Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
July 17, 2019
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 3561
Washington, D.C. 20549
Attn.: | Aamira Chaudhry |
| Lyn Shenk |
RE: Danaos Corp
Form 20-F for the Year Ended December 31, 2018
Filed March 5, 2019
File No. 001-33060
Dear Ms. Chaudhry and Mr. Shenk,
As outside counsel to, and on behalf of, Danaos Corporation (the “Company”), we are providing the following response from the Company to the Staff’s comment letter dated July 3, 2019 (the “Comment Letter”) relating to the above-captioned Annual Report on Form 20-F (the “Annual Report”) of the Company. Please note that for the Staff’s convenience, we have recited the Staff’s comment and provided the Company’s response to it immediately thereafter.
Form 20-F for Fiscal Year Ended December 31, 2018
Notes to the Consolidated Financial Statements
Note 7. Other Non-Current Assets, page F-27
1. Please tell us the material terms of your investments in the debt securities of ZIM and HMM, whether the debtors met those terms in 2018, and how you determined their fair value as of December 31, 2018. To the extent the investments accrue unpaid interest, please tell us whether and how you recognized such amounts and the basis for determining that such amounts were collectible.
Response: The material terms of the Company’s investments in the debt securities of ZIM and HMM are as follows:
|
| ZIM Notes |
| ZIM Notes |
| HMM |
| HMM |
|
Issuance date |
| July 16, 2014 |
| July 16, 2014 |
| July 18, 2016 |
| July 18, 2016 |
|
Nominal Principal amount as of December 31, 2018 |
| $8,525,396 |
| $41,094,900 |
| $19,856,375 |
| $6,169,483 |
|
Maturity date |
| June 2023 |
| June 2023 |
| July 2024 |
| December 2022 |
|
Cash interest rate |
| 3% p.a. Payable quarterly |
| 3% p.a. Payable quarterly |
| Not applicable |
| Not applicable |
|
Required PIK Interest |
| Not applicable |
| 2% p.a. with deferred cash payment on maturity |
| 3% p.a. with deferred cash payment at maturity |
| 3% p.a. with deferred cash payment at maturity |
|
Redemption date(s) |
| Subject to available cash flow in accordance with corporate cash mechanism and/or fully at maturity |
| Fully at maturity |
| Amortizing subject to available cash flow and/or fully at maturity |
| Fully at maturity |
|
During the year ended December 31, 2018 and as of December 31, 2018, both ZIM and HMM were in compliance with the terms and covenants of the applicable notes. Other than the terms outlined above, which are described on page 66 of the Company’s Annual Report under the caption “Item 5. Operating and Financial Review and Prospects-Liquidity and Capital Resources,” there are no other significant terms of the notes.
The fair values of the ZIM and HMM notes as of December 31, 2018 were based on a weighted combination of (1) a quoted (non-binding) price from a third party broker, (2) a yield-to-maturity (YTM) analysis for a similar bond(s) (distressed, unsecured high-yield bond(s)) in an active market and (3) for ZIM only, the YTM for corporate bonds issued by ZIM as published by Bloomberg. The Company weights each of these fair value data points, with the largest weighting on the third party broker quote.
The fair value data points and weighting for the ZIM notes as of December 31, 2018 are as follows:
|
| YTM |
| Weight |
| Contribution to |
|
YTM - comparable bond |
| 21.6 | % | 20 | % | 4.3 | % |
Third party broker quote |
| 35.0 | % | 60 | % | 21.0 | % |
YTM — ZIM’s bonds (Bloomberg) |
| 30.1 | % | 20 | % | 6.0 | % |
Average |
|
|
|
|
| 31.3 | % |
The fair value data points and weighting for the HMM notes as of December 31, 2018 are as follows:
|
| YTM |
| Weight |
| Contribution to |
|
YTM - comparable bond |
| 21.6 | % | 30 | % | 6.5 | % |
Third party broker quote |
| 35.1 | % | 70 | % | 24.5 | % |
Average |
|
|
|
|
| 31.0 | % |
For the ZIM Series 1 Notes and Series 2 Notes, cash interest is accrued and recognized in the income statement on a quarterly basis and through December 31, 2018, ZIM has paid all cash interest on a timely basis. For the notes that have required paid-in-kind (PIK) interest that will be paid at maturity, and such interest is probable of being collected, the interest is accrued at its stated rate and recognized in the Company’s income statement on a quarterly basis and is compounded (on an annual or quarterly basis, as applicable) into the principal amount of the respective notes. The Company actively monitors the financial statements, with a focus on the operating results, EBITDA and the liquidity positions, of both ZIM and HMM and, more importantly, the Company has active charter party agreements that require ongoing cash settlements by both entities. Through December 31, 2018, ZIM and HMM are paying in accordance with their charter party agreements, which together with the timely payment of cash interest by ZIM, are the primary bases for determining that the accrued unpaid interest is collectible.
******
On behalf of the Company, please allow us to express our appreciation of your attention to this matter. Should you have any questions or comments with respect to this response letter, please contact Evangelos Chatzis of the Company at + 30 210 419 6404 or Finn Murphy of Morgan, Lewis & Bockius LLP at 212-309-6704.
| Sincerely, |
|
|
| /s/ Finn Murphy |
| Finn Murphy |
Cc: | Evangelos Chatzis, Danaos Corporation |
|
|
| Despina Marinou, PricewaterhouseCoopers S.A. |