Danaos saw revenues fall to $111.8 million for the third quarter of this year compared with $144.5 million a year prior.
John Coustas, the chief executive officer of Danaos, said that as a result of the Hanjin bankruptcy, the company did not recognize any operating revenues for the vessels that had been chartered to Hanjin during the quarter. "This reduced our operating revenues by $24.8 million and was the main contributor to the $21 million reduction in our adjusted net income to $22.8 million (in the third quarter of 2016) compared to an adjusted net income of $43.8 million in the third quarter of 2015.
“Setting aside the significant effect of the Hanjin bankruptcy on our operating revenues and our bottom line, we have otherwise managed to improve our adjusted net income by $3.8 million, mainly due to a $10.2 million improvement in our net finance costs resulting from the continued de-leveraging of our balance sheet, interest rate swap expirations and a $1.3 million reduction in total operating expenses, partially offset by a $8 million reduction in operating revenues attributed to lower fleet utilization, the sale of the Federal (a 1994-built ship) during the first quarter, and lower re-chartering rates for certain of our vessels in a softer charter market,” he added.
Danaos said all eight of the Hanjin vessels have been returned and that it had re-chartered five, 3,400-TEU vessels for short terms at market rates. Danaos also said it is negotiating to charter three, 10,100-TEU vessels, which it expects to be deployed after the end of the first quarter of 2017.
In a call with securities analysts on Friday, Coustas said, "Everyone that we’ve been talking to is still in the sidelines. I presume that we will start having more firm discussions early in the New Year, I mean within January or February."
Coustas said container freight rates are "holding up" and there has been an increase in rates on the Europe-Far East trade lanes that will "benefit the stability of our counterparties." He said the charter market is "still in the doldrums" because of all the ships formerly operated by Hanjin that are now looking for employment.
Hanjin had chartered the three, 10,100-TEU ships until 2023 and the five, 3,400-TEU ships until 2020 or 2021. Those charters represented about $560 million of Danaos' $2.8 billion of contracted revenues as of June 30, 2016.
“As a result of these events, we ceased recognizing revenue from Hanjin Shipping effective from July 1, 2016 onwards and recognized a bad debt expense amounting to $15.8 million relating to unpaid charter hire recorded as accounts receivable as of June 30, 2016 in our condensed consolidated statements of income for the nine-month period ended September 30, 2016," Danaos said. "We have an unsecured claim for unpaid charter hire, charges, expenses and loss of profit against Hanjin Shipping totaling $597.9 million submitted to the Bankruptcy Court of Seoul.
“As a result of a decrease in our operating income and charter-attached market value of certain of our vessels caused mainly by the cancellation of our eight charters with Hanjin Shipping, we were in breach of the minimum security cover, consolidated net leverage and consolidated net worth financial covenants contained in our bank agreement and our other credit facilities as of September 30, 2016," Danaos said. "We have obtained waivers of the breaches of these financial covenants covering the period until April 1, 2017. As these waivers were obtained for a period of less than the next 12 months, and in accordance with the guidance related to the classification of obligations that are callable by the lenders, we have classified our long-term debt, net of deferred finance costs as current. Notwithstanding the negative consequences of the Hanjin bankruptcy, the company is currently in a position to fully service all of its operational and contractual financial obligations.”
Danaos also said that in July 2016, it had entered into a charter restructuring agreement with Hyundai Merchant Marine (HMM) as part of the agreements the carrier reached with creditors and owners of ships it had been chartering.
“The charter restructuring agreement provides for a 20 percent reduction, for the period until December 31, 2019 (or earlier charter expiration in the case of eight vessels), in the charter hire rates payable for 13 of our vessels currently employed with HMM,” the company said.
In exchange for those concessions, Danaos said it received from HMM:
• A $32.8 million principal amount of senior, unsecured loan notes, amortizing subject to available cash flows, which accrue interest at 3 percent per year, payable on maturity in July 2024;
• A $6.2 million principal amount of senior, unsecured, non-amortizing loan notes, which accrue interest at 3 percent per year, payable on maturity in December 2022;
• And 4.64 million HMM shares issued on July 23, 2016, which were sold for cash proceeds of $38.1 million on Sept. 1, 2016.
Danaos said the money it received from the stocks sale constituted a 98 percent recovery of the $39 million charter hire concession for which it was compensated with HMM shares.
“Despite the effective recovery at par on a cash basis, we recorded a non-cash accounting loss of $12.9 million on the sale of these shares, reflecting the difference between the book value and the sale price of the shares, which has been included within our adjusted net income calculation,” the company said.
Danaos said it “continues to have low near term exposure to the weak spot market compared to current operating revenues with 95 percent of charter cover in terms of third quarter operating revenues and 79 percent in terms of contracted operating days for the next 12 months.”