Global Ship Lease Reports Q4 2009 Results

Friday, March 05, 2010

Global Ship Lease, Inc. (NYSE:GSL)(NYSE:GSL.U)(NYSE:GSL.WS), a containership charter owner, announced its unaudited results for the three months ended December 31, 2009.

Fourth Quarter and Full Year 2009 Highlights:
- Generated $16.5 million of cash in the fourth quarter of 2009 up 29% on $12.8 million on cash generated in fourth quarter 2008. $62.0 million cash was generated in the year ended December 31, 2009

- Reported revenue of $39.9 million for the fourth quarter of 2009, up 52% on $26.3 million for the fourth quarter 2008 due to the purchase of four additional vessels in December 2008 and one additional vessel in August 2009. Revenue was $148.7 million for the year ended December 31, 2009 up 57% on $95.0 million for the year ended December 31, 2008

- Reported normalized net earnings of $7.3 million, or $0.13 per share, for the fourth quarter of 2009, excluding a $5.1 million non-cash interest rate derivative mark-to-market gain. For the year ended December 31, 2009 normalized net earnings was $26.6 million, or $0.49 per share, excluding $17.9 million non-cash mark-to-market gain and $2.2 million deferred financing costs written off on an accelerated basis

- Including the non-cash mark-to-market and deferred financing costs items, reported net income was $12.3 million, or $0.23 income per share, for the fourth quarter of 2009 compared to $43.7 million loss for the fourth quarter 2008. The reported net income was $42.4 million, or $0.79 per share, for the year ended December 31, 2009

- Purchased CMA CGM Berlioz, a 2001-built 6,627 TEU container vessel, in August 2009 for $82 million. The vessel is chartered to CMA CGM for 12 years

- Amended the credit facility in August 2009 to suspend loan-to-value tests effectively until second quarter 2011. The amendment also allowed further borrowings to finance the purchase of CMA CGM Berlioz, cancelled all undrawn commitments and requires prepayments based on free cash flow. No common dividends can be declared or paid until the later of November 30, 2010 or when loan-to-value falls to 75% or below

Ian Webber, Chief Executive Officer of Global Ship Lease, stated, "During a challenging year for the industry and global economy, our entire fleet remained secured on long-term contracts. We also achieved strong utilization for the year and grew both revenue and cash flow during a time when we finalized an amendment to our credit facility. With the amended credit facility, we have mitigated loan-to-value covenant concerns effectively until April 2011 and protected the Company from short-term volatility in asset values. We are now paying down debt aggressively with approximately $68 million expected to be repaid in 2010."

Results for Three Months And Year Ended December 31, 2009:
Comparative financial information for the year ended December 31, 2008 is prepared under predecessor accounting rules and includes the results of operations of two of the company's vessels for part of January 2008 when they were owned by CMA CGM, a privately owned French container shipping company, and operated in CMA CGM's business of earning revenue from carrying containerized cargo. Global Ship Lease commenced its business of time chartering out vessels in December 2007 when it purchased 10 container vessels from CMA CGM. The company purchased the two additional vessels from CMA CGM in January 2008 and has subsequently purchased an additional five vessels. The predecessor and Global Ship Lease business models are not comparable.

Further, there were significant changes to the company's legal and capital structure arising from the merger on August 14, 2008, which resulted in the Company becoming listed on the New York Stock Exchange.

Revenue and Utilization:
Global Ship Lease owned sixteen vessels up to August 26, 2009 when CMA CGM Berlioz was purchased. The fleet generated revenue from fixed rate long-term time charters of $39.9 million in the three months ended December 31, 2009, up 52% on revenue of $26.3 million for the comparative period in 2008 due to the purchase of four additional ships in December 2008 and one in August 2009. These five vessels have an average daily charter rate of $31,450 compared to an average daily charter rate of $22,685 for the previous fleet of 12 vessels. During the three months ended December 31, 2009 there were 1,564 ownership days, up 411 or 36% on 1,153 ownership days in the comparable period. CMA CGM Utrillo was dry-docked, at a cost of $0.9 million, for 16 days in the quarter. There were no unplanned off-hire days in the three months ended December 31, 2009 giving an overall utilization of 99.0%. In the comparable period of 2008, there were no off-hire days, giving utilization of 100.0%.

For the year ended December 31, 2009 revenue was $148.7 million, an increase of 57% compared to time charter revenue of $95.0 million in the comparative period. Ownership days at 5,968 were up 1,552, or 35%, on 4,416 in the comparative period. Utilization in the year ended December 31, 2009 was 98.8% down slightly on 99.0% in the comparative period.

Vessel Operating Expenses:
Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $9.9 million for the three months ended December 31, 2009. The average cost per ownership day was $6,299 down 8% from the average daily cost of $6,820 for the previous quarter due mainly to rebilling of certain items for the charterer's account, and down 8% from the average daily cost of $6,873 for the comparative period in 2008.

Vessel operating expenses were $41.4 million for the year ended December 31, 2009 or $6,932 per ownership day. This compares to $29.8 million vessel operating expenses associated with the time charter business in the comparative period or $6,748 per ownership day. The increase over 2008 is due mainly to the impact of the four vessels delivered in December 2008 which are on average larger than the previous vessels and are thus more expensive to operate.

Vessel operating expenses are at less than the capped amounts included in Global Ship Lease's ship management agreements.

Depreciation:
Depreciation was $10.1 million for the three months ended December 31, 2009, including the effect of the purchase of four additional vessels in December 2008 and one in August 2009, compared to $5.9 million for the comparative period. In the year ended December 31, 2009 depreciation was $37.3 million, up from $20.6 million for the time charter business in the comparative period in 2008.

General and Administrative Costs:
General and administrative costs incurred were $2.2 million in the three months ended December 31, 2009, including $0.4 million non-cash charge for stock based incentives, compared to $2.7 million for the time charter business in the comparable period in 2008, including $0.8 million non-cash charge for stock based incentives. In the year ended December 31, 2009 general and administrative costs were $8.7 million, including $2.5 million non-cash charge for stock based incentives, compared to $6.0 million in the comparative period (when up to August 14, 2008 the Company was a wholly-owned subsidiary of CMA CGM) including $1.2 million non-cash charge for stock based incentives.

Interest Expense:
Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended December 31, 2009 was $6.1 million. The Company's borrowings under its credit facility averaged $593.8 million during fourth quarter and were $588.2 million as at December 31, 2009 after repayment in November of $10.9 million. There were $48.0 million preferred shares throughout the period. Interest expense in the comparative period in 2008 was $2.6 million based on average borrowings, including the preferred shares, of $357.2 million in the quarter.

For the year ended December 31, 2009 interest expense was $24.2 million including $2.2 million write off of deferred financing costs as a result of reduced borrowing capacity following amendments to the credit facility in 2009 and based on average borrowings, including the preferred shares, of $608.7 million compared to $21.4 million interest expense for the comparative period in 2008 based on average borrowings, including the preferred shares, of $490.5 million.

Interest income for the three months ended December 31, 2009 was $36,000 and was $195,000 in the comparative period. For the year ended December 31, 2009 interest income was $0.5 million compared to $0.8 million in 2008.

Change in Fair Value of Financial Instruments:
The company hedges the majority of its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows. As these hedges do not qualify for hedge accounting under US GAAP, the outstanding hedges are marked to market at each period end with any change in the fair value being booked to the income and expenditure account. The Company's derivative hedging instruments gave a $0.7 million gain in the three months ended December 31, 2009, reflecting primarily movements in the forward curve for interest rates. Of this amount, $4.4 million was a realized loss for settlements of swaps in the period and $5.1 million was unrealized gain for revaluation of the balance sheet position. This compares to a $51.0 million loss in the three months ended December 31, 2008 of which $0.3 million was realized loss and $50.7 million was unrealized loss. For the year ended December 31, 2009 the reported gain was $4.8 million comprising $13.1 million realized loss and $17.9 million unrealized gain. For the year ended December 31, 2008 the reported loss was $52.5 million of which $0.8 million was realized and $51.8 million was unrealized.

At December 31, 2009 the total mark-to-market unrealized loss recognized as a liability was $29.1 million. Unrealized mark-to-market adjustments have no impact on operating performance or cash generation.

Net Earnings:
Normalized net earnings was $7.2 million, or $0.13 per Class A and B common share, for the three months ended December 31, 2009 excluding the $5.1 million non-cash interest rate derivative mark-to-market gain. Including the mark-to-market gain, net income was $12.3 million or $0.23 income per Class A and B common share.

Normalized net earnings was $26.6 million, or $0.49 per Class A and B common share, for the year ended December 31, 2009 excluding the $17.9 million non-cash interest rate derivative mark-to-market gain and $2.2 million accelerated deferred financing costs written off. Including these items, net income was $42.4 million or $0.79 per Class A and B common share.

Normalized net earnings and normalized earnings per share are non-US GAAP measures and are reconciled to the financial information included in this press release. We believe that they are useful measures with which to assess the Company's financial performance as they adjust for non-cash items that do not affect the Company's ability to generate cash.

Credit Facility:
On August 20, 2009, the Company entered into an amendment to its credit facility, whereby the loan-to-value covenant has been waived up to and including November 30, 2010 with the next loan-to-value test scheduled for April 30, 2011. Further, Global Ship Lease was able to borrow sufficient funds under the credit facility to allow the purchase of the CMA CGM Berlioz in August 2009. Amounts borrowed under the amended credit facility bear interest at LIBOR plus a fixed interest margin of 3.50% up to November 30, 2010. Thereafter, the margin will be between 2.50% and 3.50% depending on the loan-to-value ratio.

In connection with the amended credit facility, all undrawn commitments of approximately $200 million were cancelled and Global Ship Lease may not pay dividends to common shareholders, instead using its cash flow to prepay borrowings under the credit facility. Global Ship Lease will be able to resume dividends after November 30, 2010 and once the loan-to-value is at or below 75%, when the prepayment of borrowings becomes fixed at $10 million per quarter. As part of the amendment, CMA CGM has agreed to defer redemption of the $48 million preferred shares it holds until after the final maturity of the credit facility in August 2016 and retain its current holding of approximately 24.4 million common shares at least until November 30, 2010.

Dividend:
Global Ship Lease has agreed with its lenders that it will not declare or pay any dividend to common shareholders until the later of November 30, 2010 and when loan-to-value is at or below 75%. The board of directors will review the dividend policy when appropriate.

Adjusted Cash From Operations:
Adjusted cash from operations was $16.5 million for the three months ended December 31, 2009 compared to $12.8 million for the three months ended December 31, 2008 and was $62.0 million for the year ended December 31, 2009. Adjusted cash from operations is a non-US GAAP measure and is reconciled to the financial information further in this press release. The Company believes that it is a useful measure with which to assess the Company's operating performance as it adjusts for the effects of non-cash items.

Fleet Utilization:
The table below shows fleet utilization for the three months and year ended December 31, 2009 and 2008. Unplanned offhire in the year ended December 31, 2009 includes 18 days in first quarter for drydock and associated repairs following a grounding and a seven day deviation to land a sick crew member.

(www.euroseas.gr)

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