KBRA Affirms Ratings for Global Ship Lease, Inc.

KBRA affirms the BB+ issuer rating for Global Ship Lease, Inc. (NYSE: GSL, or the “company”), a containership lessor with administrative offices in Athens, Greece. KBRA also affirms the BBB rating for the senior secured notes (“the Notes”) issued by Knausen Holding LLC, a wholly owned subsidiary of GSL, and guaranteed by GSL. The rating Outlook is Stable.

Key Credit Considerations

The ratings reflect the company’s solid market position in containership leasing, particularly in the sub-10,000 twenty-foot equivalent unit (TEU) and high-reefer markets, contracted revenue ($1.9 billion at YE24), experienced management team, and strong equity capital base supported by a low leverage strategy. The ratings also reflect the company’s strong historical performance and resilience during recent industry disruptions. GSL has demonstrated a strong earnings and cash flow profile through market cycles supported by a solid level of contracted revenue, high utilization rates, versatile fleet and a conservative growth strategy with limited capex commitments. GSL has reduced its leverage in recent years with Debt-to-Equity declining to 0.5x and Debt-to-EBITDA declining to 1.4x at YE24, down from previously higher levels. KBRA understands that GSL expects to maintain leverage below 2.0x on a Debt-to-EBITDA basis.

The ratings are constrained by the company’s focus on secured debt funding as well as the historical cyclicality and high customer concentration inherent in the consolidated liner industry. However, GSL’s longstanding partnerships with major liner companies, a focus on long-term time charters, staggered charter maturities, and a low leverage strategy, partially mitigates these risks. GSL maintains long-standing relationships with leading liner companies, seven of which control a vast majority of the container shipping market. This concentrated customer profile inherent in the industry provides GSL with stable revenue from world leading liner companies but also highlights the importance of maintaining these relationships and elevates the potential risk of reliance on them.

The ratings also consider the potential impacts of new U.S. tariffs which have introduced significant uncertainty into the global shipping industry and could lead to reduced cargo volumes, route disruptions, increased operational complexity and volatility in shipping rates. That said, GSL’s fleet of medium and smaller-sized vessels are less exposed to a reduction in mainline trade compared to larger vessels given they more versatile and can be deployed to smaller ports for intra-regional trade which could see increased volume as trade patterns shift. This dynamic was observed as a result of tariffs during the first Trump presidency when supply chains became more dispersed, driving increased volumes between China and locations in Southeast Asia. In addition, industry disruption and operational complexity tends to reduce effective vessel capacity which is generally supportive of vessel values and charter rates to the benefit ship charterers.

The rating on the Notes is based on GSL’s unconditional and irrevocable guarantee and is two notches higher than GSL’s issuer rating. The 2-notch uplift reflects a robust collateral package consisting of 20 vessels at YE24, which represents a significant portion of GSL’s total fleet and a diverse mix of vessels chartered to key liners, as well as strong over-collateralization with an aggregate collateral value that exceeds the outstanding Notes amount by more than two times. In addition, the Notes have quarterly scheduled amortization totaling 15% per annum. The required amortization schedule, along with GSL's solid contracted cash flow base, reinforces the company's ability to cover debt payments and reduce debt over time. The rating also considers the structural features such as LTV and debt service coverage ratio (DSCR) triggers as additional protection in the event of any significant deterioration of asset performance.

The Stable Outlook reflects GSL’s low leverage, quality and versatile fleet, contracted revenue with staggered charter maturities and adequate liquidity relative to near-term obligations with 18 unencumbered vessels at YE24, providing additional liquidity, which support the company’s resilience to market disruptions. GSL had $168 million in available cash as of YE24, and its contracted cash flow sufficiently covers its debt service and limited capital expenditures with no reliance on charter renewals.

Rating Sensitivities

The Outlook for the ratings is Stable; therefore, a rating upgrade in the near future is not expected. However, over time, prudent growth of the fleet and increased market share, demonstrated stability of earnings metrics, maintenance of low leverage levels, significant improvement in available liquidity and diversification of funding, and a significant increase in unencumbered assets, could lead to consideration of a rating upgrade.

A sustained downturn in global trade which leads to financial stress of a large customer without explicit government backing, a decline in utilization rate or decline in charter rates, with material negative impacts on profitability, leverage or liquidity metrics, could lead to a change in the Outlook to Negative or a rating downgrade. A shift to a less conservative financial policy, including sustained leverage (Debt-to-EBITDA) materially above 2.0x could also lead to consideration of a downgrade. While the senior secured notes rating is linked to the issuer rating of GSL, an upgrade of GSL’s issuer rating may provide upgrade momentum but may not directly lead to an upgrade of the senior secured Notes' rating. Separately, a deterioration of the value or the performance of the Notes' collateral, leading to increased LTV, could lead to a downgrade of the Notes’ rating.

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