Danaos Corp
NYSE:DAC
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Danaos Corp
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Good day and welcome to the Danaos Corporation Conference Call to discuss the financial results for the three months ended March 31, 2018. As a reminder, today's call is being recorded.
Hosting the call today is Dr. John Coustas, Chief Executive Officer of Danaos Corporation, and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments and then we will open the call to a question-and-answer session. Gentlemen, please go ahead.
Thank you and good morning everyone and thank you for joining us today. Before we begin, I quickly want to remind everyone that management's remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projected today. These forward-looking statements are made as of today and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC and we encourage you to review the detailed Safe Harbor and Risk Factor disclosures.
Please also note that where we feel appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted net income to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials.
With that, let me now turn the call over to Dr. Coustas, who will provide the broad overview of the quarters. John?
Thank you, Evangelos. Good morning and thank you all for joining today's call to discuss our results for the first quarter of 2018. We are extremely pleased to have reached an agreement with certain of our lenders, currently holding $2.2 billion of debt maturing on December 31, 2018, that will significantly strengthen the company's capital structure through a debt reduction of $551 million.
This comprehensive debt refinancing will also strengthen the company's financial position through a resetting of financial and certain other covenants and credit facilities, a modification of interest rates and amortization profiles, and an extension of existing debt maturities by approximately five years to December 31, 2023. In connection with these debt write downs, we will issue just under 100 million shares of common stock to certain of our lenders.
This is the culmination of a lengthy negotiation process we have undertaken with our lenders that will position Danaos for long-term success. I would like to thank all of our lenders for their support, as well as our financial and legal advisors for their assistance. The Danaos management team looks forward to the completion of this transaction, which is expected to occur by July 31, 2018.
In the near-term, we maintain high charter contract coverage of 90% over the next 12 months based on current operating revenues and 81% in terms of contracted operating days. The charter market has stabilized at current levels although trade tensions tend to make liner companies hesitant to commit for longer period. The benefit, conversely, may be a reduction of speculative ordering or ordering by liner companies, a condition that would improve market condition.
Danaos continues to be a leader in the container shipping industry, as a result of our intense focus on continuously enhancing our operations and leveraging technical innovation to provide the highest quality of service to our customers. Our industry has undergone significant changes during the past few years. And with the improved capital structure contemplated by our comprehensive re-financing agreement, we will be well positioned to take advantage of the growth opportunities in the container sector and create value for our shareholders.
With that, I’ll hand over the call back to Evangelos who will take you through the financials for the quarter. Evangelos?
Thanks and good morning again to everyone and thanks for joining us this morning. I will make brief remarks on the results for the quarter and then give call participants the opportunity to ask questions.
Adjusted net income of $27.9 million for the first quarter of 2018 or $0.25 per share represents an increase of 14% or $3.4 million, when compared to adjusted net income of $24.5 million or $0.22 per share for the first quarter of 2017. This increase was attributable to a $1.8 million increase in operating revenues, combined with a $3.9 million decrease in total operating expenses, partially offset by $2.3 million increase in net finance costs.
As previously reported, the company is in breach of certain financial covenants. We are finalizing the definitive documentation relating to the refinancing agreement that would be executed around the end of July and will discharge all over the company’s obligations under the relevant existing credit facilities. At which point financial covenants will be reset to sustainable levels.
Vessel operating expenses decreased by 2.5% or $700,000 to $26.8 million in the current quarter from $27.5 million in the first quarter of 2017, while the average daily vessel operating costs was $5,850 per day for the quarter and remains as one of the most competitive in the industry.
G&A expenses decreased by $0.9 million to $5.2 million in the current quarter compared to $6.1 million in the first quarter of 2017. Interest expense excluding amortization of deferred finance costs increased as mentioned previously by $2.3 million to $20.3 million in the current quarter compared to $18 million in the first quarter of 2017, mainly as a result of approximately 64 basis points of higher LIBOR rates between the two quarters. This increase in LIBOR was partially offset by our persistent efforts to de-lever our balance sheet, during the last 12 months we reduced our indebtedness by $177 million.
Finally, adjusted EBITDA increased by 5.7% or $4.1 million to $76.6 million in the current quarter from $72.5 million in the first quarter of 2017, for the reasons I outlined earlier on this call.
With that, I would like to thank you for listening to this first part of our call. Operator we are ready to open the call to Q&A.
We will now begin the question-and-answer session. [Operator instructions] The first question today -- [Operator Instructions] First question today comes from Randy Giveans with Jefferies. Please go ahead.
Hey, thank you and good morning. So, yes, just a few quick questions for me and congrats first of all on the debt refinancing here. Now looking at short-term rates on the 4,000 TEU vessels. They're up to around $10,000, $11,000, $12,000 a day. What's the current one and three year time charter rates on that sector? And how robust is that market?
Well Randy, there are no three year deals on that sector. As I said, the actual, the current rates on let's say, these baby Panamaxes today maybe around, maybe $12,000, but these are one year rates. And that's why with the whole uncertainty in -- mainly in the trade environment.
Although the underlying dynamics are pretty solid. Charters do not want to commit for longer periods. So we are in a kind of a situation that the market is relatively healthy. But the uncertainty is keeping the trade commitments and rates from rising.
Got it. Okay. And then on the $555 million debt repayment or refinancing. Can you talk about some of the new kind of any more schedule for the remaining debt and then kind of the terms around that?
Well, I think that there is a pretty detailed description of all that in the 6K. But, I mean, what is really important is that this is based on a kind of a general overall 10 year profile, which is not of course completely homogenous, but roughly this is the idea. And it’s based on a fixed plus variable amortization of up to 85%, which makes it like a 85% sweep eventually, which is extremely beneficial to the company in terms of let's say the ability to sell this. Because it's going to withstand whatever let's say market fluctuation in the future.
Although, we have assumed also pretty conservative rechartering scenario. Nevertheless it's a pretty solid, let's say arrangement. Because everyone from all participating banks wanted to ensure that we will have a pretty smooth ride until 2023.
Okay. And then last question, speaking of the recent 6K and there is an amendment to allow the company for reverse stock split. Can you provide more information about this? And how soon you may be expecting to complete that reverse split?
We do not have taken any decision. We just wanted to have that kind of option. And it all has to do with the market ability of our stock, I mean, as you know, let's say, kind of there is a $5 threshold that a lot of investors are using to be able to invest in a certain spot. So we will evaluate that in the next few months to see whether if something like that warrant [ph] the strength to add value overall to the ability of the stock.
Sure. Okay, well I think that’s it for me. Thank you so much.
Thank you.
[Operator Instructions] As there appears to be no further questions. I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks.
Thank you all for joining this conference call and your continued interest in our story. We look forward to hosting you on our next earnings call when hopefully we will have also consummated our refinancing transaction. Have a nice day.
Thank you. This concludes today's conference. We would like to thank everyone for the participation. Have a wonderful afternoon.