Nov 1, 2011
Executives
Gerry Wang – CEO, Co-Chairman and Co-Founder Sai Chu – Chief Financial Officer
Analysts
Scott Weber – Merrill Lynch Michael Webber – Wells Fargo Urs Dur – Lazard Greg Lewis – Credit Suisse Justin Yagerman – Deutsche Bank Noah Parquette – Cantor Fitzgerald Gary Chase – Barclays Capital
Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Seaspan Corporation Call to discuss Financial Results for the Quarter Ended September 30, 2011.
Hosting the call today is Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan Corporation; and Sai Chu, Chief Financial Officer of Seaspan Corporation. Mr.
Wang and Mr. Chu will be making some introductory comments and then we’ll open up the call to Q&A.
I will now like to turn the call over to Sai Chu.
Sai Chu
Thank you, Operator. Good morning, everyone, and thank you for joining us today.
Before we begin, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter 2011 earnings release and earnings webcast presentation slides available at our website, as well as in our annual SEC report on Form 20-F for the year ended December 31, 2010. I would also like to remind you that during this call, we may discuss certain non-GAAP financial measures including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings, normalized earnings per share and normalized converted earnings per share.
In regards to such financial measures and for reconciliation of such measures to the most closely comparable U.S. GAAP measures, please refer to our earnings release.
I will now pass the call over to Gerry, who will discuss our highlights for the quarter and other recent developments.
Gerry Wang
Thank you, Sai. Good morning to everybody.
Please turn to slide three of the website presentation. Seaspan’s business continue to perform as expected in the third quarter despite broader uncertainty in the global economy.
I would like to highlight five points that speak to the ongoing stability and growth in our business. First, our operating fleet remains fully employed on fixed-rate time charges without any major off-hire incidence.
We achieved a utilization rate of 99.8% for the quarter and grew revenues, cash available for distribution and normalized net income by 39%, 22.5% and 30.6%, respectively for the quarter compared with results for the third quarter of 2010. Second, we continue to successfully implement our newbuilding program.
We expended our fully time charter fleet by taking delivery of three newbuildings, the Budapest Bridge to K-Line, the COSCO Development and COSCO Harmony to COSCON, all secured on long-term contracts of 12 years. We now have 65 vessels in operation with four 13100 TEU vessels remaining to be delivered to COSCO through the first half of 2012 and three 10000 TEU vessels remaining to be delivered to Hanjin in 2014.
Third, our Board declared another dividend on our common stock and our Series C preferred shares. In total, we have declared cumulative common stock dividends of $7.5 per share since our IPO in 2005 and a cumulative preferred stock dividend of a $1.80 per share since we first issued the shares in January of this year.
As we continue to take delivery of our newbuilding fleet, we intend on continuing to sustainably increase our dividends over time while maintaining our flexibility for future growth. Fourth, we took additional steps to enhance our capital structure and a financial flexibility during the third quarter by entering into our $150 million non-recourse loan facility relating to one of our 13100 TEU newbuilding vessels and 12-year time charted to COSCON.
The vessel is under construction at Hyundai Heavy Industries and was previously financed with up to $75 million under one of our revolving credit facilities. Fifth and finally, I’m pleased to announce that we have entered into agreements with MSC bareboat charters two of our four 4800 TEU vessels for five years and that we are finalizing similar bareboat charter agreements with MSC for the remaining two 4800 TEU vessels.
This transaction is aligned with our strategy of generating stable cash flow and maintaining a modern fleet with an efficient cost structure. For this bareboat charters, we’re locking in an income stream for the next five years.
We’re effectively removing our operating exposure to our four oldest vessels enabling us to redeploy valuable operational resources towards our remaining modern fleet with an average age of about four years. Sai will review the financial implications of this transaction later on in this call.
I would now like to turn the call to Sai to discuss our quarterly financial results. Sai please.
Sai Chu
Thanks Gerry. Please turn to slide four for a summary of our three and nine-month results for the periods ended September 30, 2011, compared to the same periods in 2010.
We began 2011 with 55 vessels in operation and accepted delivery of 10 vessels as of September 30, 2011, bringing our fleet to a total of 65 vessels in operation at quarter end. Revenue increased substantially due to the increased number of operating days and higher time charter rates attributed to the delivery of our larger newbuild vessel.
Ship operating expenses increased but at a lower rate than our revenue increased. This is consistent with the operating efficiencies achieved by our larger newbuild ships which have lower operating costs for TEU.
Accordingly, our adjusted EBITDA increased by a greater percentage than our revenue due to increased contribution margin of larger vessels. Cash available for distribution to common shareholders increased by lower percentage than adjusted EBITDA as a result of a dividend on our Series B and Series C preferred shares, and due to increased interest expense resulting from the use of more debt and from the acquisition of our vessel.
Normalized net earnings increased at a lower percentage relative to our revenue and adjusted EBITDA due to higher interest expense resulting from the use of more debt to fund [ancillaries]. The bareboat charter and forward sale of two of our 4800 TEU vessels at York and Maersk Moncton to MSC resulted in an $8.9 million loss on vessels for accounting purposes in Q3.
Please note that we have added back this accounting loss in our calculation of cash available for distribution, adjusted EBITDA and normalized net earnings. We expect a loss of about $7.5 million to be recognized in Q4 for the bareboat charter and forward sale of our other two 4800 TEU vessels, Victor and Maersk Merritt to MSC.
The bareboat charter rates on these four vessels with MSC are 10,000 per day for the first two years increasing to 14,500 per vessel per day for the remaining three years. In addition, subsequent to the quarter end, we entered into a financing transaction with a leading American bank for one of our 4250 TEU vessels, the UASC Madinah.
This is a non-recourse secured $53 million loan with an expected sales lease back in June of 2012 subject to certain conditions. As we originally purchased the vessel for $43 million in June 2010, we expect this transaction will result in an accounting gain on sale of approximately $10 million, which will be amortized over the lease period for accounting purposes.
Please turn to slide five, for a normalized per share metrics. For EPS, our normalized converted EPS for Q3 is $0.29 per share.
In terms of our dividend policy, as Gerry mentioned our Board declared an $0.1875 per share quarterly common divided for Q3. Our Board also declared $0.59375 per share quarterly dividend for the three months ended October 30, 2011 on 9.5% Series C preferred shares, which was paid on October 31, 2011.
Please turn to slide six for our balance sheet information as of September 30, 2011, and December 31, 2010. The strengthening of our balance sheet from year end primarily reflects the growth in our fleet and the cash proceeds from our Series C preferred share issuances.
In terms of liquidity as of quarter end we had cash and cash equivalents of $415.7 million and additional undrawn availability on our credit and lease facilities. We consider our strong liquidity and financial flexibility to be a key competitive advantage in the current market environment.
In addition, our financial stability and our strong position in the ongoing discussions and negotiations shipyard is reflected in client confidence. As Gerry mentioned earlier, through of our subsidiaries we entered into a non-recourse loan facility for up to $150 million with affiliates of leading Chinese and Japanese banks relating to one of our 13100 TEU newbuild vessels.
The vessel is under construction at Hyundai and was perviously financed with up to $75 million under one our revolving credit facilities. The vessel is now been removed from security for that revolving credit facility and on delivery will commence a 12-year fixed-rate time charted to COSCON.
Please turn to slide seven for the quarterly details of our vessel deliveries, dry-docking, CapEx and converted share count guidance for 2011, 2012 and annual guidance for 2013 and 2014. Please refer to our website under the tab Seaspan Fleet for details on our upcoming delivery dates, charter rates and OpEx rates.
Please note that going forward a portion of the payments received pursuant to the bareboat charters on the four 4800 TEU ships to MSC will be accounted for as interest income. We’ve taken delivery of 10 vessels thus far in 2010 including three ships in the third quarter.
We expect to take deliver of four 13100 TEU vessels in the first half of 2012 and the three 10000 TEU newbuildings in 2014. All deliveries are subject to changes based on customer scheduling requirements.
In terms of the anticipated and scheduled off-hire days, we expect approximately six days of dry-docking in Q4, 34 days in Q1 2012, 24 in Q2, 67 in Q3 and none in Q4 for a total of 125 days for the full year 2012. At this time, we estimate 66 and 77 of scheduled off-hire days for 2013 and ‘14, respectively.
These estimates are subject to change. In terms of CapEx, we expect approximately $19 million in Q4, about $330 million in 2012, $71 million in 2013 and $194 million in 2014 representing total capital spending of approximately $614 million of which we have already secured all necessary funding.
We expect our distributable cash flows grow as we continue to take delivery of our large 13100 TEU ships on charter to COSCON and the three 10000 TEU ships to be chartered to Hanjin. I would now like to review our expected converted share count.
This is relevant for the accurate calculation of our normalized converted diluted EPS. Based on current shares of our common stock outstanding assuming participation rates in our drip and a conversion price of $15 per share for our Series A preferred shares, we expect 87.1 million shares for Q4, 88.3, 89, 89.7, 90.3 million for each quarter sequentially in 2012, 93 million shares for 2013 and 96 million shares for 2014.
Please note that these predications are subject to change. On the capital structure side Seaspan has consistently demonstrated its ability to preserve its strong and flexible capital structure yet maintain long-term value.
We believe that our increased cash flows combined with our liquidity and access to capital markets will give us continued availability to support increase in common dividends, pay down debt and perceive growth in a balanced and controlled matter. We continue to work on innovative financing transactions to diversify our capital structure and create additional capacity for growth.
I would now like to turn the call back over to Gerry.
Gerry Wang
Thank you very much, Sai. Please now turn to slide eight, where I’ll briefly discuss the industry’s current fundamentals.
On the supply side, the order book currently stands at about 25% or effective loading capacity, or bout 8% per annum on average. That will be further reduced by demolition, potential order consolidation and conversions, and the potential for increased vessel layouts.
On the demand side, we expect container cargo demands in terms of volume which is a derivative of global economic growth to continue to grow at 7% to 8% per annum. While current supply and demand imbalances on some of the main K-Line persist, we generally expect cargo demand and the ship supply growth to band this out in the longer term.
Fright rates have remained at the modest levels and the majority of liners are expecting losses for 2011 from their container divisions. This challenging market for our customers not only underscores the need for larger, modern and a fuel efficient ships that will drive economy of scale and significantly lower their operating cost, but also highlights the opportunities that exits for owners with strong balance sheet and access to capital like Seaspan.
Please turn to slide nine, where I will reiterate our vision for the future. Our overall strategy is to continue to grow our fleet in a controlled and balanced fashion.
As we discussed on our second quarter conference call, we entered into our next phase of growth by ordering 10000 TEU fuel efficient vessels. Due to the near-term uncertain outlook for the global economy, we intend to continue to be patient and disciplined using our financial strength and technical and operational leadership position to pursue select growth opportunities that meet our strict criteria.
With a strong young fleet coupled with a solid portfolio of charters we’ll continue to concentrate on designing, owning and chartering large, modern, fuel efficient container ships to create a worthy customers on long-term basis. As a ship leasing franchise it is critical to consistently maintain a strong balance sheet, diversifying our capital structure and enhancing our financial strength including maintaining conservative leverage has been our core differentiator of Seaspan and will remain one of our top priorities.
Seaspan is committed to sustainably increasing our common share dividends over the long-term as we continue to opportunistically grow our business. With a proven business model that was just tested by the financial crisis of 2008 and 2009 we believe Seaspan is well-positioned to continue to both enhance its leadership position and create shareholder value over the long-term.
Now, please turn to slide 10. We will now open up the call for questions.
Operator, please begin.
Operator
Thank you sir. (Operator Instructions) Our first question in queue comes from Ken Hoexter with Merrill Lynch.
Please go ahead.
Scott Weber – Merrill Lynch
Hi. Thanks.
Good morning. Its Scott Weber in for Ken.
The transaction with MSC is interesting. I was just wondering if you could talk at all about their decision to bareboat charter for older vessels and why you think they might be deciding to grow their fleet that way instead of having you mange the vessels?
Gerry Wang
Thanks, Scott. There are two fundamental reasons why we did the bareboat charter.
Number one, we want to concentrate on building our fleet of more than large fuel efficient nature and we feel this four vessels being close to 20 years old are getting very old and we want to make sure that we keep the fleet very young. Number two, we want to concentrate again on modern ships by directing our resources, our offices, our crew members and the other technical personal resources to our cost fleet, which is very young modern with average age of four years old.
Scott Weber – Merrill Lynch
Okay. Thanks.
And then, the management agreement with Seaspan expires at the end of December. Can you give us any update on the status of those discussions or thoughts on purchasing the management company and bringing that into Seaspan?
Gerry Wang
Scott, Sai will comment on this.
Sai Chu
Okay. Hi, Scott.
Scott Weber – Merrill Lynch
Hi.
Sai Chu
The independent conflicts committee and the shareholders of SMSL are continuing in there discussions and negotiations. We have nothing to announce at this time but everyone is aware of the end of the contract coming up at December 31st.
So, the discussions are ongoing and unfortunately we don’t have anything to update the market on at this time.
Scott Weber – Merrill Lynch
Okay. Great.
Thanks.
Operator
Thank you, sir. Our next questionnaire in queue is Michael Webber with Wells Fargo.
Your line is now open. Please go ahead.
Michael Webber – Wells Fargo
Hey. Good morning, guys.
How are you?
Gerry Wang
Good. Thanks.
Michael Webber – Wells Fargo
Hey. I want to jump back quickly to the MSC deal and it looks like, I mean, a couple of vessels are redelivered early from Maersk and if memory serves, the names under that first of all change around a little bit, but a couple of logistics extended for a year, I believe in Q2?
Can you talk a little bit about why there is brought back, I mean, is that basically what happened, they are basically returning the vessels early and guess what you’re hearing from Maersk around that?
Gerry Wang
Well, basically Michael, we’ve done a deal with the Maersk to advance the redelivery from them then we would be able to deliver the ships to MSC ahead of time. So, that’s a deal we structured.
We just want to, frankly, to deal with those vessels ahead of time, because we believe fundamentally as the market is going through the downturn, the older vessels are just not as competitive as the modern vessels that we have.
Michael Webber – Wells Fargo
Okay. So, if I’m thinking about this right, you were working on a forward agreement for these vessels and then you went to Maersk and Maersk was finally redelivering them early and getting them signed now.
I mean, it wasn’t Maersk putting them back to you, you went to Maersk to have them redelivered early?
Gerry Wang
Actually, Michael, the deal was structured in such a way, Maersk would terminate the one-year, approximately one-year charter. MSC would take delivery of the vessels right now in November.
Sai Chu
Yeah. Mike, we want to make it clear, Maersk didn’t approach us to terminate early.
Michael Webber – Wells Fargo
Okay. Okay.
Gerry Wang
That was (inaudible), sorry, Mike.
Sai Chu
Yeah. We went to Maersk and we had this packaged deal basically.
Michael Webber – Wells Fargo
Okay. Now that make sense and the rates look pretty solid.
I just wanted to make sure that they weren’t putting that back to you.
Sai Chu
No.
Gerry Wang
No, no.
Sai Chu
No. It was more MSC wanted the package of the four ships.
Michael Webber – Wells Fargo
Got you. Yes.
Sai Chu
So, we were the inter-mediatory who worked through the transaction to make and ask for an early termination.
Michael Webber – Wells Fargo
Okay. All right.
That makes sense. The last couple of quarters you’ve been talking a lot about, special for you guys to go out and grow, and you guys pulled the trigger on a couple of those 10000 TEU vessels earlier in the year.
The rest of those orders and the adoption is just kind of hanging out there both the 10000 TEU and the 14000, I think a little bit further down the line. Can you guys give an update in terms of where that stands and I guess, without getting into too many specifics, I guess what you’re hearing from your customers in terms of their need for additional capacity.
We’ve seen a couple of larger deals still get done in this market in last day or so? And then, I guess, where newbuild prices are now on a dollar per TEU basis, are they coming down from where you guys are talking kind of sub, right around sub $10,000 per TEU, it seems like they certainly have and kind of where they are now and where you guys look to get more active in terms of doing something?
Gerry Wang
Hey, Mike. Let me just address the last question first in terms of shipbuilding price, newbuilding price.
Pretty much as we pointed out, the prices have flattened out at around $10,000 per TEU on delivery basis. We will see some marginal ups and downs movements but not substantially in our opinion.
On the activities related to our intention of ordering new vessel 10000 TEU to 14000 TEU we’re active discussing. We’re getting various interests from the charters but we want to be very patient and very prudent, especially when it comes to the financing, debt financing of those vessels.
Typically, we want to make sure the debt financing would be largely available to us before we pull the trigger and that we’re in the process of discussing with shipbuilders and the export agency banks to make sure that financing will be in place before we pull the trigger. When I say financing in place, what I mean is pretty much maintained or the general prices in place.
Michael Webber – Wells Fargo
Okay. I mean, I guess, so I guess on the margin then you guys haven’t seen any erosion or any following interest from those counter-parties in terms of what they think they might need in terms of capacity that’s still there and you guys are just waiting on the financing at this point and making sure that’s available?
Gerry Wang
Absolutely, Michael. The interest still is strong because as I said, during the call when the market is going through the cycles, especially during downtime, the way to define competitiveness is the fleet that you have with a new design which has approximate 25% to 30% of fuel saving.
The more this kind of fuel efficient ships you have the more competitive you become, that’s how the line of measures how we look at two to three years down the road and that’s the only way to frankly to become more competitive through all those cycles.
Michael Webber – Wells Fargo
Got you. Okay.
And then I guess, you guys just did, you mentioned in the release securing kind of an individual financing for one of the 13000 TEU vessels. Can you remind us how many more are still on your facility and how much room that could eventually free up there side?
Gerry Wang
You mean additional debt capacity that we could raise?
Michael Webber – Wells Fargo
Yeah. Additional, yeah basically additional assets you can get, you can basically take off that facility as this -- just as a reminder how much -- how many those 13000 TEU have individual financing on them?
Gerry Wang
They are all financed.
Michael Webber – Wells Fargo
That was all financed. Okay.
Gerry Wang
Yeah. That was last one, I mean we have the capacity to raise debt on the three 10,000 as well.
Michael Webber – Wells Fargo
Right, right.
Gerry Wang
So there is definitely availability for debt for as we’re just actually working through transactions. So, we’re in a very fortunate position in having growth capital immediately available in addition to the ability to raise several hundreds if not, well over $1 billion of debt?
Michael Webber – Wells Fargo
Okay. All right.
I guess, just one or two I’ll turn it over. On the dividends, just curious as to how you guys think about that next year, I know you guys have kind of come out with a balanced approach to you, I guess as you’re looking to continue to grow your fleet.
I guess assuming that this kind of back drops stays in place which is I guess what we would call somewhat challenging and very lease for the container ship market. How do you guys think about dividend upside next year and where you are right now versus, I guess, maybe in terms of your payout ratio or I guess some sort of metrics, how do you guys look at that for next year?
Sai Chu
Mike, its Sai. Well, the way we look at it is, we have a very conservative payout ratio.
So the most important thing that the feedback that we’ve had from our investors is make sure that dividend is sustainable. In our minds, we’re very comfortable with the payout ratio and the sustainability of this dividend on a long-term basis.
The Board and management are very pleased with how the business has performed and going forward we feel very comfortable that the business will continue to perform throughout the cycle. The Board certainly had identified a progressive dividend policy and we are looking to grow that dividend over time.
So in terms of guidance going forward, I think that we can’t give you clear guidance however we’ll move to more regular process in terms of a dividend and set up quarterly, more regular in terms of likely annual dividend reviews. So I think that there is room to grow the dividend and for it to be sustainable.
We don’t have guidance today but certainly we expect in the near that we’ll reaffirm where the event will be.
Michael Webber – Wells Fargo
Okay. All right.
That’s helpful. And now I’ll actually turn it over any questions.
Thanks a lot guys.
Sai Chu
Okay. Thanks Mike.
Operator
Thank you, sir. Our next questioner in queue is Urs Dur with Lazard.
Your line is now open. Please go ahead.
Urs Dur – Lazard
Good morning guys.
Gerry Wang
Good morning can you hear me.
Urs Dur – Lazard
Good morning. Yeah.
Hi, I don’t know if you could hear me. Yeah.
My question was largely on the MSC deal/Maersk but that was answered. Well, then take that a step further and the stock is pretty soft compared to where it was earlier in the year and you do see interest from liner companies as to growth.
So, what does that imply for you about the overall health of liner companies right now, do you think there are going to be some renegotiation of contracts like we saw some in 2009, not necessarily with you but with others, what’s the overall health of your counter parties right now?
Gerry Wang
Urs, it’s Gerry here. Let me just point to two things.
Number one, you look at the ‘08, ‘09, the total loss for the liner majors was approximately $20 billion but you look at the loss for this year 2011, collectively, probably would be something around $2 billion to $4 billion. So, the loss situation is much, much better than ‘08, ‘09.
So from that basis, it’s just part of the normal business cycles, we don’t expect too much consolidation failure. In terms of renegotiations, we haven’t heard any, I don’t expect that to happen and as I said that the liner majors are going through the normal ups and downs this time and the downturn definitely is not a severe as ‘08, ‘09.
And in terms of interest to grow from the liner majors, everybody I have met the CEO of liner majors have identified to me the key to stay competitive on long-term basis is to have modern efficient fleet and to reduce the key cost and that’s the way to do it and with the new design we have introduced on the 10000 TEUs, the 14000 TEUs and other sizes, the unit cost in term of fuel efficiency would be reduced by 25% to 30%, that is very attractive to line operators. That is what their focusing on right now.
So I won’t be surprised to see more new ships to be ordered or chartered over next 6 to 12 months taking advantage of attractive newbillings prices and financing packages that will be available to them.
Urs Dur – Lazard
Okay. That makes sense.
But in general there was time to welcome 2009, as we all know and most companies still have the balance sheet capability to experience and deal with this oversupply issue that’s the bottom line, right?
Gerry Wang
Yes.
Urs Dur – Lazard
Excellent. Okay.
Thanks for your time.
Gerry Wang
Thanks, Urs
Operator
Thank you, sir. Our next questioner is queue is Greg Lewis with Credit Suisse.
Please go ahead.
Greg Lewis – Credit Suisse
Thank you and good morning.
Gerry Wang
Hi, Greg
Sai Chu
Hi, Greg
Greg Lewis – Credit Suisse
I actually just have two questions. One real quick just following up on the MSC deal, for modeling purposes, should we assume that that blended average is around $12,700 for the life of the charter, Sai?
Sai Chu
Yes. I mean...
Greg Lewis – Credit Suisse
[$15,000] and then steps operate, that’s going to – that’s sort of average down.
Sai Chu
Yeah. I mean but the reality is the cash that we get is $10,000 a day for the first two years and then $14.5 for the next three years.
Greg Lewis – Credit Suisse
Sure. But in other words, does it follows through the income statement?
Sai Chu
Yeah. I mean, I would -- you could do it that way, but I think it’s better just take the cash which is $10,000 a day in the first two years, then $14.5.
Greg Lewis – Credit Suisse
Okay. Great.
And then just really quick, I guess earlier this week, late last week you came out that one of your larger customer CSCL placed an order for newbuilding vessels, was that something that Seaspan was in negotiations with CSCL was that something that they sort of put out to the market or was that something that they just really wasn’t out for bid?
Gerry Wang
Well, interesting, the CSCL 10000 TEUs, I’ll ask is that the same design as our 10000 TEUs as we develop and we shared the design with them to be honest. Obviously, we have been in discussion with them for their requirements and the deal tend out to be, they want to focus on utilizing their own cash flow and their own balance sheet to your own some system sales and it’s just the way it goes and we’ll continue to work with them for their modernization of their fleet.
CSCL has clearly identified the key to stay ahead of the curve is to introduce new fuel efficient vessels and that’s exactly what we have done and I expect them to continue to move in that direction.
Greg Lewis – Credit Suisse
Well, but it’s not something where potentially you have some of these in new orders to Seaspan. I mean could Seaspan potentially become a part of some of these new orders that they place down the road closer to delivery maybe?
Gerry Wang
Greg, I would refrain from commenting on that.
Greg Lewis – Credit Suisse
Okay. Perfect.
Thank you guys very much for the time. Have a great day.
Gerry Wang
Okay.
Sai Chu
Thanks, Greg, you too.
Operator
Thank you, sir. Our next questioner in queue is Justin Yagerman with Deutsche Bank.
Your line is now open. Please go ahead.
Justin Yagerman – Deutsche Bank
Hey, guys. Just want to make sense of the comment that you had made earlier on the perspective acquisitions that you guys have been making, obviously you got firm orders out there and three have been taken into Seaspan.
My sense from what your commentary was that the charters are there, you’re saying that there’s demand but that the financing isn’t necessarily. And I’m just curious why if there are long-term chartered demand in the market there wouldn’t be bank financing for that cash flow, so curious what that dynamic is and how it’s playing out?
Gerry Wang
Okay. It’s Gerry.
I think it’s the first time to speak to you. First of all, we just want to be a very disciplined and prudent is want to make sure that we have the financing pretty much in place given the choppy global situation, vis-à-vis the financial sector and yes, we have the capacity to go ahead and do some orders, better we want to make sure we have the financing pretty much in place.
Two reasons, one is that, if you look at the dollar size of the new building programs we’re looking at, each vessel would cost $100 million or $150 million pretty much in between that size, then if you look at 10 vessels we’re looking at that close to $1.5 billion. In today’s environment it’s not easy to raise $1.5 billion or $1.2 billion so we want to be very, very cautious in that regard.
We want to make sure the export agency banks in China and Korea are really helping us to raise the financing, the sizes that we’re talking about, number one. Number two, if you talk to the liner majors they do want to have new vessels to reduce their operating cost in the long term, at the same time we just want to make sure, a charter is a charter, the overall situation for us, again that we need new bidding contract, we need a charter party, we want to make sure financing is in place.
This uncertain times we want to be more cautious and just the way we see how the market develops plus the market, the newbuilding price is in our favor and there is no catalyst for the newbuild prices to move up but we just take out time and wait and when we get other financing package in place that’s the time we will pull the trigger, otherwise adjusting we just take out time.
Justin Yagerman – Deutsche Bank
All right. Where are you guys right now in terms of fire power from a liquidity standpoint.
If you were to go out and do a deal I mean do you guys typically target 60% to 65% debt to cap. I mean where do you guys -- from an equity standpoint having done the preferred and now having raised some more debt where do you think you are in terms of deal size you could take on right now with no additional financing?
Gerry Wang
Justin, Sai will comment on this.
Sai Chu
Well, I mean it depends on how we structure the financing but we have availability undrawn from our existing debt facilities. So we have several hundreds a millions I’m not going to be specific about it however we have the ability also to bring on additional debt and raise other forms of capital.
We would be quite comfortable in putting on to the books of Seaspan another $1 billion or so worth of new deals if we hope that they are the right deals and in terms of the charter and the timing of those deals.
Justin Yagerman – Deutsche Bank
Okay. All right.
And do you guys have an update on what’s going on at the JV level? Have you guys purchased and started to finance vessels with Carlyle yet?
Gerry Wang
Well, basically yes and we are in the process of securing a debt financing as a package for the seven vessels on charter to Hanjin Shipping and hopefully we can conclude the debt financing within the ship builder time.
Justin Yagerman – Deutsche Bank
Okay. That is all I’ve got for now.
Thanks guys, I appreciate the time.
Gerry Wang
Thanks Justin.
Sai Chu
Thanks Justin.
Operator
Thank you, sir. Our next questionnaire in queue is Noah Parquette with Cantor Fitzgerald.
Your line is open.
Noah Parquette – Cantor Fitzgerald
Good morning. And most of my questions have been answered.
But, I just wanted to talk about the funding on the 13000 TEU vessels. Its pretty high loan-to-value, I mean, can you talk a little bit about how the banks were comfortable with that, I mean was it because of the charter or is this kind of a new standard?
Gerry Wang
No. It’s not a -- it’s a deal that we’ve done a couple of times previously.
So, the banks are quite comfortable with the strength of the charter being cost go and how we’ve structured the transaction, our history as a company and our ability to perform and the performance of our chatterer. So, you’re right it is approximately 80% to original cost back when we placed this order in 2007.
So, again it just proves our ability to raise capital. It was 12 year money on an 80% advance.
So, we still have plenty of access in the market and it’s just the matter of which deals we chose to do.
Noah Parquette – Cantor Fitzgerald
Can you talk a little bit about how the pricing was in relation to the revolving facility that replaced?
Gerry Wang
It certainly going to be higher, but when you take into account that the margin is higher but the LIBOR is lower and the total cost was as not terribly different from our weighted average cost on our debt. And also relative to where the market is today and the fact that it’s not recourse, we think it’s a very good cost acountfull for us and also a good cost of capital for us and also a good cost of capital for the bank.
Noah Parquette – Cantor Fitzgerald
All right. That’s all I have.
Thank you.
Gerry Wang
Thanks Noah.
Sai Chu
Thank you.
Operator
Thank you, sir. (Operator Instructions) All right.
Our next questioner in queue is Gary Chase with Barclays Capital. Please go ahead.
Gary Chase – Barclays Capital
Good morning everybody.
Gerry Wang
Good morning Gary.
Sai Chu
Good morning Gary.
Gary Chase – Barclays Capital
A couple of questions for you, if I could please.
Gerry Wang
Yes. You could.
Gary Chase – Barclays Capital
Well, thank you. I wanted to see if you had any color that you could provide on what your customers are saying, I mean I’ve heard you say couple of times, there is demand obviously, you’ve referred many times to the demand for more fuel efficient vessels.
I’m wondering if the customers are reflecting to your view that any of this weakness might be little bit more structural than temporary and when you say that the demand is there, are there aspects of this that are shifting meaning, can you still get the same kind of terms not just in rate but in terms of duration of the charter and so on and so forth?
Gerry Wang
Hi Gary, I had an opportunity to visit most of the liner majors last week and I the week before. I had first hand discussion with the CEOs of those major operators.
Two things that I want to highlight. Number one, the pursuit for fuel efficient vessels is critical to them.
The CEOs have made the point to me for us to have the fuel efficient vessels that enables us to really make more money during the good times and lose less money during bad times because we simply have no control over the market, that’s the first point. Second point is related to the size.
If you look at to the main chase Asia Europe and Asia North America are dominated by the largest sizes. So you see our cascade impact of larger vessels going down to the small vessels.
The 8000 TEUs, 10000 TEU and the 14000 TEUs and the big ones will become the normal sizes for chase, whereas the 5000 TEUs and 6000 TEUs will have some difficult times getting employed because they are too small for the small chase and too large, sorry too large for the small chase and two small for the main chase. So that’s sort of the impact we see and that’s one of the reasons why we want to modernize our fleet to focus on some large modern fuel efficient vessel and you’ll see a lot of consolidation, modernization from liner majors to position themselves ahead of the competitors to continue to pursue more fuel efficient vessels and larger vessels because that’s really where what we call it the paradigm shift and we want to be part of it and that’s one of the reasons why we want to make sure that we have the balance sheet and dry powder so that we can be participating in that development.
Gary Chase – Barclays Capital
Okay. And then if I could ask, when you make comments about the desire to grow your financial strength, just wondering if that’s in anyway linked to some of the things you’ve talked about lining up to the right financing.
Are you finding that that’s a new prerequisite to get the right deals for new build that you need to show better strength. And how might we think about what you’re targeting, should we think that there is debt-to-cap ratio you’d like to achieve or an EBITDA metric relative to your debt how should we think about that?
Gerry Wang
Basically, Gary we’re looking at from the overall perspective of balance sheet and the -- that can show and the balanced growth at the end of the day, it’s all about the balance. We want to make sure that the company is in a position to be both defensively and offensively solid.
And if you look at this potential deals whether 10000 TEUs, 14000 TEUs or 18000 TEUs they are very, very capital intensive and to have the strength on the balance sheet and the financial strength to deal with those capital intensive acquisition is critical. And especially we deal with the financial market that is as uncertain as we’ve seen the traditional European banks are not there anymore or at least some of them just not there anymore.
The ones that are lending are probably shrinking their sizes. So we’re looking at the ECA export country agency banks to chipping to help and that’s the pressure we put on them.
Basically, we say to them, if you don’t give us export financing, we don’t order in your country. And that’s really a tactical play.
And then at the end of the day we just want to make sure, we take advantage of the overall situation you know the Korea and China they are very keen to support their ship building industries than why not take advantage of that.
Gary Chase – Barclays Capital
Okay guys. Thanks very much for the time.
Gerry Wang
Thank you.
Sai Chu
Thanks.
Operator
Thank you, sir. (Operator Instructions) Next questioner in queue is Michael Webber with Wells Fargo.
Please go ahead.
Michael Webber – Wells Fargo
Hey guys, I know it’s been a long call but I wanted to hop on a couple of followups. Gerry, just wanted to follow up on a comment you made little bit earlier in terms of fleet growth and you mentioned that you thought we would see additional orders over the next to 6 to 12 months which kind of goes against the [green] in terms of what we’ve seen last couple of days excluded over the last couple of months as the environment has gotten a little bit worse here.
Just in terms of the order book, right the order book is sitting around 30% of the global fleet right now. Where do you think it goes over the six months if people are really looking to acquire larger more fuel efficient vessels and to be able to compete in those larger lines, in larger lanes do you think we’d see 5% to 10% more order book growth over the next 6 to 12 months?
Gerry Wang
Michael, it’s a good question. I think you will see certainly some order book coming for larger vessels.
There are number of discussions going on including ourselves with the shipyards and I won’t be surprise you will see 5% to 10%. But the 30% existing order book is a misleading, that’s really the nominal intake.
We are looking at the effective loading capacity which is about 80% of the nominal so you are looking at 24% to 25% and if you look at the growth in terms of volume of demand for container shipping 7% to 8% is a very conservative estimate and I think that’s been supported by the activities related to, Wal-Marts and other retail system in the United States and in other parts of the world. The volume is actually pretty good, obviously one can argue with the value may have come down but container shipping is all about volume, has nothing to do with the value in the boxes that’s something I want to highlight.
There is not necessarily a perfect correlation between the economic situations, the consumer’s situation with the regard to the container shipping volume.
Michael Webber – Wells Fargo
Okay. All right.
That’s helpful and I’ll take everything else offline. Thanks again for the time guys.
Gerry Wang
Thank you Mike.
Operator
Thank you, sir. And with that, that concludes our time for questions-and-answers.
I like to turn the program back over to Gerry Wang for any closing remarks.
Gerry Wang
Okay. Thank you very much for taking the time to participate in this call.
We once again appreciate your support in our business. As the industry is going through another downturn there will be stresses, dislocations or opportunities.
Seaspan is one of the very few large containership leasing companies that we have the know how and also the balance sheet to capitalize on the opportunities. We remain optimistic about our future.
Thank you again for joining the call. We look forward to speaking to you again next quarter.
Thanks. Bye-bye.
Operator
Thank you, sir. Ladies and gentlemen, this does conclude today’s conference.
Thank you for your participation and have a wonderful day. Attendees you may disconnect at this time.