KBRA affirms Seaspan Corporation’s (Seaspan, or the “Company”) BB+ issuer rating and the BB+ rating on Seaspan’s $750 million senior unsecured notes due August 2029 (the “unsecured Notes”). KBRA also affirms the BBB ratings of Seaspan’s $250 million Term Loan due October 2026, $1.1 billion Term Loan due May 2026, $410 million Term Loan due May 2027, and $400 million Revolving Credit Facility due May 2026 comprising the secured Vessel Portfolio Financing Program (together, “the Facilities”). The ratings Outlook is Stable.

The ratings reflect Seaspan’s leading market position in the global containership leasing industry, with its fully delivered fleet representing approximately 13% of the fully delivered leased global fleet by TEU count, stable cash flows generated through long-term charters, solid liquidity profile and diverse funding sources. As of December 31, 2022 (FYE2022), Seaspan had 189 vessels in its fleet, including 58 newbuilds with full funding commitments delivering through December 2024. Seaspan’s customer base is diversified across the largest container liners, albeit with some customer concentration inherent in the consolidated liner industry. As of FYE2022, Seaspan has $18 billion of gross contracted cash flows on its charters with an average remaining length of 7.7 years on a TEU-weighted basis. KBRA views the solid contracted revenue base favorably as it provides revenue stability which helps to mitigate the historical cyclicality of the shipping industry.

The ratings are also supported by Seaspan’s consistent operating performance and solid financial metrics through various market cycles and disruptions. The Company has maintained stability in its operations with a strong average vessel utilization of 99% since 2005, and a utilization of 98% during the Covid-19 pandemic. Seaspan has adequate liquidity supported by its strong operating cash flow generation, available credit lines and solid access to the capital markets. As of FYE2022, Seaspan had 38 unencumbered vessels with an NBV of $1.85 billion. Seaspan’s leverage has been stable at approximately 1.5x debt-to-equity over the past few years, which is consistent with the Company’s target level of 50-60% debt-to-tangible-assets. The ratings are constrained by the inherent high customer concentration in leading liner companies, the growing global fleet orderbook that poses future recharter risk, as well as the cyclical nature of the shipping industry.

The ratings of the Facilities are two notches above Seaspan’s issuer rating, reflecting strong collateral security with a diversified and in-demand 48-vessel portfolio that is considered strategically important to Seaspan’s operations. The collateral appraised value was $3.8 billion as of March 2023, which exceeds the Facilities outstanding amount of $2.5 billion with an LTV of 66%. The senior unsecured Notes rating is the same as the issuer rating reflecting Seaspan’s significant amount of unencumbered assets of $1.8 billion on a net book value basis as of FYE2022, which provides adequate coverage over its unsecured debt obligations and supports potential recovery in case of stress.

Rating Sensitivities

The rating Outlook is Stable, therefore, a rating upgrade in the near future is not expected. However, demonstrated stability of earnings metrics over time, maintenance of lower leverage levels, further diversification of funding, significant increase in unencumbered assets and improved customer diversification could lead to an upgrade. A sustained downturn in global trade which leads to financial stress of a significant customer, decline in utilization rate or charter rates, such that earnings or leverage metrics materially deteriorate, could lead to a downgrade. Credit deterioration at the Atlas holding company level such that Seaspan’s capital or liquidity position could be impacted, could also lead to negative rating pressure. The senior secured ratings are dependent on the issuer rating as well as the market value of the secured collateral and could be downgraded if the Facilities LTV increases significantly, reflected through fewer upward notches from the issuer rating. The senior unsecured rating could be downgraded if the value of unencumbered assets materially declines and does not cover outstanding unsecured debt.

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Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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