Moody’s Investors Service has upgraded the corporate family rating (CFR) of the Greek ship owner Danaos Corporation to “Ba3” from “B1”, with the outlook changing to “stable” from “positive”.
According to Moody’s, this action shows the continued strong operating performance and Danaos’ debt reduction measures, which are helped by the current very strong demand recorded by container vessels, with freight rates being at record levels.
The Greek company has a good liquidity profile since it managed to secure about 90% of its revenues for the period 2022-2024 with significantly higher freight rates. At the same time, Danaos has a good track record of generating free cash flow and disciplined capital spending, while it also owns shares in ZIM.
However, it is important to note that according to Moody’s, despite the strong performance forecast for the next 12-18 months, the conditions in the container market could possibly prove to be unfavorable.
Such a thing could affect the performance of Danaos, as the growth of the global fleet due to increased ship orders is expected to exceed the growth of demand for container transport, which will bring charter prices into balance.
To further add up that risk, Moody’s said, “there is a high concentration in terms of customers, some of which historically have had a relatively low credit quality and have experienced financial difficulties in the past.”
The shipping company has historically had a low maintenance CAPEX of around US$3-4 million annually, but occasionally invests in new vessels when opportunities arise. This is evident from the delivery of six 5,500 TEU boxships that was acquired in July 2021 and six newbuilds that will be delivered in 2024.
“We expect the new deliveries in 2024 to be partially debt funded and we consequently expect a modest increase in leverage in 2024. However, the Ba3 rating incorporates that Danaos will continue to pursue such opportunities from time to time when presented to the company,” stated Moody’s.
Danaos does not have a revolving credit facility in place, but Moody’s points out that in addition to its US$363 million cash balance on its balance sheet, the company has access to an unencumbered holding of 5.7 million ZIM shares and at the same time the release of the encumbered fleet following debt repayments serves as an alternative source of liquidity.
