Danaos Reports Strong 1H

Danaos Corporation today reported unaudited results for the period ended June 30, 2016.

Highlights for the Second Quarter and Half Year Ended June 30, 2016:

  * Adjusted net income1 of $47.7 million, or $0.43 per share, for the three months ended June 30, 2016 compared to $38.0 million, or $0.35 per share, for the three months ended June 30, 2015, an increase of 25.5%. Adjusted net income1 of $94.9 million, or $0.86 per share, for the six months ended June 30, 2016 compared to $68.6 million, or $0.62 per share, for the six months ended June 30, 2015, an increase of 38.3%.

  * Operating revenues of $137.0 million for the three months ended June 30, 2016 compared to $141.5 million for the three months ended June 30, 2015, a decrease of 3.2%. Operating revenues of $274.5 million for the six months ended June 30, 2016 compared to $280.1 million for the six months ended June 30, 2015, a decrease of 2.0%.

  * Adjusted EBITDA1 of $99.9 million for the three months ended June 30, 2016 compared to $103.1 million for the three months ended June 30, 2015, a decrease of 3.1%. Adjusted EBITDA1 of $199.2 million for the six months ended June 30, 2016 compared to $205.9 million for the six months ended June 30, 2015, a decrease of 3.3%.

  * Total contracted operating revenues were $2.8 billion2 as of June 30, 2016, with charters extending through 2028 and remaining average contracted charter duration of 6.8 years, weighted by aggregate contracted charter hire.

  * Charter coverage of 94.8%2 for the next 12 months in terms of operating revenues and 84.7% in terms of contracted operating days.
 
Danaos' CEO Dr. John Coustas commented:
We are pleased to report yet another strong quarter with adjusted net income of $47.7 million, or $0.43 per share, an increase of $9.7 million, or 25.5%, from the adjusted net income of $38.0 million, or $0.35 per share, reported for the second quarter of 2015. This increase is mainly attributable to a reduction in net finance costs of $12.7 million resulting from the expiration of interest rate swaps and lower debt balances and is partially offset by a $3.2 million reduction of our EBITDA for reasons described in the discussion of our financial results. The continued de-leveraging of our balance sheet combined with the expiration of all the expensive legacy interest rate swaps, particularly given the current low interest rate environment, will result in continuously improving financing costs throughout 2016 and beyond.

The containership market continues to be extremely challenging but is now moving sideways, an indication that we have likely reached the bottom. The idle fleet now stands at approximately 6%, while global fleet utilization is hovering at around 75%. The charter market as well as asset values have fallen to historical lows as liner companies, in an effort to contain costs, are releasing surplus chartered-in capacity and seeking charter concessions and flexible hire periods from the vessel owners. We anticipate the market environment to remain unchanged for the remainder of the year, over which we will also start to experience the effect of the expanded Panama Canal which will shift demand from panamax to post-panamax vessels. We are cautiously optimistic that market fundamentals will gradually begin to improve by the spring of 2017. A combination of anticipated improving world GDP growth ad declining growth in the containership fleet will naturally begin to balance the market. Additionally, there is an expectation that consolidation in the liner industry – through alliances or otherwise – will create stability and encourage freight rate discipline which will hopefully put an end to the losses the liner companies have been reporting over the last quarters.

On July 15, 2016, in a transaction through which existing shareholders of Hyundai Merchant Marine ("HMM") were effectively wiped out, we entered into an agreement with HMM to reduce its charter rates by 20% for the next 3.5 years, in exchange for $39 million in debt notes maturing up to 2024 and 4.6 million common shares in HMM that are expected to be freely tradable on the Stock Market Division of the Korean Exchange. After the agreed 3.5 year period, the original contracted rates will be restored. We believe that this agreement has been structured in a manner that preserves the value of our charters, and we are pleased to have reached an outcome that will strengthen the financial profile of one of our important counterparts. Separately, Hanjin Shipping has publicly announced its intention to restructure its balance sheet and seek concessions from charter owners. Discussions are ongoing, and we cannot speculate on the timing or the nature of the resolution.

Danaos continues to have minimal near term exposure to the weak spot market, with 95% of charter cover in terms of operating revenues for the next 12 months. Additionally, our continued focus on cost containment has reduced our daily operating costs to $5,800 per day for the second quarter. This clearly positions us as one of the most efficient operators in the industry, which is particularly beneficial in today's environment.

Amidst this challenging economic environment we will remain singularly focused on preserving value, de-levering our balance sheet, managing our fleet efficiently and capitalizing on the resilience of our business model. Three months ended June 30, 2016 compared to the three months ended June 30, 2015.