424B5 1 d424b5.htm FINAL PROSPECTUS SUPPLEMENT Final Prospectus Supplement
Table of Contents

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-168938

PROSPECTUS SUPPLEMENT

(To Prospectus dated August 19, 2010)

4,000,000 Shares

9.50% Series C Cumulative Redeemable Perpetual

Preferred Shares

LOGO

Seaspan Corporation

(Liquidation Preference $25 Per Share)

 

 

The 4,000,000 of our 9.50% Cumulative Redeemable Perpetual Series C Preferred Shares, par value $0.01 per share, liquidation preference $25.00 per share (the “Series C Preferred Shares”), offered hereby are being offered in addition to the initial 10,000,000 9.50% Cumulative Redeemable Perpetual Series C Preferred Shares issued on January 28, 2011 (the “Initial Series C Preferred Shares”) and will be treated as a single series of preferred shares with the Initial Series C Preferred Shares.

Dividends on the Series C Preferred Shares are cumulative from January 28, 2011 and will be payable quarterly in arrears on the 30th day of January, April, July and October of each year, when, as and if declared by our board of directors. The initial dividend on the Initial Series C Preferred Shares was paid on May 2, 2011. The initial dividend on the Series C Preferred Shares offered hereby will be payable on July 30, 2011. Because investors in the Series C Preferred Shares will (subject to declaration by our board of directors or any authorized committee thereof out of legally available funds) receive a full dividend on July 30, 2011, the public offering price includes accrued dividends to May 25, 2011, the anticipated settlement date for this offering. Dividends will be payable out of amounts legally available therefor at an initial rate equal to 9.50% per annum of the stated liquidation preference, subject to adjustment as described in this prospectus supplement.

At any time on or after January 30, 2016, the Series C Preferred Shares may be redeemed, in whole or in part, out of amounts legally available therefor, at a redemption price of $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to the date of redemption, whether or not declared. If (i) we fail to comply with certain covenants (a “Covenant Default”), (ii) we experience certain defaults under any of our credit facilities (a “Cross Default”), (iii) four quarterly dividends payable on the Series C Preferred Shares are in arrears (a “Dividend Payment Default”) or (iv) the Series C Preferred Shares are not redeemed in whole by January 30, 2017 (a “Failure to Redeem”), the dividend rate payable on the Series C Preferred Shares shall increase, subject to an aggregate maximum rate per annum of 25% prior to January 30, 2016 and 30% thereafter, to a rate that is 1.25 times the dividend rate payable on the Series C Preferred Shares as of the close of business on the day immediately preceding the Covenant Default, Cross Default, Dividend Payment Default or Failure to Redeem, as applicable, and on each subsequent Dividend Payment Date, the dividend rate payable shall increase to a rate that is 1.25 times the dividend rate payable on the Series C Preferred Shares as in effect as of the close of business on the day immediately preceding such Dividend Payment Date, until the Covenant Default, Cross Default or Dividend Payment Default is cured or the Series C Preferred Shares are no longer outstanding. Please read “Description of Series C Preferred Shares—Dividends—Dividend Payment Dates—Increase in Base Dividend Rate Following a Covenant Default, Cross Default, Dividend Payment Default or Failure to Redeem.”

The Series C Preferred Shares are listed on The New York Stock Exchange under the symbol “SSW PR C.” On May 19, 2011, the last reported sale price of the Series C Preferred Shares on The New York Stock Exchange was $27.07 per share.

Investing in our Series C Preferred Shares involves a high degree of risk. Our Series C Preferred Shares have not been rated. Please read “Risk Factors” beginning on page S-21 of this prospectus supplement and page 5 of the accompanying base prospectus.

 

 

 

      

Per Share

      

Total

 

Public offering price (1)

     $ 27.15         $ 108,600,000   

Underwriting discount

     $ 0.850653         $ 3,402,612   

Proceeds (before expenses) to us

     $ 26.299347         $ 105,197,388   

 

  (1) Includes accrued dividends to May 25, 2011, the anticipated settlement date for this offering. If settlement is delayed, the public offering price will be increased for accrued dividends from May 25, 2011.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Series C Preferred Shares in book entry form through the facilities of The Depository Trust Company on or about May 25, 2011.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch   Citi

Sole Structuring Agent

 

Co-Managers

 

Dahlman Rose & Company      Jefferies

May 20, 2011


Table of Contents

ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying base prospectus, which gives more general information, some of which may not apply to this offering. Generally, when we refer to the “prospectus,” we are referring to both parts combined. If information in the prospectus supplement conflicts with information in the accompanying base prospectus, you should rely on the information in this prospectus supplement.

Any statement made in this prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated by reference into this prospectus modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

You should rely only on the information contained in or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of the Series C Preferred Shares in any state or jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus or the information that is incorporated by reference herein is accurate as of any date other than its respective date.

 

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Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

SUMMARY

     S-1   

RISK FACTORS

     S-21   

FORWARD-LOOKING STATEMENTS

     S-50   

USE OF PROCEEDS

     S-52   

RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE DIVIDENDS

     S-53   

CAPITALIZATION

     S-54   

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

     S-55   

THE INTERNATIONAL CONTAINERSHIP INDUSTRY

     S-57   

BUSINESS

     S-64   

MANAGEMENT

     S-87   

OUR MANAGER AND MANAGEMENT RELATED AGREEMENTS

     S-93   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     S-101   

FINANCING FACILITIES

     S-111   

DESCRIPTION OF CAPITAL STOCK

     S-113   

DESCRIPTION OF SERIES C PREFERRED SHARES

     S-118   

PRICE RANGE OF SERIES C PREFERRED SHARES

     S-129   

MARSHALL ISLANDS COMPANY CONSIDERATIONS

     S-130   

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     S-133   

NON-UNITED STATES TAX CONSEQUENCES

     S-139   

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     S-140   

UNDERWRITING (CONFLICT OF INTEREST)

     S-141   

LEGAL MATTERS

     S-147   

EXPERTS

     S-148   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     S-149   

ENFORCEABILITY OF CIVIL LIABILITIES

     S-151   

GLOSSARY OF SHIPPING TERMS

     S-152   

Base Prospectus

 

ABOUT THIS PROSPECTUS

     i   

ABOUT SEASPAN

     1   

RISK FACTORS

     5   

USE OF PROCEEDS

     6   

RATIO OF EARNINGS TO FIXED CHARGES

     7   

DESCRIPTION OF CAPITAL STOCK

     8   

DESCRIPTION OF PREFERRED SHARES

     10   

DESCRIPTION OF THE WARRANTS

     11   

DESCRIPTION OF THE RIGHTS

     12   

DESCRIPTION OF THE DEBT SECURITIES

     13   

DESCRIPTION OF UNITS

     23   

U.S. FEDERAL TAX CONSIDERATIONS

     25   

NON-U.S. TAX CONSIDERATIONS

     33   

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     34   

LEGAL MATTERS

     35   

PLAN OF DISTRIBUTION

     36   

EXPERTS

     38   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     39   

ENFORCEMENT OF CIVIL LIABILITIES

     41   

FORWARD-LOOKING STATEMENTS

     42   

 

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Table of Contents

SUMMARY

This summary highlights important information contained elsewhere in this prospectus supplement and the accompanying base prospectus. You should carefully read this prospectus supplement, the accompanying base prospectus and the documents incorporated by reference to understand fully our business and the terms of our Series C Preferred Shares, as well as the tax and other considerations that are important to you in making your investment decision. You should consider carefully the “Risk Factors” section beginning on page S-21 of this prospectus supplement and on page 5 of the accompanying base prospectus to determine whether an investment in our Series C Preferred Shares is appropriate for you. Unless otherwise indicated, all references in this prospectus supplement to “dollars” and “$” are to, and amounts are presented in, U.S. Dollars, and financial information presented in this prospectus supplement is prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

Unless we otherwise specify, when used in this prospectus supplement, the terms “Seaspan,” the “Company,” “we,” “our” and “us” refer to Seaspan Corporation and its subsidiaries, except that when such terms are used in this prospectus supplement in reference to the Series C Preferred Shares, they refer specifically to Seaspan Corporation. References to our Manager are to Seaspan Management Services Limited and its wholly owned subsidiaries, which provide us with all of our technical, administrative and strategic services.

Shipbuilders: References to Samsung are to Samsung Heavy Industries Co., Ltd. References to HHI are to Hyundai Heavy Industries Co., Ltd. References to HSHI are to Hyundai Samho Heavy Industries Co., Ltd., a subsidiary of HHI. References to Jiangsu are to Jiangsu Yangzijiang Shipbuilding Co., Ltd. References to New Jiangsu are to Jiangsu New Yangzi Shipbuilding Co., Ltd. References to Zhejiang are to Zhejiang Shipbuilding Co. Ltd. References to Odense-Lindo are to Odense-Lindo Shipyard Ltd.

Customers: References to CSCL Asia are to China Shipping Container Lines (Asia) Co., Ltd., a subsidiary of China Shipping Container Lines Co., Ltd., or CSCL. References to APM are to A.P. Møller-Mærsk A/S. References to HL USA are to Hapag-Lloyd USA, LLC, a subsidiary of Hapag-Lloyd, AG, or Hapag-Lloyd. References to COSCON are to COSCO Container Lines Co., Ltd., a subsidiary of China COSCO Holdings Company Limited. References to K-Line are to Kawasaki Kisen Kaisha Ltd. References to MOL are to Mitsui O.S.K. Lines, Ltd. References to CSAV are to Compañia Sud Americana De Vapores S.A. References to UASC are to United Arab Shipping Company (S.A.G.).

Our Company

We are a leading independent charter owner of containerships, which we charter primarily pursuant to long-term, fixed-rate time charters to major container liner companies. As of May 10, 2011, our operating fleet included 60 containerships (including four leased vessels), and we had entered into contracts for the purchase of an additional six containerships and contracts to lease an additional three containerships, all of which are currently or will be under construction, and have scheduled delivery dates through April 2012. Each of these newbuilding vessels will commence operation under long-term, fixed-rate charters upon delivery.

Customers for our operating fleet are CSCL Asia, HL USA, APM, COSCON, CSAV, MOL, K-Line and UASC. Customers for the additional nine newbuilding vessels will include K-Line and COSCON. Our primary objective is to continue to grow our business through accretive vessel acquisitions as market conditions allow.

We primarily deploy our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters. As of May 10, 2011, the charters on the 60 vessels in our operating fleet had an average remaining term of approximately seven years, excluding the effect of charterers’ options to extend certain time charters.

 

 

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Our Fleet

Our Operating Fleet

The following table summarizes key facts regarding our vessels as of May 10, 2011:

 

Vessel Name

  Vessel
Class
(TEU)
    Year
Built
    Charter
Start
Date
    Charterer     Length of Time Charter   Daily Charter Rate  
                                (in thousands)  

CSCL Zeebrugge

    9600        2007        3/15/07        CSCL Asia      12 years   $ 34.0 (1) 

CSCL Long Beach

    9600        2007        7/6/07        CSCL Asia      12 years     34.0 (1) 

CSCL Oceania

    8500        2004        12/4/04        CSCL Asia      12 years + one 3-year option     29.8 (2) 

CSCL Africa

    8500        2005        1/24/05        CSCL Asia      12 years + one 3-year option     29.8 (2) 

COSCO Japan

    8500        2010        3/9/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Korea

    8500        2010        4/5/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Philippines

    8500        2010        4/24/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Malaysia

    8500        2010        5/19/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Indonesia

    8500        2010        7/5/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Thailand

    8500        2010        10/20/10        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Prince Rupert

    8500        2011        3/21/11        COSCON      12 years + three one-year options     42.9 (3) 

COSCO Vietnam

    8500        2011        4/21/11        COSCON      12 years + three one-year options     42.9 (3) 

MOL Emerald

    5100        2009        4/30/09        MOL      12 years     28.9   

MOL Eminence

    5100        2009        8/31/09        MOL      12 years     28.9   

MOL Emissary

    5100        2009        11/20/09        MOL      12 years     28.9   

MOL Empire

    5100        2010        1/8/10        MOL      12 years     28.9   

Maersk Merritt

    4800        1989        11/6/06        APM      5 years + two 1-year options + one
2-year option
(4)
    23.5 (4) 

Cap Victor

    4800        1988        11/20/06        APM      5 years + two 1-year options + one
2-year option
    23.5 (4) 

Cap York

    4800        1989        12/6/06        APM      5 years + two 1-year options + one
2-year option
    23.5 (4) 

Maersk Moncton

    4800        1989        12/22/06        APM      5 years + two 1-year options + one
2-year option
    23.5 (4) 

Brotonne Bridge (5)

    4500        2010        10/25/10        K-Line      12 years + two 3-year options     34.3 (6) 

Brevik Bridge (5)

    4500        2011        1/25/11        K-Line      12 years + two 3-year options     34.3 (6) 

Bilbao Bridge (5)

    4500        2011        1/28/11        K-Line      12 years + two 3-year options     34.3 (6) 

Berlin Bridge (5)

    4500        2011        5/9/11        K-Line      12 years + two 3-year options     34.3 (6) 

CSAV Licanten (7)

    4250        2001        7/3/01        CSCL Asia      10 years + one 2-year option(8)     18.3 (8) 

CSCL Chiwan

    4250        2001        9/20/01        CSCL Asia      10 years + one 2-year option(8)     18.3 (8) 

CSCL Ningbo

    4250        2002        6/15/02        CSCL Asia      10 years + one 2-year option     19.7 (9) 

CSCL Dalian

    4250        2002        9/4/02        CSCL Asia      10 years + one 2-year option     19.7 (9) 

CSCL Felixstowe

    4250        2002        10/15/02        CSCL Asia      10 years + one 2-year option     19.7 (9) 

CSCL Vancouver

    4250        2005        2/16/05        CSCL Asia      12 years     17.0   

CSCL Sydney

    4250        2005        4/19/05        CSCL Asia      12 years     17.0   

CSCL New York

    4250        2005        5/26/05        CSCL Asia      12 years     17.0   

CSCL Melbourne

    4250        2005        8/17/05        CSCL Asia      12 years     17.0   

CSCL Brisbane

    4250        2005        9/15/05        CSCL Asia      12 years     17.0   

New Delhi Express

    4250        2005        10/19/05        HL USA      3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Dubai Express

    4250        2006        1/3/06        HL USA      3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

 

 

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Vessel Name

  Vessel
Class
(TEU)
    Year
Built
    Charter
Start
Date
    Charterer   Length of Time Charter   Daily Charter Rate  
                              (in thousands)  

Jakarta Express

    4250        2006        2/21/06      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Saigon Express

    4250        2006        4/6/06      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Lahore Express

    4250        2006        7/11/06      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Rio Grande Express

    4250        2006        10/20/06      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Santos Express

    4250        2006        11/13/06      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Rio de Janeiro Express

    4250        2007        3/28/07      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

Manila Express

    4250        2007        5/23/07      HL USA   3 years + seven 1-year extensions
+ two 1-year options
(10)
    18.0 (11) 

CSAV Loncomilla

    4250        2009        4/28/09      CSAV   6 years     25.9   

CSAV Lumaco

    4250        2009        5/14/09      CSAV   6 years     25.9   

CSAV Lingue

    4250        2010        5/17/10      CSAV   6 years     25.9   

CSAV Lebu

    4250        2010        6/7/10      CSAV   6 years     25.9   

UASC Madinah

    4250        2009        7/1/10      UASC   2 years     20.5 (12) 

COSCO Fuzhou

    3500        2007        3/27/07      COSCON   12 years     19.0   

COSCO Yingkou

    3500        2007        7/5/07      COSCON   12 years     19.0   

CSCL Panama

    2500        2008        5/14/08      CSCL Asia   12 years     16.8 (13) 

CSCL São Paulo

    2500        2008        8/11/08      CSCL Asia   12 years     16.8 (13) 

CSCL Montevideo

    2500        2008        9/6/08      CSCL Asia   12 years     16.8 (13) 

CSCL Lima

    2500        2008        10/15/08      CSCL Asia   12 years     16.8 (13) 

CSCL Santiago

    2500        2008        11/8/08      CSCL Asia   12 years     16.8 (13) 

CSCL San Jose

    2500        2008        12/1/08      CSCL Asia   12 years     16.8 (13) 

CSCL Callao

    2500        2009        4/10/09      CSCL Asia   12 years     16.8 (13) 

CSCL Manzanillo

    2500        2009        9/21/09      CSCL Asia   12 years     16.8 (13) 

Guayaquil Bridge

    2500        2010        3/8/10      K-Line   10 years     17.9   

Calicanto Bridge

    2500        2010        5/30/10      K-Line   10 years     17.9   

 

(1) CSCL Asia has an initial charter of 12 years with a charter rate of $34,000 per day, increasing to $34,500 per day after six years.

 

(2) CSCL Asia has an initial charter of 12 years with a charter rate of $29,500 per day for the first six years, $29,800 per day for the second six years, and $30,000 per day during the three-year option.

 

(3) COSCON has an initial charter of 12 years with a charter rate of $42,900 per day for the initial term and $43,400 per day for the three one-year options.

 

(4) APM has an initial charter of five years at $23,450 per day, two consecutive one-year options to charter the vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter the vessel at $20,400 per day. APM has exercised its first one-year option on the Maersk Merritt.

 

(5) This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

 

 

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(6) K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

 

(7) The name of the CSCL Hamburg was changed to CSAV Licanten in November 2010, in connection with a sub-charter from CSCL to CSAV.

 

(8) CSCL Asia has an initial charter of ten years with a charter rate of $18,000 per day for the first five years, $18,300 per day for the second five years, and $19,000 per day for the two-year option. CSCL Asia has exercised its options on the CSAV Licanten and the CSCL Chiwan.

 

(9) CSCL Asia has an initial charter of ten years with a charter rate of $19,933 per day for the first five years, $19,733 per day for the second five years, and $20,500 per day for the two-year option.

 

(10) For these charters, the initial term was three years, which automatically extends for up to an additional seven years in successive one-year extensions, unless HL USA elects to terminate the charters with two years’ prior written notice. HL USA would have been required to pay a termination fee of approximately $8.0 million to terminate a charter at the end of the initial term. The termination fee declines by $1.0 million per year per vessel in years four through nine. The initial terms of the charters for these vessels have expired, and these charters have automatically extended pursuant to their terms.

 

(11) HL USA had an initial charter of three years that automatically extends for up to an additional seven years with a charter rate of $18,000 per day, and $18,500 per day for the two one-year options.

 

(12) UASC has a charter of two years with a charter rate of $20,500 per day for the first year, increasing to $20,850 per day for the second year. In addition, we pay a 1.25% commission to a broker on all hire payments for this charter.

 

(13) CSCL Asia has a charter of 12 years with a charter rate of $16,750 per day for the first six years, increasing to $16,900 per day for the second six years.

New Vessel Contracts

Our primary objective is to acquire additional containerships as market conditions allow, and to enter into additional long-term, fixed-rate time charters for such vessels.

As of May 10, 2011, we had contracted to purchase six additional containerships and to lease an additional three, all of which are currently or will be under construction, and have scheduled delivery dates through April 2012.

 

 

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Table of Contents

As at May 10, 2011, the six newbuilding containerships that we have contracted to purchase and the three newbuilding containerships that we have contracted to lease consist of the following vessels:

 

Vessel

   Vessel
Class
(TEU)
    Length of Time Charter (1)   Charterer     Daily Charter
Rate
    Scheduled
Delivery
Date
    Shipbuilder
                     (in thousands)            

Hull No. S452

     13100      12 years     COSCON      $ 55.0        2012      HSHI

Hull No. 2177

     13100      12 years     COSCON        55.0        2011      HHI

Hull No. S453

     13100      12 years     COSCON        55.0        2011      HSHI

Hull No. 2178

     13100      12 years     COSCON        55.0        2012      HHI

Hull No. S454

     13100      12 years     COSCON        55.0        2012      HSHI

Hull No. 2179

     13100      12 years     COSCON        55.0        2011      HHI

Hull No. 2180(2)

     13100      12 years     COSCON        55.0        2012      HHI

Hull No. 2181(2)

     13100      12 years     COSCON        55.0        2011      HHI

Budapest Bridge(2)

     4500      12 years + two three-year options     K-Line        34.3 (3)      2011      Samsung

 

(1) Each charter is scheduled to begin upon delivery of the vessel to the relevant charterer.

 

(2) This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

 

(3) K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

The following chart details the number of vessels in our fleet based on scheduled remaining delivery dates as of May 10, 2011:

 

       Year Ending December 31,  
     Scheduled  
         2011                2012      

Deliveries

       5           4   

Operating Vessels

       65           69   

Approximate Total Capacity (TEU)

       352,700           405,100   

Market Opportunity

We believe that the recent financial crisis and dislocation of the containership sector has created an opportunity for ship owners with access to capital to acquire vessels at attractive prices and employ them in a manner that will generate attractive returns on capital and is accretive to cash flow. Due to financial constraints of ship owners and the decrease in global trade, few orders for newbuilding containerships were placed in recent years and there is a limited amount of vessel capacity scheduled to enter the market after 2012. We believe that the containership sector is recovering and that supply and demand dynamics for containerized trade are relatively favorable for vessel owners.

We intend to continue to expand our fleet primarily through entering into newbuilding contracts with shipyards, but believe that there will also be select opportunities to acquire existing or newbuilding vessels from other shipowners, shipbuilders due to defaulting purchasers under construction contracts, or banks and other lessors that may acquire vessels upon borrower or lessee defaults. We believe we are well positioned to take advantage of current market opportunities. Without giving effect to the net proceeds from this offering, our January 2011 offering of the Initial Series C Preferred Shares, or any additional debt capacity as a result thereof, we believe that we will be able to fund the remaining payments for the nine containerships that we have

 

 

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contracted to purchase and lease through the availability under our current credit and lease facilities and current and anticipated operating cash flows less dividends. We will be able to use the proceeds from this offering and our January 2011 offering, combined with additional debt capacity as a result thereof (exclusive of amounts committed to finance the remaining payments on the nine vessels we have agreed to purchase and lease), to fund additional growth beyond our contracted fleet.

We may seek to undertake the acquisition of quality newbuilding or secondhand vessels through asset or business acquisitions, and we regularly consider potential opportunities. We are at various stages of actively evaluating and discussing opportunities that involve a significant number of secondhand vessels. In evaluating these opportunities, we consider, among other things, the size of the vessels and the tenor of the related time charters relative to those in our existing fleet. We anticipate that we would fund the purchase price for any secondhand vessels we may acquire primarily through the assumption of debt, with the balance funded through borrowings under our existing credit facilities, cash (including proceeds from this offering and our January 2011 offering), other financings or a combination thereof. There can be no assurance that we will be able to acquire any of the containerships opportunities we are evaluating.

Our Competitive Strengths

We believe that we possess a number of competitive strengths that will allow us to capitalize on the opportunities in the containership industry, including the following:

 

   

Enhanced stability of cash flows through long-term, fixed-rate time charters. Our vessels are primarily subject to long-term, fixed-rate time charters, which had an average remaining term of approximately seven years as of May 10, 2011. As a result, nearly all of our revenue is protected from the volatility of spot rates and short-term charters. To further promote cash flow stability, we have primarily placed newbuilding orders and purchased secondhand vessels when we have concurrently entered into long-term time charters with our customers. As of March 31, 2011, and excluding any extensions of our time charters, we had approximately $6.4 billion of contracted future revenue under existing fixed-rate time charters, including approximately $2.4 billion attributable to time charters for the remaining 11 newbuilding containerships that we had contracted to purchase and lease.

 

   

Significant built-in fleet growth. We have significantly grown our fleet since our initial public offering in August 2005. At that time, we had an operating fleet of 10 vessels with another 13 vessels on order, aggregating 116,950 TEU. As of May 10, 2011, we had 60 vessels in service and nine vessels on order, aggregating 405,100 TEU, an increase of 246.4% in TEU capacity. The aggregate capacity of the nine newbuilding vessels, with scheduled delivery dates through April 2012, represents over 36% of the aggregate capacity of our vessels currently in service.

 

   

Proven ability to source capital for growth. Since our initial public offering in 2005, we have successfully accessed capital to grow our fleet. Including our initial public offering, we have raised over $2.0 billion in public and private issuances of equity securities. In addition, we have secured credit and lease facilities with aggregate outstanding borrowings and commitments of $4.1 billion as of March 31, 2011. We also accessed capital during the recent economic downturn, including raising preferred share equity and entering into sale-leaseback financings. We will be able to use the proceeds from this offering and our January 2011 offering of the Initial Series C Preferred Shares, combined with additional debt capacity as a result thereof (exclusive of amounts committed to finance the remaining payments on the nine vessels we have agreed to purchase and lease), to fund additional growth beyond our contracted fleet. We intend to continue to access existing capital, and to consider new sources, to cost-effectively maintain and grow our fleet.

 

 

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Strong, long-term relationships with high-quality customers, including leading Asian container liners. We have developed strong relationships with our customers, which include leading container liner companies. We believe we are the largest provider of containerships to China, and anticipate that Asian demand for containerships will continue to rebound and grow following the recent economic downturn. We attribute the strength of our customer relationships in part to our consistent operational quality, customer oriented service and historical average utilization of over 99% since our initial public offering in 2005.

 

   

Scale, diversity and high quality of our fleet. We are one of the largest independent charter owners of containerships and believe that the size of our fleet appeals to our customers and provides us cost savings through volume purchases by our Manager and leverage in negotiating newbuilding contracts and accessing shipyard berths. Our operating fleet of 60 containerships had an average age of approximately five years as of May 10, 2011, which is significantly below the industry average of approximately 11 years. Our nine newbuilding vessels also will be subject to our high standards for design, construction quality and maintenance. Upon delivery of these additional vessels, the vessels in our fleet will range in size from 2500 TEU to 13100 TEU, and our 13100 TEU containerships will be among the largest sized containerships then in operation.

 

   

Experienced management. Together our chief executive officer and chief financial officer have over 30 years of professional experience in the shipping industry. In addition, the members of the management team of our Manager have prior experience with many companies in the international ship management industry, such as China Merchants Group, Neptune Orient Lines, APL Limited, Safmarine Container Lines and Columbia Ship Management. Our Manager’s staff has skills in all aspects of ship management, including, among others, design, operations and marine engineering. We likewise benefit from the financial experience and sophistication of our Manager’s management team, which has assisted us in accessing various forms of capital.

Our Business Strategies

We seek to continue to expand our business and increase our cash flow by employing the following business strategies:

 

   

Pursuing long-term, fixed-rate charters. We intend to continue to primarily pursue long-term, fixed-rate charters, which contribute to the stability of our cash flows. In addition, container liner companies typically employ long-term charters for strategic expansion into major trade routes while employing spot charters for shorter term discretionary needs. To the extent container liner companies expand their services into these major trade routes, we believe we will be well positioned to participate in their growth.

 

   

Expanding and diversifying our customer relationships. Since our initial public offering, we have increased our customer base from two to eight customers and have expanded our revenue from existing customers. We intend to continue to expand our existing customer relationships and to add new customers to the extent container liner companies increase their use of chartered-in vessels to add capacity in their existing trade routes and establish new trade routes. We believe that we will benefit from the expected growth of worldwide container shipping demand, especially in certain markets that we believe to have high growth potential such as Asia, where we have strong customer relationships. We also believe that our Manager’s experience in working with container liners to provide ship design, construction supervision and chartering services will improve our ability to secure new customers.

 

 

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Actively acquiring newbuilding and secondhand vessels. We have increased, and intend to further increase, the size of our fleet through selective acquisitions of new and secondhand containerships that we believe will be accretive to our cash flow. We believe that entering into newbuilding contracts will continue to provide long-term growth of our fleet and modern vessels to our customers. In addition, we intend to selectively consider any nearer-term growth opportunities to acquire high-quality secondhand vessels, primarily either with existing long-term charters or where we can enter into long-term charters concurrently with the acquisitions. We also intend to consider appropriate (a) partnering opportunities that would allow us to seek to capitalize on opportunities in the newbuilding and secondhand markets with more modest investments, and (b) business acquisitions, as well as the potential sale of any older vessels in our fleet as part of fleet renewal.

 

   

Maintaining efficient capital structure. We intend to pursue a financial strategy that aims to preserve our financial flexibility and achieve a low capital cost so that we may take advantage of acquisition and expansion opportunities in the future while also meeting our existing obligations.

An investment in our Series C Preferred Shares involves risks. Our growth depends on our ability to make accretive vessel acquisitions, expand existing and develop new relationships with charterers and obtain new charters. Substantial competition may hamper our business strategy. Our growth also depends upon continued growth in demand for containerships. A reduction in demand for containerships, increased competition or an inability to make accretive vessel acquisitions may lead to reductions and volatility in charter hire rates and profitability. In addition, we may be unable to realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition, operating results and ability to pay dividends. You should consider carefully the factors set forth in the section of this prospectus entitled “Risk Factors” beginning on page S-21 of this prospectus supplement and on page 5 of the accompanying base prospectus.

Management Overview

Our operations are managed by our Manager under the supervision of our board of directors. We have entered into long-term management agreements pursuant to which our Manager and its subsidiaries provide us with all of our technical, administrative and strategic services, including our management team and employees. Our Manager is owned by trusts established for members of the Dennis Washington family and by an entity indirectly owned by certain directors and officers of our Manager, including our chief executive officer. Mr. Washington is one of our founders and entities controlled by him and his family control our largest shareholdings. Please read “Our Manager and Management Related Agreements” and “Certain Relationships and Related Party Transactions.”

Corporate Information

We are a Marshall Islands corporation incorporated on May 3, 2005. We maintain our principal executive offices at Unit 2, 7th Floor, Bupa Centre, 141 Connaught Road West, Hong Kong, China. Our telephone number is (852) 2540-1686. We maintain a website at www.seaspancorp.com. The information on our website is not part of this prospectus, and you should rely only on the information contained in this prospectus and the documents we incorporate by reference herein when making a decision as to whether to invest in the Series C Preferred Shares.

 

 

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The Offering

 

Issuer

Seaspan Corporation

 

Securities Offered

4,000,000 of our 9.50% Series C Cumulative Redeemable Perpetual Preferred Shares, par value $0.01 per share, liquidation preference $25.00 per share. For a detailed description of the Series C Preferred Shares, please read “Description of Series C Preferred Shares.” As of the date of this prospectus supplement, 10,000,000 Series C Preferred Shares (the “Initial Series C Preferred Shares”) are issued and outstanding. The Series C Preferred Shares being offered hereby will be treated as a single series with the Initial Series C Preferred Shares.

 

Price per Share

$27.15

 

  Because investors in the Series C Preferred Shares will (subject to declaration by our board of directors or any authorized committee thereof out of legally available funds) receive a full dividend on July 30, 2011, the purchase price includes accrued dividends to May 25, 2011, the anticipated settlement date for this offering. If settlement is delayed, the public offering price will be increased for accrued dividends from May 25, 2011.

Conversion; Exchange and Preemptive

Rights

The Series C Preferred Shares do not have any conversion or exchange rights and are not entitled to preemptive rights.

 

Dividends

Dividends on Series C Preferred Shares accrue and are cumulative from January 28, 2011 and are payable on each Dividend Payment Date (as defined below) when, as and if declared by our board of directors or any authorized committee thereof out of legally available funds for such purpose.

 

  The initial dividend on the Initial Series C Preferred Shares was paid on May 2, 2011. The initial dividend on the Series C Preferred Shares offered hereby will be payable on July 30, 2011.

 

  In the event that four quarterly dividends, whether consecutive or not, payable on Series C Preferred Shares are in arrears, such event shall constitute a “Dividend Payment Default.”

 

Dividend Payment Dates

January 30, April 30, July 30 and October 30, commencing July 30, 2011 (each, a “Dividend Payment Date”).

 

Dividend Rate

The dividend rate for the Series C Preferred Shares is 9.50% per annum per $25.00 of liquidation preference per share (equal to $2.375 per share), subject to increase if (i) we fail to comply with certain covenants (a “Covenant Default”), (ii) we experience certain defaults under any of our credit facilities (a “Cross Default”), (iii) four quarterly dividends payable on the Series C Preferred Shares are in arrears (a “Dividend Payment Default”) or (iv) the Series C Preferred

 

 

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Shares are not redeemed in whole by January 30, 2017 (a “Failure to Redeem”), the dividend rate payable on the Series C Preferred Shares shall increase, subject to an aggregate maximum rate per annum of 25% prior to January 30, 2016 and 30% thereafter, to a rate that is 1.25 times the dividend rate payable on the Series C Preferred Shares as of the close of business on the day immediately preceding the Covenant Default, Cross Default, Divided Payment Default or Failure to Redeem, as applicable, and on each subsequent Dividend Payment Date, the dividend rate payable shall increase to a rate that is 1.25 times the dividend rate payable on the Series C Preferred Shares as in effect as of the close of business on the day immediately preceding such Dividend Payment Date, until the Covenant Default, Cross Default or Dividend Payment Default is cured or the Series C Preferred Shares are no longer outstanding. Please read “Description of Series C Preferred Shares—Dividends.”

 

Ranking

The Series C Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. The Series C Preferred Shares rank:

 

   

senior to all classes of our common shares (which currently consist of the Class A common shares and Class C common shares) and to each other class or series of capital stock established after the original issue date of the Series C Preferred Shares that is not expressly made senior to or on parity with the Series C Preferred Shares as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up;

 

   

pari passu with our existing Series B Preferred Shares and any other class or series of capital stock established after the original issue date of the Series C Preferred Shares that is not expressly subordinated or senior to the Series C Preferred Shares as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up; and

 

   

junior to all of our indebtedness and other liabilities with respect to assets available to satisfy claims against us and our Series A Preferred Shares and each other class or series of capital stock expressly made senior to the Series C Preferred Shares as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up.

 

Optional Redemption and Failure to Redeem

At anytime on or after January 30, 2016, we may redeem, in whole or in part, the Series C Preferred Shares at a redemption price of $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to the date of redemption, whether or not declared. Any such redemption would be effected only out of funds legally available for such purpose. We must provide not less than 15 days’ and not more than 60 days’ written notice of any such redemption.

 

 

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  Our failure to redeem all the Series C Preferred Shares on or prior to January 30, 2017, whether or not our board of directors has authorized any such redemption and whether or not such redemption is legally permissible or is prohibited by any agreement to which we are subject, shall constitute a “Failure to Redeem.”

 

Voting Rights

Holders of the Series C Preferred Shares generally have no voting rights. However, if and whenever dividends payable on the Series C Preferred Shares are in arrears for six or more quarterly periods, whether or not consecutive, holders of Series C Preferred Shares (voting together as a class with all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect one additional director to serve on our board of directors until we pay, or declare and set apart for payment, all cumulative dividends on the Series C Preferred Shares.

 

  Unless (1) after giving pro forma effect to the payment of any dividend arrearages on the Series C Preferred Shares, we would be in compliance with the covenant described under “Description of Series C Preferred Shares—Certain Covenants—Limitation on Non-Convertible Preferred Stock,” and (2) we have received the affirmative vote or consent of the holders of at least two-thirds of the outstanding Series C Preferred Shares, voting as a single class, we may not issue any Parity Securities or Senior Securities (other than Series A Preferred Shares that are (i) authorized for issuance on the initial issue date of the Series C Preferred Shares and (ii) issued as dividends in respect of Series A Preferred Shares outstanding on the initial issue date of the Series C Preferred Shares or issued as dividends thereafter) if the cumulative dividends payable on outstanding Series C Preferred Shares are in arrears.

 

Covenants and Cross Defaults

We are subject to certain covenants with respect to the Series C Preferred Shares, including:

 

  (a) Restricting Total Borrowings to less than 75% of Total Assets;

 

  (b) Not permitting our Non-Convertible Preferred Stock Ratio to exceed 33.33%;

 

  (c) Maintaining a Net Worth to Preferred Stock Ratio of at least 2.00; and

 

  (d) Mandatory conversion of all outstanding Series A Preferred Shares on or prior to March 31, 2014.

 

  Our failure to comply with clauses (a), (b) or (c) above, if such failure continues unremedied for 120 days, or our failure to comply with clause (d) above, if such failure continues unremedied for 30 days, shall constitute a “Covenant Default.”

 

 

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  A default by us under any Credit Facility (as defined under “Description of Series C Preferred Shares—Dividends—Increase in Base Dividend Rate Following a Covenant Default, Cross Default, Dividend Payment Default or Failure to Redeem”) shall constitute a “Cross Default” if such default (a) is caused by a failure to pay principal of, or interest or premium, if any, on outstanding indebtedness under the Credit Facility (other than non-recourse indebtedness of any subsidiary) prior to the expiration of the grace period for payment of such indebtedness set forth in such Credit Facility, or (b) results in the acceleration of such indebtedness prior to its maturity, and in each case, the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $25 million or more.

 

  We will also provide certain information to holders of Series C Preferred Shares during the period of any Cross Default.

 

  For definitions of capitalized terms used in the bullets above, please read “Description of Series C Preferred Shares—Certain Definitions and Interpretations.”

 

Fixed Liquidation Price

If we liquidate, dissolve or wind-up, holders of the Series C Preferred Shares will have the right to receive $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to the date of payment, whether or not declared, before any payments are made to holders of our common stock or other junior securities.

 

Sinking Fund

The Series C Preferred Shares are not subject to any sinking fund requirements. Please read “Description of Series C Preferred Shares—No Sinking Fund.”

 

Use of Proceeds

We intend to use the net proceeds of the sale of the Series C Preferred Shares offered hereby, of approximately $104.9 million, for general corporate purposes, which may include making vessel acquisitions or investments. Pending the application of funds for these purposes, we may repay a portion of our outstanding debt under certain of our revolving credit facilities. Please read “Use of Proceeds.”

 

Ratings

The securities have not been rated by any Nationally Recognized Statistical Rating Organization.

 

Listing

The Series C Preferred Shares are listed on The New York Stock Exchange under the symbol “SSW PR C.”

 

Tax Considerations

We believe that under current U.S. federal income tax law, all or a portion of the distributions you receive from us will constitute dividends and, if you are an individual citizen or resident of the

 

 

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United States or a U.S. estate or trust and meet certain holding period requirements, such dividends are expected to be taxable as “qualified dividend income” currently subject to a maximum 15% U.S. federal income tax rate. Any portion of your distribution that is not treated as a dividend will be treated first as a non-taxable return of capital to the extent of your tax basis in your Series C Preferred Shares and, thereafter, as capital gain. Please read “Material U.S. Federal Income Tax Considerations.”

 

Form

The Series C Preferred Shares will be issued and maintained in book-entry only form registered in the name of the nominee of The Depository Trust Company, or DTC, except under limited circumstances.

 

Settlement

Delivery of the Series C Preferred Shares offered hereby will be made against payment therefor on or about May 25, 2011.

 

Conflict of Interest

We intend to use the net proceeds from this offering for general corporate purposes, which may include vessel acquisitions or investments. Pending the application of funds for these purposes, we may repay a portion of our outstanding debt under certain of our revolving credit facilities. Certain of the underwriters or their affiliates may receive 5% or more of the proceeds from this offering if they are lenders under our credit facilities. Because there is a “bona fide public market” for the Series C Preferred Shares, as defined in Rule 5121 of the Financial Industry Regulatory Authority, Inc., or FINRA, a qualified independent underwriter is not required.

 

Risk Factors

An investment in our Series C Preferred Shares involves risks. You should consider carefully the factors set forth in the section of this prospectus entitled “Risk Factors” beginning on page S-21 of this prospectus supplement and on page 5 of the accompanying base prospectus to determine whether an investment in our Series C Preferred Shares is appropriate for you.

 

 

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Summary Historical Financial and Operating Data

The following table presents, in each case for the periods and as at the dates indicated, our summary historical financial and operating data.

The summary historical financial and operating data has been prepared on the following basis:

 

   

The historical financial and operating data as at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 is derived from our audited consolidated financial statements and the notes thereto, which are contained in our Annual Report on Form 20-F for the year ended December 31, 2010, filed with the Securities and Exchange Commission, or the SEC, on March 30, 2011 and incorporated by reference into this prospectus.

 

   

The historical financial data as at December 31, 2008 is derived from our audited consolidated financial statements and the notes thereto, which are contained in our Annual Report on Form 20-F for the year ended December 31, 2009, filed with the SEC on March 19, 2010.

 

   

The historical financial and operating data as at and for the three months ended March 31, 2011 and 2010 is derived from our unaudited interim consolidated financial statements and the notes thereto, which are contained in our Report on Form 6-K filed with the SEC on May 6, 2011, and incorporated by reference into this prospectus.

 

 

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The following table should be read together with, and is qualified in its entirety by reference to, our financial statements and the notes thereto incorporated by reference into this prospectus, as well as the notes to the table in the section of this prospectus entitled “Selected Historical Financial and Operating Data.”

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2010     2009     2008     2011     2010  

Statements of operations data (in thousands of dollars):

         

Revenue

  $ 407,211      $ 285,594      $ 229,405      $ 120,995      $ 80,369   

Operating expenses:

         

Ship operating

    108,098        80,162        54,416        31,066        22,457   

Depreciation

    99,653        69,996        57,448        29,958        20,318   

General and administrative

    9,612        7,968        8,895        2,694        1,884   
                                       

Operating earnings

    189,848        127,468        108,646        57,277        35,710   

Other expenses (income):

         

Interest expense

    28,801        21,194        33,035        10,147        5,053   

Change in fair value of financial instruments(1)

    241,033        (46,450     268,575        (5,802     65,491   

Interest income

    (60     (311     (694     (155     (30

Undrawn credit facility fees

    4,515        4,641        5,251        1,261        1,155   

Amortization of deferred charges

    3,306        2,042        1,825        1,274        657   

Other expenses

           1,100                        
                                       

Net earnings (loss)

  $ (87,747   $ 145,252      $ (199,346   $ 50,552      $ (36,616
                                       

Statements of cash flows data (in thousands of dollars):

         

Cash flows provided by (used in):

         

Operating activities

  $ 153,587      $ 94,576      $ 124,752      $ 36,389      $ 17,503   

Financing activities

    529,680        312,059        523,181        232,820        192,596   

Investing activities

    (782,448     (409,520     (634,782     (91,150     (263,729

Balance sheet data (at period end, in thousands of dollars):

         

Cash and cash equivalents

  $ 34,219      $ 133,400      $ 136,285      $ 212,278      $ 79,770   

Vessels(2)

    4,210,872        3,485,350        3,126,489        4,288,151        3,786,787   

Total assets

    4,377,228        3,664,447        3,296,872        4,638,116        3,921,639   

Long-term debt

    2,396,771        1,883,146        1,721,158        2,398,681        2,062,502   

Share capital(3)

    691        679        668        793        682   

Total shareholder’s equity

    989,736        1,059,566        746,360        1,277,856        1,021,031   

Other data:

         

Number of vessels in operation at period end

    55        42        35        58        45   

TEU capacity at period end

    265,300        187,456        158,483        282,800        203,584   

Fleet utilization rate(4)

    98.7     99.7     99.3     98.9     97.2

 

(1)

We entered into interest rate swap agreements to reduce our exposure to market risks from changing interest rates. The swap agreements fix LIBOR at 4.6325% to 5.8700% based on expected drawdowns and outstanding debt until at least February 2014. Interest rate swap agreements are recorded on the balance sheet at their respective fair values. For the interest rate swap agreements that were designated as hedging instruments in accordance with the requirements in the accounting literature, the changes in the fair value of these interest rate swap agreements were reported in accumulated other comprehensive income. The fair

 

 

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value will change as market interest rates change. For designated swaps, amounts payable or receivable under the interest rate swaps are included in earnings when and where the designated interest payments are included. The ineffective portion of the interest rate swaps are recognized immediately in net income. Other interest rate swap agreements and derivative instruments that are not designated as hedging instruments are marked to market and are recorded on the balance sheet at fair value. The changes in the fair value of these instruments are recorded in earnings. On January 31, 2008, we de-designated two of our interest swaps for which we were obtaining hedge accounting. On September 30, 2008, we elected to prospectively de-designate all interest rate swaps for which we were obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all of our interest rate swap agreements and the swaption agreement are marked to market subsequent to this date and the changes in the fair value of these instruments are recorded in earnings.

 

(2) Vessel amounts include the net book value of vessels in operation and deposits on vessels under construction.

 

(3) For a description of our capital stock, please read “Description of Capital Stock.”

 

(4) Fleet utilization is based on number of operating days divided by the number of ownership days during the period.

 

 

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Ratio of Earnings to Fixed Charges and Preference Dividends

The following table sets forth our ratio of earnings to fixed charges and preference dividends for the periods presented:

 

     Three Months
Ended
March 31,

2011
     Year Ended December 31,  
      2010       2009        2008     2007       2006    

Ratio of earnings to fixed charges and preference dividends (1)

     3.6         (2)        2.6         (2)      0.5 (2)      2.6   

Dollar amount (in thousands) of deficiency in earnings to fixed charges and preference dividends

             121,484                261,229        29,904          

 

(1) For purposes of calculating the ratios of earnings to fixed charges and preference dividends:

 

   

“earnings” consist of pre-tax income from continuing operations prepared under GAAP (which includes non-cash unrealized gains and losses on derivative financial instruments) plus fixed charges, net of capitalized interest and capitalized amortization of deferred financing fees;

 

   

“fixed charges” represent interest incurred (whether expensed or capitalized) and amortization of deferred financing costs (whether expensed or capitalized) and accretion of discount; and

 

   

“preference dividends” refers to the amount of pre-tax earnings that is required to pay the cash dividends on outstanding preference securities and is computed as the amount of the dividend divided by (1 minus the effective income tax rate applicable to continuing operations).

The ratio of earnings to fixed charges and preference dividends is a ratio that we are required to present in this prospectus supplement and has been calculated in accordance with SEC rules and regulations. This ratio has no application to our credit and lease facilities and Series C Preferred Shares, and we believe is not a ratio generally used by investors to evaluate our overall operating performance.

 

(2) The ratio of earnings to fixed charges and preference dividends for this period was less than 1.0x.

 

 

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Recent Developments

Delivery of Five New Vessels

In January 2011, we accepted delivery of the Brevik Bridge and the Bilbao Bridge, and in May 2011, we accepted delivery of the Berlin Bridge. These three 4500 TEU vessels are on charter to K-Line under 12-year, fixed-rate time charter contracts, with options to K-Line to extend the contract terms up to an additional six years. In March 2011, we accepted delivery of the COSCO Prince Rupert and in April 2011, we accepted delivery of the COSCO Vietnam. These two 8500 TEU vessels are on charter to COSCON under 12-year, fixed-rate time charter contracts, with options to COSCON to extend the contract terms up to an additional three years.

Dividend Increase and New Dividend Policy

In February 2011, our board of directors adopted a progressive dividend policy aimed at sustainably increasing our dividends in a manner that preserves our long-term financial strength and our ability to expand our fleet. We expect this policy to increase dividends paid to holders of our Class A common shares, while continuing to permit us to pursue our growth strategy. Our board declared a $0.1875 per share dividend for the first quarter of 2011, and expects to declare aggregate dividends of $0.75 per Class A common share for the four quarters ending December 31, 2011. Regardless of our dividend policy, declaration and payment of any dividend is subject to the discretion of our board of directors.

Extension of Time Charters

In March 2011, CSCL Asia exercised its option to extend the long-term time charter on the CSCL Chiwan upon conclusion of its initial 10-year term. We are currently chartering the vessel to CSCL Asia at a rate of $18,300 per day, and the rate for the option period increases to $19,000 per day beginning September 2011, for a term that expires in September 2013.

In May 2011, APM exercised its first one-year option to extend the time charter on the Maersk Merritt upon conclusion of its initial five-year term. We are currently chartering the vessel to APM at a rate of $23,450 per day, and the rate for the first option period is $22,400 per day beginning November 2011, for a term that expires in November 2012.

Investment in Carlyle Containership-Focused Investment Vehicle

In March 2011, we agreed to participate in Greater China Intermodal Investments LLC, or the Vehicle, an investment vehicle established by an affiliate of The Carlyle Group, or Carlyle, which may invest up to $900 million equity capital in containership assets, primarily newbuilding vessels strategic to the People’s Republic of China, Taiwan, Hong Kong and Macau, or Greater China. The amount of equity capital will be reduced to the extent that the Carlyle affiliate member of the Vehicle separately invests in non-containership assets. We have a right of first refusal relating to the Vehicle’s containership investment opportunities, which we may exercise until March 31, 2015, unless it is terminated earlier as the result of certain triggering events, including if we exercise this right for more than 50% of the aggregate vessels subject to the right prior to specified dates. We believe that the combination of our expertise and relationships in the containership market and Carlyle’s financial resources, global business network and access to capital will enhance our ability to take advantage of growth opportunities in the containership market.

We believe that as a result of the significant excess capacity in Asian shipyards, in the near term shipyards are willing to provide pricing and design concessions for large newbuilding construction orders. The size of these orders likely exceeds the size of orders we would be able or willing to make on our own. As a result, we view our participation in the Vehicle, and especially our right of first refusal, as a means of selectively and

 

 

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cost-effectively expanding our fleet. We believe that the combined scale of our business and the Vehicle will allow us to realize volume discounts for newbuilding orders, negotiate design improvements from shipyards and obtain more attractive vessel financing than we would otherwise be able to achieve on our own, thereby creating a competitive advantage for us.

The members of the Vehicle are (i) Seaspan Investment I Ltd., a subsidiary of us, or the Seaspan Member, (ii) Blue Water Commerce, LLC, an affiliate of Dennis R. Washington, or the Washington Member, (iii) Tiger Management Limited, an entity owned and controlled by our director Graham Porter, or the Tiger Member and (iv) Greater China Industrial Investments LLC (a limited liability company owned by affiliates of Carlyle and the Tiger Member), or GC Industrial. GC Industrial has committed up to $775 million ($750 million of which is a commitment from the Carlyle affiliate members of GC Industrial and $25 million of which is a commitment from the Tiger Member), the Washington Member has committed up to $25 million and the Seaspan Member has committed up to $100 million. The Tiger Member will provide services to the Vehicle, and 50% of the fees for such services will be paid to the Tiger Member in the form of an equity interest in the Vehicle.

For more information, please read “Certain Relationships and Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle.”

Newbuilding Letter of Intent and Negotiation

In February 2011, we signed a letter of intent to order a significant number of newbuilding containerships to be constructed by a leading Chinese shipyard. This would be our first newbuilding order since 2007. If the order is finalized, the New Panamax 10000 TEU vessels would be constructed using a lightweight and fuel efficient design. We expect that any order resulting from this letter of intent would be made available to the Vehicle and would be subject to our right of first refusal on the Vehicle’s containership investment opportunities. We are also currently in discussions with Korean and other Chinese shipyards regarding additional newbuilding vessels. We expect to enter into long-term time charters with leading liner companies concurrently with executing any definitive purchase agreement. There is no assurance that definitive agreements relating to any potential order will be entered into or that the orders will be completed.

New Employment Agreement and Other Related Agreements with Gerry Wang

Mr. Wang has served as our chief executive officer and the chief executive officer of Seaspan Ship Management Ltd., or SSML, pursuant to an employment agreement with SSML. In March 2011, in connection with our investment in the Vehicle, Mr. Wang’s agreement with SSML was amended and restated and we entered into an employment agreement and a transaction services agreement with Mr. Wang. Pursuant to our employment agreement with Mr. Wang, which became effective on January 1, 2011, he will continue to serve as our chief executive officer through January 1, 2013. The employment agreement provides that Mr. Wang will receive an annual base salary, an annual target performance bonus and transaction fees related to any binding agreement that we enter into to construct, sell or acquire a vessel. The transaction services agreement will become effective following termination of Mr. Wang’s employment with us, pursuant to which Mr. Wang will receive transaction fees related to any binding agreement that we enter into to construct, sell or acquire a vessel. For more information, please read “Certain Relationships and Related Party Transactions—Employment Agreement and Other Related Agreements with Gerry Wang.”

 

 

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Certain Potential Transactions

The following discussion of certain potential transactions or arrangements is prospective and is intended to benefit from the protections described in the section in this prospectus supplement entitled “Forward-Looking Statements.” This is not a discussion of all our potential transactions or arrangements. For any of the potential transactions described below, the transactions may not be completed, and the terms of the transactions that are completed, if any, may differ materially from those described below.

Potential Non-Recourse Loan Facility Transaction

We are negotiating a transaction that would involve one of our subsidiaries entering into a transaction with affiliates of a leading Chinese and a Japanese bank for a non-recourse loan facility in an amount up to $150 million relating to one of our 13100 TEU newbuilding vessels. The vessel is being constructed by HHI and is currently financed with up to $75 million under one of our revolving credit facilities. Upon delivery of the vessel and through an inter-company operating charter with our subsidiary, we will time-charter the vessel to COSCON in accordance with the terms of the original 12-year time charter. The subsidiary’s indebtedness under the loan facility would be non-recourse to Seaspan Corporation.

Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees

Our Manager and certain of its subsidiaries provide us with all of our technical, administrative and strategic services, together with all of our employees, other than our chief executive officer. We are in discussions with our Manager about potentially acquiring all or a portion of our Manager. Please read “Certain Relationships and Related Party Transactions.” It is contemplated that the purchase price would be paid in shares of our capital stock or cash, or a combination thereof.

We believe any such acquisition of our Manager would increase our control over access to the services our Manager provides on a long-term basis. Additionally, based on the technical management fees and additional fees under the management agreement between our Manager and the Vehicle and disclosure by other public containership companies and third-party management companies, the owners of our Manager have proposed increases in existing technical management fees and the inclusion of additional fees under the management agreements, which they believe reflect current market practice. Under the management agreements, the fees for the technical services are scheduled for renegotiation in December 2011. The conflicts committee of our board of directors is evaluating these proposals with the assistance of financial and legal advisors. For additional information about the agreements with our Manager that govern the services provided to us, please read “Our Manager and Management Related Agreements—Management Agreements.”

 

 

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RISK FACTORS

Any investment in our Series C Preferred Shares involves a high degree of risk. You should consider carefully the information contained in this prospectus supplement, the accompanying base prospectus and the documents incorporated by reference in this document before making an investment in shares of our Series C Preferred Shares. If any of these risks were to occur, our business, financial condition, operating results or ability to pay dividends could be harmed, which may reduce our ability to pay dividends or redeem, and lower the trading price of, our Series C Preferred Shares. You may lose all or part of your investment. In addition, we are subject to the following risks and uncertainties:

Risks Inherent in Our Business

Our ability to obtain additional debt financing for future acquisitions of vessels may depend upon the performance of our then existing charters and the creditworthiness of our customers.

The actual or perceived credit quality of our customers, and any defaults by them, may materially affect our ability to obtain funds we may require to purchase vessels in the future or may significantly increase our costs of obtaining such funds. Our inability to obtain additional financing at attractive costs, if at all, could harm our business, results of operations, financial condition and ability to pay dividends.

We will be required to make substantial capital expenditures to complete the acquisition of our newbuilding containerships and any additional vessels we acquire in the future, which may result in increased financial leverage, dilution of our equity holders’ interests or our decreased ability to pay dividends on or redeem our Series C Preferred Shares.

We have agreed to acquire an additional nine newbuilding containerships with scheduled delivery dates through April 2012. We have entered into contracts to purchase six of those containerships and lease financing arrangements, under which we are the lessee, for three vessels. As of May 10, 2011, the total purchase price of the six vessels remaining to be paid was estimated to be approximately $589.7 million. Our obligation to purchase the six vessels is not conditional upon our ability to obtain financing for such purchases. Under the terms of our lease financing arrangements for the remaining three vessels, we may purchase the vessels at the end of their respective lease terms at a price approximately equal to their fair market value at the end of such lease term for one of the vessels and at a fixed price per vessel for the remaining two vessels. Although we currently intend to purchase all three vessels, we may not be able to purchase them on terms favorable to us or at all.

We intend to significantly expand the size of our fleet beyond our existing contracted newbuilding program. The acquisition of additional newbuilding or existing vessels or businesses will require significant additional capital expenditures.

To fund other and future capital expenditures, we intend to use cash from operations, incur borrowings, raise capital through the sale of additional securities, enter into other sale-leaseback or financing arrangements, or use a combination of these methods. Use of cash from operations may reduce cash available for dividends to our shareholders, including holders of our Series C Preferred Shares. Incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant shareholder dilution, which, subject to the relative priority of our equity securities, could negatively affect our ability to pay dividends. Our ability to obtain or access bank financing or to access the capital markets for future debt or equity financings may be limited by our financial condition at the time of any such financing or offering and covenants in our credit facilities, as well as by adverse market conditions. Our failure to obtain funds for our capital expenditures at attractive rates, if at all, could harm our business, results of operations, financial condition and ability to pay dividends.

 

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Over the long term, we will be required to make substantial capital expenditures to preserve the operating capacity of our fleet, which could negatively affect our ability to pay dividends on or redeem our Series C Preferred Shares.

We must make substantial capital expenditures over the long-term to preserve the operating capacity of our fleet. If, however, we do not retain funds in our business in amounts necessary to preserve the operating capacity of our fleet, over the long-term we will not be able to continue to refinance our indebtedness or maintain our payment of dividends. At some time in the future, we will likely need to retain additional funds, on an annual basis, to provide reasonable assurance of maintaining the operating capacity of our fleet over the long-term. There are several factors that will not be determinable for a number of years, but which our board of directors will consider in future decisions about the amount of funds to be retained in our business to preserve our capital base. To the extent we use or retain available funds to make capital expenditures to preserve the operating capacity of our fleet, there will be less funds available to pay dividends on or redeem our Series C Preferred Shares.

Unless we set aside reserves or are able to borrow funds for vessel replacement at the end of a vessel’s useful life, our revenue will decline.

Unless we maintain reserves or are able to borrow or otherwise raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income depend upon the revenues earned by the chartering of our vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our results of operations, financial condition and ability to pay dividends will be harmed. Additionally, any reserves set aside for vessel replacement would not be available for dividends or to redeem our Series C Preferred Shares.

Restrictive covenants in our credit and lease facilities impose financial and other restrictions on us, which may limit, among other things, our ability to borrow funds under such facilities and our ability to pay dividends.

To borrow funds under our credit facilities, we must, among other things, meet specified financial covenants. For example, we are prohibited under certain of our existing credit facilities from incurring total borrowings in an amount greater than 65% of our total assets. Total borrowings and total assets are terms defined in our credit facilities and differ from those used in preparing our consolidated financial statements, which are prepared in accordance with GAAP. In addition, although our credit facilities do not contain traditional vessel market value covenants that require us to repay our facilities solely because the market value of our vessels declines below a certain level, our $1.3 billion credit agreement contains a loan-to-market-value ratio requirement that must be met before we can borrow funds under that facility. Based on a semi-annual valuation obtained in December 2010 (which was on a without-charter basis as required by our credit facility), the decline in the market value of the vessels as a result of the recent economic slowdown continues to limit our ability to borrow under the facility. We are currently unable to borrow the remaining approximately $267 million otherwise available under the facility. In addition, under this facility, there are certain circumstances that could require us to prepay a portion of the outstanding loan or provide additional acceptable security in order to meet the borrowing base ratio requirement. One of these circumstances includes the termination or expiration of a specified percentage of charters if we do not find suitable charterers or negotiate charter terms acceptable to our lenders. During 2011, we could trigger the borrowing base ratio requirement if, upon the expiration of certain charters for four of our vessels, we are unable to extend or replace the charters for at least three such vessels with charters acceptable to our lenders.

To the extent we are not able to satisfy the requirements in our credit facilities, we may not be able to borrow additional funds under the facilities, and if we are not in compliance with specified financial ratios or other requirements, we may be in breach of the facilities, which could require us to repay outstanding amounts. We may also be required to prepay amounts borrowed under our credit facilities if we, or in certain

 

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circumstances, our customers, experience a change of control. A default under our credit facilities could also result in foreclosure of our vessels and other assets securing related loans.

Our credit and lease facilities impose operating and financial restrictions on us and require us to comply with certain financial covenants. These restrictions and covenants limit our ability to, among other things:

 

   

except in the case of the lease facilities, pay dividends if an event of default has occurred and is continuing under one of our credit facilities or if the payment of the dividend would result in an event of default;

 

   

incur additional indebtedness under the credit facilities or otherwise, including through the issuance of guarantees;

 

   

change the flag, class or management of our vessels;

 

   

create liens on our assets;

 

   

sell our vessels without replacing such vessels or prepaying a portion of our loan;

 

   

conduct material transactions with our affiliates except on an arm’s-length basis;

 

   

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

   

change our business.

Accordingly, we may need to seek consent from our lenders or lessors in order to engage in some corporate actions. The interests of our lenders or lessors may be different from ours, and we may be unable to obtain our lenders’ or lessors’ consent when and if needed. If we do not comply with the restrictions and covenants in our credit agreements or lease agreements, our results of operations, financial condition and ability to pay dividends will be harmed.

We may not be able to timely repay or be able to refinance any indebtedness incurred under our credit facilities.

We intend to finance a significant portion of our fleet expansion with secured indebtedness drawn under our existing or future credit or lease facilities. We have significant repayment obligations under our credit and lease facilities, both prior to and at maturity. We intend to refinance amounts drawn under our existing or future credit facilities with replacement facilities, the net proceeds of future debt or equity offerings, or a combination thereof. If we are not able to refinance outstanding indebtedness at an interest rate or on terms acceptable to us, or at all, we will have to dedicate a significant portion of our cash flow from operations to repay such indebtedness, which could reduce our ability to pay dividends or may require us to delay certain business activities or capital expenditures. If we are not able to satisfy these obligations (whether or not refinanced) under our credit or lease facilities with cash flow from operations, we may have to seek to restructure our indebtedness, undertake alternative financing plans (such as additional debt or equity capital) or sell assets, which may not be available on terms attractive to us or at all. If we are unable to meet our debt obligations, or if we otherwise default under our credit facilities, our lenders could declare all outstanding indebtedness to be immediately due and payable and foreclose on the vessels securing such indebtedness. The market value of our vessels, which fluctuates with market conditions, will also affect our ability to obtain financing or refinancing as vessels serve as collateral for loans. Lower vessel values at the time of any financing or refinancing may reduce the amounts of funds we may borrow.

 

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Our substantial debt levels and vessel lease obligations may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

As of March 31, 2011, we had approximately $2.4 billion outstanding on our credit facilities and lease obligations of approximately $556.8 million. These amounts outstanding under our credit facilities and our lease obligations will increase further following the completion of our acquisition of the nine remaining newbuilding containerships that we have contracted to purchase and lease. Our level of debt and vessel lease obligations could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

   

we may need to use a substantial portion of our cash from operations to make principal and interest payments on our debt or make our lease payments, reducing the funds that would otherwise be available for operations, future business opportunities and dividends to our shareholders;

 

   

our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

 

   

our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and vessel lease obligations will depend upon, among other things, our financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness and vessel lease obligations, we will be forced to take actions such as reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

Future disruptions in global financial markets and economic conditions or changes in lending practices may harm our ability to obtain financing on acceptable terms, which could hinder or prevent us from meeting our capital needs.

Global financial markets and economic conditions in recent years were disrupted and volatile. The debt and equity capital markets were exceedingly distressed, and it was difficult generally to obtain financing and the cost of any available financing increased significantly. If global financial markets and economic conditions significantly deteriorate in the future, we may be unable to obtain adequate funding under our current credit facilities because our lenders may be unwilling or unable to meet their funding obligations or we may not be able to obtain funds at the interest rate agreed in our credit facilities due to market disruption events or increased costs. Such deterioration may also cause lenders to be unwilling to provide us with new financing to the extent needed to fund our ongoing operations and growth. In addition, in recent years, the number of lenders for shipping companies has decreased and ship-funding lenders have generally lowered their loan-to-value ratios and shortened loan terms and accelerated repayment schedules. These factors may hinder our ability to access financing.

If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to implement our growth strategy, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could harm our business, results of operations, financial condition and ability to pay dividends.

 

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The business and activity levels of many of our customers, shipbuilders and related parties and their respective abilities to fulfill their obligations under agreements with us, including payments for the charter of our vessels, may be hindered by any deterioration in the credit markets.

Our current vessels are, and those that we will acquire will be, primarily chartered to customers under long-term time charters. Payments to us under those charters are and will be our sole source of operating cash flow. Many of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. During the recent financial and economic crises, there occurred a significant decline in the credit markets and the availability of credit. Additionally, the equity value of many of our customers substantially declined during that period. The combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing potentially reduced the ability of our customers to make charter payments to us. Any recurrence of the significant financial and economic disruption of the last few years could result in similar effects on our customers or other third parties with which we do business, which in turn could harm our business, results of operations, financial condition and ability to pay dividends.

Similarly, the shipbuilders with whom we have contracted may be affected by future instability of the financial markets and other market conditions, including with respect to the fluctuating price of commodities and currency exchange rates. In addition, the refund guarantors under our shipbuilding contracts (which are banks, financial institutions and other credit agencies that guarantee, under certain circumstances, the repayment of installment payments we make to the shipbuilders), may also be negatively affected by adverse financial market conditions in the same manner as our lenders and, as a result, be unable or unwilling to meet their obligations to us due to their own financial condition. If our shipbuilders or refund guarantors are unable or unwilling to meet their obligations to us, this will harm our fleet expansion and may harm our business, results of operations, financial condition and ability to pay dividends.

We will be paying all costs for the six newbuilding vessels that we have contracted to purchase and have incurred borrowings to fund, in part, through installment payments under the relevant shipbuilding contracts. If any of these vessels are not delivered as contemplated, we may be required to refund all or a portion of the amounts we borrowed.

The construction period currently required for a newbuilding containership similar to those we have ordered is approximately one year. For each of the newbuilding vessels that we have agreed to purchase, we are required to make certain payment installments equal to 10% of the total contracted purchase price for each vessel, as well as a final installment payment, generally equal to approximately 50% of the total vessel purchase price. We have entered into long-term credit facilities to partially fund the construction of these vessels. We are required to make these payments to the shipbuilder and to pay the debt service cost under the credit facilities in advance of receiving any revenue under the time charters for the vessels, which commences following delivery of the vessels.

If a shipbuilder is unable to deliver a vessel or if we or one of our customers rejects a vessel, we may be required to repay a portion of the outstanding balance of the relevant credit facility. Such an outcome could harm our results of operations, financial condition and ability to pay dividends.

We are relying on the lessors under finance leasing arrangements to pay an aggregate amount of up to approximately $375 million of the construction cost for three newbuilding vessels that we have agreed to lease upon delivery of the vessels. If a lessor fails to make its payments under these arrangements, we may be required to finance the construction of these vessels before they begin generating revenue.

In 2007 we entered into vessel construction contracts to purchase five 4500 TEU newbuilding vessels from Samsung, one of which was delivered in October 2010, two of which were delivered in January 2011 and one of which was delivered in May 2011. Also in 2007, we entered into vessel construction contracts to purchase

 

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two 13100 TEU vessels from HHI. The construction costs of the three vessels that have not yet been delivered are financed through three sale-leaseback transactions. If the lessor under any of these agreements becomes insolvent or otherwise fails to continue to make construction payments for any of these three vessels, we may need to finance such vessel through alternative arrangements before it begins operating and generating revenue. In such a case, we cannot assure you that we would be able to enter into alternative arrangements on terms favorable to us, if at all, which could harm our results of operations, financial condition or ability to pay dividends. Please read “Financing Facilities—Our Lease Facilities.”

We derive our revenue from a limited number of customers, and the loss of any of such customers would harm our revenue and cash flow.

The following table shows the number of vessels in our operating fleet that are chartered to our eight current customers and the percentage of our total containership revenue attributable to the charters for the three months ended March 31, 2011:

 

Customer

   Number of Vessels in our
Operating Fleet Chartered to such

Customer
     Percentage of Total
Containership Revenue for the

three months ended
March 31, 2011
 

CSCL Asia

     22         32.8

COSCON

     9         22.2

HL USA

     9         11.4

Others

     18         33.6
                 

Total

     58         100.0

All of our vessels are chartered under long-term time charters, and customer payments are our primary source of operating cash flow. The loss of any of these charters or any material decrease in payments thereunder could materially harm our business, results of operations, financial condition and ability to pay dividends.

Under some circumstances, we could lose a time charter or payments under the charter if:

 

   

the customer fails to make charter payments because of its financial inability, disagreements with us, defaults on a payment or otherwise;

 

   

at the time of delivery, the vessel subject to the time charter differs in its specifications from those agreed upon under the shipbuilding contract with each of the relevant shipbuilders; or

 

   

the customer exercises certain limited rights to terminate the charter, including (a) if the ship fails to meet certain guaranteed speed and fuel consumption requirements and we are unable to rectify the situation or otherwise reach a mutually acceptable settlement and (b) under some charters, if we undertake a change of control to which the customer does not consent and if the vessel is unavailable for operation for certain reasons for a specified period of time, or if delivery of a newbuilding is delayed for a prolonged period.

Any recurrence of the significant financial and economic disruption of the last few years could result in our customers being unable to make charter payments to us in the future or seeking to amend the terms of our charters. Any such event could harm our business, results of operations, financial condition and ability to pay dividends.

Our growth depends upon continued growth in demand for containerships.

Our growth will generally depend on continued growth in world and regional demand for containership chartering. The ocean-going shipping container industry is both cyclical and volatile in terms of charter hire rates

 

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and profitability. Containership charter rates peaked in 2005 and generally stayed strong until the middle of 2008, when the effects of the recent economic crisis began to affect global container trade. Rates fell significantly in 2009 into early 2010 to levels below those in 2001. Rates rose throughout 2010, albeit to levels below historical averages. Rates have continued to rise in 2011. In the future, rates may moderate or continue to fluctuate. Fluctuations in containership charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major products internationally transported by containerships. The factors affecting the supply and demand for containerships and supply and demand for products shipped in containers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.

Factors that influence demand for containership capacity include, among others:

 

   

supply and demand for products suitable for shipping in containers;

 

   

changes in global production of products transported by containerships;

 

   

seaborne and other transportation patterns, including the distances over which container cargoes are transported and changes in such patterns and distances;

 

   

the globalization of manufacturing;

 

   

global and regional economic and political conditions;

 

   

developments in international trade;

 

   

environmental and other regulatory developments;

 

   

currency exchange rates; and

 

   

weather.

Factors that influence the supply of containership capacity include, among others:

 

   

the number of newbuilding orders and deliveries;

 

   

the extent of newbuilding vessel deferrals;

 

   

the scrapping rate of older containerships;

 

   

containership owner access to capital to finance the construction of newbuildings;

 

   

charter rates and the price of steel and other raw materials;

 

   

changes in environmental and other regulations that may limit the useful life of containerships;

 

   

the number of containerships that are slow-steaming or extra slow-steaming to conserve fuel;

 

   

the number of containerships that are out of service, idle or laid out of service; and

 

   

port congestion and canal closures.

Our ability to recharter our containerships upon the expiration or termination of their current time charters and the charter rates payable under any renewal or replacement charters will depend upon, among other

 

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things, the then current state of the containership market. The existing time charters for ten of our vessels will expire (excluding options to extend) before 2013. If charter rates are low when our existing time charters expire, we may be required to recharter our vessels at reduced rates or even possibly a rate whereby we incur a loss, which would harm our operating results. The same issues will exist if we acquire additional vessels and seek to charter them under long-term time charter arrangements as part of our growth strategy.

The majority of the vessels in our current and contracted fleet are or will be chartered to Chinese customers. The legal system in China is not fully developed and has inherent uncertainties that could limit the legal protections available to us, and the geopolitical risks associated with chartering vessels to Chinese customers could harm our results of operations, financial condition and ability to pay dividends.

As of May 10, 2011, 22 of the 69 vessels in our current or contracted fleet are chartered to CSCL Asia, and 18 vessels are or will be chartered to COSCON. CSCL Asia and COSCON are subsidiaries of Chinese companies. Our vessels that are chartered to Chinese customers are subject to various risks as a result of uncertainties in Chinese law, including (a) the risk of loss of revenues, property or equipment as a result of expropriation, nationalization, changes in laws, exchange controls, war, insurrection, civil unrest, strikes or other political risks and (b) being subject to foreign laws and legal systems and the exclusive jurisdiction of Chinese courts and tribunals.

The Chinese legal system is based on written statutes and their legal interpretation by the standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive system of laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties.

If we are required to commence legal proceedings against a bank, a customer or a charter guarantor based in China with respect to the provisions of a credit facility, a time charter or a time charter guarantee, we may have difficulties in enforcing any judgment obtained in such proceedings in China. Similarly, our shipbuilders based in China provide warranties against certain defects for the vessels that they will construct for us and refund guarantees from a Chinese financial institution for the installment payments that we will make to them. Although the shipbuilding contracts and refund guarantees are governed by English law, if we are required to commence legal proceedings against these shipbuilders or against the refund guarantor, we may have difficulties enforcing in China any judgment obtained in such proceeding.

A decrease in the level of China’s export of goods or an increase in trade protectionism will harm our customers’ business and, in turn, harm our business, results of operations and ability to pay dividends.

China exports considerably more goods than it imports. Most of our customers’ containership business revenue is derived from the shipment of goods from the Asia Pacific region, primarily China, to various overseas export markets, including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could negatively affect the growth rate of China’s exports and our customers’ business. For instance, the government of China has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may reduce the supply of goods available for export and may, in turn, result in a decrease in shipping demand.

Our international operations expose us to the risk that increased trade protectionism will harm our business. If global economic challenges exist, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. Specifically, increasing trade protectionism in the markets that our customers serve has caused and may continue to cause an increase in (a) the

 

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cost of goods exported from China, (b) the length of time required to deliver goods from China and (c) the risks associated with exporting goods from China. Such increases may also affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs.

Any increased trade barriers or restrictions on trade, especially trade with China and Asia, would harm our customers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could harm our results of operations, financial condition and ability to pay dividends.

Future adverse economic conditions globally, and especially in the Asia Pacific region, the European Union or the United States, could harm our business, financial condition, results of operations and ability to pay dividends.

The global economy recently experienced disruption and volatility following adverse changes in global capital markets. The deterioration in the global economy caused, and any renewed deterioration may cause, a decrease in worldwide demand for certain goods and shipping. Economic instability in the future could harm our business, financial condition, results of operations and ability to pay dividends.

In particular, because a significant number of the port calls made by our vessels involves the loading or discharging of containerships in ports in the Asia Pacific region, economic turmoil in that region may exacerbate the effect of any economic slowdown on us. In recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, which has increased the demand for shipping. Like the rest of the world, however, China recently experienced slowed or negative economic growth and this trend could return. Our business, results of operations, financial condition and ability to pay dividends will likely be harmed by any significant economic downturn in the Asia Pacific region, including China, or in the European Union or the United States.

Our growth and our ability to recharter our vessels depends on our ability to expand relationships with existing customers and develop relationships with new customers, for which we will face substantial competition.

We intend to acquire additional containerships as market conditions allow in conjunction with entering primarily into additional long-term, fixed-rate time charters for such ships, and to recharter our existing vessels following the expiration of their current long-term time charters to the extent we retain those vessels in our fleet. The existing time charters for ten of our vessels will expire (excluding options to extend) before 2013. The charterer has exercised its option to extend for three of these vessels. The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Container shipping charters are awarded based upon a variety of factors relating to the vessel operator, including, among others:

 

   

shipping industry relationships and reputation for customer service and safety;

 

   

container shipping experience and quality of ship operations, including cost effectiveness;

 

   

quality and experience of seafaring crew;

 

   

the ability to finance containerships at competitive rates and the ship owner’s financial stability generally;

 

   

relationships with shipyards and the ability to get suitable berths;

 

   

construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;

 

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willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

 

   

competitiveness of the bid in terms of overall price.

Competition for providing new containerships for chartering purposes comes from a number of experienced shipping companies, including direct competition from other independent charter owners and indirect competition from state-sponsored and other major entities with their own fleets. Some of our competitors have significantly greater financial resources than we do and can operate larger fleets and may be able to offer better charter rates. An increasing number of marine transportation companies have entered the containership sector, including many with strong reputations and extensive resources and experience in the marine transportation industry. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to develop relationships with new customers on a profitable basis, if at all, which would harm our business, results of operations, financial condition and ability to pay dividends.

If a more active short-term or spot containership market develops, we may have more difficulty entering into long-term, fixed-rate time charters and our existing customers may begin to pressure us to reduce our charter rates.

One of our principal strategies is to enter into long-term, fixed-rate time charters. As more vessels become available for the spot or short-term market, we may have difficulty entering into additional long-term, fixed-rate time charters for our vessels due to the increased supply of vessels and possibly lower rates in the spot market. As a result, our cash flow may be subject to instability in the long term. A more active short-term or spot market may require us to enter into charters based on changing market prices, as opposed to contracts based on a fixed rate, which could result in a decrease in our cash flow in periods when the market price for containership is depressed or insufficient funds are available to cover our financing costs for related vessels. In addition, the development of an active short-term or spot containership market could affect rates under our existing time charters as our current customers may begin to pressure us to reduce our rates.

We may be unable to make or realize expected benefits from acquisitions or investments, and implementing our growth strategy through acquisitions of existing businesses or vessels or investments in other containership businesses may harm our business, results of operations, financial condition and ability to pay dividends.

Our growth strategy includes selectively acquiring new containerships, existing containerships, containership-related assets and containership business as market conditions allow. We may also invest in other containership businesses. Factors that may limit the number of acquisition or investment opportunities in the containership industry include the ability to access capital to fund such transactions, the overall economic environment and the status of global trade and the ability to secure long-term, fixed-rate charters.

Any acquisition of or investment in a vessel or business may not be profitable to us at or after the time we acquire or make it and may not generate cash flow sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:

 

   

fail to realize anticipated benefits, such as new customer relationships, cost savings or cash flow enhancements;

 

   

be unable, through our Manager, to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;

 

   

decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions or investments;

 

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incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;

 

   

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or

 

   

not be able to service our debt obligations or pay dividends.

Our four 4800 TEU vessels were acquired secondhand and we may acquire other existing vessels. The purchase of existing, secondhand vessels has inherent risks that are not present when purchasing newbuilding vessels. Unlike newbuildings, existing containerships typically do not carry warranties as to their condition. While we would inspect existing containerships prior to purchase, such an inspection would normally not provide us with as much knowledge of a containership’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could harm our business, operating results, financial condition and ability to pay dividends.

Our ability to grow may be reduced by the introduction of new accounting rules for leasing.

International and U.S. accounting standard-setting organizations have proposed the elimination of operating leases. The proposals are expected to be finalized in 2011 and implemented in 2013 or later. If the proposals are enacted, they would have the effect of bringing most off-balance sheet leases onto a lessee’s balance sheet as liabilities. This proposed change could affect our customers and potential customers and may cause them to breach certain financial covenants. This may make them less likely to enter into time charters for our containerships, which could reduce our growth opportunities.

Under the time charters for some of our vessels, if a vessel is off-hire for an extended period, the customer has a right to terminate the charter agreement for that vessel.

Under most of our time charter agreements, if a vessel is not available for service, or off-hire, for an extended period, the customer has a right to terminate the charter agreement for that vessel. If a time charter is terminated early, we may be unable to re-deploy the related vessel on terms as favorable to us, if at all. In the worst case, we may not receive any revenue from that vessel, but be required to continue to pay financing costs for the vessel and expenses necessary to maintain the vessel in proper operating condition. Please read “Business—Time Charters.”

Risks inherent in the operation of ocean-going vessels could harm our business and reputation.

The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:

 

   

marine disaster;

 

   

environmental accidents;

 

   

grounding, fire, explosions and collisions;

 

   

cargo and property losses or damage;

 

   

business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions; and

 

   

piracy.

Such occurrences could result in death or injury to persons, loss of property or environmental damage, delays in the delivery of cargo, loss of revenue from or termination of charter contracts, governmental fines,

 

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penalties or restrictions on conducting business, higher insurance rates, and damage to our reputation and customer relationships generally. The involvement of our vessels in an environmental disaster could harm our reputation as a safe and reliable vessel owner and operator. Any of these circumstances or events could harm our business, results of operations, financial condition and ability to pay dividends.

Acts of piracy on ocean-going vessels have increased in frequency, which could harm our business.

Piracy is an inherent risk in the operation of ocean-going vessels and has historically affected vessels trading in regions of the world, including, among other areas, the South China Sea and the Gulf of Aden off the coast of Somalia. The frequency of piracy incidents against commercial shipping vessels has increased significantly in recent years, particularly in the Gulf of Aden. We may not be adequately insured to cover losses from these incidents, which could harm our results of operations, financial condition and ability to pay dividends. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. Any of these events, or the loss of use of a vessel due to piracy, may harm our customers, impairing their ability to make payments to us under our charters.

Terrorist attacks and international hostilities could harm our results of operations, financial condition and ability to pay dividends.

Terrorist attacks such as the attacks on the United States on September 11, 2001, and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets. Conflicts in Afghanistan and other nations and tensions between North and South Korea (where many of our shipbuilders are located) may lead to additional acts of terrorism, regional conflict and other armed conflict around the world, which may contribute to further economic instability in the global financial markets or in regions where our customers do business or, in the case of South Korea, affect our access to new vessels. These uncertainties or events could harm our business, results of operations and financial condition, including our ability to obtain additional financing on terms acceptable to us or at all, and our ability to pay dividends. In addition, terrorist attacks targeted at sea vessels may in the future also negatively affect our operations and financial condition and directly affect our containerships or customers.

Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered could affect us. Any hostilities in South Korea could constitute a force majeure event under our contracts with Samsung, HHI and HSHI and could negatively affect the construction of our newbuildings or result in the shipyards’ inability to perform under the contracts. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and harm our business, operations results, financial condition and ability to pay dividends.

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations due to the inherent operational risks of the shipping industry.

We maintain insurance for our fleet against risks commonly insured against by vessel owners and operators. Our insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We may not be adequately insured against all risks and our insurers may not pay a particular claim. Even if our insurance coverage is adequate to cover any vessel loss, we may not be able to timely obtain a replacement vessel. Our credit facilities and lease agreements restrict our use of any proceeds we may receive from claims under our insurance policies. In addition, in the future we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to supplementary or additional calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations, as an industry group, through which we receive indemnity insurance coverage for statutory, contractual and tort liability, due to the sharing and reinsurance arrangements stated in the insurance rules. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may directly or indirectly increase our costs.

 

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In addition, we do not carry loss-of-hire insurance, which covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled dry-docking due to damage to the vessel from accidents. Accordingly, any loss of a vessel or extended vessel off-hire, due to an accident or otherwise, could harm our business, results of operations, financial condition and ability to pay dividends.

Increased inspection procedures, tighter import and export controls and new security regulations could cause disruption of our business.

International containership traffic is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. These inspections can result in cargo seizure, delays in the loading, offloading, trans-shipment or delivery of containers and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, customers.

Since the events of September 11, 2001, U.S. and Canadian authorities have increased container inspection rates. Government investment in non-intrusive container scanning technology has grown and there is interest in electronic monitoring technology, including so-called “e-seals” and “smart” containers, that would enable remote, centralized monitoring of containers during shipment to identify tampering with or opening of the containers, along with potentially measuring other characteristics such as temperature, air pressure, motion, chemicals, biological agents and radiation.

It is unclear what changes, if any, to the existing inspection procedures will ultimately be proposed or implemented, or how any such changes will affect the industry. Such changes may impose additional financial and legal obligations on carriers and may render the shipment of certain types of goods by container uneconomical or impractical. Additional costs that may arise from current or future inspection procedures may not be fully recoverable from customers through higher rates or security surcharges. Any of these effects could harm our business, operating results and financial results.

An over-supply of containership capacity may lead to reductions in charter hire rates and profitability.

While the size of the containership orderbook has declined over the last 12 months, newbuilding containerships with an aggregate capacity of 4.1 million TEUs, representing approximately 28% of the total fleet capacity as of April 1, 2011, were under construction as of that date. The size of the orderbook will result in the increase in the size of the world containership fleet over the next few years. An over-supply of containership capacity, combined with stability or any decline in the demand for containerships, may result in a reduction of charter hire rates. If such a reduction occurs when we seek to charter newbuilding vessels, our growth opportunities may be diminished. If such a reduction occurs upon the expiration or termination of our containerships’ current time charters, we may only be able to recharter our containerships for reduced rates or unprofitable rates or we may not be able to recharter our containerships at all.

Depending on the outcome of a government investigation of container liner companies related to potential antitrust violations, our growth, operating results and our ability to charter our vessels may be reduced.

We intend to acquire additional containerships as market conditions allow in conjunction with entering primarily into additional long-term, fixed-rate time charters for such ships, and to recharter our existing vessels following the expiration of their current long-term time charters to the extent we retain those vessels in our fleet. The existing time charters for ten of our vessels will expire (excluding options to extend) before 2013. The charterer has exercised its option to extend for three of these vessels. The European Commission is conducting investigations of certain major container liner companies, including some of our existing customers, related to potential violations of European Union antitrust rules. Although we have no basis for assessing the outcome of these investigations, it is possible that additional financial and legal obligations may be imposed on one or more of these liner companies. Such obligations may make these customers or similarly situated potential customers less likely to enter into or renew time charters for our containerships, which could reduce our growth

 

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opportunities and harm our business, operating results, financial condition and ability to pay dividends. In addition, any significant financial penalties arising from these or similar investigations could reduce the ability of our customers to make charter payments to us, which likewise could harm our business, operating results, financial condition and ability to pay dividends.

Over time, containership values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a containership, we may incur a loss or we may not be able to dispose of such containership at all.

Containership values can fluctuate substantially over time due to a number of different factors, including, among others:

 

   

prevailing economic conditions in the market in which the containership trades;

 

   

a substantial or extended decline in world trade;

 

   

increases in the supply of containership capacity; and

 

   

the cost of retrofitting or modifying existing ships, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.

If a charter terminates, we may be unable to re-deploy the vessel at attractive rates and, rather than continue to incur costs to maintain and finance the vessel, may seek to dispose of it. Our inability to dispose of the containership at a reasonable price, or at all, could result in a loss on its sale and harm our results of operations, financial condition and ability to pay dividends.

The age of our 4800 TEU secondhand vessels and general aging of our fleet may result in increased operating costs in the future, which could harm our operating results.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. Our fleet includes four 4800 TEU secondhand vessels that had an average age of approximately 22 years as of May 10, 2011. For these vessels, and as the rest of our fleet ages, and to the extent we acquire any older existing vessels, we will incur increased costs as older vessels are typically more costly to maintain than newer vessels. In addition, cargo insurance rates increase with the age of a vessel, making older vessels less desirable to customers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations, or the addition of new equipment, to older vessels and may restrict the type of activities in which these vessels may engage. Increased costs or restrictions on the operation of our older vessels may prevent us from operating them profitably during the remainder of their useful lives and may harm our business, operating results, financial condition and ability to pay dividends.

We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our operations.

Our business and the operation of our containerships are materially affected by environmental regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which our containerships operate, as well as in the countries of their registration, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, water discharges and ballast water management. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost or effect of complying with such requirements or the effect thereof on the resale price or useful life of our containerships. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business, which may harm our business, operating results, financial condition and ability to pay dividends.

 

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Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in substantial penalties, fines or other sanctions, including the denial of access to certain jurisdictional waters or ports or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and natural resource damages, if there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous materials associated with our operations.

In addition, in complying with existing environmental laws and regulations and those that may be adopted, we may incur significant costs in meeting new maintenance and inspection requirements and new restrictions on air emissions from our containerships, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. Substantial violations of applicable requirements or a catastrophic release of bunker fuel from one of our containerships could harm our business, operating results, financial condition and ability to pay dividends.

Compliance with safety and other vessel requirements imposed by classification societies may be costly and harm our business.

The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.

A vessel must undergo annual surveys, intermediate surveys and special surveys to maintain classification society certification. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle under which the machinery is surveyed periodically over a five-year period. Each of the operating vessels in our fleet is on a special survey cycle for hull inspection and a continuous survey cycle for machinery inspection.

If any vessel does not maintain its class or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable and we could be in violation of certain covenants in our credit facilities and our lease agreements. This could harm our business, results of operations, financial condition and ability to pay dividends.

Delays in deliveries of our newbuilding containerships could harm our business and operating results.

We are currently under contract to purchase six and lease three additional newbuilding containerships, which are scheduled to be delivered at various times through April 2012. These vessels are being built by HHI, HSHI and Samsung shipyards. The delivery of these vessels, or any other newbuildings we may order, could be delayed, which would delay our receipt of revenue under the time charters for the containerships and, if the delay is prolonged, could permit our customers to terminate the newbuilding time charter. Any of such events could harm our results of operations, financial condition and ability to pay dividends.

The delivery of the newbuildings could be delayed because of:

 

   

work stoppages, other labor disturbances or other events that disrupt any of the shipyards’ operations;

 

   

quality or engineering problems;

 

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changes in governmental regulations or maritime self-regulatory organization standards;

 

   

bankruptcy or other financial crisis of any of the shipyards;

 

   

a backlog of orders at any of the shipyards;

 

   

hostilities, or political or economic disturbances in South Korea, where the containerships are being built;

 

   

weather interference or catastrophic event, such as a major earthquake, fire or tsunami, such as the events recently affecting Japan;

 

   

our requests for changes to the original containership specifications;

 

   

shortages of or delays in the receipt of necessary construction materials, such as steel;

 

   

our inability to obtain requisite permits or approvals;

 

   

a dispute with any of the shipyards; or

 

   

the failure of our banks to provide debt financing.

In addition, each of the shipbuilding contracts for the nine newbuilding vessels contains “force majeure” provisions whereby the occurrence of certain events could delay delivery or possibly result in termination of the contract. If delivery of a containership is materially delayed or if a shipbuilding contract is terminated, it could harm our results of operations, financial condition and ability to pay dividends.

Due to our lack of diversification, adverse developments in our containership transportation business could harm our results of operations, financial condition and ability to pay dividends.

Our articles of incorporation currently limit our business to the chartering or rechartering of containerships to others and other related activities, unless otherwise approved by our board or directors, the holders of a majority of our Series A Preferred Shares and, for as long as the management agreements with our Manager are in effect, the approval of the holders of our Class C common shares.

We rely exclusively on the cash flow generated from our charters that operate in the containership transportation business. Due to our lack of diversification, an adverse development in the containership industry may more significantly harm our results of operations, financial condition and ability to pay dividends than if we maintained more diverse assets or lines of business.

Our charter revenue from the four 4800 TEU secondhand vessels will decrease if APM exercises its options to extend its charters beyond the initial charter period of five years, and if APM does not exercise its options to extend, we may not be able to recharter these vessels at favorable rates or at all.

We purchased our four 4800 TEU secondhand vessels from APM in 2006. Simultaneously with the delivery of the four 4800 TEU vessels, we entered into five-year charter agreements for each of these vessels with APM at a daily hire rate of $23,450. Upon the expiration of the initial five-year time charter term for each of the four 4800 TEU vessels in 2011, APM will have two consecutive one-year options to charter each vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter each vessel at $20,400 per day. APM has exercised its first one-year option on the Maersk Merritt. If APM exercises its remaining options, our charter revenue from the four 4800 TEU secondhand vessels will decrease during the option years. In addition, the 4800 TEU vessels are approximately 22 years old, which is relatively old for containerships. If APM does not

 

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exercise its options to extend these time charters, the age of these vessels may prevent us from rechartering them at rates favorable to us or at all. If we are unable to recharter our 4800 TEU vessels, we may attempt to sell them. The age of the 4800 TEU vessels may prevent us from being able to sell them at a profit or at all.

Because each existing and newbuilding vessel in our contracted fleet is built or will be built in accordance with standard designs and uniform in all material respect to all other vessels in its TEU class, any material design defect likely will affect all vessels in such class.

Each existing and newbuilding vessel in our fleet is built or will be built in accordance with standard designs and uniform in all material respects to all other vessels in its class. As a result, any latent design defect discovered in one of our vessels will likely affect all of our other vessels in that class. Any disruptions in the operation of our vessels resulting from these defects could harm our business, operating results, financial condition and ability to pay dividends.

There may be greater than normal operational risks with respect to our 9600 TEU vessels.

The two 9600 TEU vessels that we have purchased are some of the first vessels of this type to be built. There is one other company that operated similar vessels built by Samsung, and there may exist greater than normal operational risks associated with these vessels. Any operational risks arising from these vessels could adversely affect our reputation, the receipt of revenue under time charters for or the operating cost of these vessels, and their future resale value.

There are greater than normal construction, delivery and operational risks with respect to our 13100 TEU newbuilding vessels and any newbuilding New Panamax 10000 TEU vessels we may order.

The eight 13100 TEU newbuilding vessels that are under construction are some of the first vessels of this type to be built. In addition, we have entered into a letter of intent to order a significant number of New Panamax 10000 TEU vessels. If this order is completed, these will be the first vessels constructed using this new design and the first vessels constructed of this size at this particular shipyard. As such, there may exist greater than normal construction, delivery and operational risks associated with these vessels. Deliveries of these vessels could be delayed and problems with operation of these vessels could be encountered, either of which could adversely affect our reputation, the receipt of revenue under time charters for or the operating cost of these vessels, and their future resale value.

Increased technological innovation in competing vessels could reduce our charter hire income and the value of our vessels.

The charter hire rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to be loaded and unloaded quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new containerships are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced containerships could adversely affect the amount of charter hire payments we receive for our vessels once their initial charters end and the resale value of our vessels. As a result, our operating results and financial condition could be harmed.

Maritime claimants could arrest our vessels, which could interrupt our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against the applicable vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may

 

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arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships. The arrest or attachment of one or more of our vessels could interrupt our business and cash flow and require us to pay significant amounts to have the arrest lifted.

Governments could requisition our containerships during a period of war or emergency, resulting in loss of earnings.

The government of a ship’s registry could requisition for title or seize our containerships. Requisition for title occurs when a government takes control of a ship and becomes the owner. Also, a government could requisition our containerships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our containerships could harm our business, operating results, financial condition and ability to pay dividends.

We depend on our Manager to operate our business, and if our Manager fails to satisfactorily perform its management services, our business, results of operations, financial condition and ability to pay dividends may be harmed.

Pursuant to our management agreements, our Manager and certain of its affiliates provide us with all of our employees (other than our chief executive officer) and with all of our services, including technical, commercial, administrative and strategic services (including vessel maintenance, crewing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance and financial services). Our operational success and our ability to grow depend significantly upon our Manager’s satisfactory performance of these services. Our business will be harmed if our Manager fails to perform these services satisfactorily. In addition, if any of the management agreements were to be terminated or if their terms were to be amended, our business could be harmed if we could not timely find adequate replacement services, or even if replacement services are immediately available, the terms offered may be less favorable than the ones currently offered by our Manager.

Our ability to compete for and to enter into new charters and expand our relationships with our customers depends upon our relationship with our Manager and its reputation and relationships in the shipping industry. If our Manager suffers material damage to its reputation or relationships, it may harm our ability to, among other things:

 

   

renew existing charters upon their expiration;

 

   

obtain new charters;

 

   

successfully interact with shipyards;

 

   

obtain financing on commercially acceptable terms;

 

   

maintain satisfactory relationships with our customers and suppliers; or

 

   

grow our business.

If our ability to do any of the things described above is impaired, it could harm our business, results of operations, financial condition and ability to pay dividends.

 

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As we expand our business or if our Manager provides services to third parties, our Manager may need to improve its operating and financial systems, expand its commercial and technical management staff, and recruit suitable employees and crew for our vessels.

Since our initial public offering in 2005, we have increased the size of our contracted fleet from 23 to 69 vessels. Our Manager’s current operating and financial systems may not be adequate if we further expand the size of our fleet or if our Manager provides services to third parties and attempts to improve those systems may be ineffective. In March 2011, our Manager agreed to provide technical, commercial and certain administrative services for vessels to the Vehicle, and to affiliates of Dennis R. Washington for vessels that they may acquire. Please read “Certain Relationships and Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Greater China Intermodal Investments LLC Agreement—Services Agreements.” In addition, if we expand our fleet, or as our Manager provides services to third parties, our Manager will need to recruit suitable additional administrative and management personnel. Our Manager may not be able to continue to hire suitable employees in such circumstances. If there exists a shortage of experienced labor or if our Manager encounters business or financial difficulties, our Manager may not be able to adequately staff our vessels. If we expand our fleet, or as our Manager provides services to third parties and our Manager is unable to grow its financial and operating systems or to recruit suitable employees, our business, results of operations, financial condition and ability to pay dividends may be harmed.

The fees that we pay our Manager for its technical management of our ships have increased since our initial public offering and may continue to increase. Additional increases in our technical management or other existing fees, or the introduction of new fees, could significantly increase our operating costs and harm our results of operations, financial condition and ability to pay dividends.

Under the management agreements for our vessels, we currently pay our Manager fixed fees for the technical management of our vessels. These fixed fees have increased and may continue to increase in the future. Pursuant to our management agreements, the current technical fee structure is effective until December 31, 2011, at which time we will need to renegotiate the fee structure. Based on the technical management fees and additional fees under the management agreement between our Manager and the Vehicle, and disclosure by other public containership companies and third-party management companies, the owners of our Manager are proposing increases to existing fees and the inclusion of additional new fees under our management agreements, which they believe reflect current market practice. Any increase in the technical management fees we pay our Manager and any additional new fees could be substantial and would increase our operating costs and impact our results of operations, financial condition and ability to pay dividends. In addition, we are in discussions with our Manager about potentially acquiring all or a significant portion of our Manager, and any increases or anticipated increases in the fee arrangements under the management agreements could result in an increase to the purchase price of our Manager. Please read “Summary—Certain Potential Transactions—Potential Acquisition of Seaspan Management Services Limited and Change in Management Fees.”

Our Manager and its affiliates have conflicts of interest and limited fiduciary and contractual duties, which may permit them to favor their own interests to your detriment and ours.

Conflicts of interest may arise between our Manager and its affiliates, on the one hand, and us and holders of our securities, on the other hand. As a result of these conflicts, our Manager may favor its own interests and the interests of its affiliates over the interests of the holders of our securities, including the Series C Preferred Shares. These conflicts include, among others, the following situations:

 

   

our management agreements, the omnibus agreement and other contractual agreements we have with our Manager and its affiliates were not the result of arm’s-length negotiations, and the negotiation of these agreements may have resulted in prices and other terms that are less favorable to us than terms we might have obtained in arm’s-length negotiations with unaffiliated third parties for similar services;

 

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our chief executive officer and certain of our directors also serve as executive officers or directors of our Manager and our chief financial officer serves as an executive officer of certain of our Manager’s affiliates;

 

   

our Manager advises our board of directors about the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional securities and reserves, each of which can affect the amount of cash that is available for dividends to our shareholders and the payment of dividends on our outstanding Class C common shares, or the incentive shares, which are currently held by an affiliate of the Manager;

 

   

our Manager may recommend that we borrow funds in order to permit the payment of cash dividends;

 

   

our officers, including our chief executive officer and our chief financial officer, do not spend all of their time on matters related to our business; and

 

   

our Manager advises us of costs incurred by it and its affiliates that it believes are reimbursable by us.

Even if our board of directors or our shareholders are dissatisfied with our Manager, there are limited circumstances under which the management agreements governing the management of our vessels can be terminated by us. On the other hand, our Manager has substantial rights to terminate the management agreements and, under certain circumstances, could receive substantial sums in connection with such termination.

Under the management agreements governing our vessels, our Manager currently has the right to terminate the management agreements on 12 months’ notice, although the covenant limiting our Manager’s ability to compete with us continues for two years following such termination, and we can elect for our Manager to continue to provide services to us for such two-year period as long as the Manager continues to be in the business of providing services to third parties for similar types of vessels. Our Manager also has the right to terminate the management agreements after a dispute resolution if we have materially breached any of the management agreements, in which case none of the covenants would continue to apply to our Manager.

The management agreements will each terminate upon the sale of substantially all of our assets to a third party, upon our liquidation or after any change of control of our company occurs. If the management agreements terminate as a result of an asset sale, our liquidation or change of control, our Manager may be paid the fair market value of the incentive shares as determined by an appraisal process. Any such payment could be substantial.

In addition, our rights to terminate the management agreements are limited. Even if we are not satisfied with the Manager’s efforts in managing our business, unless our Manager materially breaches one of the agreements, we may not be able to terminate any of the management agreements until 2020, and only with the approval of two-thirds of our independent directors. Even if we so terminate the management agreements then or at the end of their initial terms in 2025 or a subsequent renewal term, our Manager will continue to receive dividends on the incentive shares for a five-year period from the date of termination, if available.

Our Manager is a privately held company and there is little or no publicly available information about it.

The ability of our Manager to continue providing services for our benefit depends in part on its own financial strength. Circumstances beyond our control could impair our Manager’s financial strength, and because it is a privately held company, information about its financial strength is not generally available. As a result, an investor in our securities might have little advance warning of problems affecting our Manager, even though

 

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these problems could harm our business, operating results, financial condition and ability to pay dividends. As part of our reporting obligations as a public company, we disclose information regarding our Manager that has a material impact on us to the extent that we become aware of such information.

Our Manager will engage in other businesses and may compete with us.

Pursuant to an omnibus agreement entered into in connection with our initial public offering, our Manager, Seaspan Marine Corporation (formerly known as Seaspan International Ltd.), or SIL, and Norsk Pacific Steamship Company Limited, or Norsk, generally agreed to, and agreed to cause their controlled affiliates (which does not include us), not to engage in the business of chartering or rechartering containerships to others during the term of our management agreement with our Manager. Please read “Our Manager and Management Related Agreements.” The omnibus agreement, however, contains significant exceptions that may allow these entities to compete with us. For instance, in certain circumstances these entities are permitted to acquire and operate containerships to the extent that such containership assets were part of an acquired business, provided that (a) a majority of the fair market value of the total assets of the acquired business is not attributable to the containership business and (b) such entity has offered to sell to us the containership assets of the acquired business. In addition, in March 2011, in connection with our participation in the Vehicle, we amended the omnibus agreement to permit our Manager and the other parties to the agreement to provide certain technical, commercial and administrative services to the Vehicle and certain affiliates of it and Dennis R. Washington. Please read “Our Manager and Management Related Agreements—Omnibus Agreement.”

Our officers do not devote all of their time to our business.

Our Manager and its affiliates as well as certain of our officers are involved in other business activities that may result in their spending less time than is appropriate or necessary in order to manage our business successfully. Pursuant to the recent employment agreement between us and our chief executive officer, Gerry Wang, Mr. Wang is permitted to provide services to our Manager, the Tiger Member and the Vehicle and certain of their respective affiliates, in addition to the services that he provides to us. In addition, Mr. Wang is the chairman of the board of managers of the Vehicle. Our chief financial officer is employed by our Manager and he will devote substantially all of his time to us and our Manager. Other officers appointed by our Manager may spend a material portion of their time providing services to our Manager and its affiliates on matters unrelated to us. Please read “Certain Relationships and Related Party Transactions—Certain Relationships and Transactions.”

Our business depends upon certain employees who may not necessarily continue to work for us.

Our future success depends to a significant extent upon our chief executive officer and co-chairman of our board of directors, Gerry Wang, and certain members of our senior management and that of our Manager. Mr. Wang has substantial experience and relationships in the containership industry and has worked with our Manager for many years. Mr. Wang has been instrumental in developing our relationships with our customers. Mr. Wang and others employed by our Manager are crucial to the development of our business strategy and to the growth and development of our business. If they, and Mr. Wang in particular, were no longer to be affiliated with our Manager, or if we otherwise cease to receive advisory services from them, we may fail to recruit other employees with equivalent talent, experience and relationships, and our business, operating results and financial condition may be significantly harmed as a result. Although Mr. Wang has an employment agreement with us through January 1, 2013, Mr. Wang could terminate his employment at any time. As such, it is possible that Mr. Wang will no longer provide services to us and that our business may be harmed by the loss of such services.

We may not achieve expected benefits from our participation in the Carlyle investment vehicle.

In March 2011, we agreed to participate in the Vehicle, which will invest in containership assets, primarily newbuilding vessels strategic to Greater China. We believe that the combined scale of our business and the Vehicle, together with current excess capacity at shipyards, will allow us to realize volume discounts for newbuilding orders and to negotiate fuel-efficient design improvements from shipyards that will be attractive to

 

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our customers. To the extent excess shipyard capacity decreases, we may be unable to achieve these benefits. In addition, we may be unable to obtain more attractive vessel financing through the Vehicle than otherwise available to us on our own.

The Vehicle intends to compete in our markets, and its entry into the containership market may harm our business, operating results, financial position and ability to pay dividends.

Carlyle is a leading global alternative asset manager with nearly $100 billion of assets under management. The Vehicle intends to invest up to $900 million of equity capital in containership assets, primarily newbuilding vessels strategic to Greater China, which is similar to our growth strategy of investing in primarily newbuilding vessels strategic to Greater China. The involvement of Carlyle in the Vehicle and the amount of funds that the Vehicle may invest in containerships could result in the Vehicle becoming the owner of a significant fleet of containerships, which could compete with us for growth opportunities, subject to certain rights of first refusal in our favor that may continue up to March 31, 2015, subject to earlier termination. Please read “Certain Relationships and Related Party Transactions—Agreements Related to Our Investment in Carlyle Containership-Focused Investment Vehicle—Rights of First Refusal and First Offer Agreements.” Our business, operating results, financial condition and ability to pay dividends could be harmed to the extent the Vehicle successfully competes against us for containership opportunities.

We have reduced the fiduciary duties of Gerry Wang and Graham Porter in relation to certain growth opportunities that become subject to our right of first refusal with the Vehicle, which may limit our rights in such growth opportunities to our rights under the right of first refusal.

Pursuant to agreements between us and each of our chief executive officer and co-chairman of our board of directors, Gerry Wang, and our director Graham Porter, we have reduced the fiduciary duties of Mr. Wang and Mr. Porter in relation to certain containership vessel and business opportunities to the extent such opportunities are subject to our right of first refusal with the Vehicle and (a) the conflicts committee of our board of directors has decided to reject such opportunity or we have failed to exercise our right of first refusal to pursue such opportunity, (b) we have exercised such right but failed to pursue such opportunity or (c) we do not have the right under our right of first refusal to pursue such opportunity. As a result of these arrangements with Messrs. Wang and Porter, our rights to such opportunities relative to them may be limited to our contractual rights under our right of first refusal with the Vehicle, which would be more restrictive than the rights based on fiduciary duties we otherwise would have relating to such opportunities.

In order to timely exercise our right of first refusal from the Vehicle, we may be required to enter into containership construction contracts without financing arrangements or charter contracts then being in place, which may result in financing on less than favorable terms or employment of the vessels other than on long-term, fixed-rate charters, if at all.

Under our right of first refusal with the Vehicle relating to containership acquisition opportunities, we generally must exercise our right of first refusal within 12 business days of receiving a notice from the Vehicle of the acquisition opportunity. At the time we must exercise our right of first refusal, there may be no financing arrangement or charter commitment relating to the newbuilding or existing containership to be acquired. If we elect to acquire the vessel without a financing arrangement or charter commitment then in place, we may be unable subsequently to obtain financing or charter the vessel on a long-term, fixed-rate basis, on terms that will result in positive cash flow to us from operation of the vessel, or at all. Accordingly, our operating results, financial condition and ability to pay dividends may be harmed.

Certain of our officers and directors or their affiliates will have separate interests in the Vehicle, which may result in conflicts of interest between their interests and those of us and our shareholders relative to the Vehicle.

Our director Graham Porter, through his interest in the Tiger Member, is an indirect investor in GC Industrial, the member with the largest capital commitment in the Vehicle. An affiliate of Dennis R. Washington, who controls entities that together represent our largest shareholder, has an indirect interest in the Tiger Member.

 

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As a result, Mr. Porter and the affiliate of Mr. Washington will have an indirect interest in incentive distributions received by GC Industrial from the Vehicle. These incentive distributions will range between 20% and 30% after a cumulative compounded rate of return of 12% has been generated on all member capital contributions. Gerry Wang, co-chairman of our board of directors and our chief executive officer, may become an indirect investor in GC Industrial. Messrs. Wang and Porter are members of the Vehicle’s transaction committee, which will be primarily responsible for approving the purchase, newbuild contracting, chartering, financing and technical management of new and existing investments for the Vehicle. Kyle R. Washington, co-chairman of our board of directors, is a non-voting member of the Vehicle’s transaction committee. Mr. Wang is also chairman of the Vehicle’s board of managers. In addition, affiliates of Messrs. Wang and Porter will provide certain transactional and financing services to the Vehicle, for which they will receive compensation. The affiliate of Mr. Washington has a right of first refusal on containership acquisition opportunities available to the Vehicle, which right is subordinate to our right of first refusal.

As a result of these interests relating to the Vehicle, the interests of Messrs. Wang, Porter and Kyle R. Washington may conflict with those of us or our shareholders relative to the Vehicle.

The return on our investment in the Vehicle will be reduced by various fees and preferential returns.

We have committed to invest up to $100 million in the Vehicle over a five year period. The return on any investment we are required to make in the Vehicle will be reduced by the amount of technical ship management, financing, transaction and other fees payable by the Vehicle under services agreements, including agreements with affiliates of the Vehicle, and by the payment of preferential incentive distributions ranging between 20% and 30% after a cumulative compounded rate of return of 12% has been generated on all member capital contributions.

Compensation payable under new employment or services agreements with Gerry Wang, Graham Porter or their affiliates will increase our expenses and may dilute the interests of our equity holders.

In connection with our investment in the Vehicle, we entered into an employment agreement with Gerry Wang, our chief executive officer and co-chairman of our board of directors, and transaction services and financial services agreements with Mr. Wang and an affiliate of our director Graham Porter, respectively. Mr. Wang’s compensation as our chief executive officer was increased significantly under the employment agreement, which included, among other things, for the payment of transactional fees of 1.25% of the value of certain containership orders, sales or acquisitions we may enter into. The transaction services agreement provides for similar fees following termination of Mr. Wang’s employment with us and through the duration of our right of first refusal with the Vehicle but with the amount of the fee increased to 1.5%. The financial services agreement with Mr. Porter provides for fees of 0.8% or 0.4% of the aggregate value of certain debt and lease financing provided by Greater China or non-Greater China banks, respectively. A portion of amount payable under the employment agreement and the services agreements may be paid in our common shares, at our election.

Compensation payable under these agreements will increase our expenses and reduce our operating results. To the extent we issue common shares as partial compensation under these agreements, the interests of our equity holders will be diluted.

Anti-takeover provisions in our organizational documents could make it difficult for our shareholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our securities.

Several provisions of our articles of incorporation and our bylaws could make it difficult for our shareholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable.

 

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These provisions include:

 

   

authorizing our board of directors to issue “blank check” preferred shares without shareholder approval;

 

   

providing for a classified board of directors with staggered, three-year terms;

 

   

prohibiting cumulative voting in the election of directors;

 

   

authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote for those directors;

 

   

prohibiting shareholder action by written consent unless the written consent is signed by all shareholders entitled to vote on the action;

 

   

limiting the persons who may call special meetings of shareholders;

 

   

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings; and

 

   

restricting business combinations with interested shareholders.

In addition, upon a change of control, our Manager may elect to have us purchase the incentive shares, which could result in a substantial payment to our Manager and discourage a change of control that might otherwise be beneficial to shareholders.

We have also adopted a shareholder rights plan pursuant to which our board of directors may cause the substantial dilution of the holdings of any person that attempts to acquire us without the board’s prior approval.

In addition, holders of our Series A Preferred Shares have the power to vote as a single class to approve certain major corporate changes, including any merger, consolidation, asset sale or other disposition of all or substantially all of our assets. These shareholders could exercise this power to block a change of control that might otherwise be beneficial to holders of our common shares. Please read “Description of Capital Stock—Preferred Stock—Series A Preferred Shares.”

These anti-takeover provisions, including the provisions of our shareholder rights plan, could substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our securities and your ability to realize any potential change of control premium.

We are incorporated in the Republic of the Marshall Islands, which does not have a well developed body of corporate law.

Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of some states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

 

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Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are organized under the laws of the Marshall Islands, and all of our assets are located outside of the United States. Our principal executive offices are located in Hong Kong and a majority of our directors and officers are residents outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against our directors or our management in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or our directors and officers.

Risks of Investing in the Series C Preferred Shares

We may not have sufficient cash from our operations to enable us to pay dividends on or to redeem our Series C Preferred Shares following the payment of expenses and the establishment of any reserves.

We pay quarterly dividends on our Series C Preferred Shares from funds legally available for such purpose when, as and if declared by our board of directors. We may not have sufficient cash available each quarter to pay dividends. In addition, we may have insufficient cash available to redeem our Series C Preferred Shares. The amount of dividends we can pay or the amount we can use to redeem Series C Preferred Shares depends upon the amount of cash we generate from our operations, which may fluctuate based on, among other things:

 

   

the rates we obtain from our charters or recharters and the ability of our customers to perform their obligations under their respective time charters;

 

   

the level of our operating costs;

 

   

the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, dry-docking of our containerships;

 

   

delays in the delivery of new vessels and the beginning of payments under charters relating to those ships;

 

   

prevailing global and regional economic and political conditions;

 

   

the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business;

 

   

changes in the basis of taxation of our activities in various jurisdictions;

 

   

our ability to service our current and future indebtedness;

 

   

our ability to raise additional equity to satisfy our capital needs; and

 

   

our ability to draw on our existing credit facilities and the ability of our lenders and lessors to perform their obligations under their agreements with us.

In addition, before we can determine the amount of cash available for the payment of dividends or to redeem Series C Preferred Shares, we must pay fees to our Manager for the technical, commercial, administrative and strategic services. We are also required to reimburse our Manager for certain extraordinary costs and capital expenditures as provided for in our management agreements. For information about fees we pay to our Manager, please read “Our Manager and Management Related Agreements—Management Agreements.”

 

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The amount of cash we have available for dividends on or to redeem our Series C Preferred Shares will not depend solely on our profitability.

The actual amount of cash we have available for dividends or to redeem our Series C Preferred Shares also depends on many factors, including the following:

 

   

changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;

 

   

restrictions under our existing or future credit and lease facilities or any future debt securities, including existing restrictions under our credit and lease facilities on our ability to declare or pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default;

 

   

the amount of any cash reserves established by our board of directors; and

 

   

restrictions under Marshall Islands law, which generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.

The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which is affected by non-cash items, and our board of directors in its discretion may elect not to declare any dividends. As a result of these and the other factors mentioned above, we may pay dividends during periods when we record losses and may not pay dividends during periods when we record net income.

The Series C Preferred Shares represent perpetual equity interests.

The Series C Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Series C Preferred Shares may be required to bear the financial risks of an investment in the Series C Preferred Shares for an indefinite period of time. In addition, the Series C Preferred Shares rank junior to all our indebtedness and other liabilities, and to our Series A Preferred Shares and any other senior securities we may issue in the future with respect to assets available to satisfy claims against us.

The Series C Preferred Shares do not have a well-established trading market, which may negatively affect their market value and your ability to transfer or sell your shares. In addition, the lack of a fixed redemption date for the Series C Preferred Shares will increase your reliance on the secondary market for liquidity purposes.

The Initial Series C Preferred Shares were first listed on The New York Stock Exchange, or NYSE, in February 2011 and added to the Standard & Poor’s U.S. Preferred Stock Index on April 15, 2011. However, there is not a well-established trading market for the securities. In addition, since the securities have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market absent redemption by us. The trading market on the NYSE for the Series C Preferred Shares may not continue to be active, in which case the trading price of the shares of Series C Preferred Shares could be adversely affected and your ability to transfer your shares will be limited. If the trading market on the NYSE does not continue to be active, our Series C Preferred Shares may trade at prices lower than the offering price. The trading price of our Series C Preferred Shares depends on many factors, including:

 

   

prevailing interest rates;

 

   

the market for similar securities;

 

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general economic and financial market conditions;

 

   

our issuance of debt or preferred equity securities; and

 

   

our financial condition, results of operations and prospects.

The Series C Preferred Shares have not been rated.

We have not sought to obtain a rating for the Series C Preferred Shares, and the shares may never be rated. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the Series C Preferred Shares or that we may elect to obtain a rating of our Series C Preferred Shares in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Series C Preferred Shares in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Series C Preferred Shares. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the Series C Preferred Shares. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Series C Preferred Shares may not reflect all risks related to us and our business, or the structure or market value of the Series C Preferred Shares.

Our Series C Preferred Shares are subordinate to our debt, and your interests could be diluted by the issuance of additional shares of preferred stock, including additional Series C Preferred Shares, and by other transactions.

Our Series C Preferred Shares are subordinate to all of our existing and future indebtedness. As of March 31, 2011, we had outstanding indebtedness of approximately $2.9 billion. Our existing indebtedness restricts, and our future indebtedness may include restrictions on, our ability to pay dividends to preferred stockholders. Our charter currently authorizes the issuance of up to 65 million shares of preferred stock in one or more classes or series. The issuance of additional preferred stock on a parity with or senior to our Series C Preferred Shares would dilute the interests of the holders of our Series C Preferred Shares, and any issuance of preferred stock senior to our Series C Preferred Shares or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series C Preferred Shares. Other than the increase in the dividend that may occur in a circumstance described under “Description of Series C Preferred Shares—Dividends” below, none of the provisions relating to our Series C Preferred Shares contain any provisions affording the holders of our Series C Preferred Shares protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, which might adversely affect the holders of our Series C Preferred Shares, so long as the rights of our Series C Preferred Shares are not directly materially and adversely affected.

The Series C Preferred Shares are subordinated to our Series A Preferred Shares.

Our Series A Preferred Shares rank senior to the Series C Preferred Shares. Accordingly, we must satisfy our obligations to make preferred distributions to the Series A Preferred Shares before we may make distributions to holders of the Series C Preferred Shares. In addition, in the event of our bankruptcy, holders of Series A Preferred Shares will generally be entitled to payment of their liquidation preference from our assets before those assets are made available for distribution to holders of the Series C Preferred Shares. As a result, any right that you have to receive any of our assets upon our liquidation or reorganization will be subordinate to the liquidation preference of the Series A Preferred Shares. As of March 31, 2011, the liquidation preference on the outstanding Series A Preferred Shares was approximately $248.5 million.

 

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Market interest rates may adversely affect the value of our Series C Preferred Shares.

One of the factors that will influence the price of our Series C Preferred Shares will be the dividend yield on the Series C Preferred Shares (as a percentage of the price of our Series C Preferred Shares, as applicable) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our Series C Preferred Shares to expect a higher dividend yield and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Accordingly, higher market interest rates could cause the market price of our Series C Preferred Shares to decrease.

As a holder of Series C Preferred Shares you have extremely limited voting rights.

Your voting rights as a holder of Series C Preferred Shares are extremely limited. Our common stock is the only class or series of our stock carrying full voting rights. Holders of Series C Preferred Shares have no voting rights other than the ability to elect one director if dividends for six quarterly dividend periods (whether or not consecutive) payable on our Series C Preferred Shares are in arrears and certain other limited protective voting rights described in this prospectus under “Description of Series C Preferred Shares—Voting Rights.”

Our ability to pay dividends on and to redeem our Series C Preferred Shares is limited by the requirements of Marshall Islands law.

Marshall Islands law provides that we may pay dividends on and redeem the Series C Preferred Shares only to the extent that assets are legally available for such purposes. Legally available assets generally are limited to our surplus, which essentially represents our retained earnings and the excess of consideration received by us for the sale of shares above the par value of the shares. In addition, under Marshall Islands law we may not pay dividends on or redeem Series C Preferred Shares if we are insolvent or would be rendered insolvent by the payment of such a dividend or the making of such redemption.

Tax Risks

In addition to the following risk factors, you should read “Business—Taxation of the Company,” “Material U.S. Federal Income Tax Considerations” and “Non-United States Tax Consequences” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our Series C Preferred Shares.

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or a PFIC, for such purposes in any taxable year for which either (i) at least 75% of its gross income consists of certain types of “passive income” or (ii) at least 50% of the average value of the corporation’s assets produce, or are held for the production of, those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, rents and royalties (other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business) but does not include income derived from the performance of services.

There are legal uncertainties involved in determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services, including the decision in Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Internal Revenue Code of 1986, as amended, or the Code. However, the Internal Revenue Service, or IRS, stated in an Action on Decision (AOD 2010-01) that it disagrees with, and

 

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will not acquiesce to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s statement with respect to Tidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any binding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow the Tidewater decision in interpreting the PFIC provisions of the Code. Nevertheless, based on the current composition of our assets and operations, we intend to take the position that we are not now and have never been a PFIC, and our counsel, Perkins Coie LLP, is of the opinion that we should not be a PFIC based on applicable law, including the Code, legislative history, published revenue rulings and court decisions, and representations we have made to them regarding the composition of our assets, the source of our income and the nature of our activities and other operations following this offering. No assurance can be given, however, that the opinion of Perkins Coie LLP would be sustained by a court if contested by the IRS, or that we would not constitute a PFIC for any future taxable year if there were to be changes in our assets, income or operations.

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse tax consequences. For a more comprehensive discussion regarding our status as a PFIC and the tax consequences to U.S. shareholders if we are treated as a PFIC, please read “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences.”

The preferential tax rates applicable to qualified dividend income are temporary.

Certain of our distributions may be treated as qualified dividend income eligible for preferential rates of U.S. federal income tax to individual U.S. shareholders (and certain other U.S. shareholders). In the absence of legislation extending the term for these preferential tax rates, all dividends received by such U.S. shareholders in taxable years beginning after December 31, 2012 will be taxed at graduated tax rates applicable to ordinary income.

We, or any of our subsidiaries, may become subject to income tax in jurisdictions in which we are organized or operate, including the United States, Canada and Hong Kong, which would reduce our earnings and potentially cause certain shareholders to be subject to tax in such jurisdictions.

We intend that our affairs and the business of each of our subsidiaries will be conducted and operated in a manner that minimizes income taxes imposed upon us and our subsidiaries. However, there is a risk that we will be subject to income tax in one or more jurisdictions, including the United States, Canada and Hong Kong, if under the laws of any such jurisdiction, we or such subsidiary is considered to be carrying on a trade or business there or earn income that is considered to be sourced there and we do not or such subsidiary does not qualify for an exemption. Please read “Business—Taxation of the Company.” In addition, while we do not believe that we are, nor do we expect to be, resident in Canada, in the event that we were treated as a resident of Canada, shareholders who are non-residents of Canada may be or become subject to tax in Canada. Please read “Business—Taxation of the Company—Canadian Taxation” and “Non-United States Tax Consequences—Canadian Federal Income Tax Consequences.”

 

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FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in the prospectus concerning our operations, cash flows, and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “forecasts,” “will,” “may,” “potential,” “should,” and similar expressions are forward-looking statements. Although these statements are based upon assumptions we believe to be reasonable based upon available information, including projections of revenues, operating margins, earnings, cash flow, working capital and capital expenditures, they are subject to risks and uncertainties that are described more fully in this prospectus in the section titled “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and are not intended to give any assurance as to future results. As a result, you are cautioned not to rely on any forward-looking statements. Forward-looking statements appear in a number of places in this prospectus. These risks and uncertainties include, among others:

 

   

future operating or financial results;

 

   

future growth prospects;

 

   

our business strategy and other plans and objectives for future operations;

 

   

our expectations relating to dividend payments and our ability to make such payments;

 

   

potential acquisitions, vessel financing arrangements and other investments, and our expected benefits from such transactions, including any acquisition opportunities, vessel financing arrangements and related benefits relating to our venture with the Vehicle;

 

   

the negotiation and completion, if at all, of definitive documentation relating to any potential newbuilding orders;

 

   

the potential acquisition of our Manager and change in management fees;

 

   

operating expenses, availability of crew, number of off-hire days, dry-docking requirements and insurance costs;

 

   

general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;

 

   

our financial condition and liquidity, including our ability to borrow funds under our credit facilities and to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

 

   

estimated future capital expenditures needed to preserve our capital base;

 

   

our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, the delivery dates of new vessels, the commencement of service of new vessels under long-term time charter contracts or the useful lives of our vessels;

 

   

our continued ability to enter into primarily long-term, fixed-rate time charters with our customers;

 

   

our ability to leverage to our advantage our Manager’s relationships and reputation in the containership industry;

 

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changes in governmental rules and regulations or actions taken by regulatory authorities;

 

   

the financial condition of our shipbuilders, customers, lenders, refund guarantors and other counterparties and their ability to perform their obligations under their agreements with us;

 

   

the recent economic downturn and crisis in the global financial markets and potential negative effects of any recurrence of such disruptions on our customers’ ability to charter our vessels and pay for our services;

 

   

taxation of our company and of distributions to our shareholders;

 

   

potential liability from future litigation; and

 

   

other factors discussed in the section titled “Risk Factors.”

We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our securities.

 

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USE OF PROCEEDS

We will receive net proceeds of approximately $104.9 million (after deducting underwriting discounts and estimated offering expenses) from the issuance of Series C Preferred Shares in this offering. We intend to use the net proceeds from this offering for general corporate purposes, which may include making vessel acquisitions or investments. Pending the application of funds for these purposes, we may repay a portion of our outstanding debt under certain of our revolving credit facilities. Our outstanding indebtedness under these facilities has an effective interest rate of approximately 6% per annum (giving effect to our interest rate swap agreements) and the facilities have maturity dates commencing in 2015.

 

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RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE DIVIDENDS

The following table sets forth our ratio of earnings to fixed charges and preference dividends for the periods presented:

 

     Three Months
Ended
March 31,

2011
    Year Ended December 31,  
     2010     2009      2008     2007     2006  

Ratio of earnings to fixed charges and preference dividends (1)

     3.6        (2)      2.6         (2)      0.5 (2)      2.6   

Dollar amount (in thousands) of deficiency in earnings to fixed charges and preference dividends

            121,484                261,229        29,904          

 

(1) For purposes of calculating the ratios of earnings to fixed charges and preference dividends:

 

   

“earnings” consist of pre-tax income from continuing operations prepared under GAAP (which includes non-cash unrealized gains and losses on derivative financial instruments) plus fixed charges, net of capitalized interest and capitalized amortization of deferred financing fees;

 

   

“fixed charges” represent interest incurred (whether expensed or capitalized) and amortization of deferred financing costs (whether expensed or capitalized) and accretion of discount; and

 

   

“preference dividends” refers to the amount of pre-tax earnings that is required to pay the cash dividends on outstanding preference securities and is computed as the amount of the dividend divided by (1 minus the effective income tax rate applicable to continuing operations).

The ratio of earnings to fixed charges and preference dividends is a ratio that we are required to present in this prospectus supplement and has been calculated in accordance with SEC rules and regulations. This ratio has no application to our credit and lease facilities and Series C Preferred Shares, and we believe is not a ratio generally used by investors to evaluate our overall operating performance.

 

(2) The ratio of earnings to fixed charges and preference dividends for this period was less than 1.0x.

 

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2011, and as adjusted as of March 31, 2011 to give effect to the issuance of the Series C Preferred Shares offered hereby and the application of the net proceeds therefrom. Please read “Use of Proceeds.”

 

     March 31, 2011  
     Actual     As Adjusted  
     (Unaudited)  
     (dollars in thousands)  

Cash and cash equivalents

   $ 212,278      $ 317,165   

Long-term debt (including current portion)

     2,398,681        2,398,681   

Other long-term liabilities (including current portion)(1)

     557,682        557,682   

Shareholders’ equity:

    

Share capital

    

Series A Preferred Shares, $0.01 par value; 315,000 shares authorized; 200,000 shares issued and outstanding

    

Series B Preferred Shares, $0.01 par value; 260,000 shares authorized; 260,000 shares issued and outstanding

    

Series C Preferred Shares, $0.01 par value; 40,000,000 shares authorized; 10,000,000 shares issued and outstanding, actual; 14,000,000 shares issued and outstanding, as adjusted

    

Class A common shares, par value $0.01 per share, 200,000,000 shares authorized; 68,808,033 shares issued and outstanding

    

Class B common shares, par value $0.01 per share, 25,000,000 shares authorized; nil shares issued and outstanding

    

Class C common shares, par value $0.01 per share, 100 shares authorized; 100 shares issued and outstanding

     793        833   

Additional paid-in capital

     1,770,408        1,875,255   

Deficit

     (428,560     (428,560

Accumulated other comprehensive loss

     (64,785     (64,785
                

Total shareholders’ equity

     1,277,856        1,382,743   
                

Total capitalization

   $ 4,234,219      $ 4,339,106   
                

 

(1) Other long-term liabilities represent amounts due under non-recourse or limited recourse sale-leaseback arrangements with financial institutions to finance certain vessels under construction.

 

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SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table presents, in each case for the periods and as at the dates indicated, our selected historical financial and operating data.

The selected historical financial and operating data has been prepared on the following basis:

 

   

The historical financial and operating data as at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 is derived from our audited consolidated financial statements and the notes thereto, which are contained in our Annual Report on Form 20-F for the year ended December 31, 2010, filed with the SEC on March 30, 2011 and incorporated by reference into this prospectus.

 

   

The historical financial and operating data as at December 31, 2008, 2007 and 2006 and for the years ended December 31, 2007 and 2006 is derived from our audited consolidated financial statements and the notes thereto, which are contained in our Annual Reports on Form 20-F for the years ended December 31, 2008 and 2007, filed with the SEC on March 31, 2009 and March 24, 2008, respectively.

 

   

The historical financial and operating data as at and for the three months ended March 31, 2011 and 2010 is derived from our unaudited interim consolidated financial statements and the notes thereto, which are contained in our Report on Form 6-K filed with the SEC on May 6, 2011, and incorporated by reference into this prospectus.

The following table should be read together with, and is qualified in its entirety by reference to, our financial statements and historical predecessor combined financial statements, and the notes thereto incorporated by reference into this prospectus.

 

     Year Ended December 31,     Three Months Ended
March 31,
 
    2010     2009     2008     2007     2006     2011     2010  

Statements of operations data (in thousands of dollars):

             

Revenue

  $ 407,211      $ 285,594      $ 229,405      $ 199,235      $ 118,489      $ 120,995      $ 80,369   

Operating expenses:

             

Ship operating

    108,098        80,162        54,416        46,174        27,869        31,066        22,457   

Depreciation

    99,653        69,996        57,448        50,162        26,878        29,958        20,318   

General and administrative

    9,612        7,968        8,895        6,006        4,911        2,694        1,884   
                                                       

Operating earnings

    189,848        127,468        108,646        96,893        58,831        57,277        35,710   

Other expenses (income):

             

Interest expense

    28,801        21,194        33,035        34,062        17,594        10,147        5,053   

Change in fair value of financial instruments (1)

    241,033        (46,450     268,575        72,365        908        (5,802     65,491   

Interest income

    (60     (311     (694     (4,074     (1,542     (155     (30

Write-off on debt refinancing

                         635                        

Undrawn credit facility fee

    4,515        4,641        5,251        3,057        2,803        1,261        1,155   

Amortization of deferred charges

    3,306        2,042        1,825        1,256        1,980        1,274        657   

Other

           1,100                                      
                                                       

Net earnings (loss)

  $ (87,747   $ 145,252      $ (199,346   $ (10,408   $ 37,088      $ 50,552      $ (36,616
                                                       

 

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     Year Ended December 31,           Three Months
Ended
March 31,
 
    2010     2009     2008     2007     2006     2011     2010  

Statements of cash flows data (in thousands of dollars):

             

Cash flows provided by (used in):

             

Operating activities

  $ 153,587      $ 94,576      $ 124,752      $ 113,168      $ 71,363      $ 36,389      $ 17,503   

Financing activities

    529,680        312,059        523,181        1,022,443        610,798        232,820        192,596   

Investing activities

    (782,448     (409,520     (634,782     (1,104,704     (605,652     (91,150     (263,729

Selected balance sheet data (at period end, in thousands of dollars):

             

Cash and cash equivalents

  $ 34,219      $ 133,400      $ 136,285      $ 123,134      $ 92,227      $ 212,278      $ 79,770   

Current assets

    46,764        146,053        141,711        130,318        96,655        226,201        89,144   

Vessels (2)

    4,210,872        3,485,350        3,126,489        2,424,253        1,198,782        4,288,151        3,786,787   

Total assets

    4,377,228        3,664,447        3,296,872        2,576,901        1,317,216        4,638,116        3,921,639   

Long-term debt

    2,396,771        1,883,146        1,721,158        1,339,438        563,203        2,398,681        2,062,502   

Share capital(3)

    691        679        668        575        475        793        682   

Total shareholders’ equity

    989,736        1,059,566        746,360        862,326        725,015        1,277,856        1,021,031   

Other data:

             

Number of vessels in operation at period end

    55        42        35        29        23        58        45   

TEU capacity at period end

    265,300        187,456        158,483        143,207        108,473        282,800        203,584   

Fleet utilization rate (4)

    98.7     99.7     99.3     99.0     99.0     98.9     97.2

 

(1) We entered into interest rate swap agreements to reduce our exposure to market risks from changing interest rates. The swap agreements fix LIBOR at 4.6325% to 5.8700% based on expected drawdowns and outstanding debt until at least February 2014. Interest rate swap agreements are recorded on the balance sheet at their respective fair values. For the interest rate swap agreements that were designated as hedging instruments in accordance with the requirements in the accounting literature, the changes in the fair value of these interest rate swap agreements were reported in accumulated other comprehensive income. The fair value will change as market interest rates change. For designated swaps, amounts payable or receivable under the interest rate swaps are included in earnings when and where the designated interest payments are included. The ineffective portion of the interest rate swaps are recognized immediately in net income. Other interest rate swap agreements and derivative instruments that are not designated as hedging instruments are marked to market and are recorded on the balance sheet at fair value. The changes in the fair value of these instruments are recorded in earnings. On January 31, 2008, we de-designated two of our interest swaps for which we were obtaining hedge accounting. On September 30, 2008, we elected to prospectively de-designate all interest rate swaps for which we were obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all of our interest rate swap agreements and the swaption agreement are marked to market subsequent to this date and the changes in the fair value of these instruments are recorded in earnings.

 

(2) Vessel amounts include the net book value of vessels in operation and deposits on vessels under construction.

 

(3) For a description of our capital stock, please read “Description of Capital Stock.”

 

(4) Fleet utilization is based on number of operating days divided by the number of ownership days during the period.

 

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THE INTERNATIONAL CONTAINERSHIP INDUSTRY

The information and data contained in this prospectus relating to the international container shipping industry has been provided by Clarkson Research Services Limited, or CRSL, and is taken from CRSL’s database and other sources. We do not have any knowledge that the information provided by CRSL is inaccurate in any material respect. CRSL has advised that: (i) some information in CRSL’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in CRSL’s database; and (iii) although CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors.

Overview of the Container Shipping Market

Container shipping is responsible for the movement of a wide range of goods between different parts of the world in a unitized form and, since its beginnings in the late 1960s, containerization has become an integral part of the global economy. The use of containers in global trade has resulted in considerable production and efficiency gains and has become important to the process of globalization. A wide range of cargoes are transported by container but most notably container transportation is responsible for the shipment of a diverse selection of manufactured and consumer goods. These cargoes are transported by container to end users in all regions of the world, and in particular from key producing and manufacturing regions to end users in the world’s largest consumer economies. Participants in the container shipping industry include “liner” shipping companies, who operate container shipping services and own containerships, containership owners, often known as “charter owners,” who own containerships and charter them out to liner companies, and shippers who require the seaborne movement of containerized goods.

Containership Demand

The expansion of global container trade is heavily influenced by global economic growth, increases in economic consumption at a global and regional level, and the process of globalization. In 2008, global container trade peaked at 137 million TEU, following an average annual increase in trade of 9.6% in the period 1999-2008. During this period rapid growth in exports from China were driving a significant part of the increase in container trade, along with growth in container trade volumes in and out of Russia and the Baltic, and to and from other emerging markets such as Brazil. Intra-Asian container trade volumes also grew rapidly during this period. In 2009, global container trade was an estimated 124 million TEU following a significant contraction of 9.0% due to the economic slowdown. Trade figures for 2010 show improved container volumes on many of the world’s largest trade lanes, and it is estimated that in full year 2010 global container trade expanded by 12.9%.

LOGO

 

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Note: The 2010 estimate and 2011 forecast are based on data available in May 2011 for full year 2010 and for full year 2011 and subject to change. There is limited trade and economic data for 2010 and 2011. These forecasts are subjective and dependent on continued economic recovery. There is no guarantee that trends are sustainable.

Trade Routes and Growth Trends

Global container trade is spread over a range of long-haul, regional, and intra-regional routes, which can be separated into four categories. The individual “mainlane” container trades on the major east-west routes are the world’s largest in volume terms, with the Transpacific trade route forming the world’s largest container trade with 14% of the total container volume in 2010, followed by the Far East-Europe trade route and the Transatlantic trade route. Due to the higher cargo volumes on these routes, they are generally served by very large Post-Panamax ships with capacity 8,000 TEU and above, and by other large Post-Panamax and Panamax containerships generally with capacity from 8,000 TEU down to around 4,500 TEU. There are also some 3,000-4,500 TEU containerships which continue to serve these trades. Non-Mainlane East-West routes include trade lanes between the Indian Sub-Continent or the Middle East and North America, Europe or the Far East, and are generally served by a range of ship sizes, from smaller Post-Panamax containerships below 8,000 TEU to vessels of Panamax size and below. North-South trade routes form the second layer of the global liner network, connecting the northern hemisphere with South America, Africa and Oceania, and are generally served by vessels of between 1,000-5,000 TEU. Intra-regional trade routes include both intra-Asian and intra-European trades, where containerships below 3,000 TEU in size generally provide the majority of transportation. Intra-Asian container trades collectively constitute the largest portion of global containership volumes. Ports involved in these trades often impose infrastructural and other limitations on the vessel types that can be utilized, such as draft restrictions or the lack of availability of handling equipment. As mentioned above, 2010 witnessed increased demand for global container trade. This has been evidenced across most trade routes and is expected to continue through 2011.

LOGO

Note: The 2010 estimate and 2011 forecast are based on data available in May 2011 for full year 2010 and for full year 2011 and are subject to change. There is limited trade and economic data available for 2010 and 2011. These forecasts are subjective and dependent on continued economic recovery. There is no guarantee that trends are sustainable.

Containership Supply

The most significant portion of the global container capable fleet is comprised of fully cellular containerships which as of May 1, 2011, represented 5,014 vessels with a total capacity of 14.6 million TEU. The remainder of the fleet is made up of a range of non-fully cellular vessel types, including multi-purpose vessels, or MPPs, capable of carrying container and breakbulk cargo, roll-on roll-off cargo vessels, or Ro-Ros, and general

 

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cargo vessels, which often have container carrying capacity. Unless noted otherwise, the remainder of the discussion in this section focuses on fully cellular containerships. As of May 1, 2011, liner companies accounted for the ownership of 46.6% of containership fleet capacity, and charter owners, who own containerships and charter them out for operation by liner companies, accounted for 53.4% of total fleet capacity.

Overall fully cellular containership standing slot capacity expanded at an average annual growth rate of 10.6% in the period 1985-2009. Fully cellular containership capacity is estimated to have increased by 12.7% in 2008, and 6.0% in 2009. The fully cellular fleet capacity is estimated (based on data available in May 2011) to have expanded by 9.7% in 2010 and is projected to grow by approximately 7% in 2011.

LOGO

Note: The 2011 forecast is based on data available in May 2011 for full year 2011 and is subject to change. It takes into account the orderbook as at May 1, 2011, potential delay and cancellation of deliveries, and projected demolition of capacity. These figures are subject to change as a result of actual delivery delay and cancellation, re-negotiation of contracts and levels of demolition. Due to technical and contractual issues, there is currently considerable uncertainty surrounding the delivery of the orderbook.

As of May 1, 2011, the containership orderbook comprised 624 vessels and 4.0 million TEU, representing 27.7% of the existing fleet in terms of capacity. The size of orderbook, however, differed widely across containership size segments, as demonstrated below, with the most significant orderbook compared to existing fleet capacity being in the larger vessel sizes.

 

Containership Order Book by Year of Delivery

 

Containership
Type

  Size
(TEU)
  Total Order Book     2011     2012     2013     2014+     %
Non-Delivery

(2010)
 
    Number     '000
TEU
    %
of fleet
    '000
TEU
    %
of flt
    '000
TEU
    %
of flt
    '000
TEU
    %
of flt
    '000
TEU
    %
of flt
   

Post-Panamax

  8,000 & above     242        2,738.3        88.2     613.5        19.8     900.5        29.0     853.4        27.5     370.8        11.9     42

Post-Panamax

  3,000-7,999     154        804.6        26.7     239.1        7.9     369.4        12.3     186.5        6.2     9.6        0.3     34

Panamax

  3,000 & above     56        235.3        6.0     79.3        2.0     119.6        3.0     36.4        0.9         20

Sub-Panamax

  2,000-2,999     35        91.7        5.1     40.4        2.3     24.0        1.3     27.3        1.5         56

Handy

  1,000-1,999     102        136.9        7.6     63.2        3.5     36.9        2.0     29.1        1.6     7.6        0.4     46

Feeder/Max

  100-999     35        26.7        3.6     24.3        3.3     2.4        0.3             73
                                                                                                   

Total

  100+ TEU     624        4,033.4        28.0     1,059.8        7.4     1,452.8        10.1     1,132.7        7.9     388.0        2.7     38
                                                                                                   

 

Source: Clarkson Research, May 2011.

 

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Note: Orderbook as at May 1, 2011. Going forward, the orderbook will be influenced by delays, cancellations and the re-negotiation of contracts. Due to these technical and contractual issues, there is currently considerable uncertainty surrounding the orderbook. The figures quoted above relate to the orderbook as at May 1, 2011 and do not take into account potential delivery problems. Orderbook includes some orders originally scheduled for 2009 delivery.

Although establishing accurate data is difficult, approximately 38% of scheduled deliveries in terms of TEU capacity expected to enter the fleet in 2010 at the start of that year have been confirmed as non-delivered during 2010. This figure was 73% for containerships below 1,000 TEU in size, 56% for containerships between 1,000 TEU and 2,999 TEU, 20% for Panamax containerships and 40% for Post-Panamax containerships. This is partly due to statistical reporting delays but also because of delays in construction and cancellations of orders. The table above illustrates the difference between scheduled start year and actual containership deliveries in 2010. Delivering the orderbook presents a number of challenges, with factors both technical and financial facing both shipyards and owners contributing to delays in and cancellations of the containership scheduled deliveries.

Additionally, the placement of new orders for containership capacity slowed dramatically in 2009. In 2007 a historical high level of 3.2 million TEU of containership capacity was ordered. In 2008 the volume of ordering slowed to 1.2 million TEU, while containership contracting activity in 2009 was negligible. Contracting activity picked up in the second half of 2010, taking total contracting in 2010 to 0.7 million TEU. In the period from 1996 to 2008 an average of 312 containership orders were placed each year, with the average level of capacity ordered totaling 1.2 million TEU.

In the period from 1996 to 2008 an average of 30 containerships were scrapped each year. A substantial volume of aging containership capacity was sold for scrap in 2009, with the full year seeing 201 containerships with a combined capacity of 0.38 million TEU sold for demolition, significantly higher than historical levels. In 2010, 83 containerships with a combined capacity of 0.13 million TEU were sold for scrap. As of May 1, 2011, the average age of a vessel in the containership fleet was 10.6 years. The majority of aging containership capacity is at the smaller end of the fleet below 4,000 TEU, where some capacity may be more at risk to becoming outdated by increased trade volumes over time being more efficiently served by larger ships. Overall, 6% of containership fleet capacity is currently aged 20 years or more.

As a result of the slowdown in demand through 2009, the portion of the fleet not in operation, or idle, grew from 0.42 million TEU at the end of 2008 to peak at an estimated 1.52 million TEU of capacity in December 2009, representing approximately 570 vessels, according to AXS-Alphaliner, equal to 11.7% of the global fleet by capacity, according to Clarkson Research. However, the proportion of idle capacity has declined through most of 2010 to date, as carriers have reintroduced capacity on reactivated or newly implemented services, and in some cases upgraded capacity on existing services, to meet the apparent rise in trade volumes. As of the end of April 2011 it was reported that a total of 0.13 million TEU of capacity was idle, according to AXS-Alphaliner, equivalent to around 0.9% of the global fleet by capacity, according to Clarkson Research.

Following the downturn in container trade volumes in late 2008 and 2009, a significant number of container shipping services began to be operated at slower vessel speeds than previously by liner companies, with additional ships added to services in order to maintain fixed regular port call schedules. This management of supply not only reduced liner company bunker costs but also helped absorb containership capacity, as “slow steamed” services offer the same amount of “running” capacity whilst requiring additional standing vessel capacity. As of May 2011, slow steaming remains in place on a range of container shipping services and appears to have been most prevalent on services on the longer mainlane trades such as the Far East-Europe and the Transpacific, where there is the greater possibility to add an extra ship and adjust the service speed to an appropriate level, than on shorter-haul trades. Along with the idling of capacity, slow steaming of services was another of a range of initiatives to manage supply during the period of declining container trade volumes.

 

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Containership Markets

Containership Timecharter Rates

Pricing of containership transportation services occurs against a background of a highly competitive global containership charter market. Containership charter rates depend on the supply of, and demand for, containership capacity, and can vary significantly from year to year. Containership economies of scale mean that the daily time charter rate per TEU for a larger containership is less than for a ship with lower TEU capacity. The containership charter market experienced significant upward movement in time charter rates in the period between the start of 2002 and the middle of 2005. The market recovered from the falls in charter rates seen in 2001 to levels beyond previous market highs before falling again mid-way through 2005, stabilizing in the first half of 2006, and then slipping further during the second half of 2006. The first half of 2007 saw the containership charter market recover to rate levels similar to those seen in late 2005 and early 2006, while early 2008 saw rates rise further. However, the onset of the global economic downturn and the resulting slowdown in container trade growth created a relative oversupply of capacity, leading to a rapid fall in containership earnings in the latter half of 2008, which continued in the first half of 2009, with earnings remaining depressed during the rest of the year. In 2010 containership charter rates registered an upward trend over the year as a whole, although rates remain below long term averages. Based on an index covering a range of containership sizes, time charter daily rates improved 86% during 2010. Among other factors, there has been a reduction in the number of vessels in lay-up and an increase in transported container volumes over the low levels of 2009. The estimated one year timecharter rate for a 3,500 TEU containership at the end of December 2009 was $5,450 per day. At the end of April 2011 it stood at $21,000 per day, compared to an average of $26,902 per day in the period 2000 to 2009.

LOGO

Note: Estimates based on market assessments for theoretical fully cellular ships by H. Clarksons & Co. Ltd. Brokers. These estimates are based on a given point in time and are no guide to or guarantee of future rates. Geared vessels have their own cranes for the purpose of loading and unloading containers.

There are, of course, limitations and risks to future scenarios, dependent on developments in the world economy and global trade patterns, and the development of ordering, deliveries and demolitions in the future. With the growth in container volumes having turned very negative in 2009, supply far outweighed demand for the global movement of containers, causing significant downwards pressure on the entire container shipping sector. The impact of the differential between growth in demand and supply on the containership charter market was sharply negative, pushing rates acutely downwards. Demand growth outpaced capacity expansion in

 

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2010 leading to upwards pressure on rates but the re-deployment of “idle” capacity, the fact that there are still a considerable number of vessels to be delivered within the next few years, and potential demand side risks may put downward pressure on charter rates.

Vessel Values: The Newbuilding and Secondhand Containership Market

Newbuilding Prices. The development of containership newbuild prices reflects both the demand for vessels as well as the cost of acquisition of new containerships by owners from shipyards, which is influenced by the cost of materials and labor, availability of shipbuilding capacity, and the impact of demand from other shipping sectors on shipyards. Economies of scale in containership building mean that the cost per TEU involved in building larger containerships is less than for vessels with smaller TEU capacity.

The total newbuild price for a theoretical 6,200 TEU containership increased from $60.0 million at the start of 2003 to peak at $108.0 million in the period June to September 2008. However, following the onset of the downturn, this figure fell to $66.0 million at the end of January 2010. By the end of December 2010 it had increased to $79.5 million, before softening slightly in the first few months of 2011 to stand at $70.5 million at the end of April 2011. The graph below shows the historical development of containership newbuild prices. The average price for a 6,200 TEU containership newbuild since March 2001 is estimated at $83.3 million.

LOGO

Note: Prices are evaluated at the end of each calendar month. Newbuild prices assume “European spec.,” standard payment schedules and “first class competitive yards” quotations. Prices are evaluated at the end of each calendar month.

Secondhand Prices. As the containership charter market is playing an increasingly important role in the container shipping industry as a whole, the market for the sale and purchase of secondhand containerships has also expanded. Secondhand vessel prices are influenced by newbuild prices and also by vessel charter rates or earnings, although there is sometimes a lag in the relationship.

Activity on the secondhand market for containerships has grown steadily in recent years from relatively low volumes of activity previously. A portion of this activity has been constituted by the sale of containerships by liner companies to charter owners. These sales have commonly been accompanied by “time charter back” arrangements whereby the liner company sells the vessel, removing the asset from its balance sheet, then, as part of the transaction, arranges a time charter of the vessel from the party to which it has sold the ship. The liquidity

 

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of the secondhand sales market is much greater for small and medium-sized containerships than for large vessels. Only 241 of the 1,388 secondhand containership sales recorded in the period 2000 to 2010 involved ships with 3,000 TEU or more in capacity. Large containerships are generally newer, and more likely to remain owned by their original owner either for their own end use or on an initial relatively long-term charter.

Secondhand containership sales volumes show some volatility and 2010 saw 171 secondhand vessels with a combined capacity of 373,667 TEU sold. The following graph shows the development of secondhand prices for five-year old containerships. Trends in secondhand prices for older containerships typically move according to similar cycles. The graph shows the development of five-year old 3,500 TEU, 1,700 TEU and 1,000 TEU ship prices. The five-year old 1,700 TEU price as at end April 2011 was estimated to be approximately $24.0 million, compared to a 10-year average of $24.9 million. The price for a theoretical five-year old 1,700 TEU containership decreased from $37.5 million at the start of June 2008 to $14.0 million at the end of 2009. However, 2010 saw an upward trend in containership secondhand prices.

LOGO

Note: Prices are evaluated at the end of each calendar month. There have been periods of uncertainty surrounding secondhand prices and the values provided between October 2008 and December 2009 are subject to wider than usual confidence margins.

 

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BUSINESS

Overview

We are a leading independent charter owner of containerships, which we charter primarily pursuant to long-term, fixed-rate time charters. We seek additional accretive vessel acquisitions as market conditions allow. We primarily deploy our vessels on long-term, fixed-rate time charters to take advantage of the stable cash flow and high utilization rates that are typically associated with long-term time charters.

As of May 10, 2011 we operated a fleet of 60 containerships (including four leased vessels) and have entered into contracts to purchase an additional six containerships and to lease an additional three containerships. The average age of the 60 vessels in our fleet was approximately five years as of May 10, 2011. Our customer selection process is targeted at well-established container liner companies that charter-in vessels on a long-term basis as part of their fleet expansion strategy. Customers for our operating fleet are CSCL Asia, HL USA, APM, COSCON, CSAV, MOL, K-Line and UASC. Customers for the additional nine vessels will include K-Line and COSCON. Please read “—Our Fleet” for more information.

Most of our customers’ container shipping business revenues are derived from the shipment of goods from the Asia Pacific region, primarily China, to various overseas export markets in the United States and in Europe.

Our Manager and certain of its wholly owned subsidiaries provide us with all of our employees (other than our chief executive officer) and all of the technical, administrative and strategic services necessary to support our business, including purchasing supplies, crewing, vessel maintenance, insurance procurement and claims handling, inspections, and ensuring compliance with flag, class and other statutory requirements. For more information about the agreements with our Manager that govern the provision of management services for our fleet, please read “Our Manager and Management Related Agreements—Management Agreements.” In addition to the ship management services provided to us, our Manager also provides limited ship management services to other vessel owning companies.

Our Fleet

Our Operating Fleet

The following table summarizes key facts regarding our vessels as of May 10, 2011:

 

Vessel Name

  Vessel
Class
(TEU)
    Year
Built
    Charter
Start
Date
   

Charterer

 

Length of Time Charter

  Daily Charter Rate  
                              (in thousands)  

CSCL Zeebrugge

    9600        2007        3/15/07      CSCL Asia   12 years   $ 34.0 (1) 

CSCL Long Beach

    9600        2007        7/6/07      CSCL Asia   12 years     34.0 (1) 

CSCL Oceania

    8500        2004        12/4/04      CSCL Asia   12 years + one 3-year option     29.8 (2) 

CSCL Africa

    8500        2005        1/24/05      CSCL Asia   12 years + one 3-year option     29.8 (2) 

COSCO Japan

    8500        2010        3/9/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Korea

    8500        2010        4/5/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Philippines

    8500        2010        4/24/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Malaysia

    8500        2010        5/19/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Indonesia

    8500        2010        7/5/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Thailand

    8500        2010        10/20/10      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Prince Rupert

    8500        2011        3/21/11      COSCON   12 years + three one-year options     42.9 (3) 

COSCO Vietnam

    8500        2011        4/21/11      COSCON   12 years + three one-year options     42.9 (3) 

MOL Emerald

    5100        2009        4/30/09      MOL   12 years     28.9   

MOL Eminence

    5100        2009        8/31/09      MOL   12 years     28.9   

MOL Emissary

    5100        2009        11/20/09      MOL   12 years     28.9   

MOL Empire

    5100        2010        1/8/10      MOL   12 years     28.9   

 

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Vessel Name

  Vessel
Class
(TEU)
    Year
Built
    Charter
Start
Date
   

Charterer

 

Length of Time Charter

  Daily Charter Rate  
                              (in thousands)  

Maersk Merritt

    4800        1989        11/6/06      APM   5 years + two 1-year options + one 2-year option(4)     23.5 (4) 

Cap Victor

    4800        1988        11/20/06      APM   5 years + two 1-year options + one 2-year option     23.5 (4) 

Cap York

    4800        1989        12/6/06      APM   5 years + two 1-year options + one 2-year option     23.5 (4) 

Maersk Moncton

    4800        1989        12/22/06      APM   5 years + two 1-year options + one 2-year option     23.5 (4) 

Brotonne Bridge (5)

    4500        2010        10/25/10      K-Line   12 years + two 3-year options     34.3 (6) 

Brevik Bridge (5)

    4500        2011        1/25/11      K-Line   12 years + two 3-year options     34.3 (6) 

Bilbao Bridge (5)

    4500        2011        1/28/11      K-Line   12 years + two 3-year options     34.3 (6) 

Berlin Bridge (5)

    4500        2011        5/9/11      K-Line   12 years + two 3-year options     34.3 (6) 

CSAV Licanten (7)

    4250        2001        7/3/01      CSCL Asia   10 years + one 2-year option(8)     18.3 (8) 

CSCL Chiwan

    4250        2001        9/20/01      CSCL Asia   10 years + one 2-year option(8)     18.3 (8) 

CSCL Ningbo

    4250        2002        6/15/02      CSCL Asia   10 years + one 2-year option     19.7 (9) 

CSCL Dalian

    4250        2002        9/4/02      CSCL Asia   10 years + one 2-year option     19.7 (9) 

CSCL Felixstowe

    4250        2002        10/15/02      CSCL Asia   10 years + one 2-year option     19.7 (9) 

CSCL Vancouver

    4250        2005        2/16/05      CSCL Asia   12 years     17.0   

CSCL Sydney

    4250        2005        4/19/05      CSCL Asia   12 years     17.0   

CSCL New York

    4250        2005        5/26/05      CSCL Asia   12 years     17.0   

CSCL Melbourne

    4250        2005        8/17/05      CSCL Asia   12 years     17.0   

CSCL Brisbane

    4250        2005        9/15/05      CSCL Asia   12 years     17.0   

New Delhi Express

    4250        2005        10/19/05      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Dubai Express

    4250        2006        1/3/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Jakarta Express

    4250        2006        2/21/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Saigon Express

    4250        2006        4/6/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Lahore Express

    4250        2006        7/11/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Rio Grande Express

    4250        2006        10/20/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Santos Express

    4250        2006        11/13/06      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Rio de Janeiro Express

    4250        2007        3/28/07      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

Manila Express

    4250        2007        5/23/07      HL USA   3 years + seven 1-year extensions + two 1-year options(10)     18.0 (11) 

CSAV Loncomilla

    4250        2009        4/28/09      CSAV   6 years     25.9   

CSAV Lumaco

    4250        2009        5/14/09      CSAV   6 years     25.9   

CSAV Lingue

    4250        2010        5/17/10      CSAV   6 years     25.9   

CSAV Lebu

    4250        2010        6/7/10      CSAV   6 years     25.9   

UASC Madinah

    4250        2009        7/1/10      UASC   2 years     20.5 (12) 

COSCO Fuzhou

    3500        2007        3/27/07      COSCON   12 years     19.0   

COSCO Yingkou

    3500        2007        7/5/07      COSCON   12 years     19.0   

CSCL Panama

    2500        2008        5/14/08      CSCL Asia   12 years     16.8 (13) 

CSCL São Paulo

    2500        2008        8/11/08      CSCL Asia   12 years     16.8 (13) 

CSCL Montevideo

    2500        2008        9/6/08      CSCL Asia   12 years     16.8 (13) 

CSCL Lima

    2500        2008        10/15/08      CSCL Asia   12 years     16.8 (13) 

CSCL Santiago

    2500        2008        11/8/08      CSCL Asia   12 years     16.8 (13) 

CSCL San Jose

    2500        2008        12/1/08      CSCL Asia   12 years     16.8 (13) 

CSCL Callao

    2500        2009        4/10/09      CSCL Asia   12 years     16.8 (13) 

CSCL Manzanillo

    2500        2009        9/21/09      CSCL Asia   12 years     16.8 (13) 

Guayaquil Bridge

    2500        2010        3/8/10      K-Line   10 years     17.9   

Calicanto Bridge

    2500        2010        5/30/10      K-Line   10 years     17.9   

 

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(1) CSCL Asia has an initial charter of 12 years with a charter rate of $34,000 per day, increasing to $34,500 per day after six years.

 

(2) CSCL Asia has an initial charter of 12 years with a charter rate of $29,500 per day for the first six years, $29,800 per day for the second six years, and $30,000 per day during the three-year option.

 

(3) COSCON has an initial charter of 12 years with a charter rate of $42,900 per day for the initial term and $43,400 per day for the three one-year options.

 

(4) APM has an initial charter of five years at $23,450 per day, two consecutive one-year options to charter the vessel at $22,400 and $21,400 per day, respectively, and a final two-year option to charter the vessel at $20,400 per day. APM has exercised its first one-year option on the Maersk Merritt.

 

(5) This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

 

(6) K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

 

(7) The name of the CSCL Hamburg was changed to CSAV Licanten in November 2010, in connection with a sub-charter from CSCL to CSAV.

 

(8) CSCL Asia has an initial charter of ten years with a charter rate of $18,000 per day for the first five years, $18,300 per day for the second five years, and $19,000 per day for the two-year option. CSCL Asia has exercised its options on the CSAV Licanten and the CSCL Chiwan.

 

(9) CSCL Asia has an initial charter of ten years with a charter rate of $19,933 per day for the first five years, $19,733 per day for the second five years, and $20,500 per day for the two-year option.

 

(10) For these charters, the initial term was three years, which automatically extends for up to an additional seven years in successive one-year extensions, unless HL USA elects to terminate the charters with two years’ prior written notice. HL USA would have been required to pay a termination fee of approximately $8.0 million to terminate a charter at the end of the initial term. The termination fee declines by $1.0 million per year per vessel in years four through nine. The initial terms of the charters for these vessels have expired, and these charters have automatically extended pursuant to their terms.

 

(11) HL USA had an initial charter of three years that automatically extends for up to an additional seven years with a charter rate of $18,000 per day, and $18,500 per day for the two one-year options.

 

(12) UASC has a charter of two years with a charter rate of $20,500 per day for the first year, increasing to $20,850 per day for the second year. In addition, we pay a 1.25% commission to a broker on all hire payments for this charter.

 

(13) CSCL Asia has a charter of 12 years with a charter rate of $16,750 per day for the first six years, increasing to $16,900 per day for the second six years.

New Vessel Contracts

Our primary objective is to acquire additional containerships as market conditions allow, and to enter into additional long-term, fixed-rate time charters for such vessels.

As of May 10, 2011, we had contracted to purchase six additional containerships and to lease an additional three, all of which are currently or will be under construction, and have scheduled delivery dates through April 2012.

 

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As at May 10, 2011, the six newbuilding containerships that we have contracted to purchase and the three newbuilding containerships that we have contracted to lease consist of the following vessels:

 

Vessel

  Vessel
Class
(TEU)
    Length of Time Charter (1)  

Charterer

  Daily Charter
Rate
    Scheduled
Delivery
Date
   

Shipbuilder

                  (in thousands)            

Hull No. S452

    13100      12 years   COSCON   $ 55.0        2012      HSHI

Hull No. 2177

    13100      12 years   COSCON     55.0        2011      HHI

Hull No. S453

    13100      12 years   COSCON     55.0        2011      HSHI

Hull No. 2178

    13100      12 years   COSCON     55.0        2012      HHI

Hull No. S454

    13100      12 years   COSCON     55.0        2012      HSHI

Hull No. 2179

    13100      12 years   COSCON     55.0        2011      HHI

Hull No. 2180(2)

    13100      12 years   COSCON     55.0        2012      HHI

Hull No. 2181(2)

    13100      12 years   COSCON     55.0        2011      HHI

Budapest Bridge(2)

    4500      12 years + two three-year options   K-Line     34.3 (3)      2011      Samsung

 

(1) Each charter is scheduled to begin upon delivery of the vessel to the relevant charterer.

 

(2) This vessel is leased pursuant to a lease agreement, which we used to finance the acquisition of the vessel.

 

(3) K-Line has an initial charter of 12 years with a charter rate of $34,250 per day for the first six years, increasing to $34,500 per day for the second six years, $37,500 for the first three-year option period and $42,500 for the second three-year option period.

The following chart details the number of vessels in our fleet based on scheduled delivery dates as of May 10, 2011:

 

     Year Ending December 31,  
   Scheduled  
       2011              2012      

Deliveries

     5         4   

Operating Vessels

     65         69   

Approximate Total Capacity (TEU)

     352,700         405,100   

Our Competitive Strengths

We believe that we possess a number of competitive strengths that will allow us to capitalize on the opportunities in the containership industry, including the following:

 

   

Enhanced stability of cash flows through long-term, fixed-rate time charters. Our vessels are primarily subject to long-term, fixed-rate time charters, which had an average remaining term of approximately seven years as of May 10, 2011. As a result, nearly all of our revenue is protected from the volatility of spot rates and short-term charters. To further promote cash flow stability, we have primarily placed newbuilding orders and purchased secondhand vessels when we have concurrently entered into long-term time charters with our customers. As of March 31, 2011, and excluding any extensions of our time charters, we had approximately $6.4 billion of contracted future revenue under existing fixed-rate time charters, including approximately $2.4 billion attributable to time charters for the remaining 11 newbuilding containerships that we had contracted to purchase and lease.

 

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Significant built-in fleet growth. We have significantly grown our fleet since our initial public offering in August 2005. At that time, we had an operating fleet of 10 vessels with another 13 vessels on order, aggregating 116,950 TEU. As of May 10, 2011, we had 60 vessels in service and nine vessels on order, aggregating 405,100 TEU, an increase of 246.4% in TEU capacity. The aggregate capacity of the nine newbuilding vessels, with scheduled delivery dates through April 2012, represents over 36% of the aggregate capacity of our vessels currently in service.

 

   

Proven ability to source capital for growth. Since our initial public offering in 2005, we have successfully accessed capital to grow our fleet. Including our initial public offering, we have raised over $2.0 billion in public and private issuances of equity securities. In addition, we have secured credit and lease facilities with aggregate outstanding borrowings and commitments of $4.1 billion as of March 31, 2011. We also accessed capital during the recent economic downturn, including raising preferred share equity and entering into sale-leaseback financings. We will be able to use the proceeds from this offering and our January 2011 offering of the Initial Series C Preferred Shares, combined with additional debt capacity as a result thereof (exclusive of amounts committed to finance the remaining payments on the nine vessels we have agreed to purchase and lease), to fund additional growth beyond our contracted fleet. We intend to continue to access existing capital, and to consider new sources, to cost-effectively maintain and grow our fleet.

 

   

Strong, long-term relationships with high-quality customers, including leading Asian container liners. We have developed strong relationships with our customers, which include leading container liner companies. We believe we are the largest provider of containerships to China, and anticipate that Asian demand for containerships will continue to rebound and grow following the recent economic downturn. We attribute the strength of our customer relationships in part to our consistent operational quality, customer oriented service and historical average utilization of over 99% since our initial public offering in 2005.

 

   

Scale, diversity and high quality of our fleet. We are one of the largest independent charter owners of containerships and believe that the size of our fleet appeals to our customers and provides us cost savings through volume purchases by our Manager and leverage in negotiating newbuilding contracts and accessing shipyard berths. Our operating fleet of 60 containerships had an average age of approximately five years as of May 10, 2011, which is significantly below the industry average of approximately 11 years. Our nine newbuilding vessels also will be subject to our high standards for design, construction quality and maintenance. Upon delivery of these additional vessels, the vessels in our fleet will range in size from 2500 TEU to 13100 TEU, and our 13100 TEU containerships will be among the largest sized containerships then in operation.

 

   

Experienced management. Together our chief executive officer and chief financial officer have over 30 years of professional experience in the shipping industry. In addition, the members of the management team of our Manager have prior experience with many companies in the international ship management industry, such as China Merchants Group, Neptune Orient Lines, APL Limited, Safmarine Container Lines and Columbia Ship Management. Our Manager’s staff has skills in all aspects of ship management, including, among others, design, operations and marine engineering. We likewise benefit from the financial experience and sophistication of our Manager’s management team, which has assisted us in accessing various forms of capital.

Our Business Strategies

We seek to continue to expand our business and increase our cash flow by employing the following business strategies:

 

   

Pursuing long-term, fixed-rate charters. We intend to continue to primarily pursue long-term, fixed-rate charters, which contribute to the stability of our cash flows. In addition, container liner

 

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companies typically employ long-term charters for strategic expansion into major trade routes while employing spot charters for shorter term discretionary needs. To the extent container liner companies expand their services into these major trade routes, we believe we will be well positioned to participate in their growth.

 

   

Expanding and diversifying our customer relationships. Since our initial public offering, we have increased our customer base from two to eight customers and have expanded our revenue from existing customers. We intend to continue to expand our existing customer relationships and to add new customers to the extent container liner companies increase their use of chartered-in vessels to add capacity in their existing trade routes and establish new trade routes. We believe that we will benefit from the expected growth of worldwide container shipping demand, especially in certain markets that we believe to have high growth potential such as Asia, where we have strong customer relationships. We also believe that our Manager’s experience in working with container liners to provide ship design, construction supervision and chartering services will improve our ability to secure new customers.

 

   

Actively acquiring newbuilding and secondhand vessels. We have increased, and intend to further increase, the size of our fleet through selective acquisitions of new and secondhand containerships that we believe will be accretive to our cash flow. We believe that entering into newbuilding contracts will continue to provide long-term growth of our fleet and modern vessels to our customers. In addition, we intend to selectively consider any nearer-term growth opportunities to acquire high-quality secondhand vessels, primarily either with existing long-term charters or where we can enter into long-term charters concurrently with the acquisitions. We also intend to consider appropriate (a) partnering opportunities that would allow us to seek to capitalize on opportunities in the newbuilding and secondhand markets with more modest investments, and (b) business acquisitions, as well as the potential sale of any older vessels in our fleet as part of fleet renewal.

 

   

Maintaining efficient capital structure. We intend to pursue a financial strategy that aims to preserve our financial flexibility and achieve a low capital cost so that we may take advantage of acquisition and expansion opportunities in the future while also meeting our existing obligations.

Time Charters

General

We charter our vessels primarily under long-term, fixed-rate time charters. A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. Under a time charter, the vessel owner provides crewing and other services related to the vessel’s operation, the cost of which is included in the daily rate; the charterer is responsible for substantially all of the vessel voyage expenses, such as fuel (bunkers) cost, port expenses, agents’ fees, canal dues, extra war risk insurance and commissions.

The initial term for a time charter commences on the vessel’s delivery to the charterer. Under all of our time charters, the charterer may also extend the term for periods in which the vessel is off-hire. The current charter periods and any applicable extension options are included above under “—Our Fleet.”

 

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The following table presents the number of vessels chartered by each of our customers as of May 10, 2011.

 

Charterer

   Number of vessels in
our current operating
fleet
     Number of vessels
scheduled to be
delivered
     Total vessels
upon all
deliveries
 

CSCL Asia

     22                 22   

HL USA

     9                 9   

COSCON

     10         8         18   

APM

     4                 4   

CSAV

     4                 4   

MOL

     4                 4   

K-Line

     6         1         7   

UASC

     1                 1   
                          

Total

     60         9         69   

With respect to the vessels on charter to HL USA, CP Ships has provided a guarantee of the obligations and liabilities of HL USA under each time charter and Hapag-Lloyd AG has provided a guarantee of the obligations and liabilities of CP Ships under the original guarantee. For the vessels on charter to CSCL Asia, CSCL Hong Kong and CSCL have each provided a guarantee of the obligations and liabilities of CSCL Asia under each time charter.

Hire Rate

“Hire rate” refers to the basic payment from the charterer for the use of the vessel. Under all of our time charters, hire rate is payable, in advance, in U.S. dollars, as specified in the charter. Generally, the hire rate is a fixed daily amount that increases at varying intervals during the term of the charter and any extension to the term. Payments generally are made in advance on a monthly or semi-monthly basis.

In the case of all of our time charters, if a vessel’s speed is reduced as a result of a defect or breakdown of the hull, machinery or equipment, hire rates under that particular time charter may be reduced by the cost of the time lost and extra fuel consumed for that particular incident. Historically, we have had no instances of hire rate reductions.

Operations and Expenses

Our Manager operates our vessels and is responsible for ship operating expenses, which include technical management, crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses and capital expenses, including normally scheduled dry-docking of the vessels. Please read “Our Manager and Management Related Agreements—Management Agreements” for a description of the material terms of the management agreements. The charterer generally pays the voyage expenses, which include all expenses relating to particular voyages, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.

Off-hire

When a vessel is “off-hire,” or not available for service, the charterer generally is not required to pay the hire rate, and we are responsible for all costs, including the cost of fuel bunkers, unless the charterer is responsible for the circumstances giving rise to the lack of availability. A vessel generally will be deemed to be off-hire if there is an occurrence preventing the full working of the vessel due to, among other things:

 

   

operational deficiencies not due to actions of the charterers or their agents;

 

   

dry-docking for repairs, maintenance or inspection;

 

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equipment or machinery breakdowns;

 

   

delays due to accidents for which the vessel owner, operator or manager is responsible, and related repairs;