Global Ship Lease Inc (GSL) 2018 Q3 法說會逐字稿

Thank you very much. Good morning, everyone, and thank you for joining us today on the conference call to discuss GSL's strategic combination with Poseidon Containers. This is going to create a market leader with 38 containerships and an asset base of more than $1.2 billion, focused on the midsized and smaller containership segment.

In addition to the announcement of this merger, which we made yesterday, we also reported results for the third quarter of 2018, which I'll touch on in a moment. However, our focus on today's call will be on the transformational transaction, rather than on earnings. And we expect to return to a more normal format next quarter.

With me today on the call is George Youroukos, Founder and CEO of Poseidon Containers, which today comprises a total of 19 containerships under 2 holding companies. George is also the founder of Technomar and ConChart, a technical manager and a commercial manager, respectively, which whilst not part of the merger will become important partners of ours going forward. Following our remarks on the strategic benefits of this combination, George and I will be happy to take your questions. And I'll also be happy to take questions related to the third quarter earnings.

As usual, the first 2 slides remind you that today's call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company's control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the safe harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent annual report on Form 20-F, which is for 2017 and was filed with the SEC on March 29, 2018. You can obtain this via our website or via the SEC's.

All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call, to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued last night, which is also available on our website at www.globalshiplease.com.

So turning to Slide 1, I'll briefly review our third quarter earnings. Our 19-vessel fleet performed well during the quarter, generating $36 million of revenue and $24 million of EBITDA. In addition to continuing to generate solid and predictable cash flows, we took steps to further diversify our counterparty portfolio and extend our charter coverage. Specifically, we're pleased to have added Maersk, the world's largest container liner company, to our list of top-tier counterparties. And we extended a charter with CMA CGM highlighting our continuing strong commercial relationships with them and enabling us to maintain full charter cover for our fleet. In the quarter, we also put in place a $65 million growth credit facility to position the company to make further vessel acquisitions, capitalizing on what we believe to be the favorable supply-demand fundamentals in the midsized and smaller containership segments.

Now to the main business of today's call. The announcement yesterday is the direct result of our strategic alternates reviewed and markedly accelerates our stated objective to take advantage of attractive market opportunities to grow our fleet and earnings power for the benefit of our stakeholders.

Turning to Slide 2. We will review selected transaction terms. This is a stock-based transaction. GSL will remain the parent company and the New York-listed entity. On a pro forma basis, the member shareholders of Poseidon Containers are expected to own approximately 69.5% of the economic interest of the company. Affiliates of Kelso & Company L.P., one of the oldest New York-based private equity firms and an 82% owner of Poseidon Containers, will own approximately 56.4% of the economic interest of the company, holding approximately 49.2% of the voting power. Their ownership is structured by convertible preferred stock, which is convertible into common shares only in limited circumstances and at a fixed ratio. It's perpetual, and it's not entitled to any preferred dividend other than those that might be payable in due course to common shareholders.

Under the structure, there is no change of control for the GSL notes. Our largest shareholder will -- sorry, our second-largest shareholder will be CMA CGM, who as most of you know, spun us out just over 10 years ago into the public markets and who have been supportive ever since. Incidentally, going forward, there will be only one class of common shares as the current 7.4 million or so of Class B shares will convert to Class A shares on closing of the transaction.

Please note that the merger agreement has been approved unanimously by a special committee of the Board of Directors and also by the full board itself of Global Ship Lease. A shareholder approval is not required, and completion is expected no later than mid-November.

Next on Slide 3, we'll review the key benefits of this transaction. First, we expect to significantly increase our net asset value and enhance our liquidity with an implied aggregate NAV net asset value of $327 million, a combined charter-adjusted value of the fleet of around $1.2 billion and enterprise value increasing by more than 2.5x.

Second, the transaction provides GSL with a more modern fleet and significantly enhances its earning power in a recovering charter market. By adding 19 modern vessels, 9 of which are latest-generation, new-design, eco-widebeam vessels, we double the size of the fleet and reduced the average TEU-adjusted age of our fleet by 3 years. Importantly, we further diversify our counterparties with top charters and increase our spot market exposure at a time when we believe the market fundamentals are supportive. Such market exposure complements the legacy GSL fleet, which has on average 2.4 years of charter cover weighted by TEU. Note that the aggregate contracted revenue increases to approximately $530 million for the combined fleet.

Third, we reduce GSL leverage on both a charter-free and charter-attached loan-to-value basis. Our overall financial leverage will be approximately 67% on a pro forma net debt to charter-adjusted value basis. We also add approximately $227 million of equity value to the balance sheet. The issuers of equity and equity-like instruments, such as perpetual preferred shares, adds dollar-for-dollar to the permitted transfer basket, which you may know is established by the terms of our notes venture and was initially set at $30 million. This permitted transfer basket governs, for example, the amount of equity that we can invest in growing the fleet. Note that we can lever acquisitions up to 65% loan-to-value, so increasing the basket, increases our capacity to grow.

Whilst no decision has been made to pay a dividend at this time, we will now be able to pay dividends on common stock. Whereas currently, we're not permitted to pay such dividends until 2021.

Fourth, today's compelling transaction brings together 2 complementary leadership teams and creates a more completely integrated platform. Tom Lister and I look forward to joining forces with George and his team, creating a containership owner with significant corporate and capital market expertise as well as extensive operational and commercial capabilities via George and via Technomar and ConChart.

To this point, over the last 24 years, George has separately established Technomar, an industry-leading ship management company with a proven track record of reliable vessel performance and controlling vessel operating costs; and separately, ConChart, a commercial management company with substantial commercial reach. We look forward to benefiting from access to both of these leading organizations.

Finally, we've improved our ability to capitalize on growth opportunities at what we believe to be an optimal point in the cycle. With an enhanced and expanded position in the midsized and smaller containership segments, combined with a strong balance sheet and committed growth capital, the growth facility I mentioned earlier will roll over into the enlarged GSL. We now have the right platform to continue to grow and take advantage of cyclically low asset prices.

Let me now turn the call over to George, who will discuss the strategic rationale of the transaction with a particular emphasis on the combined fleet.

Thank you, Ian. Turning to Slide 4, I'm very excited about the compelling prospects for the combined GSL and look forward to working with Ian, Tom Lister, and the rest of the GSL team as well as Tassos Psaropoulos, who will join the team as Chief Financial Officer, to create significant value for all of our stakeholders.

Specifically, with a 38 fleet modern fleet we're in a strong position to provide leading liners with greater scale and vessel diversity to best meet their exacting needs. Our fixed longer-term contracts provide a solid base, whilst exposure to a rising spot market provides significant upside potential to stakeholders. The clear disconnect between supportive long-term supply-demand fundamentals, such as lower the book for midsized and smaller vessels; elevated levels of scrapping, particularly in 2016 and 2017; continuing decent demand growth in the majority of the world's container trades, which are served by the midsized and smaller fleet; and cyclicality -- and sorry, cyclically low asset prices represents a highly compelling opportunity to invest in this segment. At the same time, by partnering with Technomar and ConChart, we are ideally suited to deliver continued reductions in operating costs and benefit from expanded commercial rates, thus, further enhancing our reputation in the industry.

Slide 5, illustrates some of the important points Ian made earlier about our highly attractive combined fleet related to its expanded size, improved age profile, focus on the midsized and smaller containership segments as well as the combined companies' contracted cash flows and spot market upside potential. Looking at the list of the diversified top-tier counterparties at the bottom right of the slide, you will note that in addition to GSL's portfolio of top counterparties, which includes CMA CGM, OOCL and Maersk, the combined pro forma fleet is further diversified across a number of leading charters, such as top 10 liners, MSC, Hapag-Lloyd and COSCO.

Please note that on a TEU basis, the Poseidon Containers fleet is 60% comprising of modern new-design eco-widebeam vessels that have been built by us over the years and designed by us. And approximately 76% of the fleet have high reefer capacity, something that puts us on the top tier of owners in the world for high reefer capacity. Both these characteristics provide a strong competitive advantage to our fleet.

On Slide 6, we show more detail of our expanded, modernized and diversified fleet, highlighting the full pro forma fleet employment profile as well as our ability to provide cash flow visibility based on our combined fleets' total contract revenue of $530 million, which also provides a level of predictability and downside protection. On the bottom part of the chart, we also highlight the increased near- to mid-term market exposure that we believe positions GSL to benefit from supportive fundamentals in the midsized and smaller containership segments in which we operate, enhancing our earnings potential in a recovering market.

Turning to Slide 7. We show the combined fleet by asset class and size. Importantly, combining the GSL and Poseidon fleets enhances and expands our concentration in the midsized and smaller containership segment in which we believe industry dynamics continue to be most supportive. As I have said, strong supply and demand fundamentals for these segments are driven by limited order book, elevated scrapping levels in prior years and continued demand growth in the non-mainland and intermediate trade lanes, where the midsized and smaller fleet is predominantly deployed.

Also of note, on the left side of the chart we have broken out the addition of the 9 modern new-design eco-widebeam vessels that we have built, comprising 35% of the combined fleet TEU capacity. So 1/3 of our ships of the latest design that liner companies are very keen to charter.

Turning to Slide 8. Technomar was established 24 years ago by myself to provide a fully integrated management platform. Today, it is among the largest independent Greek ship managers with over 70 vessels under management, including 173,000 TEU of container capacity, and has undertaken more than 200 new building and secondhand ship transactions. Alongside ship management, Technomar provides administrative and treasury support, maintaining very close relationship with all the major shipping banks and has a proven access to financing on favorable terms. Technomar has a robust business model, delivering strong operating performance, including high vessel uptime at one of the industry's lowest operating costs, and we're very proud of it.

ConChart was established 8 years ago to provide commercial management to, amongst others, the Poseidon Containers fleet and has direct access to top-tier charters, including the largest line of companies, so that to be able to secure the most attractive market opportunities. Through its agreement with ConChart, GSL will have a dedicated, well-recognized partner via which will consolidate and expand its commercial footprint.

I will now turn the call back to Ian. Thank you.

George, many thanks. Turning to Slide 9, I will discuss the significant NAV of this transaction. As the bar graph shows, the transaction values GSL at $100 million or $1.7825 per Class A common share. This is more than double Friday's closing price. The pro forma aggregate NAV is approximately $327 million, a more than sixfold increase in GSL's approximate $50 million market cap as of last Friday.

Slide 10 demonstrates our significant operating leverage to a market recovery. In the top half of the slide, you can see that we have 41% and 68% of our total available days in the spot market for 2019 and 2020, respectively. Based on this, every $1,000 increase in spot daily rates would result in an increase of $5.7 million and $9.3 million extra cash flow in 2019 and 2020, respectively. As can also be seen from the bottom table, improvements in fleet-wide charter rates would have a further and pronounced impact on our cash flows and EBITDA.

On Slide 11, we highlight our success, increasing equity value by more than 6x as a result of this transformative transaction and strengthening our balance sheet with a reduced loan-to-value ratio of 67% on a net debt charter-adjusted value basis. We intend to achieve further improvement of loan-to-value as we move forward.

Slide 12 underscores the new leaderships team's complementary skill sets. In addition to extensive corporate, public and capital markets experience, we gain technical and commercial expertise with the addition of George Youroukos and his team, including the access that we now have to Technomar and ConChart. I will remain as CEO. Tom Lister will serve as Chief Commercial Officer, and Tassos Psaropoulos will join our team as the CFO.

Turning to Slide 13, we show our majority independent board, which includes 3 new independent directors and a total of 8 board members. The expanded and experienced board is to be led by George as Executive Chairman and also includes representation from our significant shareholders, including Hank Mannix for Kelso; Philippe Lemonnier and Alain Wils, existing Directors for CMA CGM, who spun us off into the Marathon SPAC back in 2008; the SPAC founder and our current Chairman, Michael Gross. And then the 3 independents, the new 3 Independent Directors, Michael Chalkias; Alain Pitner; and Menno Van Lacum; are joining the board.

Before opening up the call to questions, on Slide 14, I'll provide some closing remarks. The transformative combination with Poseidon Containers has created a larger, more integrated containership owner with 38 vessels, representing an asset base of approximately $1.2 billion, focused on the midsized and smaller containership segment. In doubling the size of our fleet, we add the latest-generation, new-design, eco-widebeam vessels and reduce the average age of fleet by 3 years. We've also lowered our leverage, added complementary commercial and technical management capabilities and strengthened our ability to take advantage of a rising market whilst maintaining the benefit of some $530 million of contracted revenue, ensuring a level of predictability to our cash flows. Lastly, with a strong balance sheet and committed growth capital, we have enhanced our position for capitalizing on low asset prices, cyclically low asset prices and creating enduring value for all stakeholders.

That concludes our prepared remarks, and I'd like to hand the call back to the operator for Q&A.

(Operator Instructions) Our first question comes from Steve O'Hara from Sidoti.

Congratulations on the agreement.

Thank you.

I guess just first on the new fleet profile going forward. Can you just talk about the current market dynamics? I know we hit kind of a lull on the previous quarter. I think it was more seasonal based. Can you just kind of refresh us on where that is now? And then the new fleet with the merger, how this new fleet looks versus the 2020 regulations? And I mean, has it greatly improved the overall profile of the company versus what you had going in?

Sure, Steve. Thank you. Let me answer the high-level question and then pass over to George for more detailed comments. Look, our thesis for a long time has been that the market fundamentals supported the recovery in asset values and charter rates for the midsized and smaller sector. And that's based on, as we've said on most, if not all, of our quarterly earnings calls in the last 2 or 3 years, a limited supply growth, constrained supply growth, in fact, contraction in 2016, '17 with elevated levels of scrapping in the midsized and smaller sector, but continuing reasonable demand growth as these ships are deployed in the midsized and smaller trades, which are less exposed to macroeconomic factors and oversupply from new buildings.

We saw the beginnings of a recovery in charter rates and asset values as the idle fleet dropped and the tension returned to the market from the beginning of 2017. Now that's continued for the last 18 months or so, and we've been able to capitalize that on some of our charter renewals.

You're right. There's been a little dip recently. That's partly seasonality, partly negative sentiment around trade wars and global macroeconomics. But our fleet is, to a great degree, insulated from that. Being midsized and smaller, it is less exposed to the main east-west tradelanes, which logically, if there is a negative effect from tariffs and trade wars, those would be the tradelanes which are most affected.

So that's the bigger picture. If George would like to comment on the combined fleet's suitability in these circumstances.

Yes, thank you. In fact, Poseidon was created in 2010, which was post the financial crisis and when the charterers' requirements had changed, the liner companies' requirements had changed dramatically. So when we had the ability to build our fleet, whether by purchasing secondhand ships or building new buildings, we had this ability to know what the charterers want. And therefore, all the Poseidon fleet is conventional ships that have low fuel consumption. Some of the ships, like the 9 ships, we build ourselves have a unique eco design. These are the latest designs that consume very little fuel compared to the existing designs. They have -- almost all of the ships, 76% of the fleet as I said before, high reefer capacity, which is something that is in great demand and quite a rare characteristic in ships today. And therefore, that is our downside protection in a slower market, whilst at the same time, it's our asset in a rising market. So the type of ships that we have are the first ships to be employed, the first ships to be chartered because of these characteristics. And also, these are the ships that get the premiums in a rising market.

Our ships combine very well with GSL's fleet as most of GSL's fleet comes from CMA CGM or OOCL. And because of that, these ships have been of superior design because liner companies, as you can imagine, know exactly what they want, they design the most commercially interesting ships, I'll say. So GSL's fleet is not the typical middle fleet that you see around, but it's a high-spec fleet being designed by liner company. And therefore, the combination of the 2 fleets fits very well and creates a very strong commercial fleet.

Okay. Okay. And then maybe to follow up on growth going forward. I mean, it seemed like you're -- obviously, you have maybe greater capacity to grow now. And you also have the ability to pay dividend. I mean, given the view that asset values remain pressured, I mean, do you have a preference about one or the other? Or can you do both in conjunction?

The -- we think it's important that investors know that our ability to pay a dividend, should we choose, has been brought forward. However, as we maintained for quite a while, we think there are compelling investment opportunities to expand the fleet by cautious improvement investments in additional tonnage, be it single ships or a handful of ships or fleets, rather in the way that we've expanded the GSL with this acquisition. So our strong preference would be to use our capital, our investment capital to continue to grow the business, which we think is the appropriate decision to benefit stock and bondholders.

Okay, and I'm sorry. Did you say kind of your capacity pro forma after the merger in terms of growth capital, you had the potential wise?

Steve, we have some cash on the balance sheet. We have the balance of the $65 million growth facility. We've drawn about $8 million of it, so we have $57 million of that available. That's fully accessible to us with the enlarged permitted transfer basket. With the issuance of equity to pay for the merger, effectively, we increase the size of that basket. Let's call it, just to use round numbers, that's $200 million. Levering that up at 65% gives you huge investment capacity.

Our next question comes from Bruce Baughman from Franklin.

My questions have to do with the valuations on the 2 entities. In the case of the GSL, $100 million. How much of that $100 million is the above-market committed charter payments going forward?

I'm not sure I have an immediate answer to that question, I'm afraid.

Well, what was the methodology for coming up with the $100 million?

It's the net asset value of the GSL fleet. So it's a charter-adjusted valuation of the ships less debt. And it's an exactly similar approach that we adopted to valuing the Poseidon Containers' 19 vessels.

And how much debt is on the Poseidon balance sheet?

We haven't actually included that in the presentation, so I will need to revert on that.

And then the other question I had was as far as the 2020 fuel requirements, what's the -- how prepared is the fleet to comply, the combined fleet?

It's much the same case as before. And speaking for the GSL fleet, and George can comment on the Poseidon fleet, all of our vessels can burn low-sulfur fuel, which is the most obvious way of complying with the emission control regulations. We have conducted feasibility studies. We're fitting scrubbers on our larger vessels, and the -- that's kind of consistent with an industry view, at least to the 2, that it isn't economically viable to fit scrubbers on smaller, older tonnage, rely on burning low-sulfur fuel. But it may be appropriate to fit scrubbers on younger, larger ships. The jury is still out on that. I don't know whether George would like to add anything.

Our industry is split in 2. Some liner companies believe -- or even some of their fleet that might fit scrubbers to some of the fleet they want. Generally speaking, the liner companies believe that the expense on the scrubbers only makes sense and it's worth being incurred in ships that have long-haul voyages, so ships that are in excess of 7,000 or 6,500 TEU. That's the view that they have. We don't see any liner companies putting scrubbers on smaller ships.

Now we have prepared all of our fleet to accept scrubbers if the requirement comes from our charters. In the container industry, what happens is the charter will come and ask for scrubbers. And by providing a longer-term employment, maybe 3 to 5 years, and then the owner will place scrubber on the ship and the charter will begin.

So it's not like what happens in dry bulk or tankers, where the owner has to make a decision and take the risk of installing the scrubber and then wait for 2020 to arrive and to see what's the benefits and so on and so forth. For us, it's a lot more secure. It's a structural transaction, where you place a scrubber on the back of a specific charter, amortize the scrubber. So we're really ready. We have done all our research. We have made -- we have gotten the offers and everything.

One important thing though to say is that high-sulfur fuel will have a differential -- a price differential, which people believe in the beginning will be higher, and then it will reduce. Half of our fleet, it's the new-design, eco -- or the new-design eco ships, which consume substantially less fuel. I mean, just to give you as an example, our 7,000s consume about 20 tons less per day than standard 7,000s than old-design 7,000s. And our 9,000s consume 30 tons less per day. So that is giving us, going to 2020, a very strong advantage, competitive advantage as our ships will consume a lot less of the expensive fuel. And that makes our ships the first choice for the liner companies, and we see a lot of demand for our ships as we speak.

(Operator Instructions) Our next question comes from Piotr Ossowicz from Ironshield Capital.

Can you please give us a bit of more color on how the capital structure of the combined entity is going to look? And sort of how much cash on the balance sheet do we expect on day 1? And how much secured debt, taking into account existing GSL bond and whatever financing Poseidon has?

We haven't included any of that material pro formas in the presentation, I'm afraid, so it's difficult to respond directly to your question.

Do -- is it something that you intend to include at the later stage? Because I think that, that's pretty crucial number .

It's obviously important, so let's look at a way that we can provide everybody with the same information. There are some restrictions on our ability to disclose information on a call like this, as I'm sure you know.

Right. Well, I would expect that under the information covered and under bonds, that it would be one I understand and expect us to see at least something. But can you at least confirm how much cash the company will have, the combined entity will have after the closing?

We haven't merged yet, so it's a bit moot. I mean, we've disclosed what our cash is at 30th of September. It's $94 million, although we've got some amortization of our debt coming up and some interest payments coming up. So there's a potentially quite a significant amount of cash on the balance sheet.

Right. But if you were to do it pro forma for the -- I realize that there's a lot of moving parts to the working capital. And both companies are hopefully earning EBITDA, but -- and paying interest. But if you were to merge on the pro forma basis for the September 30, I mean what will be the cash figure? Or maybe another way that -- just could you disclose how much cash is coming in as a part of the transaction?

I don't have that information in front of me.

But is there additional cash coming in as a part of the transaction?

Yes, there will be.

Okay. And can you please confirm whether there is any secured debt at Poseidon?

Yes, all vessels are mortgaged to lenders. So actually, if you look at what we've disclosed, I'll remind you that we talk about a $780 million transaction value for Poseidon, $227 million of equity, which -- the difference between the 2 of them is $553 million, and that's debt.

Right. And so just want to confirm, right, because $227 million, this is the equity value based on the fleet valuation. Now I just want to confirm if there's any cash component on top of that, right. Because $227 million is noncash, right. This is just your estimate of equity value.

Right.

And is there any cash component on top of that?

There will be an amount of cash, but it hasn't really featured in the relative valuations. Big picture. It's not a material factor in the Poseidon Containers valuation.

Our next question comes from Brian Connolly from Millstreet Capital.

Just congrats on the deal. Just looking for some information on Poseidon. Looking for 3 things: just the Poseidon total debt and then the Poseidon LTM revenue and LTM EBITDA, if you have that.

Well, I've just given the Poseidon total debt, which is $553 million. The base is the transaction NAVs. Sorry, what were the other 2 questions?

Just looking for Poseidon LTM revenue and LTM EBITDA.

We've not disclosed that, I'm afraid. We need to find a way of getting this information to you.

It's pretty basic information, and we have people from Poseidon on the call. They don't have that?

Yes, it's a question of disclosing it appropriately to the investor community. And as I said, we've got some constraints about what we can say on an earnings call without putting out a press release.

It seems like pretty basic information. It's a public call, right.

Sure.

So when do you think you'll can get that information to us by?

Let us -- as I say, let us find -- it's important. I understand that. Let us find a way of getting that information out to you.

(Operator Instructions) Our next question comes from Mitchell Glynn from CVC.

Another congratulations on the merger agreement. High level, seems very value accretive, but I would also echo the request for some more information, understanding obviously that you're restricted somewhat by the fact that Poseidon is a private company and, therefore, releasing information to us is somewhat sensitive. I just wondered if I could ask a little bit more about the form of the debt that's on Poseidon, without going to too much detail, whether that was kind of like pools of vessels that were mortgaged, or whether they're individual loans against individual vessels, or whether there's a mini bond structure in place just so we can help understand a little bit about what's coming onto the combined balance sheet. If that's anything you can comment on?

Yes, sure. I'm happy to talk in general terms. It's all what you might say traditional bank-ship mortgaged debt, albeit structured for today's environment. So it's half a dozen facilities with 2 or 3 or 4 or 5 ships in each facility, if that helps you.

And I'm assuming that's all bank provided respectable loan to values?

Yes.

(Operator Instructions) Our next question comes from [Frank Koppel] from Union Investments.

I don't know if you may answer it, but I would be interested in the CapEx of Poseidon, which comes on top of any other information you can give us there. And also the maturity profile, which is on the debt over the next couple of years.

Again, I'm -- we haven't got that information in front of us, and we will need to find a way of providing it to you in terms of debt maturities. On CapEx, their commitments are the same as ours. To the extent of drydockings, which I know some people regard as capital expenditure, I'm not aware of any other major commitments in the Poseidon fleet. So it's much the same as the GSL fleet. Every 5 years, the vessel has to be put through drydocking, which is a lump of capital or cash, $1 million, maybe a little bit more in aggregate including the effect of off hire.

Our next question comes from Bruce Baughman from Franklin.

Just to revert back to my question about the valuation methodology. Ian, I hope you can include that in whatever information package you're able to present later on.

Yes, we will make a note. We'll make a note.

Our next question comes from Brian Connolly from Millstreet Capital.

Just -- when you guys look at the -- on a cash flow basis, when you put the 2 companies together, I mean, is it leveraging or deleveraging on a debt-to-EBITDA basis? So you've told us about $552 million of debt on Poseidon. We know how much debt's on GSL. But what -- I mean, can you just give us a sense of directionality?

Let's make a note of that one as well and put it down on the list. It would be wrong for me to give you an off-the-cuff answer.

Our next question comes from Piotr Ossowicz from Ironshield Capital.

I may risk another list -- another one to the list of the follow-ups. But have you given any thought to potential synergies between the 2 companies, essentially combining 2 fairly similar businesses in terms of size and the route. Obviously, Poseidon fleet is newer than GSL. But otherwise, at least conceptually, how should we think about where the synergies may come from? And how should we think about the money, if they're talking about millions, tens of millions?

We can comment on that and George may want to add. But there are 2 obvious areas of synergy here. Firstly, SG&A administrative costs. I mean, we think we're reasonably lean at around $6 million a year. But we think we can compress that by capitalizing on resources in Technomar, which is part of the management fee that we've agreed to pay under the ship management contract. So that's low millions of potential savings.

And then the second area of cost saving is further compression on ship operating costs. And we've done a great job, we think, in compressing costs over the last 3 or 4 years. But we are hopeful, indeed, we expect to be able to further compress ship costs within the GSL fleet through introducing Technomar and its skills. Again, given our ship costs are sort of $45 odd million a year, you're not looking at tens of millions of dollars of savings. But it's all incremental, and it's all important.

Okay. And I realize that the question's a bit premature, given that we don't know the capital structure yet. But obviously, the size of the business is doubling, and the quality of the fleet seems to be improving, right. So this argument that maybe GSL was a bit of subscale is less severe now. Have you thought about refinancing your existing debt on the combined entity level? I'm not saying now, obviously, but say 12, 18 months down the road.

Yes, it's always at the back of my mind. We've been focused, frankly, on getting this transaction to this point. But if an opportunity presents itself for refinancing the enlarged business's balance sheet, either piecemeal or in aggregate, then clearly, we would look at it if it's in the best interest of the business and its shareholders.

Our next question comes from Peter Levinson from B. Riley.

I'd echo the previous comments that -- I mean, with respect, it seems sort of ill prepared to host this call without giving us any other financial metrics on the combining company. That being said, I think you were asked specifically whether this was a leveraging or deleveraging transaction. You deferred the question, said it wouldn't be appropriate to comment. I would point out that in your press release, you do say that, "This reduces leverage." So can you at least confirm that?

Yes, sure. It does reduce leverage on both, as we've said, on a charter-attached and charter-free basis. I think the question that I wasn't able to answer was in relation to leverage when you're looking at debt-to-EBITDA. But if you're looking at an absolute net debt to fleet value, leverage is definitely reducing.

Okay. And you got some sort of relief, covenant relief that enables you to pull forward the ability to pay dividends.

That is as a result of issuing equity. The basic rule in our indenture is that we're unable to pay a dividend until 2021 unless we raise equity or equity-like capital. And by virtue of issuing equity as consideration for the merger, we are immediately -- or once we complete at least, we're increasing our ability to pay dividend on the common.

All right. Okay. I mean, just hopefully you can appreciate that we've all been waiting for, what, 6-plus months for the results of the strategic review. You expressly stated at the beginning of this call that it was to focus on the merger and not the earnings. And there's been very little focus by which we can gauge the merger. The stock value that you used is, what, $1.72 plus. Your stock has, during the course of this call, traded from $1.40 to a $1.04. I would just point that out that it's -- you're not doing the -- your owners or shareholders a service thus far.

Our last question comes from Bruce Baughman of Franklin.

Can you address the governance situation you're creating by having George become Chairman and you've got contracts with 2 companies he controls?

Sure. I mean, the contracts with Technomar and ConChart have been negotiated on an arm's-length basis and disclosed in a 6-K filing that we made late last night. We believe that they are -- they stand up very well against equivalent contracts, both of a similar nature and our existing, say, ship management contracts. They -- there's not a lot more I can say. They contain the standard terms. They're based on standard industry contracts. They're terminable. So we thought long and hard about it. Obviously, it's a big focus for us, and we are very comfortable with where we've ended up with.

This concludes our Q&A session. At this time, I'd like to turn the call back over to Ian Webber, Chief Executive Officer of Global Ship Lease, for closing remarks. Please go ahead.

Thank you. Thank you for your questions. We will give thought to how we can present you with more information. In the meantime, again, thank you for listening to us. Thank you.