DHT Holdings Inc (DHT) 2009 Q2 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the second-quarter 2009 DHT Maritime earnings conference call. My name is Katina and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Eirik Uboe, Chief Financial Officer of DHT Maritime. Please proceed.

Thank you. Before we get started I'd just like to make the following remarks. This conference call is also being broadcast on our website, DHTMaritime.com, and a replay of the conference call will be available on the website. In addition, a Form 6K evidencing this news release will be filed with the SEC.

As a reminder, this conference call consists of forward-looking statements that are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding DHT's prospects; the outlook for tanker markets in general; expectations regarding daily charter hire rates and vessel utilization; forecasts of world economic activity; oil prices and oil trading patterns; expectations regarding seasonal fluctuations in tanker demand; anticipated levels of new building and scrapping and projected dry-dock schedules involve risks and uncertainties and are more fully described in our filings made with the SEC.

Actual results may differ materially from the expectations reflected in these forward-looking statements. And with that out of the way I would like to turn the call over to Ole Jacob Diesen, the CEO of DHT Maritime.

Good morning, everybody. I take it that everyone has had a chance to read the earnings release which was sent out this morning. I shall go through the business situation of the Company for the second quarter 2009 while Eirik will cover the financial aspects of the period.

The first I would say is that the policy of employing the Company's vessels over the medium to long term charters, which provides stable earnings, is serving the Company well in the present market with current freight rates below the rates that is relevant to the Company's charter parties.

Now despite the freight market falling and the credit crunch taking its toll on ship values during the quarter, and I must say substantially more than the Company had estimated at the time of the first quarter, the Company is within its financial covenants, but we keep monitoring the market for any negative impact that vessel values may have.

We can't get away from the fact that the weak global shipping market has also created opportunities to generate value to the shareholders over the long term with falling values and new freight rates. To take advantage of these opportunities and to meet future financial commitments, the Board has decided that the Company is best served by strengthening its balance sheet to obtain the financial flexibility and liquidity and we're doing this by suspending the dividend for the quarter.

Additionally, the Company had $50 million in cash and that is roughly we had pre-paid $50 million under the credit facility. And we did this voluntarily and we did it to reduce the leverage and to improve the future liquidity to give the Company flexibility. And the funds that we pre-paid will be applied in order of maturity and this reduces the future debt repayment obligations in the years of 2011 to 2013.

While the base hire exceeded the spot market and vessel earnings in their respective pools, the current low rates below the base hire affect the Company's future profit-sharing natively. The profit-sharing has traditionally been around 25% as an average of the earnings per quarter.

Now the average life of the charters we have with OSG, under the charter hire arrangements I mentioned, provides the Company with a steady cash flow regarding (sic) of any negative fluctuation in the market which go below the rate in the charter parties. I'd like to, just for your information, mention that our rates that are for the base hire is at the level of $37,600 for the VLCCs; $26,300 and $26,600 respectively for the Suezmax ships; $24,900 for the large Aframaxes; and $18,900 for the small Aframaxes.

Now this has to be looked upon relative to the spot market, if you will, and the stock market for the VLCCs is currently around $22,000 and the Suezmaxes $12,000 and the Aframaxes around $6,000 to $7,000, according to the latest information I've seen from Clarkson. Additionally, the charter arrangement has had the benefit of profit-sharing, but this is now being -- having less of an effect on the total earnings of the Company as a result of the low current market.

Concerning the market overall, the balance of the supply and demand, clearly the market has affected the rates that we talked about, but the balance of the supply and demand factors are mitigated from vessels used for storage in connection with a contango oil price, it's also the phase-out of older ships and single hull tankers as well as the transportation distances between the producer and the consumer seems to extend according to the statistics.

So in the near term I think that these are the factors [rather than] the rates that will actually help us to get a better market -- and not so much the crude oil sources supplies dry up and additional market inefficiencies. Now they are not, however, enough to entirely make up the negative effect on the demand for transportation which is caused by the OPEC cut in oil production.

We see the market in a way where the long-term fundamentals for demand for oil and oil transportation are still positive. Although it is suffering from the world economic crisis, where it has reduced demand of oil and a cut in production. However, when the economy again turns, which I'm sure it will, China, India and Far East emerging markets will continue to remain the primary drivers for the growth in oil demand and tanker demand.

Even where there is negative growth in the OECD countries, China is growing its GDP by about 8% according to the analyst (inaudible). China is actually a very important driver for the future of oil transportation. They have also provided us a substantial stimulus package to grow their economy and the domestic oil prices are set to encourage production at the new refineries. The new refineries in themselves will require oil import and will their strategic reserves.

So overall I would say that consideration has to be given to the transportation as the key driver for the growth in the non-OECD countries. In this regard I think it's worthwhile to consider that China has now surpassed USA as the world's largest (inaudible) market. And a substantial portion of the oil import to China goes for transportation purposes. China's car ownership is growing at 10% annually and for the first half of this year it grew by 26%, even in this adverse economic climate. Looking to the oil import, in fact, just from June to July, the -- China imported -- increased its import by 18%.

Now the current adverse credit market is also having an effect on deliveries on new buildings. They are encouraging cancellations as well as delays in new buildings and the low freight rate is enhancing the commercial obsolescence and phase-out in the single hull tankers or tankers -- sorry, single tankers by the year 2010.

Well, with the strengthening of the Company's balance sheet, the steady cash flow contribution, positive cash flow contribution from the long-term charters, the strong counterparty and more than four years ago as an average and a credit facility in place with amortization first commencing in 2011 and now at lower amounts than previously with the resulted prepayment and the application of funds in order of maturity, the Company is positioning itself to weather the market and to take opportunities that can create long-term value for the shareholders. With this, I will hand it over to Eirik Uboe, the CFO.

Thank you, Ole Jacob. Before getting into numbers I'd just like to remind you of some of the accounting changes we implemented as of the first quarter of 2009. We changed the base on which we prepare our financial statements from US GAAP to IFRS and previously reported financial statements have been converted to IFRS, but this did not result in any changes to the income statement for 2008 and the changes to the balance sheet as of January 1, 2008 and December 31, 2008 are minor.

Our conversion document which includes a detailed discussion of the changes -- change to IFRS, was filed as an attachment to the Q1 2009 interim financial report which was filed with the SEC on May 19, 2009. Also effective January 1, 2009, we changed the way we account for interest rate swaps. We no longer account for interest rate swaps as hedges for accounting purposes. Therefore, effective January 1 2009, changes in the fair value of our swaps and amortization of unrealized loss on the swaps as severe in 2008 will be reflected in the Company's income statement. And with that I'll turn over to some of the numbers for the quarter.

Total revenues for the quarter was $26.2 million, this consists of $22 million in base charter hire and $4.2 million in additional hire under the profit-sharing arrangements with OSG and we have now earned additional hire each quarter since being listed on the New York Stock Exchange in 2005.

Net income for the quarter was $5 million or $0.10 per share. However, when adjusting for the non-cash financial items related to the interest rate swaps, and a one-off charge of $2.4 million related to determination of $42 million of interest rate swaps, net income would have been $0.12 per share. This, as Ole Jacob mentioned, (inaudible) is paid the base hire under the charters irrespective of the vessel's actual earnings in the commercial pools. And for the second quarter these rates were [above] the rates the vessels earned and the market from their pools.

However, for the purpose of calculating the profit-sharing, DHT's VLCCs and Aframaxes achieved average time charter equivalent revenues in the commercial pools of $29,700 and $22,900 respectively. The Suezmax Overseas Newcastle achieved earnings of $23,300 during the quarter. And of the $4.2 million in additional hire $2.7 million relates to the VLCCs, $1.3 million relates to the Aframax tankers, and $0.2 million relates to the Suezmax tanker Overseas Newcastle.

Technically, the Company's vessels operated well over the period. The total of 55 days of off-hire reflected the scheduled docking of Overseas Rebecca which had 49 days off-hire and the Overseas Ann which had five days off-hire for an interim survey.

For the second quarter, DHT's vessel expenses, including insurance costs, were $8.2 million reflecting the new technical management contracts effective January 16, 2009. Vessel expenses for the quarter include $0.5 million related to Interim Survey for the Overseas Ann and $0.3 million in bunkers expenses related to the off-hire for Overseas Ann and Overseas Rebecca.

Depreciation and amortization expenses were $6.6 million and I'd like to point out that the docking cost for the Overseas Rebecca of $4 million has been capitalized and we will depreciate it based on the estimated time to the next docking.

G&A expenses for the quarter were $1 million. Net finance expenses were $5.5 million. This includes a gain on interest rate swaps of $6.4 million, amortization of unrealized loss on interest rate swaps of $4.6 million, and a $2.5 million cost related to the early termination of an interest rate swap of $42 million, which I mentioned previously. Adjusted for these items the net interest expense was $4.8 million. And with this, I'd like to open up for questions you may have.

(Operator Instructions). Jon Chappell, JPMorgan.

Thank you. Good afternoon, guys. My first question has to do with the Overseas Rebecca and this new sub charter to OSG Lightering. How many other vessels have this agreement with OSG and that they could potentially take out of the pools and put on sub charters?

All the ships have -- all the charters have that option for OSG. They can elect to take the ships out of the pools and employ them in the markets on a time charter basis. And as long as the market -- the rate they obtain in the market is the proper rates, which is [called] to the market, in the other words, they have to make sure that everything is transparent and according to what the market can actually bear at the time.

Do they have to get approval from you or give you a couple months notice? Because it seems like this charter rate of $17,500 would -- could potentially have a detrimental impact on profit share in the longer term.

I think you're exaggerating the detrimental impact on the profit-sharing. It's clearly that this ship at $17,500 will not be a positive contributor for the profit-sharing going forward. But the profit-sharing arrangement is really calculated on a fleet wide basis and it's on a three-quarter rolling average.

Now I could say at the same time that Ania was fixed to the lightering service of OSG at $29,000 in January and so that ship is in itself, although it is taking out to the pool and chartered to a specific entity, it is contributing to the profit-sharing arrangement.

Now as far as the issue of chartering, taking the ship out of the pool and chartering to their own subsidiary, of course the benchmarking has been done in this case to make sure that the rates that are applied are the rates which can be substantiated and at our arm's-length and is the rate at the time that the charter took place. They don't have a specific notice period to us, but they do have a notice period to the pools.

And you got mentioned 12-month rolling profit sharing. Assuming the market remains where it is right now and no profit share is garnered in the second half of the year, how much been accrued so far that we can expect to fall into the third and fourth quarters of this year?

I think we don't accrue the profit-sharing at all. Eirik has to correct me, but we don't accrue for any profit-sharing. We are calculating the profit-sharing as it comes on a four quarter rolling average, as I said. And of course when the market goes down it will reduce the future profit sharing element because that quarter will then have a negative impact on the overall picture.

But there's probably still some profit-sharing from the fourth quarter of 2008 in the first quarter of 2009 given the market (multiple speakers).

Yes, but we are not accruing those things because it will -- even if you had a good quarter then, it will be having -- you have to compare those with the most current quarter.

Jon, we just use the rates from those quarters to calculate the profit-sharing for the current quarter accrual. But the rate for Q4, one and two this year will, of course, be used for Q3 purposes, yes.

I'd like to add one point on this thing, Jon, and that also the fact that from our point of view, we don't envision that OSG is going to take out a lot of ships and charter them [below] charters, because they are in the pools and, as you know, the pools have substantial cargo commitments, etc., and they will serve a purpose.

I can only say that, from my own experience, that ships like Rebecca and Ania, which even when they were in the pool they were operating the lightering service. They are very well suited for the lightering service.

Okay. And one last question. You mentioned opportunities in your prepared remarks and you talked about the strength of your balance sheet. How much liquidity is available right now to buy assets?

I think the issue today is that we have cash of about $50 million, but we also have -- each quarter is giving a positive contribution to our cash as long as we preserve the earnings that we get on a quarter basis. So as far as going forward, I think that we also have to look at the little of what [reflected] the leverage that we can obtain.

But currently what we have is $50 million, but I think that you have to look at the issue that we are generating positive cash flow on a quarter by quarter going forward from all the base hire. So as long as we preserve the liquidity we can see that it will be increased.

Okay.

And then, of course, hope to leverage (inaudible).

Thank you very much.

Ken Hoexter, Merrill Lynch.

Hi, good morning. Just wanted to start off with I guess two questions, one on the dividend. Obviously in such a dramatic move just a couple of years ago you were at a variable rate, now I guess six months ago you moved to a -- to I guess maybe now actually just over a year and a half ago you moved to this fixed rate which kind of set the stage that you had said that it was such a safe level at the dollar, it was below the base hire rates, that that was your plan.

I just want to understand what your thought process is in removing that for the equity holders and your plan on what would bring it back. Is this just a move to start storing up cash to make some near-term purchases or what other things would bring that dividend back in line?

Well, I think that we are, of course, very mindful of the shareholder base and that we were originally established as a company with so-called high yield dividend. We have, however, always also focused on the fact that we wanted a strong balance sheet. And going forward, for whatever we're going to do, when we reassess the dividend, if you will, we will have to look at the factors.

And we're not saying that we are not reassessing the dividend, but at the moment we think that the market environment which we all are suffering from, and looking at what is happening on the freight market and the vessel values, that it would not be prudent of the Company to spend the money for paying dividend at the expense of the, can I call it, the solidity of the Company.

And again, we will reassess the future payments on a quarterly -- dividend potential on a quarterly basis taking into consideration the shipping market at the time, the current and future cash flow and also the future financial commitments of the Company.

Now there has been, you must admit, that there has been a dramatic change from -- in the market from January 2008 when we set a target dividend, if you will, of $0.25 per share. We have also increased that a couple of times during the year and we have been looking at both the (inaudible) situation today. And we had to respond accordingly to be in our view prudent and to allow us flexibility, and that's really the (multiple speakers).

Why do you think that -- I'm sorry, Ole. Why do you think that is? If, like you've noted, the structure of the Company at the start and the whole purpose was to pay that dividend and now to completely remove the dividend. I'm just wondering where the dichotomy is since the purpose of the start was to create the income dividend paying structure for investors and now to remove that completely?

Well, I think that at the time that was the way that companies were structure. We had an up growing market, an increasing market, a booming market for several years. This business is cyclical and I don't think that the -- honestly, I don't think it is correct that the shareholder can expect a full dividend when you have a down market that you have seen today -- such a dramatic down-market. And then ships are today operating sometimes not even at an earnings -- money left on operating costs. The ship value since January 2008 has dropped by over 50%. It's a tremendous change in the market.

Totally agree on the current market, but wasn't that the purpose for having the long-term charters in place so that in up markets and in down markets, particularly in down markets, that you would still have that income stream to be able to pay the income?

yes, but we have just talked a little bit about -- we are losing a substantial portion of the revenues that we have benefited from over a long period of time. The profit sharing has been around average 20%, 25%, more like 25% over these three or four years and that has been an important --. Now we cannot really expect to get profit sharing as we go forward because, as we talked about, it's a four quarter rolling average. And with this year being as it is, cutting the -- we are benefiting from previous quarters, but now it goes down, down, down, we cannot expect to be any profit sharing next year, as an example.

No, I don't want to beat the dead horse, but I totally agree and I thought that's why you had set the dollar dividend at what was to be able to be paid through just the base rate hire and you didn't have to worry about profit sharing. I thought that's why you moved to the dollar dividend was so that in a case where you were just receiving base hire you would still be able to pay that dollar dividend with no problem?

But we also had [decided] during this period, we have also acquired two Suezmax tankers, as you know, and we have therefore also made substantial repayment. Those Suezmax tankers have been a good contribution to the dividend. But it's also a result of then us paying $75 million down in October last year on that debt, for example.

Okay. Now, do (multiple speakers).

So I think you have to look at the balance between, yes, we are aware of the shareholders who would like to have dividends, but at the same time, we have to balance that need also with the Company going forward.

No, I understand. I guess it's just the structure --.

In a current market environment.

No, I understand, it's just it seemed like the Company -- the whole structure of the Company was built solely -- well, not solely, but for the purpose of paying the dividend to investors in good markets and in bad markets. So it was great in good markets, you had the profit sharing on the upside, but it seemed like the whole purpose was on the downside. You had the protection of all of these long-term charters, you even kind of highlighted there are still four years left of these charters that -- particularly in a downturn that's why investors were holding onto the shares was to be able to get that dividend despite the down tick in the market.

Yes, well, I think also what we have to do, and I go back a little bit on my point there. I think it is important that we have to be prudent; we have to look into where is the shipping market? It's not only where the shipping market has been, but where do we see the market today. The market is quite uncertain (inaudible) to be going forward. We know there are not all ships being built and even though there are some being canceled and some being delayed, being delayed was [welcome]. And we have a world economy which has substantially reduced the demand for cargo of ships. We have to take that into the consideration of --

Right.

-- the future market and what we can expect will happen into the future market. Yes, we have the base hire and I'm very happy with the base hire. But we also have to see -- we can't just pay the dividend without keeping an eye to the balance sheet.

Okay. You mentioned there's potential for even maybe then reinvesting and making some near-term purchases. Where would you look for those opportunities? Are they by vessel class still on the liquid side? Is it outside of the liquid market? Where would you look for the --?

We principally live for the time being, we focus on the liquid side. And I think that -- yes, we focus on the liquid side if you're going to look forward. And I do think that if -- when you see today where the ship values hold as much as they have, that certainly will give opportunities as we go forward. But this will, of course, also have to be balanced with managing the balance sheet.

So there's nothing specific on the agenda? You're just doing this saying there's an optimistic market, there's nothing that you're looking at closely that we could see in the near term as the risk versus benefit?

No, I don't -- as a matter of fact, since you're asking me, I do think, and I also said this previously, that I think that we will have better opportunities as we go forward. I don't think that we're quite through with this situation. We haven't seen the bottom yet is what I'm trying to say.

Okay. And lastly, Eirik, can we get an update on the pool performance from where we are and whatever I guess the last update was in July?

You mean the bookings for Q3?

Yes.

That's referred to in the press release. We (inaudible) more recent updates on July 24 numbers for the pools.

Okay.

Okay?

We have to rely on what we get from OSG in this regard.

Okay. Thanks for the time.

Noah Parquette, Cantor Fitzgerald.

Good afternoon, guys. Most of my questions were answered, but I just have a couple housekeeping things on daily vessel operating expense, it increased over last quarter and I guess part of that was due to the $800,000 in one-time payments. But do you have a breakdown by vessel class what the daily expense was during the second quarter?

We have been struggling a little bit about the operating expenses on the ships. As you know, we had a fixed operating cost arrangement with OSG up to January 16 this year. So we have been hustling a little bit about what the actual operating cost will be for a total year. And what we are a little concerned about [this regarding] is the operating cost for a short period may be skewed if you look at it over a total year period. Okay? But roughly calculated, Eirik, I think we have VLCCs if you exclude insurance costs you are around $11,500 a day, and Aframaxes around $9,000 a day.

Okay, and you think that's a pretty good number for the rest of the year? Obviously it will be skewed by one-time (multiple speakers)?

But you see what I'm getting at? You know we have a short period to address this thing, but it is not far from the budget. But how good is the technical manager to budget? (inaudible).

Okay.

But I think if I'm going to do a calculation, I think that that is a calculation that we should be safe on.

And then on the swap, the $42 million swap you canceled, what was the rationale behind that and how much in swaps do you have left?

When we repaid the $50 million we will have been $42 million over hedged, put it that way.

Right, okay. (multiple speakers).

(multiple speakers) half of the $42 million, that was the rationale behind that.

That makes sense. So the rest -- most of it's still swapped?

The 194, that remaining is now fully swapped, yes.

okay. And then I guess just an industry question. The market's obviously been difficult for the last few months, but scrapping hasn't picked up at all. Do you see any signs? What do you expect scrapping to do over the next year going to 2010? Can we expect a pickup?

I can't give you a figure, but I definitely believe and I have said it before and I'm obviously wrong so far, but I definitely believe that the scrapping is going to increase. It has to get closer to 2010. Yes, there will be a phase-out, everything won't disappear [at one time]. But with the current low market rate, and with the commercial obsolescence that is taking place with the regard to the single hull ships and the fact that a lot of the older ships, they were built around 1990 and now facing 20 years and they are facing the charterer's assessment program on the technical details which is just as tough to pass as any special survey. I think that the older ships with the low earnings like we have today will not through these kind of surveys. So I think that scrapping will increase.

Do you see any sort of catalyst? I mean we've had sort of that situation for several months now and nothing's really happened. Is it going (multiple speakers) to or is it --?

Yes, but I think what is happening there is that you see the people with single hull tankers who have still managed to employ their ships although less frequently than the double hull tankers. They have also been making good money over time, so it takes a little bit (inaudible). I think that the new survey time is going to be a very important -- if you use the word catalyst for when this thing is going to happen.

Okay. That's all I had. Thank you.

Jeffrey Rudner, UBS.

Good afternoon, gentlemen. Some of my questions have been answered, although I'm not sure totally satisfactorily, so let me give you some new ones and then get back to some of the older ones. First, we paid down $50 million worth of debt in the quarter. Are you comfortable with the level of debt we have now or are you anticipating paying down more of the debt?

I think that's a little bit above what you're seeing going on in the market. I think it's important for a shipping company like us to have a balanced balance sheet, if I can say that. You know, it's good to be a balance between debt and equity and the vessel's earnings and vessel values. And I think it is very difficult currently to say what's happening with regard to vessel values, first of all. We have seen a substantial drop; we also seem to be sensing out a leveling of the fall that we had experienced in ship values.

But at the current time now, do you feel comfortable with the level of debt around $290 million, or --?

At the current level we are comfortable. We think that, and as I said, we are above minimum value clause, and so we are comfortable with the present level to debt.

Okay, is it a safe assumption (multiple speakers)?

Present value to debt is what I'm trying to say there.

Right, okay. Is it a safe assumption then that if values do not deteriorate and the market does not deteriorate but remains level or even picks up that you would not look to reduce the debt level below the $290 million?

If I get your question right, you're saying that we are not planning (multiple speakers) we are not planning to reduce the debt with the present ship values. Is that what you're saying?

Right, right. (multiple speakers) assuming the market doesn't deteriorate further, do you feel comfortable with the level of debt going forward?

Yes, yes.

Okay, now getting back to the dividend question which the gentleman from Merrill Lynch talked about, I think that at least part of what he's suggesting is when we went to the level of dividend to $0.25 a quarter, which at 48 million to 49 million shares outstanding is a $49 million dividend or $12 million per quarter. Is that you're taking an attitude -- or your approach seems to be that you're going from an all to a nothing situation.

That if one were to look at this just in simplistic terms they might say or get the wrong impression and I'm getting this impression from you -- is that things were reasonably okay last quarter, but things have gotten so bad this quarter and going forward that we had to totally eliminate the dividend as opposed to maybe cutting it in half or even paying out a minimal $0.05 or $0.10 per quarter indicating that, yes, things have gotten more difficult, but they're not so severe that we can't afford to pay even a nickel a share.

Oh, I see what you're getting at. Well, I think that there is no doubt that the development in the second quarter has been worse than -- definitely than what we had anticipated, but it's not only to look at the second quarter. I think that what we should look at is also the future. And we are uncertain about the shipping going forward in the future. But we do at the same time see opportunities; we see opportunities as the values go down and I think one has to position oneself for that, just like you had to position yourself to make sure that you have a reasonable balance sheet at all times.

Okay. It's interesting you make those two comments that you want to maintain a reasonable balance sheet, which I certainly agree with, and you want to be able to maintain the possibility of making acquisitions or taking advantage of opportunities as they exist. One way companies do that is by issuing new shares to raise capital and then take advantage of the opportunities in the marketplace.

Again we took the opportunity to sell I think 9 million or 10 million shares not too long ago. Obviously, by eliminating the dividend, not just cutting the dividend maybe in half or by two-thirds but by eliminating the dividend, we've put significant pressure on the price of the stock this morning and I would imagine that it will remain under pressure for maybe at least the next three to six months if not further out.

And that significantly inhibits our ability to raise capital in more favorable terms. If we were to have issued shares yesterday at $5.00 a share, we would have taken in significantly more money than issuing shares at say $4.00 a share which might be the price next week.

Yes.

So that hurts the balance sheet by not being able to fortify it through the issuance of new shares, that hurts our ability to take advantage if there is further weakness in the tanker market to be able to buy tankers at a favorable price because we don't have the ability to maybe raise additional capital at favorable rates.

Well, I think that if you come to a situation where we can do good transactions I think we can be able to raise equity in connection with a good transaction. And I think that's really one of the important things being a public company today and an advantage that public companies have relative to private entities.

I agree with you fully, but the point is if you wanted to raise $50 million and the stock is $5.00 a share, we're talking about the issuance of 10 million shares if the stock is say $4.00, and you can do the math as to how many additional shares we have to issue to get the same amount of money. The bottom line is, and then I'll let you go, is that I think going -- making the drastic move of totally eliminating the dividend as opposed to just cutting the dividend by 50%, by 60% down to say $0.10 a quarter, even $0.05 a quarter, I think may send a bad message to the marketplace.

Well, I hear what you are saying. We have taken the decision and we feel that it is a prudent decision to do going forward, when we look to the uncertain shipping market.

Okay. Thank you very much. Thank you for your time.

Jerome Lande, Millbrook Capital.

Hi. My questions have been answered. Thank you.

Andrew Kleinberg, Glickenhaus.

Good morning. My first question is, what was the -- what is the current interest rate on the credit facility you paid down by $50 million?

Eirik, we have a swap for (multiple speakers)?

I'll reply to that. It's a -- this is all swapped to fixed, so it's at 5.6%.

Okay, the second question is following up on the dividend elimination. There seems to be a very strong disconnect, not only have tanker prices come down from January of '08, but in the interim in the worst part of the economic maelstrom that has occurred in the last 12 months, you guys decided to bump up the dividend and pay out cash to shareholders with a special dividend. It seems an extremely -- I'm just following through what -- was the thought process three months ago and six months ago that the scenario looked so optimistic that you were willing to pay out more cash at that time?

Let me -- first let me say (inaudible). At the time when we increased the dividend, which was in February, not three months ago, it was really down because we felt, like many other shipping companies, we had made an awful lot of money in 2008 and we felt it was fair to share some more money, some more of that with the shareholders because we had always been cognizant I think is the English word, of the shareholder base and the desire of the shareholders to have a dividend, also looking at the history of the Company.

On the other hand, we at that time, did not expect the market to deteriorate to the extent you have seen, and in fact we didn't expect the market to deteriorate as we have seen even when we were in March. It is really the last few months that have taken us to change the attitude, if you will, and made us force to look further forward on what we can expect.

So in other words, when we made a decision in early February it was to some extent made on what we had earned on benefit and also how we saw the market going forward. And we didn't see the market in early February to deteriorate to the same extent that we have experienced now.

Okay, so you're saying that management did not foresee the problems and how bad extreme -- they misread how bad the environment would be?

Yes.

Okay, okay. That's my question. Thank you.

Matthew Troy, Citigroup.

Hi, guys. This is the Bascome Majors in for Matt Troy. My question is really on the covenant and valuation. When is the most recent valuation you guys have done and sort of where did that come in and how much room do you have for vessel values to fall before you have to put more cash towards the balance there?

First of all, as you know, the valuation of ships today is not so easy to come by. The data points, if you will, are relatively few and they are quite uncertain. But we think that the ship values from beginning of the year this year to now have fallen by about 30%. So we think our ship values, if you will, are in excess of $400 million, let's say, $[415] million or something like that. And we are comfortable, as I said earlier, with that kind of ship value to our [return] debt of $290 million.

Okay, so there's been no third-party valuation since year end? You guys are estimating where you stand with the covenants (multiple speakers)?

Well, the bank is making their valuations and we are keeping a tab on it, but I don't think that you should immediately put way too much emphasis on the charter free valuation that you're paying. You may know that Clarkson, which is a big ship, they don't even give you those valuations anymore on (inaudible). We have been following the Baltic reduction, Baltic information and that's really what we have been basing ourselves on.

Having said that, I'd like to say and I think you gave me the opportunity to say, that one thing is the negative value of charter free values, but I think it's important to keep in mind that we also have charters, charters today which are quite valuable, in particular they're valuable to what we sold previously when the ship values were much higher.

Okay. And on your outlook, based on your current read on 2010, would you expect to get rates back above profit sharing thresholds in the next 12 to 18 months or can you just give me some of your thoughts on that?

I wish you'd ask those questions more to OSG that keeps a more tab on this and details than we do. We are an operator who has based ourselves on the longer-term charters and rather than to be based on the spot market, as you know. That I do think, as we touched upon earlier, there is a significant number of ships coming out, but there is also a significant number of ships being canceled or delayed.

And I do think that it's fair to say that there is a hope that with OPEC increasing the production with the current oil prices you're seeing that the market may not become as bad as many people think and that within an 18-month period that there is hope for -- based on the rates again.

All right. Maybe (multiple speakers).

I don't have a crystal ball more than anybody else (inaudible) that way.

Great. Thanks, guys.

But I think we have the great benefit of -- in the meantime we still have the great benefit of the base hires, as I'm sure you understand and appreciate. So even though it does affect our profit sharing in the current market, with only four years to go in the current arrangement and with the charter hire today being way above what the ships are generating I think that's a great positive for the Company going forward -- and will give us additional flexibility and flexibility we need in order to see to what extent we can pay -- reinstate the dividend and manage the balance sheet and look for the growth opportunities.

Okay. That's all I have. Thank you.

Tim [Makabach], [Luzama] Capital.

So if we ignore the balance sheet and all that, what is the level of a dividend that the base rates can cover?

Sorry, can you ask that question one more Time?

Yes, can you hear me?

I hear you better now.

Okay. If we throw out all the balance sheet concerns, okay, and just assume that there are no worries there, what is the level of a dividend that the base rates could support?

Had we actually done that specific calculation -- I have to ask my colleague here?

(multiple speakers) One thing we're not (multiple speakers).

(multiple speakers) that a dollar was covered by the base rates? So (multiple speakers).

The dollar was well covered by the base rate, but of course that coverage was reduced when we raised capital in March. I don't have a figure off the top of my head. Can we -- do you have that, Eirik?

(multiple speakers) last quarter you said that it was still covered though, even after that (multiple speakers)?

Yes, yes, yes, yes. I'm not saying it isn't -- it wasn't.

Okay.

You asked for the coverage, so I can't -- I don't know exactly to what extent -- where are we? Are we on the 90% coverage? I would imagine that, but I would like Eirik to confirm it.

Yes, we will have to do some [little] calculation on that.

Okay. If I can make an observation as an investor, I don't think the market rewards special dividends. Going forward I don't think there's any upside to paying out an additional special dividend. I think people would like to see a more consistent payout in good times and bad times.

I appreciate that comment.

Okay. Thanks.

Gentlemen, there are no further questions at this time.

Well, then it is only for me to say thank you for the attention and thank you for listening to us in this difficult shipping market. But I think we should look forward and I think that we are positioning the Company well to manage our financial obligations as well as looking for opportunities to grow the Company with the new situation of retaining cash flow. And with keeping in mind that we will reassess the dividend when we consider that is correct. Thank you very much for listening.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.