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Last week, in a tripartite agreement, an international shipping company, a developer of advanced hydrogen generation systems and a provider of financial solutions to the maritime industry began the process of joining together to take the industry’s first step towards a decarbonized future through the use of an alternative fuel as a power source. Hydrogen has been viewed as one of the key zero-carbon fuels for the future but was challenged by both delivery and storage issues restricting its potential uses. The eureka moment was the uncovering of the work of Element 1 Corporation and finding the best application to marine systems, an opportunity developed by Ardmore Shipping Corp. and Maritime Partners LLC. . This Ain’t Ardmore’s First Rodeo! Since its inception in 2010, Ardmore has been focused on improving the performance and fuel efficiency of its fleet fully understanding the immediate need to mitigate the impact of shipping on the environment and to prepare for the coming energy transition. To that end, it built its fleet by acquiring high-quality fuel-efficient vessels and an organization built upon professionalism, safety, and environmental protection. Not satisfied, it was a pioneer of the “eco-mod” concept which engendered new techniques to further reduce fuel consumption and emissions and used those to upgrade its initial second-hand tanker acquisitions with energy saving devices and adopting innovative operational measures. Ardmore then took it one step further and was also amongst the first companies to embrace purpose-built “eco-design” vessels, which took fuel efficiency to the next level. These were stop-gap measures but, nonetheless, progress. It was time to build the company for a sustainable future which led to the company’s development of an “Energy Transition Plan” as described in detail in its Progress Report. In broad terms, the company, which defines itself as being in the business of liquid bulk transportation will over time migrate toward the movement of non-fossil fuel cargos for which demand will grow along with the global economy. Currently, 25% of Ardmore’s business is non-fossil fuel cargos and prospects for fossil fuel cargos will, by logic, decline as the energy transition proceeds. With sustainability in its DNA, the company will continue to pursue improvements in fuel efficiency in the near term while exploring the opportunities in adopting transition and zero-carbon fuels for the medium and long term. Overcoming the Challenge Most change begins with a problem and a solution. Some are revolutionary and others evolutionary, but what is most important, as Ardmore points out, is to make progress. What is known for certain is that hydrogen has become one of the key zero-carbon fuels for the future, but it has practical challenges which limit quantities. As a gas, hydrogen has a very low volumetric density requiring a large tank to transport a small amount of even highly compressed hydrogen. In liquid form hydrogen is even more challenging than LNG requiring a temperature of -253◦C to maintain a liquid state and offers half the energy density making it questionable as a marine propulsion fuel. However, one solution to the problem is to utilize “carriers” which are simple chemical compounds which contain hydrogen and can be easily separated into its components. Despite the challenges, the promise of hydrogen as a fuel remains alluring particularly as a feedstock for Proton Exchange Membrane (“PEM”) fuel cells which are an excellent power solution for decarbonization broadly and much more efficient that internal combustion engines. Unfortunately, it cannot just use any hydrogen, low temperature PEM fuel cells require high-purity hydrogen. The Black Box – Made to Order Hydrogen “Who ya gonna call?” Thankfully, Dr. David Edlund is a renowned expert with over 30 years’ experience in hydrogen generation technology, who, together with Robert Schluter, formed Element 1 Corporation (“E1”), the leading developer of clean energy technologies including advanced hydrogen generation systems in support of the fuel cell industry. The E1 team has developed a unique patented technology for generating high purity hydrogen for specific use in low temperature PEM fuel cells. Critically, the process produces ISO grade hydrogen reformed from methanol, a carrier, on demand at the point of consumption eliminating the logistical challenges and costs inherent in distributing compressed hydrogen. A general schematic diagram of the hydrogen generator and fuel cell is shown below. The process begins with methanol and water being added to the reactor (hot box) where the solution is heated and becomes steam. A catalyst in the reactor separates the compound into its simple chemical components, which are then sent through a purifier, removing CO2 and other residual gases which are returned to the reactor and re-heated. The now pure hydrogen is sent on to the fuel cell where it is converted to electricity. E1 currently has three product lines to service demand in the various markets: the S-series, the L-series, and the M-series. The S-series is a small application of up to 10 kilowatts. The L-series is above 10 kilowatts and is essentially a land-based charging station. And the M-series is essentially a mobile version of the L-series currently scaled up to 100 kilowatts and is the one being adapted for maritime applications, for which it can be scaled up by packaging multiple units to fit the power requirement. E1 Marine — Hydrogen Power for Shipping Seeing the opportunity of applying this unique and proven technology to the maritime industry, E1, Ardmore, and Maritime Partners, each bringing to the organization its own set of skills, experience, and expertise, formed a joint venture, e1 Marine. The new joint venture will have a worldwide mandate to develop, market, and sell E1’s products and services to a very broadly defined maritime sector inclusive of all vessels and offshore support as well as port infrastructure. With the knowledge that the E1 hydrogen generation system provides a safe and efficient solution for delivering hydrogen to PEM fuel cells, the question became what application to choose? In assessing the opportunity within the system’s mid-size power capabilities, cost, and likely ease of sale, the partnership decided to focus initially on auxiliary power generation and main propulsion on small vessels. The E1 system offers many advantages for these applications including the following: Consumes approximately 35% less energy than diesel-generators, and is thus more cost-effective option, even before considering new regulations or carbon tax With standard methanol, the hydrogen generator / fuel cell set produces zero particulates, zero NOX, zero SOX emissions, and approximately 30 – 50% less CO2 than a diesel generator Ready to meet anticipated future regulatory requirements by switching to renewable methanol; the system can be potentially configured for efficient carbon capture and thus carbon negative Can be configured or retrofitted to run on ammonia Simple design and construction with high reliability and very few “moving parts” thus low maintenance and repair costs as compared to internal combustion engines Potential further operational efficiency gains vs. diesel engines when matched with a battery bank to provide surge power and manage low loads. What makes the concept work so well is that on-board hydrogen generation is a much more cost-effective solution than offsite production, transportation, and on-board storage. Readily available in all markets, methanol is a highly efficient source of hydrogen, has high energy content, and is easy to store and handle. Moreover, as the hydrogen generator / fuel cell set is modular in nature, it can be deployed in box form or integrated into existing engine room designs, whether retrofit or newbuilding, in power outputs ranging from 50KW to 2 MW, with larger sizes also possible. And, finally, while the environmental impact may be viewed as less than significant, it is a first step on the path to achieve “low-to-no” carbon emissions in compliance with IMO 2030/50 utilizing an alternative fuel. Business Light Model and Market Scope Not expected to be labor or capital intensive, the business model primarily involves licensing and royalties with some small scall manufacturing. The company will have its own organization and team across management, engineering, and regulatory expertise, marketing and administration. The question, of course, is how big is the market? As a consequence of the energy transition, the expectation is that a significant portion of all vessels will begin installing alternative power sources through fleet renewal and selective retrofits. Based upon its initial research, Ardmore chose to focus on 500kw unit equivalent power systems. Although a “small” size generator for an ocean-going ship (Ardmore’s Japanese pump-room MRs have 600KW size units and its deep well ships have 850 – 950KW generators), the company believes this is a good size to start with, and it can be adjusted in size by just changing the number of M-series units used in the set — like a battery in a boat. Ardmore estimates a total market for 500kw units is in the range of approximately 200,000 units over a period of 10 years, exclusive of port infrastructure and offshore renewables. That number is based upon the hypothesis that owners will replace one of the three generators typically on board each ship with an E1 machine. On an annual basis that is 20,000 units of which E1 Marine estimates it can capture a 10% market share or 2,000 units. Based upon traditional royalties and licensing fees of 7 – 10% and the cost of an E1 system plus fuel cell at approximately $800,000, equivalent to a diesel generator system, annual revenues could range from $112 to $160 million, with each partner receiving a third. Perhaps there is a way to make money in shipping even while doing good. The benefits to the owner in reducing generator consumption are substantial. Diesel generators on board ships run all the time even in port or while at anchor. Ardmore estimates its generator consumption is 25% of total consumption; by replacing even one diesel generator with an E1 system and running that unit more or less continuously, overall carbon emissions could be reduced substantially for a relatively low cost, not to mention SOX, NOX, and particulates. Ardmore Loved the Product So Much It Decided to Invest in the Company While we focus on things maritime, there is an entire world out there which will benefit from E1’s technology which has a very broad application and a large addressable market across trucking, rail, land-based refilling stations, and power backup. The heavy lifting has been accomplished and E1 is now at a pivotal stage of its development. Through an intensive R&D phase, the focus now is on commercialization and scaled-up manufacturing, making it an optimal time for an investment. To that end, Ardmore has elected to take a 10% equity stake in E1 in exchange for $4 million in cash plus 950,000 Ardmore shares valued at approximately $5 million based upon the closing price of the shares preceding the announcement. Alternatively, the total investment is $11 million assuming Ardmore’s shares are valued instead at its year-end NAV of $7.37/share. E1 will also issue warrants to Ardmore and Ardmore will take a seat on the E1 board. In connection with the joint venture, Maritime Partners will be entitled to participate to the extent of 20% in the profits received by Ardmore from its investment in E1, ensuring full alignment among the parties. Driving the investment is an appreciation of the business model and the potential for significant value creation as the company scales up and additional products are developed. Ardmore’s interest in the joint venture and its investment in E1 will be held by Ardmore Ventures, a newly incorporated holding company for existing and future potential investments related to Ardmore’s Energy Transition Plan. Ardmore and Maritime Partners Build a Relationship In addition to the joint venture, Ardmore and Maritime Partners have found common ground for a direct relationship in which Maritime Partners would invest $40 million directly, $25 million initially with the balance subject to final approval from Maritime Partners, in exchange for Series A perpetual preferred shares. The issuance has been structured along the lines of a typical public preferred issuance, both in size and terms. The shares will carry a dividend of 8.5% per annum with an option for payment-in-kind for up to four quarters in a three-year period. The dividend rate is subject to escalation for certain credit-related triggers in line with its other financing covenants. Non-amortizing, the shares are non-callable for three years, after which Ardmore has the option to redeem them. In addition to providing capital for further selective growth, the financing provides considerable financial flexibility. As a hybrid security, it has some debt-like characteristics but for accounting, credit, and covenant purposes is treated as equity, thereby strengthening the company’s balance sheet. While the coupon might seem rich, it is “cheap equity.” How expensive is it? For perspective, these proceeds can be used to refinance the expensive subordinated tranche of its leases, thereby reducing Ardmore’s cost of capital and its cash breakeven. A privately-held company headquartered in New Orleans, Maritime Partners is a high-quality institutional investor with significant expertise in asset financing and structured products. The company specializes in providing tailored leasing solutions to the maritime industry with a specific focus on Jones Act vessels and inland marine transport. Tony Gurnee explains the why. “So, just to take a step back, our core business is owning and operating product and chemical tankers. And in optimizing our performance, we work every day to innovate and devise new ways to sustain and improve our performance… We feel in this set of transactions and in this project, in particular, we’re leveraging our existing strengths and providing what we think are potentially valuable technologies to the market and to the overall industry. This is the essence of our Energy Transition Plan (“ETP”): performance and progress interconnected. The ETP has three key areas: sustainable cargos, transition projects, and transition technologies. We’re serious about all three. This happens to be the first step in one of the three areas, transition technologies. So, overall, we feel that this is consistent with our core strategy and the Energy Transition Plan and it builds off our strengths.” Together the partners will “get hydrogen to work.” No doubt.

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This month, Ardmore Shipping Corporation renewed for two years its $15 million traditional working capital revolving credit facility with ABN AMRO and upgraded it by converting it into its first sustainability-linked finance facility. While pricing was not disclosed, the facility contains a pricing adjustment feature linked to Ardmore's performance on carbon emission reduction, in conformance with the IMO’s targets for GHG reductions, and other environmental and social initiatives. The other commercial terms and conditions are improved from the prior receivables' facility. The new facility will mature in July 2022 with options to extend for two more years. The facility recognizes Ardmore's current strong performance on Environmental Social and Governance (“ESG”) initiatives including, carbon emission levels which significantly outperform the targets set out under the Poseidon Principles, and a very diverse organization with employees representing ten nationalities of which 59% are female. The pricing structure in the new facility will reward the Company for maintaining its carbon emission reduction trajectory and overall performance on ESG.

Opening remarks by Jim Lawrence Setting the Stage: Strategies for Getting the Shipping Industry to Zero The shipping industry delivers the essentials of life for billions of people but, without action, is forecast to be responsible for approximately 17% of global carbon dioxide (CO2) emissions by mid-century. De-risking investment in the sector is going to need unprecedented coordination, and a recent report by Shell and Deloitte, Decarbonising Shipping: All Hands on Deck, sets out to understand the views of senior executives across the shipping market on the barriers and potential solutions to decarbonizing shipping, aiming to drive more common understanding and catalyze action. Karrie Trauth, General Manager, Shipping & Maritime Americas, Shell

Last week, Bonheur ASA successfully completed a new senior unsecured green bond issue of NOK 700 million maturing in September 2025. Oversubscribed, the bonds were priced at three-month NIBOR + 275 bps and may be tapped up to a maximum amount of NOK 1 billion. Net proceeds from the issue will be used in accordance with the company’s Green Bond Framework. The framework will cover potential issuances of new Green Bonds and Green Loans in the group which will finance and refinance projects that are in line with the Green Project criteria, specifically those that, in whole or in part, promote the transition towards low-carbon and climate resilient development. Under this framework, Green Projects will be linked to investments in renewable energy projects and offshore wind vessels and related equipment. Details of the offering are shown below in the Guts of the Deal. Demand for the bonds was strong with the books covered by indications of interest at NOK 600 million in the initial price talk range of three-month NIBOR + 275-300 bps. As the day progressed, the books built above NOK 1 billion with the guidance tightened to +275-290 bps. When the books closed, the first tranche was fixed at NOK 700 million with the spread set at the tight end of the range. Listed on the Oslo Stock Exchange since 1920, Bonheur is an investment holding company, whose day-to-day operations are managed by Fred. Olsen & Co. Over the years, Bonheur’s investments have evolved and become over recent years more focused on its green footprint. Today the majority of Bonheur’s investments are withing renewable energy (wind farms) and shipping/offshore wind segments (offshore wind services). A leading renewable energy player, Bonheur was an early mover into wind energy, with its first investment made in 1996. The company has majority ownership interests in 11 onshore wind farms, of which nine are located in Scotland, and two in Scandinavia. At end-Q2 2020, total installed capacity was 679MW. The wind farm portfolio also includes 105MW under construction in Sweden, consents for an additional 295MW onshore in Sweden and Norway, and 50% of the consented offshore wind project Codling, of approximately 1000MW in total. The company is present in all parts of the energy value chain including site investigation, development, construction, operation, and decommissioning. The shipping/offshore wind division primarily consists of three jack-up vessels used for the transportation and installation of offshore wind turbines, as well as subsidiaries supplying qualified and skilled personnel to the global wind turbine industry. The company has a global footprint in Europe, the U.S. and Taiwan and has installed approximately 21% of all offshore wind turbines since 2013. The cruise division owns and operates six cruise ships, in addition to operating a river cruise from April to October. Built in the 1970s, 1990s and one in 2000, the vessels have an overall berth capacity of approximately 6,700 passengers. The regular cruises operate out of five ports in the U.K. (Dover, Liverpool, Newcastle, Southampton and Edinburgh in Scotland), while the river cruise operates on the Rhine, Danube, Moselle, and Main rivers. During the quarter, all four cruise ships have been in lay-up due to Covid-19. DNB’s Shawn Courcelles highlights some key credit considerations: Bonheur reported cash of NOK 3,543 million at the parent company level, which exceeds gross adjusted debt. DNB estimates a net asset value (NAV) of NOK8.3bn for Bonheur, which corresponds to a 74% value-adjusted equity ratio. Bonheur has an equity market capitalization of NOK10.1bn, which is NOK1.8n (21%) above our estimated NAV. Liquid investments represent 36% of our estimated NOK11.3bn gross asset value (GAV), of which 32% is in cash while the remaining 4% is in liquid financial investments in shares and bonds. 61% of our estimated GAV comes from investments in subsidiaries, with renewable energy accounting for 31%, shipping/offshore wind for 22%, cruise for 7%, and NHST for 1%. DNB Markets and SpareBank1 Markets acted as joint lead managers in connection with the placement of the new bond issue, with the former also serving as the green bond advisor. This article is excerpted from: Freshly Minted September 17, 2020 SEPTEMBER 2020 VOLUME # 20 ISSUE # 37

August is a seasonally weak month for deal-making and this year, in general, was no exception with just $635 million of deals recorded. The Norwegian bond market failed to take heed of this trend, however, allowing Navigator Holdings, Wallenius Wilhelmsen, Altera Shuttle Tankers, and Teekay LNG Partners to raise $514 million through four deals. For reference, its average proceeds were $119 per month over the past five years. Other deals in August included Avance Gas and Ciner Shipping which both announced Chinese leases worth a total of $171 million. Safe Bulkers launched an ATM offering to raise up to $23 million while Seanergy Maritime and Maxim Group completed yet another share offering, this time to raise $25 million. CIT Finance refinanced its existing facility with Valloeby Shipping. Unifeeder acquired three businesses focused on the feeder sector from Transworld Group. Hermitage Offshore filed a petition for Chapter 11 Bankruptcy protection in the Southern District of New York after unsuccessful talks with its creditors. Visit marinemoney.com/deal for insights into the latest deals. View more information about each deal on our deal database: Navigator Raises $100 Million with Norwegian Bond Avance Gas Announces $45 Million Chinese Lease Wallenius Wilhemsen Completes $227 Million Norwegian Bond Offering Ciner Shipping and CSSC Enter $127 Million Lease Altera Completes $75 Million Tap of Green Bonds DNB and Nordea Lead Teekay LNG's $112 Million Norwegian Bond Unifeeder Acquires Feeder Business from Transworld Group Maxim and Seanergy Issue Another $25 Million of Shares CIT Lends $28 Million to Valleoby Shipping Hermitage Offshore Files for Chapter 11 Safe Bulkers Launches $23.5 Million ATM

Earlier this month, Color Group AS successfully completed a new subordinated perpetual hybrid bond issue with an initial tranche of NOK 500 million and a borrowing limit of NOK 1 billion. With no specified maturity, the bonds have a first call date in December 2024 (4.25 years) after which there is an annual 5% step-up to incentivize redemption. The bonds were priced at three-month NIBOR + 1,200 bps, at the wide end of initial price talk. Although unsecured, the bonds are guaranteed by the issuer’s operating subsidiary, Color Line AS. Net proceeds from the new bond issue will be used for general corporate purposes. Details of the offering are shown below in the Guts of the Deal. While neither fish nor fowl, the hybrid bond ranks legally as subordinated debt, and is senior to common equity, although it appears informally as equity-in-kind. While it pays a rich coupon, the bond has no scheduled maturity, amortization, covenants, or any express event-of-default provisions. Finally, under its terms, the issuer would be permitted to defer interest payments at its own discretion, but they would accrue interest at a rate equal to that on the bond. Do not let looks deceive you, it is classified as equity, under IFRS rules, and will therefore strengthen the company’s balance sheet. The Color Group is a regular issuer of unsecured NOK bonds in the Nordic high-yield market. Prior to this offering, the company had four bonds outstanding with total principal of NOK 3.1 billion. Of immediate concern is the COLG13 bond which has NOK 375 million outstanding and matures in December 2020. It is likely that a portion of the proceeds of this latest issue will be used to settle that bond debt. Established in 1990 in Oslo, Color Line is Norway’s largest short-sea shipping company, offering quality cruise and efficient transportation through its leading Northern European cruise and ferry franchise. In 2019, the company transported about 3.9 million passengers, 961,000 cars and 177,000 trucks. The company was formed through the merger of two Kosmos’ companies, Jahre Line and Norway Line, and later that same year the acquisition of the ferry activities of Fred. Olsen Lines. It continued in consolidation mode acquiring Larvik Line in 1996 and Scandi Line two years later. Along the way, it acquired the Color Hotel in Skagen. Color Group is privately owned by O.N. Sunde AS (“ONS”), which acquired the company in 1996 and de-listed it in 1999. To serve both the cruise & transport division (“Cruise”) and the efficient transport & shopping division (“Transport”), the company operates seven vessels on four routes to seven ports in Norway, Germany, Denmark, and Sweden. The company offers a complete cruise experience between Oslo and Kiel, Germany utilizing the Color Fantasy and Color Magic, which were built in 2004/2007 with a capacity of 750/550 cars, 1,270 lane meters for trucks and 2,600/2,800 passengers. The key targeted customer segments are: 1) 2- to 3-day experiences; 2) holiday-motivated 3) shopping/enjoyment, and 4) work-motivated. Its Transport segment operates four vessels between Norway and Denmark/Sweden over three routes focusing on passenger transportation, freight, and shopping. Serving the Sandefjord to Strömstad route are the Color Viking (1,773 pax, 370 cars, 490 lane meters) and the Color Hybrid (2,000 pax, 500 cars and 760 lane meters). The latter, the world’s largest plug-in hybrid newbuilding vessel was delivered in August 2019 and highlights the company’s focus on the environment. The Super Speed 1 (2,400 pax, 750 cars and 1990 lane meters) and the Super Speed 2 (2000 pax, 764 cars and 2036 lane meters) trade between Kristiansand and Hirtshals and Sandefjord and Hirtshals respectively. Offering high capacity and frequency, the vessels’ daily capacity is 17,000 pax (equivalent to 90 Boeing 737-800s), 6,000 cars and 16,000 lane meters. Lastly, reflecting its commitment to the environmentally friendly shipment of goods, the company added a RoRo vessel, Color Carrier (1,775 lane meters), to serve the Oslo to Kiel route, doubling the freight capacity on that trade. With a resilient business model, the company has historically generated highly stable revenues and strong operating cash flow. For the two segments, total revenues in 2019 were ~NOK 5.3 billion which were split 45% and 55% respectively between the Cruise division and Transport division. Similarly, total EBITDAR was approximately NOK 1.1 billion split 47% and 53% between Cruise and Transport, respectively. The EBITDAR result was down slightly from 2018 as a result of increased bunker costs and a weaker NOK, but ~30% above the average during the period 2014-2016, despite being impacted by one-off items amounting approximately to NOK 90 million (largely related to the delayed delivery of the M/S Color Hybrid and operational difficulties with the M/S Bohus). From 2009, revenues remained relatively flat at ~NOK 4.5 billion through 2015, when they began to rise reaching approximately NOK 5.0 billion in 2016 and 2017. From 2009 through 2014, EBITDAR showed slight but steady declines as competition increased. With the implementation of a new digital platform, cost initiatives, an improved refund scheme for seafarers, and a new pricing strategy, EBITDAR, beginning in 2015, improved 13.5% from NOK 833 million to NOK 1.2 billion in 2018 as revenues and margins improved. With the strategic shift towards attracting higher margin consumer groups, passenger volumes have remained stable, basically unchanged from 2016 to 2019 while total revenue per passenger increased 2.8% over the same period. With the arrival of Covid-19, the wheels fell off the bus. Color Group was forced to suspend most operations after the authorities closed Norway’s borders in March. The exception was freight, where three ships continued cargo operations at reduced levels. As a result, H1 revenues declined almost 51%, driven by a 62% reduction in the number of passengers: 621 thousand during H1 2020 versus 1.6 million in the comparable period in 2019. Ultimately freight units shipped were only down 4.2%; however, these only made up 22.2% of total revenue. The impact was quick and devastating with liquidity halving and leverage rising. The company went into survival mode putting into place cost-saving measures which are expected to reduce costs by approximately NOK 250 million from 2021, as well as actions to improve liquidity. The situation took a turn for the better. By mid-June, the company resumed passenger carrying services between Norway and Denmark and after Norway opened up to tourism from July 15th onwards passenger traffic increased. As of June 30th, Color Group has total liquidity of ~NOK 880 million, including cash & cash equivalents and undrawn credit lines, which is well below year-end-2019’s liquidity of more than NOK 1.9 billion. In light of the uncertainty surrounding the full consequences of the Covid-19 virus outbreak, Color Group also reached agreement in June 2020 with the company’s bankers and credit institutions for six months’ deferral of installments, totaling NOK 200 million, with the option of a further six-month deferral, subject to certain conditions while also securing various adjustments to covenants through and including 30 June 2021. The hybrid bond also provides a further financial buffer adding strength to the balance sheet. Beyond self-help, Color Group also received NOK 129 million from the Norwegian government in H1 to cover a proportion of unavoidable fixed costs and will likely receive additional support albeit scaled back later this year, having resumed some operations. In the interim, operational activity has slowly resumed. Passenger volumes for the Oslo to Kiel route are recovering as the ship operates in Norwegian cruise only mode, with extreme infection control measures on board. Cargo volumes are returning to normal levels. From week 12 to week 25 only the SuperSpeed 1, SuperSpeed 2 and Color Carrier sailed with cargo. As of June 30, 2020, the number of freight units has improved, with the 12-month equivalent being 85,759 compared to 89,503 in the same period last year. All ships are expected to be sailing by the end of September/October. The company’s trades are tenuous as the Norwegian authorities open and close borders weekly forcing the fleet back into freight-only mode on short notice. This is expected to be the new normal for next year and perhaps longer. On the positive side, the company has demonstrated an ability to adapt quickly, which should enable them to make the most of this difficult situation, and as back-up there is the additional liquidity the company now has in place. Arctic Securities, Danske Bank, DNB Markets, Nordea, and SEB acted as Joint Lead Managers in connection with the placement of the new bond issue.

Back in November 2018, Atlas Corp. (then Seaspan Corporation) laid out its plans for the future of the company in its Investor Day presentation. An important part of the plan was to improve its credit profile. Strengthening the balance sheet through de-leveraging and improving liquidity are mission critical, as is improving flexibility and reducing the cost of capital. The balance sheet is the bedrock which provides financial strength and stability, which are requisites in shipping and critical for the future growth of the company. Ultimately, the goal was to achieve an investment grade credit rating, which would allow the company to reduce its cost of funding, scale its asset base, and mark the successful culmination of the plan’s immediate goal. Last week, Seaspan Corporation, a wholly-owned subsidiary of Atlas Corp., announced that it had received a Senior Secured rating of BBB- and a BB corporate rating from Kroll Bond Rating Agency (“KBRA”), an achievement which reflects its position as a global leader in containership leasing with an 8% market share, stable revenues, and strong customer relationships. Size is important as it provides economies of scale which helps drive higher levels of operating profit and cost efficiency — ultimately improving incremental return on invested capital. The assigned ratings carry a stable outlook, backed by Seaspan’s long-term contracted business model which ensures strong, thru-cycle cash flows. The credit ratings for Seaspan reflect the following key credit considerations: With about 90% of its revenue generated through time charters, Seaspan had $4.5 billion in contracted future revenue as of Q1 2020. The average remaining length of its long-term time charters was 4.4 years. Since 2011, Seaspan’s fleet has had a 98% utilization rate due to long-standing relationships with a select group of market leading liner companies. Seven of these companies (COSCO, Yang Ming, ONE, CMA CGM, MSC, Hapag-Lloyd, and Maersk) control nearly 80% of the market, while 67% of Seaspan’s fleet, as a percentage of TEU, is on contract to three of them. While the high customer concentration provides Seaspan with stable revenue from world leading liner companies, there is concentration risk, which Seaspan mitigates by focusing on long-term time charters and staggering the charter maturities. While Seaspan remains committed to expanding its total fleet and further unencumbering itself, this remains a variable credit risk. Purchasing vessels is a significant capital expense and can lead to additional leverage and prevent Seaspan from unencumbering its current pool of assets. A material change to Seaspan’s encumbered assets is not expected in the near or medium term. Here we see the concern as somewhat overblown as the company has historically focused on credit-accretive growth with all acquisitions backed by strong returns on invested capital and long-term contracts. The economic effects of the COVID-19 pandemic may impact Seaspan and its group of lessees. Although COVID-19 has caused global disruption, thus far Seaspan has maintained operations and has not experienced material impact to its business. However, uncertainty surrounding the duration of the pandemic can lead to continual downward pressure and have a lasting impact on global trade. While Seaspan itself is viewed more as an equipment leasing company than a shipping company, it remains subject to shipping industry volatility due to the customer base it serves. Seaspan has taken multiple precautions and maintained access to the financial markets by adjusting its capital structure. To protect itself, Seaspan continues to sign long-term time charters and is actively monitoring customer behavior. Although Seaspan’s customer base is highly concentrated, its focus on long-term charters to the world’s leading liner companies provides insulation from near to medium-term market events. However, any shift in its customer base could negatively impact the strength and value of the collateral. More specifically, the highly prized BBB- rating was assigned to Seaspan's innovative portfolio financing program ("Program"), which closed in 2019 and has since grown to over $1.7 billion. Representing the central piece of the capital structure, the Program consists of a $1.2 billion term loan, a $300 million revolving credit facility maturing in May 2024 and a $255 million term loan maturing in December 2025 (“Facilities”). Through the program, Seaspan refinanced 15+ secured credit facilities into this flexible program financing. The investment grade rating for the Facilities reflects a strong collateral package consisting of 48 vessels (40% of Seaspan’s fleet) which are highly diversified, on long-term time charters, and strategically important to Seaspan. Last valued at $2.7 Billion as of Q1 2020, the collateral value of the vessels exceeds the project debt profile by nearly $1.0 billion. Further, the Facilities are backed by a corporate guarantee from Seaspan and all the vessel-owning special purpose vehicles within the collateral package. As of Q1 2020, approximately 80% of Seaspan’s debt was secured. Although Seaspan had 123 vessels as of April 2020, nearly 40 vessels are unencumbered, which the company can add to the collateral package. This provides more capital structure flexibility and grants greater access to the unsecured credit markets. Moreover, the debt structure allows Seaspan to swap portfolio vessels according to parameters (vessel age, concentration, size, charter length) maintaining the quality of the collateral throughout the life of the debt. While a changing collateral package can create uncertainty and volatility, KBRA took comfort from Seaspan’s nearly 20 years of successful active fleet management. The company has been single minded, relentless, and disciplined in its approach to deploying capital for value creation, including a specific focus on balance sheet management and liquidity. This has paid off handsomely as evidenced by a quarter-end liquidity position of $382.9 million and a net debt-to-equity ratio of approximately 1.2x. As a result of the pursuit of cash flow optimization and improvement in its debt capital structure, both of Atlas’ subsidiaries, Seaspan and APR, are fully funded to the end of 2022. Moreover, Atlas, as a platform and despite challenging economic conditions, continues to enjoy access to the global capital markets. The renewal of Seaspan’s $150 million unsecured corporate credit facility on a two-year term is a testament to the business' capital market relationships and its lenders’ belief in its capital structure strategy. The investment grade rating marks a milestone in the company’s progress with its capital plan objectives, including consolidation of credit facilities and deleveraging. For the future, Seaspan intends to diversify its funding sources through the institutional credit markets as a means to reduce its overall cost of funding and improve its flexibility and amortization profile. Of all the credit rating agencies out there, our question was why did Atlas choose KBRA? At the macro level, there is not much investable capital from the public markets in the shipping space making it less attractive to the major rating agencies. These agencies were also less inclined to differentiate Seaspan from the shipping methodologies used for operating businesses such as its liner customers, highlighting the gap in thinking between the company and the agencies. On the other hand, being the proverbial “Number 2” worked to KBRA’s advantage and they seized the opportunity. KBRA was open minded and more than willing to make the effort to fully understand the business model and work their way through more nuanced situations. The institutions and other ratings consumers happily accept the Kroll ratings and perhaps more importantly the company can take advantage of KBRA’s strong position in the private placement market. The process of reshaping the balance sheet and creating a suitable credit profile began back in 2018 and the journey is likely never ending but achieving the investment grade was a critical step on the path. While we emphasized the result, we need to recognize the steps that contributed to that critical achievement. Here are some of the highlights: Repaid approximately $1 billion of debt post-acquisition of GCI and reconstructed its balance sheet / maturity profile including five quarters of de-leveraging (Q3 2018 to Q3 2019) to position Seaspan/Atlas for future growth Enhanced credit profile while growing its fleet over past three years from 88 vessels to 123 vessels and expanding its platform through acquisition of APR Over the past three years: Unencumbered vessels grew from four (book value of $22mn) to 30 as of June 30, 2020 (book value over $1.0 billion) Lowered net debt / equity from 1.7x to 1.1x as of June 30, 2020 (1.2x pro forma for acquisition) Improved Seaspan fleet utilization (>97% in COVID environment vs 91.6% in Q1 2017) Grew revenue (+44% on TTM basis) and CFO (+85% on TTM basis) To paraphrase the Grateful Dead: What a long, interesting trip it's been.