of
8. Commitments and Contingencies
Charter Hire Receivable
The
Company has entered into time charters for its vessels. The charter hire is fixed for the duration of the charter. The minimum contracted
future charter hire receivable, net of address commissions, not allowing for any unscheduled off-hire, assuming expiry at earliest possible
dates and assuming options callable by the Company included in the charters are not exercised, for the
Period ending | Amount | |
June 30, 2024 | $ | |
June 30, 2025 | ||
June 30, 2026 | ||
June 30, 2027 | ||
Thereafter | ||
Total minimum lease revenue, net of address commissions | $ |
9. Share Capital
Common shares
As
of June 30, 2023, the Company has
Restricted stock units or incentive stock units have been granted periodically to the Directors and management, under the Company’s Equity Incentive Plans, as part of their compensation arrangements (see note 10). In April 2020, shares were issued under grants made under the 2019 Omnibus Incentive Plan (the “2019 Plan”). In 2021 and 2022, and Class A common shares were issued under the 2019 Plan, respectively.
F-26 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
9. | Share Capital (continued) |
Common shares (continued)
During the six months ended June 30, 2023, Class A common shares were issued under the 2019 Plan.
On
January 26, 2021, the Company completed its underwritten public offering of Class A common shares, at a public offering price
of $per share, for gross proceeds to the Company
of approximately $
Preferred shares
These shares are classified as Equity in the interim unaudited condensed Consolidated Balance Sheets. The dividends payable on the Series B Preferred Shares are presented as a reduction of Retained Earnings in the interim unaudited condensed Consolidated Statements of Changes in Shareholders’ Equity, when and if declared by the Board of Directors. An initial dividend was declared on September 22, 2014 for the third quarter 2014. Dividends have been declared for all subsequent quarters.
On December 10,
2019, the Company entered into At Market Issuance Sales Agreement with B. Riley FBR under which the Company may, from time to time, issue
additional Depositary Shares. Pursuant to the Depositary Share ATM Program, in 2019, the Company issued
On
December 29, 2022, the Company entered into a new At Market Issuance Sales Agreement with B. Riley Securities, Inc. (the “Agent”),
pursuant to which the Company may offer and sell, from time to time, up to $
As of June 30, 2023, there were Depositary Shares outstanding, representing an interest in Series B Preferred Shares.
F-27 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
On February 4, 2019, the Board of Directors adopted the 2019 Plan.
The purpose of the 2019 Plan is to provide directors, officers and employees, whose initiative and efforts are deemed to be important to the successful conduct of our business, with incentives to (a) enter into and remain in the service of our company or our subsidiaries and affiliates, (b) acquire a proprietary interest in the success of the Company, (c) maximize their performance and (d) enhance the long-term performance of our company. The 2019 Plan is administered by the Compensation Committee of the Board of Directors, or such other committee of the Board of Directors as may be designated by them. Unless terminated earlier by the Board of Directors, the 2019 Plan will expire 10 years from the date on which it was adopted by the Board of Directors.
Following the adoption of the 2019 Plan, previous plans adopted in 2015 and 2008 were terminated.
In 2019, the Board of Directors approved awards to the Company’s executive officers under the 2019 Plan, providing those executive officers with the opportunity to receive up to Class A common shares in aggregate. The Board of Directors approved additional awards of of Class A common shares to two other employees resulting in a total amount of awards of up to shares. In July 2021, the Board of Directors approved the issuance of shares to one member of senior management as a special bonus.
The 1,421,000 shares of incentive stock may be issued pursuant to the awards, in tranches. The first tranche was to vest conditioned only on continued service over the three-year period which commenced January 1, 2019. Tranches two, three and four would vest when the Company’s stock price exceeded $, $and $, respectively, over a -day period. The $8.00 threshold was achieved in , the $11.00 threshold was achieved in and the $14.00 threshold was achieved in . Accordingly, incentive shares vested in the year ended December 31, 2019, incentive shares vested in the year ended December 31, 2020 and incentive shares vested in the year ended December 31, 2021. Of the total of incentive shares which vested up to December 31, 2020, were settled and issued as Class A common shares in April 2020. A further Class A common shares were settled and issued during the year ended December 31, 2021. A total of incentive shares had vested as at December 31, 2021, of which and had been issued in 2021 and 2022, respectively.
On September 29, 2021, the Compensation Committee and the Board of Directors approved an increase in the aggregate number of Class A common shares available for issuance as awards under the 2019 Plan by to , and approved new awards to senior management, totaling shares of incentive stock, in tranches, with a grant date October 1, 2021. The first tranche, representing 55% of the total, is to vest quarterly conditioned only on continued service over the four-year period which commenced . Tranches two and three, each representing 22.5% of the total, were to vest quarterly up to , once the Company’s stock price exceeded $and $, respectively, over a -day period. The Compensation Committee and Board of Directors also approved an increase the maximum number of Class A common shares that each non-employee director may be granted in any one year to and subsequently approved stock-based awards to the then seven non-executive directors totaling shares of incentive stock, or each, to vest in a similar manner to those awarded to senior management.
During the year ended December 31, 2022, unvested share awards were cancelled or withdrawn on the resignations of two directors and an award of was made to one new director to vest in a similar manner to the other awards, with the first tranche adjusted for the date of appointment of the director.
As at December 31, 2022, incentive Class A common shares had been awarded under the 2019 Plan leaving Class A common shares available to be awarded under the 2019 Plan.
In March 2023, the Compensation Committee and the Board of Directors, approved an amendment to the stock-based awards agreed in September 2021 for senior management and non-employee directors such that 10% of the second tranche would be forfeit with the remaining 90% vesting from April 2023 and quarterly thereafter with the last such vesting to be October 2025. The price at which the third tranche is to vest was amended to $ , over a -day period. All other terms of the awards remain unchanged.
In the six months ended June 30, 2023, and, in the years ended December 31, 2022, and 2021, , and incentive shares vested, respectively, under the amended September 2021 awards.
A total of incentive shares under both plans had vested as at June 30, 2023. Of the total incentive shares which vested under both plans up to June 30, 2023, had not been issued.
F-28 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
10. Share-Based Compensation (continued)
Share based awards since January 1, 2022, are summarized as follows:
Restricted Stock Units | |||||||
Number of Units | |||||||
Number | Weighted Average Fair Value on Grant Date |
Actual Fair Value on Vesting Date | |||||
Unvested as at January 1, 2022 | $ | n/a | |||||
Vested in year ended December 31, 2022 | n/a | ||||||
Cancelled in May 2022 | n/a | n/a | |||||
Unvested as at December 31, 2022 | $ | n/a | |||||
Vested in six months ended June 30, 2023 | n/a | ||||||
Forfeit in March 2023 | n/a | n/a | |||||
Unvested as at June 30, 2023 | $ | n/a |
Using the graded vesting method of expensing the restricted stock unit grants, the weighted average fair value of the stock units is recognized as compensation costs in the interim unaudited condensed Consolidated Statements of Income over the vesting period. The fair value of the restricted stock units for this purpose is calculated by multiplying the number of stock units by the fair value of the shares at the grant date. The Company has not factored any anticipated forfeiture into these calculations based on the limited number of participants.
For the six months ended June 30, 2023, and 2022, the Company recognized a total of $ (includes $ effect from the amendment to the stock-based awards) and $ , respectively, in respect of stock-based compensation.
Under the two-class method, net income, if any, is first reduced by the amount of dividends declared in respect of common shares for the current period, if any, and the remaining earnings are allocated to common shares and participating securities to the extent that each security can share the earnings assuming all earnings for the period are distributed.
Earnings are only allocated to participating securities in a period of net income if, based on the contractual terms, the relevant common shareholders have an obligation to participate in such earnings. As a result, earnings are only be allocated to the Class A common shareholders.
At June 30, 2023 and December 31, 2022, there were and , respectively, shares of incentive share grants unvested as part of senior management’s and non-executive directors incentive awards approved on September 29, 2021.
Six months ended June 30, | ||||
2023 | 2022 | |||
Numerator: | ||||
Net income available to common shareholders: | $ | $ | ||
Class A, basic and diluted | ||||
Denominator: | ||||
Class A Common shares | ||||
Basic weighted average number of common shares outstanding | ||||
Plus weighted average number of RSUs with service conditions | ||||
Common share and common share equivalents, dilutive | ||||
Basic earnings per share: | ||||
Class A | ||||
Diluted earnings per share: | ||||
Class A |
F-29 |
Global Ship Lease, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except share data)
12. Subsequent events
Subsequent
to June 30, 2023, the Board of Directors authorized a further $
On
August 3, 2023, the Company announced a dividend of $
As
of August 3, 2023 all of the Company’s loan agreements (except for the sale and lease back agreement with Neptune) have been
amended and restated to take into effect the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and
the relevant provisions on a replacement rate. In addition,
F-30 |