Capital Clean Energy Carriers Corp (CCEC) 2015 Q4 法說會逐字稿

Thank you for standing by and welcome to the Capital Product Partners fourth-quarter 2015 financial results conference call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer and Chief Financial Officer of the Company.

At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you the conference is being recorded today, January 29, 2016.

The statements in today's conference call that are not historical facts, including our expectations regarding developments in the markets, fleet developments, our ability to pursue growth opportunities, our expected charter coverage ratio for 2016 and 2017, and expectations or objectives regarding our quarterly distributions and annual distribution guidance may be forward-looking statements such as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted result to be materially different from those anticipated.

Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results, or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand the conference over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Thank you, Jenny, and thank you all for joining us today. As a reminder we will be referring to the supporting slides available on our website as we go through today's presentation. On January 20, 2016, our Board of Directors declared a cash distribution of $0.2385 per common unit and $0.21975 per Class B unit for the fourth quarter of 2015. The fourth-quarter common unit cash distribution will be paid on February 12 to unitholders of record on February 5. The fourth-quarter Class B unit cash distribution will be paid on February 10 to Class B unitholders of record on February 3.

The Partnership's net income for the fourth quarter stood at $15.4 million, a $1.7 million improvement on the $13.7 million net income recorded in the fourth quarter of 2014. The Partnership's operating surplus for the quarter amounted to $35.2 million, which is $3.1 million higher than the $32.1 million in the fourth quarter of 2014.

Common unit coverage for the fourth-quarter 2015 stood at 1.1 times. We recorded $0.3 million in profit share for the quarter, generated by two of our product tankers, the Anemos I and the Amadeus, as a result of the strong spot environment for product tankers. During the fourth-quarter 2015 we drydocked an additional three vessels, which brings the total number of drydocked vessels for 2015 to 10.

We are also pleased to announce that the Partnership has secured long-term employment for five of its product tankers, all at increased rates compared to the previous employment, including three MR tankers fixed for three years. As a result of the new charters and as at the end of the fourth-quarter 2015, the average remaining charter duration of our charters stood at 6.4 years, with approximate charter coverage of 89% for 2016 and 70% for 2017. As most of our remaining charter expirations in 2016 relate to product and crude tankers, we expect to be well positioned to take advantage of the improving market conditions in these segments.

Turning to slide 3, revenues for the fourth quarter of 2015 were $59.4 million compared to $49.7 million in the fourth quarter of 2014. The increase is mainly a result of improving employment day rates for several of the Partnership's vessels and the increased size of the Partnership's fleet.

Total expenses for the fourth-quarter 2015 were $38.9 million compared to $32.3 million in the fourth-quarter 2014. The vessel total operating expenses for the fourth quarter amounted to $18.3 million, $3.1 million higher than the $15.2 million in the fourth quarter of 2014. The increase reflects primarily the increased fleet size of the Partnership and expenses related to the drydocking of the Apostolos, Agamemnon, and Archimedes.

General and administrative expenses for the fourth quarter amounted to $1.3 million compared to $1.6 million in the fourth quarter of last year. Total other expense net for the fourth quarter of 2015 amounted to $5.1 million compared to $3.8 million for the fourth quarter of 2014. The increase reflects the higher interest costs we incurred in the fourth quarter of 2015 and lower interest income compared to the same period.

The Partnership's net income for the fourth quarter of 2015 was $15.4 million, or $12.3 million after taking into account the preferred interest in net income attributable to the Class B unitholders and the GP interest. That is $0.10 per common unit.

Moving on to slide 4, you can see the details of our operating surplus calculations that determinate the distributions to our unitholders compared to the previous quarter. Operating surplus is a non-GAAP financial measure, which is defined fully in our press release.

We have generated approximately $35.2 million in cash from operations before accounting for the Class B preferred units distribution. After adjusting for the Class B units distribution, the adjusted operating surplus amounted to $32.3 million, with common unit coverage for the fourth quarter being at 1.1 times.

On slide 5 you can see the details of our balance sheet. As of the end of the fourth quarter, the Partners' capital amounted to $937.8 million, which is $65.2 million higher than the Partners' capital at year-end 2014. This increase primarily reflects the issuance of 14.6 million common units in April 2015, which raised net proceeds before operating expenses of $133.3 million, and the net income for full-year 2015 -- partially offset by the payment of $122.8 million in distributions since the end of 2014.

As of December 31, 2015, the Partnership's total debt decreased by $6.3 million to $571.6 million compared to total debt of $577.9 million as of the end of 2014. The decrease was due to the prepayment of $115.9 million of principal under three of our credit facilities, in addition to $5.4 million in scheduled debt amortization, partially offset by $115 million drawn to fund acquisitions of the four drop-down vessels delivered so far. Overall, our balance sheet remains strong, with a net-debt-to-cap of 30.8%, and with Partners' capital representing 60% of our total assets.

Turning to slide 6, you can see our fleet drydock schedule. Over the last 12 months, we drydocked a total of 10 vessels, in certain cases earlier than initially scheduled, due to certain employment opportunities such as the Petrobras business and in anticipation of certain regulatory requirements. Total off-hire for 2015 amounted to 192 days, and total expense cost for the 10 drydocks amounted to $3.5 million.

We expect an additional five of our vessels to enter drydock in 2016, including two MR product tankers, which have concluded their drydocking earlier this month. We currently have no schedule drydocks for 2017.

Turning to slide 7, we are pleased to have secured new time charter employment and extended period contracts for a total of five of our product tankers during the quarter at an average increase of $2,260 per day, as the Partnership continues to take advantage of the current favorable rate environment in the product tanker market. Moreover, the employment of three of our product tankers for a period a three years, with two vessels to Petrobras and one to Flopec is a further important step in securing cash flow visibility at increased rates.

In this respect it is important to note that for 16 of our vessels fixed year-to-date, we have secured employment for two years or longer. In addition, by the time that all vessels have commenced their new employment, the number of vessels employed to Capital Maritime will have decreased substantially compared to a year ago. At the end of 2014, 12 of our vessels were employed with Capital Maritime out of a total fleet of 30 vessels compared to five out of 34 vessels currently in our fleet, thereby reducing our exposure to Capital Maritime and further diversifying our customer base.

Moving to slide 8 and taking into account the new charters, the average remaining charter duration is 6.4 years. We have two product tankers and two Suezmax tankers that will see their present charters expire over the next 12 months. We expect to continue to take advantage of the attractive fundamentals of the product and crude tanker market to secure favorable period employment for these vessels.

In addition, we are in advanced discussions with an operator for the employment of the two container vessels that are currently idle for one plus one years. Subject to final agreement and terms, we expect the charters to commence the second quarter of 2016, with the charter rate for the first year of employment expected at significantly lower levels compared to their previous charters. However, securing employment for these two container vessels will provide cash flow visibility through this difficult patch in the container market, and the relatively short duration of these charters will allow us to capitalize on a potential container market improvement down the line.

Turning to slide 9, I would like to remind you that we have currently a remaining commitment to acquire an Eco 9000 TEU post-Panamax container, with a five-year charter to CMA CGM. The delivery of the last drop-down vessel is expected in February 2015 and is fully funded, with cash flow on the balance sheet and an existing credit facility.

Among other growth opportunities from our sponsor in the second-hand market, we've been granted the right of first refusal on eight Eco MR product tankers, which are currently controlled by Capital Maritime. Capital Maritime has secured over the course of the fourth-quarter 2015 a credit facility for the financing of five of these vessels, which provides the option for the potential drop-down of any of these five MRs to CPLP at a 50% loan-to-value, provided that these vessels have employment for two years or longer.

Now, turning to slide 10, we will review the product tanker market developments in the fourth quarter of 2015. MR product tankers spot rates weakened in the fourth quarter of 2015 compared to the previous quarter but remained overall at firm levels. In the Western Hemisphere rates were under pressure at the beginning of the quarter, as the end of the driving season in the US, refinery maintenance, and lack of arbitrage trades across the Atlantic reduced chartering activity.

A similar downward trend was observed East of Suez, as Asian refinery utilization declined on the back of refinery maintenance, which resulted in lower product exports; and, subsequently, softer demand for product tankers. As the quarter progressed, however, rates gradually improved due to the upturn in refinery utilization of the US Gulf, which, in conjunction with the long transit delays in the Panama Canal, resulted in higher rates.

At the same time stronger naphtha flows exerted upward pressure on spot rates and days. Overall in 2015 the product tanker spot market has been the strongest since 2007, primarily driven by the Middle Eastern refinery expansion and the lower oil price environment. Accordingly, the product tanker period market remained active during the fourth quarter, with rates close to seven-year highs.

Favorable demand and supply dynamics are expected to support period rates and activity going forward, as product tanker deadweight demand is projected to grow by 3.6% in 2016, while new contracting activity has been limited. The order book for medium-range product tankers has declined notably from the start of 2015 and currently stands at 13.3% as a percentage of the current fleet. Concurrently, the order book continued to experience substantial slippage during 2015, as approximately 32% of the expected MR and Handysize tanker newbuildings were not delivered on schedule.

Turning to slide 11, the fourth-quarter 2015 was the best quarter in terms of spot Suezmax earnings since 2008. The market was supported by strong Chinese and European demand. In particular, China's crude oil imports hit a record of 7.8 million barrels per day in December, as the country continues to take advantage of the low oil prices to build its strategic petroleum reserves.

Suezmax tankers also benefited from limited tonnage availability due to increased delays in the Turkish straits and high chartering volumes that significantly increased waiting times at several ports in the East. As a result of the firm spot market, we saw higher period activity for Suezmax tankers during the quarter, while period rates remained in line with the previous quarter but with more charterers willing to look at periods longer than 12 months.

According to the IEA, world oil demand has grown by 1.8 million barrels per day in 2015 and is expected to increase at a slower pace for 2016 at 1.2 million barrels per day. Industry analysts expect Suezmax tanker deadweight demand to expand by 3% for 2016 on the back of the low oil price environment, robust European seaborne crude oil import growth, and increased crude exports from the Middle Eastern Gulf to India and the Mediterranean.

The Suezmax tanker order book for 2018 corresponds to 21.4% of the current fleet. However, slippage was substantial for 2015, as 38 of the expected deliveries failed to materialize.

Moving to slide 12, sentiment in the container market remains weak, as activity and rates in the fourth quarter of 2015 continued at subdued levels. The lower level of cargo bookings on the Far East-Europe trades that partially reflect economic challenges in the Eurozone and commodity-exporting countries, in conjunction with slowing Chinese economic growth, have negatively affected demand for containerized goods on a number of routes.

As a result, it is estimated that volumes on the westbound Far East-Europe service contracted in the first 11 months of 2015 by 4.3% year-on-year. On the other hand, the Intra-Asian trade volumes are estimated to have expanded for the full-year 2015 by 3.1% as opposed to the 6% growth experienced 2014.

Given the persistent weakness in the market over the last few months, the idle container fleet increased to 6.8% at the end of 2015 to a total of approximately 1.4 million TEU. Supply/demand balance looks set to gradually improve in 2016; specifically, container vessel demand is forecast to grow by 4% in 2016, while container fleet growth is expected to grow the same pace.

Furthermore, the container order book corresponds to 19% as a percentage of the fleet, the lowest since 2003; but very large boxships deliveries are projected to remain strong this year. As a result of the depressed container market, the inquiry for our two post-Panamax container vessels was limited, with only a few similar vessels having been fixed recently for a shorter period at substantially reduced day rates.

Catalysts for a sustained market recovery in the short to medium term for the post-Panamax sector include: improvement in European demand and, to a lesser extent, Intra-Asia trade; cascading for post-Panamaxes into the sub-6000 TEU range; increased demolition of older vessels; and the opening of the new Panama canal locks, which could generate additional demand for post-Panamaxes in a Trans-Pacific trade.

As a final point, I would like to highlight that we have concluded a number of important milestones in 2015 for the Partnership as we successfully executed against our business model. Firstly, we delivered on our growth strategy by acquiring four new vessels, all with long-term charters at that. We are on track to acquire the last contracted drop-down vessel in the first-quarter 2016, which is fully funded from previously completed equity offerings and an existing credit facility.

Secondly, we finished the year with a stronger balance sheet, have repaid approximately $121.3 million of debt throughout 2015. Thirdly, we have taken advantage of the strong fundamentals of our product and crude tanker market to renew a number of our charters at higher levels and, in most cases, for longer duration, thus providing our unitholders with more cash flow visibility. At the same time, we have diversified our customer base with the addition of, among others, Petrobras, Repsol, Stena Bulk, Shell, and Flopec.

We continue to monitor the slowdown in certain key routes of the container market at a time of increased supply of container vessels, which has negatively affected container charter rates and asset values as well as the heavy ordering for crude tanker vessels in 2015. However, all but two of our container vessels come up for rechartering after 2020.

As discussed earlier, the Partnership has access to a number of drop-down opportunities from our sponsor. Looking ahead, our ability to grow through such drop-down opportunities and to maintain a strong balance sheet will depend on, among other things, the Partnership's continuous access to the financial markets. In view of the severe pricing dislocation that has affected publicly-traded master limited partnerships, our Board believes that the Partnership is best served by maintaining the unit distribution for the quarter at $0.2385, which is unchanged from the third quarter of 2015.

And with that, I'm happy to answer any questions you may have.

(Operator Instructions). Jon Chappell, Evercore.

Just a couple quick questions for you. First, on the containerships, obviously you are in discussions right now, so I won't ask about that specifically. But I'm trying to figure out in a pretty opaque market what the time charter and spot rate environment is like today?

I mean, you have got this little table on page 12, but there's no 8000 TEU line in there. So just generally speaking, where is the one- to three-year time charter rates for those ships? And where would the spot market be, roughly, if you had to employ the ships there?

There is -- right now, Jon, there is very limited liquidity to the post-Panamax container market. There are a number of idle vessels; I think right now we counted 12 vessels similar to ours, as liners have taken a step back since the sharp drop in freight rates for containers a quarter or so ago. But there have been a limited number of fixtures for a shorter duration -- let's call it 6 to 12 months -- and most of them have been between the $7,000 to $10,000 range.

I hate to do the worst-case scenario here, but assume that the negotiations fall through, and they do not get chartered; then you basically have the option of putting them on the spot market, which is -- probably does not have very good utilization right now. What's the market like to potentially sell those ships, and is that something you would to consider?

They're still relatively modern. The charter with Maersk, which was obviously a blue-chip charter. So I'm sure they are in good shape. Do you think you could liquidate those if they didn't really fit your strategy of being chartered on a medium-term basis?

There is no such thing, as you know, as a spot market. But we are quite confident that our discussions will be fruitful. And we should be able to disclose more as soon as these are firm.

But for the same reasons that the charter market is illiquid, it is exactly the same for the secondhand market. There is very little interest, as I think both liners as well as owners are trying to understand what the expectations are going forward, and what will be the signs for a market improvement. But as I said, I think we are quite confident that we should be able to deliver on employment, let's say, from the second quarter onwards.

All right. Great. Last one and then I'll turn it over. I completely understand the decision to keep the distribution flat, given the 20%-plus yield right now. Is there kind of like a target yield or something where you would revisit that kind of slow and steady growth that you were -- on the pace you were at before, like $0.02 a quarter -- or, I'm sorry, $0.002 a quarter? That's basically it. Is there certain level you want to get to before you revisit that? Or right now you're just not getting paid for the yield, so retain the excess cash?

Yes, you're right, Jon. I think our Board has decided to maintain the same distribution level for this quarter. We do believe that this distribution level is consistent with our coverage.

Now, our cost of capital has been currently impacted by the negative sentiment affecting generally the MLP sector. But as you know, our underlying business is sound. In our view the pricing dislocation affecting the MLP sector is primarily related to low and volatile oil prices. But low oil prices have generally benefited our business, and especially the product and crude tanker segments.

Now, during the last few quarters we have taken advantage of the improved tanker markets to recharter our tanker fleet at higher rates, as per the earlier announcements. And now our charter duration stands at 90% for 2016 and 70% for 2017. Thus I think we are providing long-term cash flow visibility.

Now, in addition, as you know, CPLP does not have any unfunded CapEx. So we will be reaching out to our investors over the coming weeks and quarters to explain the distinctive nature of our operations. And we expect that this pricing will reverse as markets stabilize in the future. We can then revisit the distribution.

Okay. Great. Thanks for your time, Jerry.

Ben Nolan, Stifel.

My question -- I have a couple questions. The first relates to the charters and the five new charters that you signed, all of which are really good. The question there relates to this sponsor chartering a few of those. I'm just curious how you're thinking about -- obviously, you were able to get charters from other entities during the quarter, and I would imagine that there's a relatively fluid market. How do you think that incremental charters, whether to do those internally or charter them out to other unaffiliated third parties -- what's the thinking on that?

I think the answer is that it depends on the opportunity at hand. But to the extent possible, we have reduced our exposure to Capital Maritime, as discussed earlier. We expect by the time we deliver all the ships to their new charters, we will have only five ships to Capital Maritime. This is, I think, very different compared to the employment of our vessels a year or so ago.

But Capital Maritime remains very active in the spot market. It always gets a chance to bid when there is an employment opportunity for one of our vessels. And depending on the position and rate, it has been at times very competitive, more competitive than what we see on offer from third parties. But I do remind you that all decisions when it comes to such transactions are taken by the independent conflicts committee.

Right, sure. And clearly the charter rates are fair to even better than that.

But my next question sort of relates to the nine vessels that you show in terms of potential drop-downs there. Obviously nothing imminent, but as we get closer to the delivery of that first vessel in September -- first of all, I don't know if there are any charters on those vessels, but just thinking through what you might do with those in the event that the Capital Markets are currently -- or are unavailable as they currently would appear to be, is it -- is there any compulsion to need to feel like you'd do some drop-down? Or is it possible that just nothing happens with those?

Ben, at this point we are more focused on taking delivery of the last contracted drop-down vessel, which we expect to take delivery of towards the end of February. The additional drop-downs, such as the eight MRs that you are referring to, is only an option. And, of course, Capital Maritime will need to line up employment for those and for us to consider.

As you saw in our presentation, Capital Maritime has secured a credit facility that can be used for this purpose; and effectively, the credit facility allows for a drop-down at 50% LTV for up to five of these MRs. But as you say, we need to see our unit price appreciate considerably from current levels before we can contemplate growth and accretive transactions that would involve financing with common equity.

The current dislocation of pricing in the wider MLP space means that their cost of capital has increased substantially, with their common units yielding to date close to 22%. So to answer your question, Capital Maritime can continue to trade their vessels; there is definitely no obligation from our part, or we don't feel that there is an obligation from our part to drop-down the vessels. And definitely not at this valuation.

Got you. And then, lastly, and this hopefully will not be an important long-term issue, but with respect to the two vessels, the two containerships that currently are unemployed and you hope to have employment for in the second quarter -- which I think would be very important -- how should I think about the operating expenses on those? For the first quarter, at least, are they still costing as much as they would otherwise if they were running?

There is a small reduction of the operating expenses, because the number of crew -- we have decreased the number of crew on board. And of course, as the vessels -- they are not trading, and the main engine is not being utilized, the consumption of lubricants is lower.

So there might be a saving of -- call it 20% to 30%. But we are not -- we have not laid up the vessels, because we have been seeing inquiries from liners, limited inquiries. And now, as already discussed, we think that we are very close to actually fixing something. So you should expect a small reduction, but not a major one.

Okay. That's very helpful; thanks, Jerry, and good luck getting those two last contracts done.

Ken Hoexter, Bank of America.

Just, Jerry, on the order book, you mentioned the large slippage earlier. But given the oil pullback, is there an even greater reluctance to take Eco ships? So could we see that -- do you see that slipping even further? What do think the feel is in the industry?

And also, within that, can you talk about the new regulations that are coming up on the Tier 3? Does that keep the orders going, or is that only on new vessels, and you don't have to upgrade the old ones? Maybe you can just talk a little bit about the regulatory environment there.

Sure. Overall for -- when it comes to tankers, you'll find that for product tankers the ordering was quite subdued compared to previous years, with the order book looking a very reasonable 13%, one of the lowest we have seen for some years.

On the crude tanker side, don't forget that for many years and until 2014, because of the depressed market, there have been virtually no orders. So when the market shot up on the back of lower oil prices, which generated incremental oil demand, as well as because of the limited supply, we did see a number of orders being placed -- so over the last, let's say, 18 months.

This has definitely -- this trend has definitely -- it's definitely weaker as we speak, as I think we have seen the bulk of ordering. But at the same time, this means that the -- for example, when it comes to Suezmaxes, the order book is around 20%.

When it comes to demand, I think that it should be able to absorb this supply, as Chinese demand continues to be robust. And it's not just correlated to economic growth; it is also correlated to exports coming out of China. When it comes to products, as you might know, China has increased the quotas for Chinese refineries, including teapot refineries. So China has been importing, consistently importing, over the last few months. And the building of strategic reserves seems to continue.

In addition, the incremental oil demand seems to be driving the crude oil demand going forward. And the return of Iran to the market as well as the potential of US exports could play very much in favor of crude vessels. But to return to your question, the Tier 3 regulation is only for vessels that have been ordered from -- I think actually keel laid from January 2016 onwards. So it does not affect the older vessels.

Of course, demand for Eco vessels, or rather the benefit of Eco vessels is less today than with banker prices at around $150, $160 per ton; but in the end there is -- the economics are specific for each type of vessel. And depending on the consumption of each ship, you know your returns. So Eco vessels -- they still command a premium, but it is simply much smaller.

I appreciate that answer. And you kind of blended in there a little bit into my next question, which -- on the export ban. I think the general thesis seems to be that, hey, it's good for oil tankers; we are going to get more stuff moving. And same with Iran.

But the theme seems to be it's bad for product tankers, because now you're going to have shorter hauls. What have you seen? Obviously you haven't -- have you seen the pressure on rates? I know we are just starting, and -- what are your thoughts, I guess, generally, as we move with that -- with the lifting of the ban? Do you see that as a negative on the product side?

The product tanker market has been -- the spot market has been a little softer in the first quarter of 2016 compared to last year. But don't forget that with the exception of the recent cold spell at your side of the woods, it has been a very warm winter. So demand for metal distillates has been weaker over the last few weeks.

I think we need to be -- we need to see how things develop going forward, especially over the coming weeks with regard to product tanker demand. Now, it is not clear how the US crude oil exports will affect the demand for product tankers, but what I can say is that I do not foresee a very hot crude market without a very good product tanker market, and vice versa.

As you know, they are vessels that can trade both sides of the trade. So if, for example, the crude tanker market on the back of the Iranian crude oil and the exports out of the US pick up, and while the -- for example, the product tanker market is very subdued, then you will see a lot of LR2s moving into that market, as we have seen already, and vice versa.

So I think it is going to be a net positive for tankers, both these developments. But we just need to see how this will develop going forward.

Wonderful. Appreciate the answers, and congrats on a nice uptick on the renewal rates. Thanks, Jerry.

Amit Mehrotra, Deutsche Bank.

Thank you. This is Jason Crescenzo in for Amit. I don't think you actually need to recharter those containerships to be able to maintain the coverage, given the accretive tanker recharterings and drop-downs. So if you could talk about this in terms of cash flow puts and takes, even without any revenue contribution from the containerships and all the OpEx associated with those ships, that would be great.

No, you're right. Actually, we don't need to -- we don't need to employ these vessels at all for the full year, and still we can deliver, let's say, coverage on the existing distribution north of 1 times. But as you say, we have rechartered a number of our product tankers on decreased rates, and a number of -- actually of these vessels were not -- their charters were not expiring this year, but Capital Maritime was willing to let go. And as such we managed to extend our remaining charter duration and increase our coverage and increase rates.

And at the end, the depressed container market affects only two out of the 35 ships. So yes; the answer is yes, we can still achieve 1 times coverage even without these vessels being employed. But we do feel quite confident that we will secure employment for both ships.

Thank you for that. I've also noticed that net debt to book capital ticked down even further in the quarter. And the Partners' distribution yield is significantly higher than cost of any debt financing. I know it's a long shot, but any chance of putting on a little more debt and using the proceeds to repurchase shares?

I think for the moment it is important for us to take delivery of the last drop-down vessel and also fix the two open container vessels that are currently idle, see a couple of markets normalize, and then we will consider other transactions, including unit buybacks. I think it's still too early.

Okay. Very good. And one last question: just regarding the container ship side of the business, how many post-Panamax ships are currently seeking an employment? And in addition, how many 8,000 TEU vessels are coming off charter or being redelivered this coming year? We're just trying to get an understanding of how challenging the market is getting on a prospective basis.

Currently we have counted 12 8,000 TEUs vessels, which are similar to ours being idle -- but from shipping companies, companies like us. And that's in addition to a number of similar vessels controlled by liners. But the market is quite opaque, so it's difficult to give you the exact number of vessels, especially those controlled by liners that are up for rechartering soon or already idle.

But it's important to note that when a requirement arises, it could well be that it will be for more than one vessel, especially if a liner decides to replace several of its smaller ships. For example, if a liner decides to replace a string of 6,500 TEUs with a new string of 8,000 TEUs, you could see a number of these vessels finding employment. So it's not one-by-one kind of employment. And we have been seeing a few such inquiries coming to the market.

Very good, thank you. That's all for us. Definitely appreciate the time, guys.

Spiro Dounis, UBS.

So just wanted to go back to something you said just previously. You mentioned unit buybacks, and it sounds like your coverage is going to be going up a little bit; you have got another vessel coming online; the distribution is flatlining for now. Just wondering how you're thinking about that use of cash -- if it is going to unit buyback, how big would you see something like that being?

I think at this point it's very important for the Partnership to be conservative with its costs; especially we don't have visibility on the container market -- and until the container market improves as well as to see capital markets normalize. So in addition to that, we do have $15 million of debt amortization per year. So we are -- and we're going to use the excess cash to repay that debt.

Okay. And I realize some of this is sort of speculative, but if you were to build up a pretty nice cash balance over time, just because the market is doing well, and maybe you don't reinstate the growth as soon as you think, these drop-downs that you have in place -- is there a way or would you be open to self-funding those with cash on hand, not having to tap capital markets, and maybe do one at a time as opposed to all eight?

Potentially, yes. Let us raise that point whereby we have visibility with the containers as well as with capital markets. And then, yes, that could be a potential way of funding drop-downs.

Okay. And just to be clear, is there an expiration on your option to take those?

No, there is not. The way that this works is if Capital Maritime is offered -- has been offered from a third party to sell the vessels, then we have a right of first refusal. First shot at it.

Perfect. That's it for me. Thanks, Jerry.

Sunil Sibal, Seaport Global Securities.

Congratulations on a good quarter. Most of my questions have actually been addressed; just a couple of clarifications. So on the containership -- the two vessels that you are bidding on, are the two bids -- are discussions for the same charterer, or they have a different charterer?

They will both go to the same charterer.

Okay. That's helpful. And then in terms of the capital market, have you seen some kind of midstream MLP players come in and tap into alternate MLP currency -- i.e., preferreds and all that? I was just kind of curious if you have kind explored that market, or how do you see that market for yourself or in the broader space of shipping MLPs?

Well, we have used -- we have issued preferred in the past. And half of it has been converted to common. If there is an opportunity whereby we can put together an accretive transaction, yes, we would look at that source of capital as well.

But is it fair to say that we are not there yet, right?

Sorry, what's that, Sunil?

I was saying that it's fair to assume that we are not there yet in terms of that market being deep enough for you guys to explore something in the near term.

Not at this point as far as we know. But it is something that we have used before and we bear in mind.

All right. That's all I had. Thanks much, guys.

Mike Gyure, Janney.

I wondered, Jerry, if you could talk a little bit -- what you are seeing on the operating cost side? Maybe talk a little about your utilization days, trends kind of fourth quarter to first quarter? And anything you can give me there would be helpful. Thanks.

Our utilization was close to 100% for the vessels that did not have any drydocks for that quarter. As discussed earlier, we did have a number of higher days for the vessels that drydocked throughout 2015, including for three of our vessels that drydocked in the fourth quarter of 2015. That was effectively for the Archimedes, the Agamemnon and Anemos I.

But other than that, we had no other off-hire. OpEx is very much in line with the previous quarters. And if anything for the vessels that passed drydock, you should expect slightly lower OpEx.

Great. Thank you.

Ben Brownlow, Raymond James.

Thanks for taking the question, and congratulations again on the renewed vessels. Jerry, I think you said earlier in the call on the containerships -- was it a one-year time charter that they were considering, plus a one-year extension?

Yes, that's correct, Ben. So what we are discussing is one plus one in structure in charterer's option. But you should expect that the second year would be at an increased rate.

Is there any color you can provide on what that second-year rate would look like?

It would be, let's say, closer to the average that these vessels have been earning compared to the first year. But it's important to note here that the charter is optioned. So it is the first year that is firm. If market improves considerably, then the charterers will exercise that option. If it doesn't, then you're left with one year at the low rate.

That's helpful. And I just want to get your thoughts in terms of what you view as sort of what's going to be the inflection point to a rate improvement in the containership side? What do you see as being the catalyst? Is going to scrapping? Is it going to be improved Chinese demand? Just some color there.

I think the important things to look for when it comes to containers is an improvement in European demand; and, maybe to a lesser extent, Inter-Asia trade. The cascading of post-Panamax is into the sub-6,500 TEU territory -- that's as liners replace smaller containers with bigger ones, a trend that has been taking place now for a while.

The demolition that you mentioned is very important. It has been picking up considerably as a percentage of the fleet is idle, and we have seen 15-year-old containers heading to the scrap yard. And of course, I think a major catalyst for post-Panamaxes especially is the opening of the new Panama canal locks. That would mean that a number of operators would choose to replace 5,000 600,000 (sic) TEU vessels with large post-Panamax vessels.

All right. Thank you.

As there are no further questions, I shall pass the floor back to you for closing remarks.

Thank you all for listening in today.

So sorry to interrupt you. I see Michael Webber has just rejoined the call. Would you like to take his question, sir?

Of course.

I'm sorry. This is actually Hilary calling in for Mike. I know you're not looking to acquire any of the optional vessels anytime soon, but I was just wondering -- I know they have a credit facility, but I was just wondering -- your balance sheet looks really good -- if you have any target leverage ratio, if, I guess, for when you do decide to purchase those vessels?

The facility is with Capital Maritime, but it does provide the option for the vessels to be dropped down at the 50% maximum loan-to-value into capital products. We have, I think, communicated in the past that this is the ratio that we will be targeting for in the future. And I think it's also very important for us to be able to secure non-amortizing debt.

Okay. Do you have any expected timing as far as when the sponsor will be getting charters for these vessels?

Well, the sponsor has a large presence in the spot market. A couple of those ships -- actually, one of the ships has a longer-term employment. But no, actually, I don't have any color at this point.

Okay. That's it for me. Thank you very much.

Once again, sir, I'll pass the floor back to you. Thank you very much.

Thank you all for listening in today.

Thank you, Mr. Kalogiratos. And with many thanks to our speaker today, that does conclude the conference. Thank you all for participating. You may now disconnect.