UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR

15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2020

Commission File Number 001-33060

DANAOS CORPORATION

(Translation of registrant’s name into English)

Danaos Corporation

c/o Danaos Shipping Co. Ltd.

14 Akti Kondyli

185 45 Piraeus

Greece

Attention: Secretary

011 030 210 419 6480

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F   x        Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

EXHIBIT INDEX

***** 

This report on Form 6-K is hereby incorporated by reference into the Company’s (i)  Registration Statement on Form F-3 (Reg. No. 333-237284) filed with the SEC on March 19, 2020, (ii) Registration Statements on Form F-3 (Reg. No. 333-230106) and (Reg. No. 333-226096) filed with the SEC on March 6, 2019, (iii) Registration Statement on Form F-3 (Reg. No. 333-174494) filed with the SEC on May 25, 2011, (iv) Registration Statement on Form F-3 (Reg. No. 333-147099), the related prospectus supplements filed with the SEC on December 17, 2007, January 16, 2009 and March 27, 2009, (v) Registration Statement on Form S-8 (Reg. No. 333-233128) filed with the SEC on August 8, 2019 and the reoffer prospectus, dated August 8, 2019, contained therein and (vi) Registration Statement on Form F-3 (Reg. No. 333-169101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 19, 2020

EXHIBIT 99.1

DANAOS CORPORATION

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements (unaudited) and the notes thereto included elsewhere in this report.

Results of Operations

Three months ended March 31, 2020 compared to three months ended March 31, 2019

During the three months ended March 31, 2020, Danaos had an average of 55.7 containerships compared to 55 containerships during the three months ended March 31, 2019. Our fleet utilization for the three months ended March 31, 2020 was 91.3% compared to 98.2% for the three months ended March 31, 2019. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 95% in the three months ended March 31, 2020.

Operating Revenues

Operating revenues decreased by 5.9%, or $6.7 million, to $106.2 million in the three months ended March 31, 2020 from $112.9 million in the three months ended March 31, 2019.

Operating revenues for the three months ended March 31, 2020 reflect:

Voyage Expenses

Voyage expenses increased by $0.7 million to $4.0 million in the three months ended March 31, 2020 from $3.3 million in the three months ended March 31, 2019 mainly due to increased bunkering expenses.

Vessel Operating Expenses

Vessel operating expenses increased by $0.1 million to $26.0 million in the three months ended March 31, 2020 from $25.9 million in the three months ended March 31, 2019, primarily as a result of the increase in the average number of vessels in our fleet, partially offset by an overall decrease in the average daily operating cost of $5,522 per vessel per day for vessels on time charter for the three months ended March 31, 2020 compared to $5,636 per day for the three months ended March 31, 2019. Management believes that our daily operating cost are among the most competitive in the industry.

Depreciation

Depreciation expense increased by 3.4%, or $0.8 million, to $24.6 million in the three months ended March 31, 2020 from $23.8 million in the three months ended March 31, 2019 mainly due to the installation of scrubbers on four of our vessels and the acquisition of the vessel Niledutch Lion in the three months ended March 31, 2020.

Amortization of Deferred Drydocking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs increased by $0.1 million to $2.3 million in the three months ended March 31, 2020 from $2.2 million in the three months ended March 31, 2019.

General and Administrative Expenses

General and administrative expenses decreased by $1.1 million to $5.8 million in the three months ended March 31, 2020, from $6.9 million in the three months ended March 31, 2019. The decrease was mainly due to decreased share based compensation and professional fees.

Interest Expense and Interest Income

Interest expense decreased by 8.4%, or $1.5 million, to $16.3 million in the three months ended March 31, 2020 from $17.8 million in the three months ended March 31, 2019. The decrease in interest expense is attributable to:

As of March 31, 2020, our bank debt outstanding, gross of deferred finance costs, was $1,396.3 million and leaseback obligation was $134.3 million compared to bank debt of $1,641.7 million as of March 31, 2019.

Interest income increased by $0.1 million to $1.7 million in the three months ended March 31, 2020 compared to $1.6 million in the three months ended March 31, 2019.

Other Finance Costs, net

Other finance costs, net increased by $0.3 million to $0.6 million in the three months ended March 31, 2020 compared to $0.3 million in the three months ended March 31, 2019.

Equity income/(loss) on investments

Equity income/(loss) on investments increased by $1.6 million to $1.5 million of income on investments in the three months ended March 31, 2020 compared to a $0.1 million loss on investments in the three months ended March 31, 2019 due to the improved operating performance of Gemini Shipholdings Corporation, in which the Company has a 49% shareholding interest.

Loss on derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $0.9 million in each of the three months ended March 31, 2020 and March 31, 2019.

Other income, net

Other income, net was $0.2 million in income in the three months ended March 31, 2020 compared to nil in the three months ended March 31, 2019.

Liquidity and Capital Resources

Our principal source of funds has been operating cash flows, vessel sales, and long-term bank borrowings, as well as equity provided by our stockholders from our initial public offering in October 2006, common stock sale in August 2010 and in the fourth quarter of 2019; and the capital contribution of Danaos Investment Limited as Trustee of the 883 Trust (“DIL”) on August 10, 2018. Our principal uses of funds have been capital expenditures to establish, grow and maintain our fleet, comply with international shipping standards, environmental laws and regulations and to fund working capital requirements and repayment of debt.

Our short-term liquidity needs primarily relate to the funding of our vessel operating expenses, debt interest payments and servicing our debt obligations. Our long-term liquidity needs primarily relate to any additional vessel acquisitions in the containership sector and debt repayment. We anticipate that our primary sources of funds will be cash from operations and equity or debt financings.

Under our existing multi-year charters as of March 31, 2020, we had contracted revenues of $307.2 million for the remainder of 2020, $357.0 million for 2021 and, thereafter, approximately $0.6 billion. Although these contracted revenues are based on contracted charter rates, we are dependent on the ability and willingness of our charterers, some of which are facing substantial financial pressure and the impact of COVID-19 on demand for seaborne transportation of containerized cargoes, to meet their obligations under these charters.

As of March 31, 2020, we had cash and cash equivalents of $97.0 million. As of March 31, 2020, we had no remaining borrowing availability under our credit facilities. As of March 31, 2020, we had $1,396.3 million of outstanding indebtedness gross of deferred finance costs. We are obligated to make quarterly fixed amortization payments, totaling $119.5 million to March 31, 2021, and quarterly variable amortization payments on this outstanding indebtedness. As of March 31, 2020, we also had $134.3 million of outstanding leaseback obligations, with aggregate payments of $32.5 million (including imputed interest) due in monthly installments by March 31, 2021, with respect to two of our 13,100 TEU vessels, the Hyundai Honour and Hyundai Respect, which we refinanced on May 12, 2020 as described below. See Note 3 “Fixed Assets, net” and Note 15 “Subsequent Events” to our unaudited condensed consolidated financial statements included in this report. We may consider opportunities to renew, replace or refinance our existing senior secured credit facilities, however, there is no assurance that any such transaction will be completed or on what terms.

In December 2019, we completed the sale of 9,418,080 shares of common stock in an underwritten public offering raising aggregate proceeds net of underwriting discounts of $54.4 million. Additionally, we incurred approximately $0.9 million of related share issuance costs.

In 2018, we entered into an agreement with certain of our lenders holding approximately $2.2 billion of debt maturing on December 31, 2018 for a debt refinancing transaction (the “2018 Refinancing”) which was consummated on August 10, 2018. The debt refinancing involved our entry into new credit facilities, which we refer to as the 2018 Credit Facilities, including the amendment and restatement of certain previous credit facilities, resulting in a $551 million reduction in our debt, reset financial and certain other covenants, modified interest rates and amortization profiles and the extension of debt maturities by approximately five years to December 31, 2023 (or, in some cases, June 30, 2024). In the 2018 Refinancing, we issued to certain of our lenders an aggregate of 7,095,877 shares of our common stock on the closing date of the 2018 Refinancing, representing 47.5% of our issued and outstanding common stock immediately after giving effect to such issuance. The issuance ratably diluted existing holders of the Common Stock. In connection with the 2018 Refinancing, DIL, our largest stockholder, contributed $10 million to us on the closing date of the 2018 Refinancing, for which DIL did not receive any shares of common stock or other interests in us. See the Note 10, “Long-term Debt, net” to our consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 27, 2020. Additionally, in connection with the 2018 Refinancing, we undertook to refinance two of our 13,100 TEU vessels, the Hyundai Honour and Hyundai Respect, which was completed on April 12, 2019 through a sale and leaseback arrangement with a term of five years, at the end of which we will reacquire the vessels for $52.6 million or earlier, at our option, for a purchase price specified in the agreement. The net proceeds from the sale-leaseback arrangement amounting to $144.8 million were applied pro rata to partially repay the existing credit facilities (Club Facility, Credit Suisse Facility, Citibank $114 mil. Facility and Citibank $123.9 mil. Facility) secured by mortgages on such vessels.

Under the 2018 Credit Facilities, we are required to apply a substantial portion of our cash from operations to the repayment of principal under such facilities. See Note 8 “Long-Term Debt, net” to our unaudited condensed consolidated financial statements included in this report. We also have significant payment obligations under our leaseback arrangements for the Hyundai Honour and Hyundai Respect. See Note 3 “Fixed Assets, net” to our unaudited condensed consolidated financial statements included in this report. We currently expect that the remaining portion of our cash from operations will be sufficient to fund all of our other obligations, including in light of our existing cash resources and the amount of our contracted revenue which, as described above, depends on our charterers’ continued fulfillment of their obligations to us. See “—Risk Factors.”

We have not paid a dividend since 2008, when our board of directors determined to suspend the payment of cash dividends as a result of market conditions in the international shipping industry. In addition, under the 2018 Credit Facilities we were not permitted to pay dividends, until (1) we received in excess of $50 million in net cash proceeds from offerings of common stock and (2) the payment in full of the first installment of amortization payable following the consummation of the debt refinancing under each new credit facility. Following the sale of shares of common stock in the public offering completed in December 2019 described above, these conditions are fully satisfied and we will be permitted under our credit facilities to pay dividends provided no event of default has occurred or would occur as a result of the payment of such dividend, and we remain in compliance with the financial and other covenants thereunder. To the extent our credit facilities permit us to pay dividends, any dividend payments will be subject to us having sufficient available excess cash and distributable reserves, the provisions of Marshall Islands law affecting the payment of distributions to stockholders and the discretion of our board of directors.

In July 2014, ZIM and its creditors entered into definitive documentation effecting ZIM’s restructuring with its creditors. The terms of the restructuring included a reduction in the charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of our vessels. The terms also included our receipt of approximately $49.9 million aggregate principal amount of unsecured, interest bearing ZIM notes maturing in 2023 (consisting of $8.8 million of 3% Series 1 Notes due 2023 amortizing subject to available cash flow in accordance with a corporate cash sweep mechanism, and $41.1 million of 5% Series 2 Notes due 2023 non-amortizing (of the 5% interest rate, 3% is payable quarterly in cash and 2% is payable in kind, accrued quarterly with deferred cash payment on maturity)) and ZIM shares representing approximately 7.4% of the outstanding ZIM shares immediately after the restructuring, in exchange for such charter rate reductions and cancellation of ZIM’s other obligations to us which relate to the outstanding long term receivable as of December 31, 2013. See Note 6, “Other Non-current Assets” to our unaudited condensed consolidated financial statements included in this report.

In July 2016, we entered into a charter restructuring agreement with Hyundai Merchant Marine (“HMM”), which provides for a 20% reduction, for the period until December 31, 2019 (or earlier charter expiration in the case of eight vessels), in the charter hire rates payable for thirteen of our vessels employed with HMM. In exchange, under the charter restructuring agreement we received (i) $32.8 million principal amount of senior, unsecured Loan Notes 1, amortizing subject to available cash flows, which accrue interest at 3% per annum payable on maturity in July 2024, (ii) $6.2 million principal amount of senior, unsecured, non-amortizing Loan Notes 2, which accrue interest at 3% per annum payable on maturity in December 2022 and (iii) 4,637,558 HMM shares, which were sold on September 1, 2016 for cash proceeds of $38.1 million. On March 28, 2017, the Company sold $13.0 million principal amount carried at amortized costs of $8.6 million of HMM Loan Notes 1 for gross cash proceeds on sale of $6.2 million resulting in a loss on sale of $2.4 million. The sale of these notes resulted in the transfer of all held to maturity securities into the available for sale securities and as of March 31, 2020, the unrealized holding losses of $46.6 million for all remaining HMM and ZIM notes has been recognized in accumulated other comprehensive income/(loss). See Note 6, “Other Non-current Assets” to our unaudited condensed consolidated financial statements included in this report.

In the three months period ended March 31, 2020, we installed scrubbers on four of our vessels with total costs of $17.1 million. We have agreed to install scrubbers on another five of our vessels with contracted obligations therefore, together with estimated costs related to their installation, expected to amount to approximately $21.2 million as of March 31, 2020, out of which advances of $11.1 million were paid before March 31, 2020 and the remaining amount of $10.1 million is expected to be paid in 2020.

On October 2, 2019, we entered into an agreement to acquire an 8,463 TEU container vessel built in 2005 for a gross purchase price of $25.0 million, of which $2.5 million was advanced before December 31, 2019. This vessel was delivered to us on April 14, 2020 and was renamed to Phoebe. On February 21, 2020, we entered into an agreement to acquire an 8,533 TEU container vessel built in 2005 for a gross purchase price of $23.6 million, of which $2.4 million was advanced before March 31, 2020. This vessel is expected to be delivered to us in June 2020. Additionally, in January 2020, we acquired an 8,626 TEU container vessel built in 2008 which was renamed to Niledutch Lion, for a gross purchase price of $28.0 million.

On April 8, 2020, we entered into a loan agreement with Macquarie Bank for an amount of up to $24 million drawn down in full on April 9, 2020. The loan was used to partially finance the acquisition costs of the vessels Niledutch Lion and Phoebe. The loan bears interest at LIBOR plus 3.9% margin and is repayable in nineteen quarterly instalments starting from September 30, 2020 over a five year period of the loan with a balloon payment amounting to $10.4 million.

On May 12, 2020, we refinanced the existing leaseback obligation related to the vessels Hyundai Honour and Hyundai Respect with a new sale and leaseback arrangement amounting to $139.1 million with a four-year term, at the end of which we will reacquire these vessels for an aggregate amount of $36.0 million or earlier, at our option, for a purchase price set forth in the agreement. This arrangement was recorded as a failed sale and leaseback with the net proceeds received recognized as a financial liability.

Impact of COVID-19 on our Business

The spread of the COVID-19 virus, which has been declared a pandemic by the World Health Organization, in 2020 has caused substantial disruptions in the global economy and the shipping industry, as well as significant volatility in the financial markets. The duration and severity of this global health emergency and related disruptions is uncertain. The severe impact of the pandemic on global economic activity is expected to result in a global recession, the duration and severity of which is uncertain, and has negatively affected global demand for the seaborne transportation of containerized cargoes. As a result of the ongoing effects of COVID-19 pandemic on the global economy, global seaborne container trade is now expected to decline significantly in 2020, by up to 11% in TEU terms. Liner companies have been responding to these circumstances by reducing service and cutting sailings, which has increased idle containership fleet capacity. These dynamics are expected to continue until uncertainty surrounding the ability to contain the spread of COVID-19 and the duration and severity of the economic downturn lessens. As such, container freight rates and containership charter market rates have declined significantly, with short-term voyage charter rates declining by between 25% and 40%, depending on vessel size, and are expected to remain at relatively low levels during this period.

During the three months ended March 31, 2020, due to COVID-19 related restrictions we experienced delays in Chinese shipyards related to the scheduled installations of the scrubbers on certain of our vessels and delays in carrying out dry-docking repairs, which resulted in incremental off-hire time of our vessels ultimately leading to decreased operating revenue by approximately $3.2 million compared to our expectations. Travel restrictions imposed on a global level also caused disruptions in scheduled crew changes on our vessels and delays in carrying out of certain hull repairs and maintenance during the first quarter of 2020, which disruptions could continue to affect our operations.

The impact of the COVID-19 pandemic continues to unfold and may continue to have negative effect on our business, financial performance and the results of our operations, the extent of which will depend largely on future developments, which cannot be predicted with certainty. Any prolonged slowdown in the global economy would be likely to continue to negatively impact worldwide demand for products transported by containerships, adversely affect the liquidity and financial position of our charterers and decrease rechartering hire rates for our vessels resulting in reductions in our revenue and the market value of our vessels, which could materially adversely affect our business and results of operations, as well as our ability to service or refinance our debt and comply with financial covenants of our credit facilities.

See the section entitled “Risk Factors” below.

Cash Flows

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities decreased by $3.6 million, to $55.4 million provided by operating activities in the three months ended March 31, 2020 compared to $59.0 million provided by operating activities in the three months ended March 31, 2019. The decrease was the result mainly of a $6.7 million decrease in operating revenues, of which $3.2 million relates to the COVID-19 pandemic effect described above, higher payments for dry-docking and special survey costs by $4.7 million and an $0.2 million increase in operating expenses, which were partially offset by a $7.6 million change in working capital and a $0.4 million decrease in net finance costs in the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Net Cash Used in Investing Activities

Net cash flows used in investing activities increased by $40.6 million, to $42.3 million used in investing activities in the three months ended March 31, 2020 compared to $1.7 million used in investing activities in the three months ended March 31, 2019 due to the acquisition of a new vessel and advances mainly related to installation of scrubbers and vessel acquisitions.

Net Cash Used in Financing Activities

Net cash flows used in financing activities increased by $2.0 million, to $55.3 million used in financing activities in the three months ended March 31, 2020 compared to $53.3 million used in financing activities in the three months ended March 31, 2019.

Non-GAAP Financial Measures

We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes, however, that certain non-GAAP financial measures used in managing the business may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance. See the table below for supplemental financial data and corresponding reconciliation to GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

EBITDA and Adjusted EBITDA

EBITDA represents net income before interest income and expense, taxes, depreciation, as well as amortization of deferred drydocking & special survey costs, amortization of deferred realized losses of cash flow interest rate swaps, amortization of finance costs and finance costs accrued. Adjusted EBITDA represents net income before interest income and expense, taxes, depreciation, amortization of deferred drydocking & special survey costs, amortization of deferred realized losses of cash flow interest rate swaps, amortization of finance costs and finance costs accrued and stock-based compensation. We believe that EBITDA and Adjusted EBITDA assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. EBITDA and Adjusted EBITDA are also used: (i) by prospective and current customers as well as potential lenders to evaluate potential transactions; and (ii) to evaluate and price potential acquisition candidates. Our EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies due to differences in methods of calculation.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: (i) EBITDA/Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and (ii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA/Adjusted EBITDA do not reflect any cash requirements for such capital expenditures. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Because of these limitations, EBITDA/Adjusted EBITDA should not be considered as principal indicators of our performance.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

EBITDA decreased by $5.1 million, to $71.6 million in the three months ended March 31, 2020 from $76.7 million in the three months ended March 31, 2019. This decrease was mainly attributed to a $6.7 million decrease in operating revenues, of which $3.2 million relates to the impact of the COVID-19 pandemic described above and a $0.3 million increase in other finance expenses, which were partially offset by an $1.6 million increase in the operating performance of our equity investees and a $0.3 million decrease in operating expenses in the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Adjusted EBITDA decreased by $5.6 million, to $71.9 million in the three months ended March 31, 2020 from $77.5 million in the three months ended March 31, 2019. This decrease was mainly attributed to a $6.7 million decrease in operating revenues, of which $3.2 million relates to the impact of the COVID-19 pandemic described above, a $0.3 million increase in other finance expenses and a $0.2 million increase in operating expenses, which were partially offset by a $1.6 million increase in the operating performance of our equity investees in the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Adjusted EBITDA for the three months ended March 31, 2020 is adjusted for $0.3 million of stock-based compensation.

Credit Facilities

We, as guarantor, and certain of our subsidiaries, as borrowers, have entered into a number of credit facilities in connection with financing the acquisition of certain vessels in our fleet and the 2018 Refinancing, which are described in Note 10, “Long-term Debt, net” to our consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 27, 2020. The following summarizes certain terms of our credit facilities:

As of March 31, 2020, there was no remaining borrowing availability under our credit facilities. We were in compliance with the financial covenants of the credit facilities as of March 31, 2020 and December 31, 2019.

For additional details regarding the 2018 Refinancing and 2018 Credit Facilities and the Sinosure-CEXIM Credit Facility, please refer to Note 10, “Long-term Debt, net” to our consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 27, 2020.

Additionally, in connection with the 2018 Refinancing, we undertook to refinance two of our 13,100 TEU vessels, the Hyundai Honour and Hyundai Respect, which was completed on April 12, 2019 through a sale and leaseback arrangement with a term of five years at the end of which we will reacquire the vessels. The net proceeds amounting to $144.8 million were applied pro rata to repay the existing credit facilities secured by mortgages on such vessels. As of March 31, 2020, we had $134.3 million in outstanding leaseback obligations. See Note 3 “Fixed Assets, Net” to our unaudited condensed consolidated financial statements included in this report. On May 12, 2020, we refinanced this existing leaseback obligation related to the vessels Hyundai Honour and Hyundai Respect with a new sale and leaseback arrangement amounting to $139.1 million with a four-year term, at the end of which we will reacquire these vessels for an aggregate amount of $36.0 million or earlier, at our option, for a purchase price set forth in the agreement. This arrangement was recorded as a failed sale and leaseback with the net proceeds received recognized as a financial liability.

On April 8, 2020, the vessel owning companies Rewarding International Shipping Inc. and Blackwell Seaways Inc. entered into a loan agreement with Macquarie Bank, which is guaranteed by Danaos Corporation, for an amount up to $24 million drawn down in full on April 9, 2020. The loan was used to partially finance the acquisition costs of two newly acquired vessels, Niledutch Lion and Phoebe, owned by these vessel owning companies, liens on which vessels secure this loan agreement. The loan bears interest at LIBOR plus 3.9% margin and is repayable in nineteen quarterly instalments starting from September 30, 2020 over a five year period of the loan with a balloon payment at maturity amounting to $10.4 million.

Qualitative and Quantitative Disclosures about Market Risk

Interest Rate Swaps

In the past, we entered into interest rate swap agreements converting floating interest rate exposure into fixed interest rates in order to hedge our exposure to fluctuations in prevailing market interest rates, as well as interest rate swap agreements converting the fixed rate we paid in connection with certain of our credit facilities into floating interest rates in order to economically hedge the fair value of the fixed rate credit facilities against fluctuations in prevailing market interest rates. All of these interest rate swap agreements have expired and we do not currently have any outstanding interest rate swap agreements. Refer to Note 9, “Financial Instruments”, to our unaudited condensed consolidated financial statements included in this report.

Foreign Currency Exchange Risk

We did not enter into derivative instruments to hedge the foreign currency translation of assets or liabilities or foreign currency transactions during the three months ended March 31, 2020 and 2019.

Off-Balance Sheet Arrangements

We do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. For risk factors that may cause actual results to differ materially from those anticipated, please refer to “Item 3. Key Information D. Risk Factors” of our Annual Report on Form 20-F for the year ended December 31, 2019 filed with the SEC on February 27, 2020 and the following update thereto. 

The COVID-19 virus pandemic and the resulting disruptions to the global economy and the container shipping industry could negatively affect our business, financial performance and our results of operations, including our ability to obtain charters and financing.

The outbreak of the COVID-19 virus has in 2020 led a number of countries, ports and organizations to take measures against its spread, such as quarantines and restrictions on travel. Such measures were taken initially in China, including Chinese ports, where we conduct a significant amount of our operations, and have since expanded to other countries globally covering most ports where we conduct business. These measures have and will likely continue to cause severe trade disruptions due to, among other things, the unavailability of personnel, supply chain disruption, interruptions of production and closure of businesses and facilities and reduced consumer demand. The duration and severity of this global health emergency and related disruptions remains uncertain.

The COVID-19 pandemic and the global response thereto has introduced uncertainty in a number of areas of our business, including our operational, commercial and financial activities. The severe impact of the pandemic on global economic activity is expected to result in a global recession, the duration and severity of which is uncertain, and has negatively affected global demand for the seaborne transportation of containerized cargoes, which, particularly if such conditions persist, could have a material adverse effect on our ability to secure charters at profitable rates, in a timely fashion without a period of off-hire, or at all, particularly for our vessels with charters expiring in 2020, as demand for additional charters could be significantly affected. Of our 62 vessels, including those owned by Gemini, as of May 18, 2020, 30 vessels, each of which is below 6,500 TEU in capacity, are employed on time charters expiring in 2020.

These factors could also have a material adverse effect on the business of our liner company charterers, some of which were already under financial pressure after losses in recent years, which could adversely affect their ability and willingness to perform their obligations under our existing charters as well as decreasing demand for future charters. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant reductions in revenue and earnings, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to comply with the covenants in, or refinance, our credit facilities.

Until such time as the uncertainty surrounding the ability to contain the spread of COVID-19 abates, our business and the shipping industry as a whole is likely to continue to be impacted not only by reduced demand for containerized shipping services, but also from a reduced workforce and delays in crew changes as a result of quarantines applicable in numerous countries and ports and delays of vessels as a result of port checks due to cases, or suspected cases, of COVID-19 amongst crew, as well as delays in scheduled drydockings, intermediate or special surveys of vessels and scheduled and unscheduled ship repairs and upgrades, including the installation of scrubbers and ballast water treatment equipment. For example, during the three months ended March 31, 2020, we experienced delays in Chinese shipyards related to the scheduled installations of the scrubbers on our vessels and delays in carrying of dry-docking repairs, which resulted in incremental off-hire time of our vessels ultimately leading to decreased operating revenue. In addition, travel restrictions imposed on a global level caused disruptions in scheduled crew changes on our vessels and delays in carrying out certain hull repairs and maintenance during the first quarter of 2020, which disruptions could continue to affect our operations.

The impact of COVID-19 on credit markets and financial institutions could also result in increased interest rate spreads and other costs of, and difficulty in obtaining, bank financing, including to refinance existing credit facilities and to finance the purchase price of additional vessel acquisitions, which could limit our ability to grow our business in line with our strategy.

Any prolonged slowdown in the global economy would be likely to continue to negatively impact worldwide demand for products transported by containerships, adversely affect the liquidity and financial position of our charterers and decrease rechartering hire rates for our vessels resulting in reductions in our revenue and the market value of our vessels, which could materially adversely affect our business and results of operations, as well as our ability to service or refinance our debt and comply with financial covenants of our credit facilities.

Capitalization and Indebtedness

The table below sets forth our consolidated capitalization as of March 31, 2020.

Other than these adjustments, there have been no material changes to our capitalization from debt or equity issuances, re-capitalizations, special dividends, or debt repayments as adjusted in the table below between April 1, 2020 and May 18, 2020.

Our Fleet

The following table describes in detail our fleet deployment profile as of May 18, 2020:

Forward Looking Statements

Matters discussed in this report may constitute forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning our operations, cash flows, financial position, including with respect to vessel and other asset values, plans, objectives, goals, strategies, future events, performance or business prospects, changes and trends in our business and the markets in which we operate, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this release are based upon various assumptions. Although Danaos Corporation believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, Danaos Corporation cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the impact of the COVID-19 pandemic and efforts throughout the world to contain its spread, including effects on global economic activity, demand for seaborne transportation of containerized cargo, the ability and willingness of charterers to fulfill their obligations to us, charter rates for containerships, shipyards performing scrubber installations, drydocking and repairs, changing vessel crews and availability of financing; the effects of the 2018 Refinancing transactions; Danaos’ ability to achieve the expected benefits of the 2018 Refinancing and comply with the terms of its new credit facilities and other agreements entered into in connection with the 2018 Refinancing, the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, charter counterparty performance, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydocking, changes in our operating expenses, including bunker prices, dry-docking and insurance costs, ability to obtain financing and comply with covenants in our financing arrangements, actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists.

Risks and uncertainties are further described in reports filed by us with the U.S. Securities and Exchange Commission.

INDEX TO FINANCIAL STATEMENTS

DANAOS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States Dollars, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Expressed in thousands of United States Dollars, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements (unaudited) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The reporting and functional currency of the Company is the United States Dollar.

Danaos Corporation (“Danaos” or “Company”), formerly Danaos Holdings Limited, was formed on December 7, 1998 under the laws of Liberia and is presently the sole owner of all outstanding shares of the companies listed below. Danaos Holdings Limited was redomiciled in the Marshall Islands on October 7, 2005. In connection with the redomiciliation, the Company changed its name to Danaos Corporation. On October 14, 2005, the Company filed and the Marshall Islands accepted Amended and Restated Articles of Incorporation. The authorized capital stock of Danaos Corporation is 750,000,000 shares of common stock with a par value of $0.01 and 100,000,000 shares of preferred stock with a par value of $0.01. Refer to Note 12, “Stockholders’ Equity”. The Company’s principal business is the acquisition and operation of vessels. Danaos conducts its operations through the vessel owning companies whose principal activity is the ownership and operation of containerships that are under the exclusive management of a related party of the Company.

In the opinion of management, the accompanying condensed consolidated financial statements (unaudited) of Danaos and subsidiaries contain all adjustments necessary to present fairly, in all material respects, the Company’s condensed consolidated financial position as of March 31, 2020, the condensed consolidated results of operations for the three months ended March 31, 2020 and 2019 and the condensed consolidated cash flows for the three months ended March 31, 2020 and 2019. All such adjustments are deemed to be of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Danaos’ Annual Report on Form 20-F for the year ended December 31, 2019. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the full year. The year-end condensed consolidated balance sheet data was derived from annual financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The accompanying condensed consolidated financial statements (unaudited) represent the consolidation of the accounts of the Company and its wholly owned subsidiaries. The subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. Inter-company transaction balances and unrealized gains on transactions between the companies are eliminated.

The Company also consolidates entities that are determined to be variable interest entities, of which the Company is the primary beneficiary, as defined in the authoritative guidance under U.S. GAAP. A variable interest entity is defined as a legal entity where either (a) equity interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity’s residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The condensed consolidated financial statements (unaudited) have been prepared to reflect the consolidation of the companies listed below. The historical balance sheets and results of operations of the companies listed below have been reflected in the condensed consolidated balance sheets and condensed consolidated statements of income, cash flows and stockholders’ equity at and for each period since their respective incorporation dates. The consolidated companies are referred to as “Danaos,” or “the Company.”

As of March 31, 2020, Danaos included the vessel owning companies (the “Danaos Subsidiaries”) listed below. All vessels are container vessels:

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)