Fairfax Financial Holdings Limited

David Sokol - Chairman Bing Chen - President and CEO Peter Curtis - EVP and Chief Commercial and Technical Officer David Spivak - CFO

Michael Webber - Wells Fargo Securities Chris Robertson - Jefferies Chris Wetherbee - Citi Group Ken Hoexter - Banc of America Fotis Giannakoulis - Morgan Stanley Mike Gyure - Janney Montgomery

Good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that our discussion today contains forward-looking statements.

Actual results may differ materially from results projected by these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter 2017 earnings release and the earnings webcast presentation slides available on our website at www.seaspancorp.com, as well as in our Annual Report filed on Form 20-F for the year ended December 31, 2016.

During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings, and normalized earnings per share diluted. For definitions of such non-GAAP financial measures and for reconciliations of such measures to the most closely comparable US GAAP measures, please refer to our earnings release or the appendices at the back of the earnings presentation slides.

I will now pass the call over to David Sokol, who will discuss the recent developments.

Thanks David and good morning everyone. If you would, would you please turn to slide 4 of the presentation.

2017 was an important and I think pivotal year for Seaspan, highlighted by a number of significant and positive changes. I joined the Board of Directors last April initially and then became Chairman in July.

And the first area of focus for me and for the Board was to strengthen the Seaspan corporate governance practices and policies to ensure that the management interests were completely in line with those of shareholders and to support the creation of long term value. Following comprehensive CEO search, Bing Chen was appointed CEO in early November and was able to join us earlier this year in January.

And I have to tell I have been very impressed with his energy, his enthusiasm and particularly his vision that he’s brought to this role. And during the two months that he was still in China with BNP Paribas after all he did a remarkable job getting up to speed on our business.

I think Bing’s diverse experience as well as his strong relationships in our key markets in Asia and Europe will serve the company well, and together with our senior management team will enable Seaspan to fully optimize what we think is a significant franchise value to benefit our investors, customers, employees and key stakeholders. In addition to strengthening our corporate governance and leadership team, we recently formed an important strategic partnership with Prem Watsa led Fairfax Financial that aligns with a long term vision for the company and we are very pleased to have partnered with an organization with the quality of Fairfax and a track record of Prem Watsa, which we think also helps highlight some of Seaspan’s leadership and future potential.

Complementing the $250 million investment by Fairfax, we’ve taken several other important steps to further improve our financial strength and enhance our capital structure as we said we would. Specifically we’ve reduced our leverage, accessed new capital and secured financing for of our new built vessels.

So Seaspan’s accomplished a great deal over the past year, and I thank you for a transition year of the magnitude that we’ve gone through, the company really has transformed well and we’re in an ideal position to draw upon the strength and balance sheet to nimbly take advantage of growth and market opportunities that we see in front of us, similar to our recent vessel acquisition and time charter agreement with leader, Maersk. Now until till questions later, I’m happy to turn the call over to Bing Chen.

Thank you David and hello everyone. It’s a pleasure to be here today.

Let’s dive in, please turn to slide 5, since starting at Seaspan in January, I have undertaken a detailed review of our business, looking closely at our fleet, customers and our financial opportunities. While my evaluation will continue, I’m pleased that this review has validated many of my initial convictions concerning Seaspans’ bright future.

I developed three observations that I would like to highlight today. One, over the last 20 years Seaspan has built an integrated platform that is among the best in scale, scope and services.

This platform is the foundation of our future growth. Since our IPO, we’ve grown from a fleet of 10 vessels to a global fleet that now exceeds 100 operating round the world all day every day.

Whether in port, at sea or in a shipyard Seaspan’s team of more than 4,000 highly skilled professionals are dedicated to ensure that we provide our customer the best experience. Our customer operate in a highly competitive environment and it is our priority to exceed their expectations.

Having already met many members of our team and some of our customers, I’m confident that we will continue to exceed our customer’s expectations. Our team’s laser focused on operational excellence has enabled Seaspan to achieve utilization rate of approximately 98% since its IPO.

This quality and reliable service has built a high level of trust with our customers, who rely on us to transport their goods around the world. The trust we build is not something that we take for granted, it is that it allows us to build our integrated platform over the last 20 years.

We will honor that trust going forward as we work to increase our industry leading position. Two, during the review process I was able to approach Seaspan’s past, present and future with fresh eyes.

Besides my experience in asset life cycle management, I’m an outsider to the containership industry. This has been positive.

I have the luxury to look at our opportunities as a clean slate. I carry no baggage with me and have no historical bias.

I’m focused solely on building the value of the franchise. While focused on how to create its value, it became increasingly clear to me that our industry has fundamentally changed and this change has the impacted the entire value chain creating a rich set of opportunities for us.

Three, Seaspan is well positioned to capitalize on this rich set of opportunities simply because our integrated platform is unique. Our focus on operational excellence allows to deliver quality service that is reliable and flexible across geography and ship class.

With the largest global fleet of leased assets and an experienced team, we will continue to earn the trust of our customers. This customer relationship has been built for decades of exceptional service and it represents a competitive advantage for us.

Our financial strength, discipline and our cost capital globally access the capital globally will position us to increase our industry-leading position. So, in summary, my first 60 days have been very, very positive and gave me strong confidence in our future success.

If you could please turn to slide 6; my management team has put together a list of key priorities that will advance our efforts to build sustainable franchise value. I will highlight four of these priorities today; first, strengthening our customer partnership; second, continuing to have a laser focus on operational excellence; third, actively pursuing growth opportunities; and fourth, enhancing our financial strength and stability.

Customer partnerships, over the last two decades we have built an integrated platform by providing exceptional value to our customers. We’re not just about another ship owner; rather we are partners to our customers.

Our future success would depend on continuing this tradition of exceeding our customers’ expectations. We will work with our customers to help them navigate their competitive environment by providing solutions to the most challenging problems.

Operational excellence; we define operational excellence as delivering quality service that’s reliable, flexible and value added. We will continue to define industry’s best-in-class service while optimizing our cost structure through our scale advantages.

By developing and second these industry standards on our service and cost side, we’ll provide a true win-win between ourselves and our customers. Regarding growth opportunities, our integrated platform is well positioned for many growth opportunities and we intend to capitalize on them.

We’re actively pursuing accretive growth opportunities through new builds, second hand vessels, and portfolio and business acquisitions. The containership order book as a percentage of the global fleet has been on a decline for the last few years.

This reduction in new build activity is not only a positive for the industry, and we believe will lead to more balanced supply and demand. I specially expect to find new boat chartering opportunities overtime, but we believe the current dynamics present more attractive growth in second hand vessels than acquisitions.

For example of this is the deal we recently completed with Maersk for two feeder vessels. Financial strength, financial strength and access to the global capital markets will continue to be the hallmark of Seaspan.

By maintaining the financial discipline, we have demonstrated over the past several years, we will continue to enhance the company’s credit quality and seek to improve our cost of capital. We’re focused on maximizing our cash flow over the long term through our initiatives in operational excellence and customer relationship frameworks.

So to conclude, we are well-positioned for long-term success. We intend to capitalize on opportunities available to us and further entrench our industry leading position.

I will now turn the call to David Spivak, who will discuss our Q4 earnings release.

Thank you, Bing. Please turn to slide 7, where I will discuss highlights from our Q4 earnings release.

During Q4 and the beginning of this year, we continue to operate our business efficiently, expand our fleet and access different pockets of capital. We achieved strong vessel utilization and continue to manage cost.

Vessel utilization was 96% in Q4 and 96.7% for the year, excluding the four Panamax vessels that were sold in 2017. Ship operating cost for ownership day in 2017 decline by 8.6% compared to the prior year.

Normalized EPS was $0.16 for the quarter and $0.66 for the year. We completed vessel acquisitions and took delivery of new builds.

We took delivery of one 11,000 TEU vessel in December and the fifth and final 11,000 TEU vessel in January, both on 17 year bareboat charters with MSC. We also acquired two second hand 2500 TEU vessels and concurrently entered in to four year time charter for these vessels with Maersk.

We raised strategic capital, improved our financial position. As David mentioned earlier, we completed a strategic capital raise of $250 million from Fairfax, which further improves our balance sheet and positions the company for its next stage of growth.

We also signed a secured credit facility to partially fund our remaining two of 10,000 TEU new build vessels. We currently have 23 unencumbered debt-free vessels ranging in size from 2500 TEU to 9600 TEU.

Please turn to slide 8, where I will provide a summary of our financial results. Revenue increased by $1.2 million in Q4 2017 compared to the same quarter in the prior year.

The increase was primarily due to 2017 new build vessel deliveries and interest income from four vessels of 17 year bareboat charters to MSC. These increases were partially offset by lower charter rates for vessels that are currently trading in the short term market.

We had 319 of unscheduled off-hire in Q4 primarily due to off-charter days for 4250 vessels. Ship offering expenses were $48.1 million for the quarter, an increase of 1.2 million from the same quarter of the prior year.

The increase was primarily driven by higher spares and repair spending for planned maintenance as well as by a 1% increase in ownership days. Despite the increase in ship OpEx in Q4, ship OpEx decreased in 2017 compared to 2016.

And ship OpEx for ownership day declined by 8.6% year-over-year. General and administrative expenses was $11.1 million in Q4 which was an increase over Q4 2016.

The increase was primarily due to additional share based compensation expense of $3.6 million related to the accelerated vesting of restricted shares with the retirement of Seaspan former CEO. Total non-cash stock compensation for the quarter was $5.1 million.

Operating lease expense was $30.6 million in Q4 2017, an increase of $4 million from the same quarter of the prior year. The increase was primarily due to a delivery in 2017 being financed through a sale lease back transaction.

Normalized EPS diluted for the quarter declined versus the same quarter in the prior year, primarily due to higher operating lease expense and an increase in shares outstanding. Adjusted EBITDA and cash flow available for distribution for Q4 2017 were below comparable period in 2016; however both metrics were higher than in the third quarter of 2017.

Our cash balance at year-end 2017 including short-term investments was approximately $253 million. We pre-funded the final payment for our fifth MSC delivery over year-end and drew down under our capital lease facility in early January 2018.

Total borrowings declined by approximately $76 million during the quarter as we have been very focused on paying down secured bank debt. During the quarter we fully repaid Seaspan’s original IPO credit facility which release additional unencumbered assets.

Shareholders’ equity increased during the quarter, primarily due to retained net income and the issuance of $40 million of common equity under our ATM program. Net debt-to-equity ended the year at slightly below 1.5 times.

I will now turn the call over to Peter Curtis to discuss current industry conditions

Thank you, David. Please turn to slide 9, where I will discuss the improving demand fundamentals in the industry.

During 2017, we saw broad based global economic growth and an increase in throughput growth on all trades, with (inaudible) and improvement sustained over the past two years. In aggregate global containerized trade growth was 6.6 for the year, the highest level in six years.

Under pining this, is the fact that global throughput growth has outstripped container fleet growth since the end of 2015 and is expected to be very close to each other in 2018, and again throughput is expected to significantly exceed fleet growth in 2019. Consider also that vessel orders typically take 24 months or more to come to fruition, this being a positive dynamic and may continue in to [2018].

Moving to slide 10, containership supply conditions continue to improve. As you can see on the first chart the current order book is 12.7% of the global fleet, which is the lowest level in over a decade, with the growth rate having been on decline since mid-2000s namely 2005 and 2008.

Approximately 70% of the current order book is comprised of vessels greater than 12,000 TEU and in fact around 60% being 14,000 TEU and above. The order book for mid-sized categories below 10,000 TEU is virtually non-existent.

During 2017, 147 vessels were nearly of over 400,000 TEU were sent to the scrapyards. Due to improving market conditions scrapping has been very low so far in 2018.

Late Q4 2017 typically sees a lull in the charter market which did emerge in the early part of the quarter. However, the market was pleasantly surprised with an uplift in demand through the remainder of the quarter and even through the recent Chinese New Year.

The global idle fleet has declined substantially in the past couple of months and currently sits at 1.4% or approximately 300,000 TEU. We expect the current tight market conditions to continue to support charter rates or [spark] tonnage.

Furthermore the increasing throughput and relatively declining order book and limited number of deliveries scheduled for 2018 and 2019 supports our view that the markets will continue to improve over the next few years. Please turn to slide 11 where I will talk about the strengthening Panamax segment.

The Panamax segment continues to be impacted positively by both supply and demand factors. And the global fleet of Panamax vessels has been on decline for about five years and the order book for these vessels is almost non-existent.

Utilization of the Panamax vessels and particularly the 4000 to 5100 TEU segment has seen a sustained increase since mid-2016 and the geographic utilization across several trade routes has demonstrated the versatility of this vessel segment. These vessels are primarily deployed on growing regional trades such as Intra-Asia, Africa and Oceania.

The number of idle vessels continues to decline with approximately 12 vessels in the same 4000 to 5100 TEU category available today compared to 67 at the same time last year. Not surprisingly, this was later an improvement in both rates and asset values.

Sale and purchase activity in the container segment has seen increased activity as purchasers pursue fewer opportunities. The 3000 to 5000 or 6000 TEU segment accounted for about 40% of the volume in 2017.

It is important to recognize that despite the improvement in time charter rates, current levels of 9000 to 10,000 a day for Panamax are still well below the rates required to incentivize new building activity in this segment. I’d like to pass the call to David Spivak.

Thank you Peter. Please turn to slide 12, where I will review our forward guidance.

We do not intend to update our quarterly guidance in the ordinary course of communications. For Q1, 2018, we anticipate that revenue will be between $215 million and $219 million.

We expect utilization to be approximately 98%. Ship OpEx is expected to be within a range of $47 million to $50 million.

We expect our operating lease expense to range between $30 million and $32 million, depreciation and amortization is expected to range between $50 million and $52 million. We expect G&A expense to range between $6 million to $8 million.

Finally, interest expense at the hedged rate is expected to range between $42 million and $45 million. Note that these amounts are based on current information and estimates and are subject to change.

I would now like to pass the call back to Bing Chen.

Thank you David. Please turn to slide 13, where I’ll give you a summarized view of our key priorities.

Through leveraging our integrated platform, we will lay the foundation for sustainable growth. Our key priorities as described earlier will help accelerate and enhance the substantial franchise value that we seek to create.

We must continue to earn the trust of our customers. We must continue to expand and strengthen these valuable relationships by aiming to be their preferred partner.

Operational excellence, our focus on operational excellence will allow us to offer quality service that is reliable, flexible and value added. We will provide this best-in-class service at industry leading cost due to our significant scale advantage.

Growth opportunities; we are pursuing growth opportunities across a number of avenues, and we are ready to capitalize on accretive opportunities and further entrench our industry-leading position. Financial strength; we will continue to enhance our financial strength and access the capital globally so that we may take advantage of the opportunities when they become available.

Financial strength will continue to be the hallmark of Seaspan. A true distinguished quality in our industry.

So in conclusion, I’m honored to be the Seaspan CEO and look forward to working closely with our seafaring team, management team, Board and our Chairman David Sokol. We remain keenly focused on improving franchise value to benefit investors, customers, employees and other stake holders.

I will now pass the call back to the operator to open the line for questions.

Bing and Dave just to start off with you, you said the time going through kind of the four primary ideas of focus that you guys allowed for the foreseeable future. If I were to in fact comp those again, maybe the focal points for Seaspan, two to three years ago I would imagine they are probably identical if not very similar.

I’m just curious, when you think about and maybe too early to tell, but when you think about the way, you think you’ll operate in the next 12 months. Is there anything that’s really noticeable or tangible difference between the way you expect to operate going forward relative to the previous regime.

Is it in something in the opportunities you look at? The idea of a client focus and growth and balance sheet strength is pretty ubiquitous across this space.

I’m just trying to figure out may be what sort of the key differentiators are between your (inaudible) going forward and previous regime?

This is Dave Sokol, maybe I should try to jump into that a little bit. I think the key thing is, in essence we’re going to obviously be in the same industry.

But I would say there’d be a couple of significant difference. One is we intend to continue overtime to improve our balance sheet.

If we’re going to be in this industry for the long haul and really look out for all of our constituents in their – to get a fair piece of the opportunity if you will, and I think the biggest mistake the company made historically was not managing its balance sheet to be prepared to take care of opportunities when they come along. And frankly in our sector of the industry leverage has been too high across the board.

So that’s probably the biggest. The second was going to be corporate governance.

I would urge you to look at the 20-F when it comes out and I think you’ll see that Seaspan will rank in the very top of quality corporate governance in this industry which isn’t in its own right necessarily a huge benchmark. But I think we’ll actually put the company where it were in the top decile of public companies.

And third, we are not just going to focused on new builds. Frankly, this market like any market I’ve participated in there’s time when new build make sense, there’s time when buying existing assets and redeploying them for our customers in various ways makes sense, and there’s time when acquisitions make sense.

And from our perspective taking advantage of those opportunity that come along across the board and not just waiting for new builds or things of that nature, I think those are going to be the key elements that will be different I think than in the past.

Fair enough. So I guess that kind of leaves me to my next question around the Panamaxs' and kind of the wide range of assets, sizes and ages in the fleet.

It seems like what you’re saying that the significant portion of the value crop will come from smaller assets and I guess the question would be, just having that wide array of assets and risk profile, do you think that ultimately helps your access to capital and your cost of capital or do you think it’s something that especially with the new accounting regulations that are coming, is it something you think that’s kind of increasingly important across this space.

It’s David, why don’t I kick it off and I’ll turn it to Dave. I think the reality is that having a broad range of assets allows us to better service our customers, so first and foremost.

And there are sort of different opportunities across various segments. I think as far as the leasing standard and stuff like that, that’s just accounting.

We don’t really think that’s going to have any real impact on our cost of capital. And one thing I would say is, if you compare it to a few years ago, the balance sheet today is in a much better place, particularly post Fairfax and the liquidity.

And so I think the intent is to be sort of opportunistic across the various vessel segments that serves the customers and maybe Bing just over to you.

In terms of the range of the app vessels that we have I think that based on the market demand our experience with the customers, I think we are in the range actually within from 2500 and above to 14000. I think that’s the range today.

If we’re looking at utilization, looking at the customers, the routes that they use, and I think that that is the right spot. And I think it’s actually is one of the areas where we have a broad range of the vessels that can really provide the needs whenever our customer needs.

So therefore I think that that is some that today actually given us an advantage versus disadvantage.

One more from me and I’ll turn it over. It’s actually for Peter Curtis if he’s still on the line or maybe for David and Bing (inaudible).

In terms of the opportunities you’re looking at now, can you provide some characteristics around how the blocks of possibilities that you’re hearing is a necessity from your client base today. And then maybe specifically for Curtis, for Peter, how many of those would be potentially LNG powered or are we near a point where you could see the third party owner step in and acquire and put LNG powered container ships on long term leases.

May be its David, I’ll turn it to Bing just kind of the breadth of opportunities that we see in the market place generally.

I think in the market place in general I think David you can tell something, okay. In terms of the environmental requirement I think is coming up in 2020 and the customers including ourselves, we’re looking at this different alternatives, and we’re internally performing the studies and together with our customers.

So this will be an important issue or important task going forward. In terms of the customers, I think they are actively engaged and we have been talking to all our customers and looking at what are their interests and what are their technologies out there.

So in general we are actually quite ahead working with our customer and internally ourselves and looking at this. And Peter you may --.

Hi Mike, good morning, its Peter here. In regards to a specific question on LNG, we do see that LNG has a place in the future.

Absolutely it’s not a retrofit option in our mind, we’ve had one of the liner majors make this first plunge in to the pool so to speak. There were sort of stop and start as you might have noticed in that project.

A lot of it being linked to their needing to establish a reliable set of logistics around the supply of the field, and because of that I see it being something that would be considered in new builds only and vessels for particular trades because of the reliance on the logistics of fuel supply. As that happens, so the initial impact of LNG which were quite negative such as loss of cargo space and things like this, as well as the improving logistics.

A lot of these negative aspects has been mitigated. As the infrastructure develops, we’ve been listening to, we’ve had meetings with a couple of the oil majors specifically on both LNG and supply of compliant fuels and supply of high sulfur fuel in the future as well to establish a position in this.

But long and the short, yes, I think LNG does have a position and it will be emerging.

Is that something you could easily work in to your savor design or is that something you’d had to kind of spend some time during field work and to come up with the new kind of swaps LNG design for Seaspan?

Well certainly it would be, but I wouldn’t use the word easily, but the technology is out there. It’s more of a case of the introduction in to the container site.

There are some cruise liners now that have been ordered that will be LNG supplied. By and large the vessels operating on LNG are tankers because they would be carrying the product.

But it is slowly expanding and as you know we’ve worked quite closely with the charter who actually has ordered the LNG in our vessels in previous times. And certainly it’s something that could be developed in to a designer valve, but because of the logistics surrounding supply fuel, it would necessitate an even heightened degree of cooperation and development, and I would say a longer term charter with a customer who may want to move in this direction.

This is Chris Robertson on for Randy, thanks for taking my call. I just have a few quick modeling questions and maybe a strategy question.

For the three 10000 TEU vessels that were previously chartered to Hanjin, are they chartered to Hapag-Lloyd now. Could you provide the details on the chartered durations and the rates on those?

It’s David; I’ll give you the charter durations. The initial duration was for one year and those came in to affect last year and around April, may be late March.

They had an extension feature under those charters which they have extended. So it really goes from one to essentially sort of two years, and there is a pretty meaningful step up on that rates to a higher level, but still below markets.

Market today on 10000 is approaching 30000 a day. This rate is below that just because of when it will set.

I’m not sure Peter if we’re able to give specifics on that charter rate, I think we’re not.

No, not really, but I think your question is more about the duration and we are in early discussions with this particular charter about the future.

So the charters basically go in to 2019 now. The regional rates were sort of set in the front part of 2017, but there is a meaningful step up if they extended, which they did.

And so that step up will take place really more in Q2 of this year.

Okay, that makes sense. And then similarly could you give any details about the two 8500 TUE vessels that were chartered to China Shipping and now chartered to COSCO?

Sure. They have been rechartered, they had – when they rolled off long term charter initially, it was right in the bottom of the market and this was really in Q4 2016.

Those rates have also gone up, I would say, Peter I don’t know if we’re able to say what those rates are. But I would say those rates went up probably close to 40%-50% from where they were originally.

But they were set at relatively low rates given the soft market that we had rechartered them in to in Q4 2016. So those rates are in effect really for Q1 this year.

And they have been fixed to different charter.

Moving on to kind of a broader market question, what are you seeing in terms of the current spot rates for the 4250 TUE vessels in the spot markets and then what are you seeing in terms of the one and three year time charter rates on those?

It’s Peter here, if I can address that. What I mentioned in my earlier notes was that typically we expect a lull in Q4 which usually extends in to January and February up to the Chinese New Year.

And in fact because of that normal seasonality was actually when we took opportunity to do some work on some of our vessels. What we saw and what was a surprise in the whole market really was at the back end of Q4 was an increasing demand for tonnage, but specifically on the Panamax side.

As a result, we fixed all of our vessels. You can see in the notes that currently they are handful idle Panamaxs’ not ours, but idle Panamaxs’ globally.

As a result of those tightening demand we’ve seen an decent improvement up to $10,000 per day on these vessels. But barely months ago we were at the $7,000 a day and earlier last year at $5,000 or less.

So we believe that there’s good opportunities coming for the vessels but the versatility is really being demonstrated. You will see one chart in our slides where you can see the array of trades that these vessels are operating through.

There are several trades which are upgrading from 3500 up to the Panamax size, which is actually part of the fundamental that has increased the demand recently in to this tonnage. So cascading in this case has benefited the Panamax.

And one final question from me in terms of the strategy here. Looks like issued 40 million in common shares under the ATM offering in 4Q.

Have you issued any additional common shares in 2018?

No, it’s David.

And then on the preferred shares, is there going to be any issuance in 2018 or have you done so?

We don’t give guidance on future share issuance, but we’ve been really in blackout since the beginning of the year just because its Q4 earnings. So we wouldn’t go in to the markets, so nothing is happening.

I think in Q4 it’s the first time that we had used the preferred ATM program, it was sort of modest. We thought we tested out.

We tend to be very disciplined with that program and sort of all the programs. I would say that just generally our liquidity situation really did change materially with the Fairfax investment.

And as we were going through Q4, just the visibility on that specific deal really only came in to play in December. So we were kind of well through the quarter already.

And I think that’s probably the best information we can give you.

I wanted to come back to sort of a bit in to the bigger picture strategy question and I think I don’t know if you want to kind of weigh in here. But there’s been some commentary around second hand opportunities relative to new build opportunities and presumably there’s some sort of duration maybe trade now that you might see with second hand opportunities versus some of the new build that you’ve historically focused on.

And there’s been a lot of commentary around sort of balance sheet strength and kind of improving that. I guess, may be a two part question, when you see that sort of second hand, I don’t know if you can give us a sense of maybe where you see the company moving over the longer run in terms of new build versus second hand opportunities.

What that means for the duration of the charter and then ultimately what the equity required for that is? So its sounds like obviously you’re moving in the direction of appearing in the balance sheet, but as you see some of these moving parts as the company evolves, should we be expecting something materially different from a cap structure than we have today?

I just want to make sure I kind of understand the vision here.

This is Bing Chen; I will try to answer the question. With regard in to the second hand versus the new build, first of all, I think is close to an all-time low.

And the demand of the new build is actually significantly reduced over the last years. In terms of looking forward, I think we do not anticipate a large pickup from the new build.

So that’s I think where the market is. At the same time, I think the in terms of second hand is to the contrary.

I think over the last maybe that case rather rebuild, new build now has become the second hand and we’re at the stage right now is actually as the large number of the vessels that comes off the long term charter and in the transition period where they need to be either to be recharge it or they need to figure out what depends on the type of vessels, their financial conditions. So I think at this point the face of the time, second hand vessels probably have more opportunities both in terms of the supply and also in terms of the economics, because I think new build today, because of the number of new build is available I think that the kind of the return versus the second hand potentially represent in terms of financial attractiveness and also the supply, I would think that there’s a second hand is more in favor around us, it presents more opportunity.

And from Seaspan’s perspective, I think we have already demonstrated that we have an ability in this space in terms of actively looking at the opportunities, managing the assets and capture the opportunities. For example, last year we bought and sold four 4250 and this year we actually concluded two 2500 with our customers, the largest liners.

So I think that this is a demonstration or indication of what we are able to do based on the different market conditions. And in terms of that coming back to your second question of capital structure, I think as we said it before, today within the industry we have the strongest financial strength compared to our peers.

However, we will continue to – this is one of the priorities as David Sokol mentioned earlier, that’s one of the areas that we’ll continue to build and improve, build our balance sheet and improve our cost of capital. And today with the liquidities we have and also with the investment from Fairfax, I think we have the warewithall to do what we need to do and been able to capture the opportunities.

So one thing I want to add is that we’ll be very disciplined. We were not going to do something for the sake of doing it, but we will be very disciplined, we’ll be accretive and we will deploy when the right opportunity both from the economic perspective as well as from the business perspective that will give us the synergy, whether you’re looking at the portfolio, looking at the business and looking at individual assets.

The expected duration of the total fleet contract charters is to be lower five years from now than it is today.

I think it depends. I think right now we still have a duration of close to five years.

Depends on what we’re going to do as I said before the type of assets, all portfolios, all businesses, and I think that we’ll have an impact on the overall combined the duration of the contract as well as the age of the fleet as well as the range of the class. So I think these are all in the place that we are – this is where as I said before, we’re in the phase right now that is our strength, because if you look at the Seaspan before, we are pretty much focused on new build.

Now we’re in a phase that we will be able to leverage our asset know how by being able to proactively managing these assets, so that we can maximize the return on these assets through our existing portfolio as well as by looking at third party assets and portfolio and businesses.

Dave, a quick question for you on the share count, can you just give us a quarter end share count, so we know where sort of we’ll finish for 4Q?

Yes, it’s about a 131.6 million shares.

David, just maybe you could talk a little bit about the Fairfax investment, how they came through, describe any terms of the investment further and just talk about kind of what drove that?

Well basically its – I’ve known Fairfax and Prem for quite some time, and they demonstrated some interest after I bought them on the Board as to whether or not an expanded partnership if you will with them and the company and the merchant family was of interest. And that was really kind of the beginning of the discussions.

The financial instrument, as has been described, is a debenture and a warrant. Effectively a convert if you really look at it, but just done in a way that suits their structure the best.

I would urge people to really look at it on a fully converted basis overtime. So I think that’s the intention, they are definitely long term holders and intend to grow the business with us and help us along the way.

So I would not look at it as a debenture word, I’d look at it as a convert with the expectation that it will be fully converted. But I think that’s important just for looking potential dilution in the future, but also strengthening of the balance sheet.

But from my perspective having known Prem and Fairfax for a long time, they are exactly the kind of partners. So it will be great to help us grow this business with.

I guess for Bing, in your intro comments; you noted the industry has fundamentally changed. Just wanted to understand your insight there, are you talking about the new alliances, are you talking about the leasing market, and just given what the opportunity you just talked about in terms of the second hand market, do you see yourself staying focused solely on container ships or would you move to leasing any other types of vessels as well.

I think in terms of the industry change, its clearly obvious. I think we can talk about the containership sector itself from the liners to our own asset owner all have changed.

The liners have consolidated; our sector is still relatively fragmented. So to that perspective, first of all, we being the largest in this sector, there is lot of opportunities, and today we have the competitive advantage to be able to first and take that advantage and being able to take on those opportunities and continue to play the market leader roles and been able to consolidate within our own sectors.

However to you question, and if its outside of this containership vessel sector, we’ll be looking at it. I think yes, if it’s the right opportunities, we will evaluate it.

But within our own sector of containerships there are plenty of opportunities at this point. The only thing that as we said it before, whether its within or outside, we will apply a very disciplined approach and that is very important because when we are looking at any type of acquisitions or taking on assets, we will take our – we have sets of criteria from the financial, from the business perspective that has to be, as I said it before accretive both in terms of financial and also from a business perspective.

So in general this is our disciplined principal that we’re going to apply in doing whatever we do in the next years.

And now for the other David, you talked about the number of short term non-contracted vessels, maybe you can highlight how many are left or on short term lease specially around that mid-size vessels that Panamax is and your opportunity to take advantage in improving market. What is your breakeven point on operations and including your debt service?

We have approximately 24 vessels in the short term market and a little bit more color. When we talk about short term, short term can be anywhere from three months to a year.

And if you look at Q4 the number of the vessels that were earning revenue, the revenue was based on charters that were entered in to in Q1 and so we had approximately 10 vessels on charters that were between 4000 to 5000 a day. Those charters have rolled off in Q1 of this year, and have been re-chartered at various levels, but materially higher levels than where they were in Q4.

Most of our – of those 24 vessels are unencumbered. So I mean it’s just kind of a general cost of capital, but right now we have 23 unencumbered vessels.

We have actually submitted the final repayment on a small facility that was due later this year, where we have four vessels for security Panamax’s, so now we’re going to go from 23 to 27 by the end of March. As far as the financing cost, there really isn’t any specific debt service against it.

And as far as the general operating cost on Panamaxs’ Peter maybe you just want to give a ballpark of where OpEx would roughly is been arranged.

In the low 5000, so with apparent markets, as I said we just fixed the unit of $10,000. The units before that is in the low 9, so certainly these are accretive.

I heard earlier that you talked about looking for expanding more on second hand vessels instead of new building vessel. Can you give us an idea of what kind of returns are you looking for and how this returns compare with the previous deal that you did in the past, and the cost of capital over the charter owners versus the line of operators.

It’s David; I think there’s probably two or three parts to the question. So if we don’t answer it all the first time, just don’t mind if we’re missing.

I guess first of all on cost of capital, we’ve been going through stages, I think the first stage really was just to get the capital structure in line with something is sustainable on a long term basis. And in doing that, at least when I joined, I think we are probably close to 7 times EBITDA.

Now we are 5.5 times and coming down. And when you think about coming down, there’s sort of deleveraging, but there’s also growing cash flows, whether its rechartering on the Panamaxs’, whether it’s the delivery of a couple of vessels this year on three year charter to CMA and sort of even it grows from that.

So we are at a much more reasonable level, and so I think the waiting of future dilution versus what makes sense from the cost of capital. I think it’s much easier to kind of look at that because we’re in a much better place today.

And I think because we’ve stabilized the balance sheet it opens up a number of different financing sources through time, which it only serves to reduce the cost of capital. I think as far as return profile, I don’t know that we want to signal precise number as far as what we target on different deals.

I think though what you see right now just when you look over the cycle, we’re at a relatively low level of asset values or asset values have come up from the bottom. They are still well below kind of mid-cycle levels, and new build prices are quite low, and so when you look at the return profile and making investments today versus historically, it’s a better return profile.

As far as kind of cost of capital of the liners versus us, if you look at historically about 50% containerships has been chartered in by the customers, 50% have been owned. The calculus for that 50-50, part of its cost of capital, but a lot of it goes well beyond cost of capital.

How much do they want to deploy in ships versus other areas, ports, rails, sort of truck-in. Everyone at some level is capital constrained.

How much of the operating capacity do they want to provide themselves versus outsource to third parties. And so cost of capital is critical to this business, but at any given time, our customers it’s not just the financial equation they are looking at outsourcing capacity for various reasons.

I’d say that if you look at that sector, they’ve all been active in strengthening their balance sheets and raising capital, which is good, its great from a counter party perspective. And clearly they have access to source of capital, but so do we.

And clearly having a Fairfax involved with the company, part of the benefit isn’t just the 250 million of capital; it’s the validation that comes with it. It’s the number of eyes and visibility on the company.

It’s the implicit support that sort of comes with that. And it opens up a lot of doors for us, and so from our perspective it’s a meaningful change as we look at kind of future account for raising opportunities.

And just to add to what David said, and if you are looking at our customers which are the liners, the vessels only accounts for about 16% of their total costs. So that one is a rather small portion of their total capital allocation, and just to echo what David just said, at the end of the day based on our experience and interaction with the customers, that’s what I said before, the industry is actually changing.

Changing by the sense that the needs from customers that’s already changed. I think they’re looking for quality service.

They are looking for scaled platform, they are looking for the financial strength of the counter parties like us that will be able to provide the kind of a total solution to them, because the industry changed the entire value chain has changed. So therefore this is another consideration today that we can’t just look at that, purely looking at the numbers of cost of capital of 8% or 9% or 3%.

Rather we have to look at is that, this is a rule in this industry that we can play and that’s what the demand from our customers and in this sector today, I think Seaspan is very well positioned because not too many others can do that.

One last follow-up, do you see that the industry, that the structure of the industry and opportunities are changing from a long term contract vessels with 5 or 10 years charters, so as to acquiring vessels at low cost with shorter term charters and getting the return for the appreciation of the asset as opposed to the effective cash flow.

It’s David. Look, I think the heart of every investment that we look at, there’s the cash flow, but there’s the residual value and a view on sort of the asset and future utility.

And there’s no doubt in the lower part of cycle that the asset value and potential upside becomes more interesting. But I don’t know that there’s been a fundamental shift from [model] tonnage.

The clients at the end of the day, I think like Bing said, they need capacity, they need to plan their network and service loops and ensure they have the vessels. And it’s an economic discussion, but there’s a willingness and you just saw it of these 2500.

There are four year charters with extension option for additional two years, and so it really depends on the customer and their desire to sort of lock in the capacity.

Coming back to what David said, very briefly, I think you had a very good question because my observation is the following. When you have the new build of course there’s long term contract, but then I think if you’re looking at those new build before the vessel value is much higher versus today.

I think you can say the rate is lower, but the vessel value is also lower. So you have a higher value and long term contract, you have a relatively lower value and a short term contract and you have the opportunity to rise up as the market start to recover.

Can you guys quickly maybe talk about the vessels under construction, kind of the timing and delivery for those and any commitments you have related to those?

It’s David, we have two new building deliver in we expect at some point in Q2. The remaining CapEx and those vessels is probably 70 million apiece, so about $140 million.

We have a facility that covers the majority of that and we signed that facility in late December. And that’s really it.

Thanks everyone for joining the call, and feel free to call in with additional questions. Thanks.

Bye-bye.