Global Ship Lease, Inc. (GSL, the firm) now has a positive outlook from stable, according to Moody’s Investors Service (Moody’s). The B1 corporate family rating (CFR) and B1-PD likelihood of default rating were both confirmed at the same time by Moody’s (PDR) as reported by Moody’s.
Rating rationale
The rating action reflects Moody’s expectations of continued strong metrics, including Moody’s-adjusted Debt/EBITDA below 3.0x over 2022 and 2023 on the back of a charter backlog at high charter rates.
The company also has improved its interest cost through refinancing, for example, the $350 million issuances of notes in June 2022.
Moody’s also continues to view favourably the high revenue visibility given its long-term charters as well as the increased diversification of its customer and shareholder base.
Since significant vessel acquisition activity in the first half of 2021, GSL has retained its fleet steady at 65 vessels over the last 12 months to June 2022.
In the meantime, the company has continued to recharter vessels at higher market rates securing further profit growth for 2022 and likely 2023.
Gross debt has risen in 2021 as a result of the partially debt-funded vessel acquisitions but could reduce due to high ongoing debt amortisation requirements going forward.
However, any gross debt reduction may also be affected by the company’s refinancing activity as well as any future use of debt to partially fund vessel acquisition although the company has not done so in the last 12 months to June 2022.
GSL continues to have a degree of customer concentration with CMA CGM S.A. (Ba2 positive) and A.P. Moller-Maersk A/S (Baa2 stable) accounting for 56% of 2021 revenue, but this concentration has reduced over recent years while the credit quality of key customer CMA CGM S.A. has also improved in recent quarters.
Following some divestments of past private equity shareholders, GSL has now also a broad shareholder base.
Moody’s additionally notes that the company has commenced paying a dividend and initiated share buybacks.
This is also supported by the current debt amortisation profile.
Liquidity profile
Moody’s views the liquidity profile as adequate.
The company had $96 million of unrestricted cash on the balance sheet (including time deposits) as of March 2022.
GSL has been and is expected to continue to remain free cash flow generative after interest but before vessel acquisitions and divestments.
Moody’s also expects the company to maintain meaningful restricted and unrestricted cash positions also given some minimum liquidity requirements under its debt facilities and for collateral or reserve purposes ($126 million of additional cash used for collateral or required reserve purposes as of March 2022).
GSL has no material balloon maturities until 2024 but has mandatory debt amortization currently peaking at $190 million in 2023 before it reduces.
Rating outlook
Based on current charter levels and assisted by ongoing debt amortisation, Moody’s expects metrics to be solid for the rating in 2022 and 2023, which is reflected in the positive outlook. However, refinancing activities and the potential for partially debt-financed vessel acquisitions will also play a role in further deleveraging.
Factors that could lead to an upgrade or downgrade
Positive pressure could arise if the business continues to grow and diversify with debt/EBITDA sustainably below 3x and (funds from operations + interest)/interest sustainably above 5.0x, free cash flow remains visibly positive, rechartering risks remain limited through longer-dated charters and the maturity profile and fleet well managed.
In this context, Moody’s also considers the evolution of gross debt and the company’s stated financial policy.
Conversely, negative pressure could develop if the company’s (funds from operations + interest)/interest falls to 3x, debt/EBITDA reaches 4.5x or free cash flow weakens.
Downward pressure on the ratings could also result if GSL experiences strained liquidity and difficulties in terms of the rechartering of vessels at adequate rates when contracts expire.
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Source: Moody’s
