Eagle Bulk Shipping Inc (EGLE) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2009 Eagle Bulk shipping Inc. earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (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 conference, Mr. Sophocles Zoullas, CEO. Please proceed, sir.

Thank you and good morning. I would like to welcome everyone to Eagle Bulk Shipping's first quarter 2009 earnings call. To supplement our remarks today I encourage participants to access the slide presentation that is available on our website at www.eagleships.com.

Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risk and uncertainties. You should not place undue reliance on these forward-looking statements and we refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition.

Please note on slide two that the agenda for the call will follow our usual format. After my opening remarks, I will discuss our first quarter highlights and provide an update on our modern fleet and our recent events in the dry bulk market both with regard to demand and supply before turning over the call to Alan Ginsberg, who will review the company's financial performance.

I will then end the management discussion with some concluding remarks before taking questions. Please turn to slide four for a review of our first quarter 2009.

Our results continue to demonstrate our successful strategy which generates consistent, strong, across the board operating results and quarter-on-quarter growth in revenues, earnings and EBITDA in volatile markets. During the quarter our net income increased 20% to $17.2 million or $0.37 per share.

Our net Time Charter revenues were $55.9 million, up 53% quarter-on-quarter. EBITDA was $37.3 million, also representing a quarter-on-quarter increase of 35%. Our operating performance was also strong as we maintained superior fleet utilization of 99.6%.

Lastly, we took delivery of the Crested Eagle and Stellar Eagle in January and March respectively and both vessels were immediately placed into their Time Charters. As I will highlight later in the presentation, this growth was achieved at a reasonable price since these vessels were purchased before the run-up in vessel values last year and compare well to values today.

Please turn to slide six for a review of our fleet. With the delivery of the Crested and Stellar Eagles this quarter, 92% of Eagle Bulk's fleet was built during this decade. This is an important differentiating factor from a charter's perspective. Ships built after the year 2000 are much more desirable to charters than ships built in either the '90s or the '80s, particularly in an era when environmental concerns and efficient operations are of paramount importance. Our strategy over time will be to have a fleet entirely built after 2000.

The second message on this slide is that the flexibility of our vessel class allows charters to carry the broadest range of commodities of any dry bulk ship type. This flexibility translates into more employment and provides a natural hedge against the fluctuations of any one or two commodity types.

Slide seven demonstrates our well executed Supramax new building program. First, the vessels were intentionally set up in three groups of sister vessels to increase operating efficiencies and the possibility of enhanced fleet revenues. Second, 19 vessels have long-term time charter contracts that secure stable cash flows for the company. And third, most of the long-term time charters have 50-50 profit sharing agreements that allow Eagle Bulk to participate in an improving market.

Lastly, these ships were not speculative orders, but were ordered at conservative prices with significant charter cover and committed financing in place. Building on this point, slide eight is an update of a slide we introduced last quarter that graphically demonstrates that Eagle Bulk's new build vessel contracts were put into place at significant discounts to new build contracts and prompt deliveries since Q4 2007.

The graph on the left shows the price for prompt vessels as compared to Eagle Bulk's average contract price. You will note that Capesize vessels with prompt deliveries during this period traded at about $150 million per vessel. Panamax has traded around $100 million per vessel and Supramaxes traded for around $80 million per vessel. The latter compares very favorably for Eagle Bulk's contracts of between $33 million and $36.5 million per vessel.

Even though prompt delivery Capesizes have fallen into around $60 million and Panamaxes and Supramaxes have fallen to under $40 million per vessel, Eagle Bulk's new build contracts still look reasonable in today's depressed market.

The graph on the right shows a similar analysis for new build contract prices only and leads to the same conclusion that Eagle Bulk's new build contracts compare well with today's market prices. The important message on this updated slide, however, since our last earnings call, is that after the sharp drop in asset values in Q4, prices seem to have stabilized even though not many vessels sales have occurred.

Slide nine provides an update on Eagle Bulk's liquidity position. Eagle Bulk has significant liquidity of $566 million excluding any contribution from additional contracted revenues of $355 million and estimated open day revenues of $212 million through 2011. This analysis demonstrates added liquidity for our new building program.

It is important to point out that the CapEx schedule has a long time line, which gives us financial flexibility to match cash flow to commitments, which is highly preferable to having the commitments all due within one year. The change in our liquidity position from the fourth quarter illustrates that we have been using excess cash to fund our new builds as we have been able to fund and take delivery of the Crested and Stellar Eagles this quarter while leaving our debt at about $800 million and also increasing free cash.

Further detail shows a breakout of the reduced CapEx by quarter for 2009 as well as each of the three years, which shows an updated and reduced CapEx schedule of between $182 million and $214 million. It is important to note that the average CapEx per vessel is only $26.8 million for an asset with a 28 year useful life.

Slide ten shows Eagle Bulk charter cover which now stands at 83% for 2009 and 46% for 2010. A significant portion of this charter cover is at above-market rates. I would also like to remind everyone that we have charters default insurance policy in place through July 2011 that we believe positions us well and provides us with a strong differentiating competitive advantage in today's uncertain markets.

Going forward, over 80% of our new builds also have long-term charters at above market rates, most with 50-50 profit sharing agreements as well. As a result, we believe we are well positioned to provide strong cash flow to the company and capture opportunities with our open capacity as the market conditions improve over time.

Please turn to slide 12 for an update of the current state of the dry bulk market. Last quarter we clearly stated that limited market visibility with regards to China, commodity pricing and demand, trade credit and new ship supply made commentary on the dry bulk market difficult at best. It has now been two months since our last call and we now have emerging data indicating near-term cautious optimism.

Starting with macro changes in the market, on April 11, at the Chinese government cited industrial production growth of 8.3% as an indicator that government spending is starting to have a positive effect on industrial activity. During Q1, lending eased in the Chinese banking system as $670 billion of new loans were issued mostly to infrastructure projects. Fixed asset investment has also increased by 28% year-on-year, which highlights the initial positive effects of the Chinese stimulus programs.

Manufacturing in China and India have also shown signs of expansion for the first time in nine and six months respectively. Also, Chinese auto sales increased February and March which is a positive indicator for the dry bulk market as well.

More recently, US heavy equipment manufacturer Caterpillar reported record sales for earth moving equipment citing China's infrastructure-based stimulus. These emerging indicators that show a potential recovery in China as well as early signs of improvement in India signals near-term cautious optimism, as charter rates for dry bulk vessels have also improved considerably since the beginning of the year.

Turning to slide 13, we look more specifically at the commodity movement since the beginning of the year and discuss why the dry bulk market has improved. Commodity flows into China remain the key driver as China takes advantage of lower commodity prices to restock.

As a result, China imported a record 53.5 million tons of iron ore to restock recently, this in addition to a record month in March. The key reasons cited for these moves is a long-term trend developing whereby lower current foreign iron ore pricing makes domestic mining uncompetitive. This, as a result, is going to make it much more difficult for short-term mine hauls to continue to import and it will develop longer-term long-haul, long-term iron ore into the country.

This important development will continue to increase long-haul iron ore seaborne transportation and additionally, China has invested billions of dollars in foreign mines in Brazil, West Africa and elsewhere that have a vested interest in supporting their investments which in turn will benefit long-haul trade as well.

China's coal imports also rose 36% in March, which represents another record level. Crude steel output increased 12% to 45,000,000 tons driven primarily by increasing construction activity and improving auto sales. Lastly cement, a Supramax commodity, increased by 10% to 159,000,000 tons again benefiting from the Chinese stimulus plan.

The sum total of this data suggests we're seeing early indications that the Chinese stimulus plan is working and having a direct beneficial effect on the dry bulk market.

Slide 14 is an update of our fleet deployment for Q1, which highlights how well the Supramax asset class adjusts to cargo flows in volatile markets. The message for the first quarter is that grain was a prime driver in the Supramax trade. As the grain market picked up, our vessels moved from minor bulk cargoes into grain, as almost one-fourth of our cargo shipments were grains during Q1.

In fact, long-haul grain from the US Gulf and South America was in such demand that several of our ships were paid to ballast from the Pacific market, effectively a one-month sea voyage, into the Atlantic to load grain to return to the Far East. The flexibility to move from one cargo to another that is in demand partially explains our high utilization rate of the fleet.

Please turn to slide 15 for an analysis that compares how our Supramax fleet has traded during Q1 '09, Q4 '08 and full year '08. This new slide clearly shows the diversity of our fleet, which is an important attribute in a quickly changing positional dry bulk market. During Q1 this year, our fleet returned to carrying mostly major bulk cargoes while in the prior quarter we were dominated in the trade of minor bulk cargos.

This change shows that during a downward trend in rates, as we saw in Q4, Supramax has traded in the protected sub Panamax minor bulk cargoes. However, as the trade has started to recover in 2009 our vessels moved back into major bulk cargoes and more specifically, grain.

For 2008 the cargo carriage was evenly balanced between major and minor bulk cargoes even though our ships quickly moved from commodity to commodity during the year. We expect our ships will continue to trade in this pattern this year. Please turn to slide 16 for a discussion of dry bulk ship supply.

As we have said in the past, the dry bulk order book is currently in flux and many ship supply statistics today are proving unreliable as ship owners around the world are canceling orders because of lack of financing, lack of employment as well as other financial considerations. We believe that more reliable data points to track are component manufacturers for ship construction since they are lead indicators of changes in ship supply.

In this regard, we have updated or [announced] since March this year for Wartsila and MAN BMW, two leading ship engine manufacturers. In both cases these companies have increased their warnings of potential order cancellations from approximately $1.5 billion to $2.6 billion. To put this in context, the cost of the main engine for a Supramax is approximately $3 million to $4 million.

Other statistics indicate the potential for increasing cancellations over the next two years as 40% of the global order book is with green field or newly established yards. And current estimates indicate that a substantial portion of the global order book does not have secured financing in place. As a result, we estimate that 30% of the dry bulk order book could slip for 2009 although we have seen reports estimating up to 60% slippage.

We have provided a progress report for the 2009 order book by comparing scheduled deliveries for 2009 to actual deliveries for Q1 on the graph on the right side of this slide. This analysis indicates all vessel types are now well behind in meeting their scheduled delivery dates.

Slide 17 is another new slide that gives important data to the market regarding supply. Vessel supply is not only being readjusted by reduction in the order book but is also significantly being reduced by demolition. In fact, demolition can be much more quickly measured and the effects can be much more quickly felt in the market because there isn't as long a leadtime to scrap a ship as there is to build one.

As you can see, in the last two quarters we have seen the highest level of scrapping of the dry bulk vessels in over 40 years as 10 million dead weight were removed from trading. Scrapping has had a great effect on keeping the world fleet growth negligible for the first quarter.

Furthermore, as 111,000,000 tons of currently trading dry bulk carriers are over 20 years old, this stands as a lead indicator that accelerated scrapping is expected in 2009, 2010 and 2011. From a historical perspective the potential for increased scrapping is very real as the average scrapping age for dry bulk carriers during the mid '80s was 20 years old.

I will now turn over the call to Alan who will review our financial performance.

Thank you. Slide 19. I would like to offer a brief recap on our first quarter results of operations. Let me state up front that I've nothing exciting to report and in today's market environment we believe that is a good thing.

Net revenues for the quarter were just about $56 million, a 53% increase over 1Q 2008 figure of $36.7 million. Once again, all vessels were on Time Charter during the quarter. Our fleet utilization rate for the quarter was a top-notch 99.6%.

Operating income for the quarter increased by 45% to $23.7 million from $16.3 million in Q1 of '08. EBITDA as adjusted for exceptional items under the terms of our credit agreement was $37.3 million for the quarter, an increase of 35% over Q1 '08 figure of $27.5 million. Finally, net income for the quarter was $17.2 million or $0.37 a share, an increase of 20% from $14.3 million or $0.31 for the corresponding quarter last year.

Slide 20, briefly there have been no material changes to our balance sheet this quarter. As Soph mentioned earlier, we took delivery of two vessels during the quarter. We did so by using excess cash to fund the ships.

Slide 21, next I would like to spend a few moments going over our expected cash costs for 2009 which we estimate at a total of $11,097 per vessel per day. Our estimated daily vessel operating cost is $4792. Our technical management fees paid to our vessel managers are estimated $302 per vessel per day.

Our actual expenses for Q1 are above budget, but having reviewed them in detail we believe they will level out over the course of the year. Our estimated general administrative expenses for 2009 is $2286 per vessel per day.

Our interest expense net of interest income was $3181 per vessel per day. We have presently swapped out approximately 96% of our current debt through 2009. The weighted average effective interest rate on our swapped debt will be approximately 6.25% inclusive of our margin.

Finally, we estimate that our average dry dock cost $500,000 which estimates to $536 per vessel per day.

And with that, I will turn it back to Soph, who will complete the presentation.

In conclusion, slide 23 reviews Eagle Bulk's first quarter 2009 results and our favorable position in the dry bulk market. During the quarter, we continued to maintain profitability in challenging markets. Our fleet continues to benefit from our modern Supramax vessels that provide flexibility to trade all dry bulk commodities.

As revenue visibility, cash flow and liquidity have become increasingly important, Eagle Bulk's $1 billion contracted revenues, 83% charter cover for 2009 and long-term Time Charters on 19 of our 22 new build vessels, most with 50-50 profit sharing agreements, combined with our bank financing gives us adequate liquidity to fund our growth.

Additionally, our low cash breakeven levels provide a competitive advantage in today's environment. I believe all of these factors position Eagle Bulk well as we see indications that the dry bulk commodity demand is finally improving.

I would now like to turn the call over to the operator for questions.

(Operator Instructions) Doug Mavrinac, Jeffries.

Just had a couple of update type questions first and then a strategy question and some more macro questions. The update type questions, I feel almost obliged to ask about counterparties and how they are performing. Can you give us an update in terms of the status of your contracts with your counterparties where people continue to pay and kind of where that stands currently?

Sure. As we said in the last call, the same message is true this quarter that we have excellent relations with all of our charters. All of our charters are paying on time.

The one event that happened in Q1 that I would like to discuss, because it really underscores Eagle's strong relationships with their charters, is we had one charter on a couple of our ships come and for their own internal reasons wanted to have lower charter rates. Not renegotiate in the traditional sense as you have heard from other companies but they just wanted to have lower charter rates.

We struck a deal with them that we were very, very happy with and I believe they were pleased, where they pre-paid the difference between the charter rate that they wanted and the charters that were on the vessels until the end of each of the charters on three of our ships, which brought in quite a substantial amount of money into the company. So, that is the only new event, if you will, that we were pre-paid on some of our charters on the excess over what the charter wanted in the rate which we thought was a very net positive for Eagle and the charter got what they wanted also. So it was a win-win for both.

I was going to say a prepayment these days is not a bad deal.

We thought so.

And then also just real quickly, any changes to the new building program in terms of either financing or counterparty arrangements?

I think the key thing is that we are the top yard in China and with a top yard in Japan. Their production schedules are on time. We have people on the ground in China and Japan monitoring the progress. They have significant charter cover as these ships deliver. So we have significant cash flow associated with each of the new builds that are coming in at reasonable prices. So everything is on track.

Perfect. Great. Now shifting over to the macro, you talked about a number of things in China improving. Looking at what your fleet movement in the quarter -- you moved a lot of coal. I was wondering if you could shed some highlights as far as what you see going on in the Chinese coal markets in terms of imports, inventories and what you think that might imply about demand.

Sure. I will tell you something interesting, actually. And this is not in any way not answering the question. I think it is actually going to illuminate it in a way that maybe some of the market participants on the call today don't know.

We had a meeting with an Indian conglomerate about a month ago to look at a joint venture project specifically with regard to coal. And the message there -- and this is very interesting -- is that the coal, I'm talking about for power here, long-term projects are very much on track in that region of the world. And what we noticed is that there was so much demand, specifically with India to increase the power grid, that there is the expectation from people in that region that coal powered energy demand will increase over the long-term which is positive for drug bulk.

So that is something that we did not actually have in the presentation, but thought it would be interesting to bring up in response to your question.

Okay, great. Actually that is an excellent segue because I was going to ask you about India. You mentioned in your presentation that we saw the PMI there above 50 for the first time in several months for the month of April. Supramaxes, India's Supramax market, any color in terms of highlights as far as trade in and out of India that were of note to you?

We would say the quarter itself was relatively uneventful. In other words, we did not see big changes in our Indian trade. But I think what we are seeing and what we continue to say to the market is although there is a lot of focus on China, don't forget India.

Because India is probably not given us much attention because Capesizes and many of the bigger ship types, the Capesizes specifically can't trade to India so there is less focus on that country. But as a country and as a consumer and an exporter of raw materials, we believe there is a long-term trend where India will have a similar trajectory say as China did five years echo. And as I highlighted by my comments on Indian coal, long-term power generation requirements in India, we continue to maintain it's a very important market for dry bulk and specifically for Supramaxes.

Okay, perfect. And one final question and this has to do with fleet growth. A lot of people always focus on, just like they do on the demand side on China, they forget about India. On the supply side people focused on new building deliveries and what percent of the order book may or may not be delivered.

As far as scrappings go, I think it appears as though people believe that scrappings may end whenever charter rates are above variable cost breakeven levels. Can you share your thoughts on whether you agree with that? And if you do not, what may make an owner decided to scrap a ship even if it may be covering variable cost but rates may not be as high as they were at their highs from, say, several months ago?

I think that is a very good question especially in today's market. What I want to clarify for everyone, and this depends on what data people are individually looking at to gauge where charter rates are. Most broker reports and most -- when you look at the BDI or the Supramax index, tape index, Panamax index, those embassies basically track modern tonnage. They do not track 25, 30 year old ships and what deployment they are involved in. If you get into the granular analysis of what ships are trading at that are say over 20 or 25 years old, they are trading at a huge discount to what the modern ships are doing.

So I would say first of all don't -- people should not extrapolate because they see the BDI going up, which is good for modern ships that necessarily translates into overage ships being employable. So, all of the issues that were present three months ago for overage ships are still prevalent to date, specifically with regards ship owners' calculation of whether OR not to scrap an older ship.

So we believe even though we have seen a breath of life in the dry bulk market and specifically with regards to charter rates, that has translated into an improvement in charter rates or modern ships, not necessarily older ships. And we maintain that demolition will still be at historically elevated levels year on year for the next three years.

Perfect. Thank you very much. That is all I have.

Natasha Boyden, Cantor Fitzgerald.

I wanted to ask about some of your order book. Obviously, you managed to convert into options eight of the vessels. Have you been in negotiations with your shipyards regarding any further order, either cancellations or returning any of the new build into options like you did before with the others?

The short answer is no and I will tell you why. We thought that the deal that we struck converting the eight vessels from firm orders to options was an excellent transaction. One of the underlying drivers behind that that might not be as readily obvious to people is that all of the eight vessels that were converted were without charters. So effectively, not only did the conversion reduce our CapEx from firm orders to options, but it dramatically increased the percentage of charter cover on our new build program.

So, what we have done is effectively for all intents and purposes, put Eagle in a position where each of the ships that we're taking delivery of that were, as we showed, at historically reasonable levels in today's market have a significant cash flow associated with each delivery. And if you look at it ship by ship you will notice that all of the long-term charters are at above market charter rates. So, in other words, we don't feel there is a need to tinker with that.

So you are pretty comfortable with your order book the way it stands right now?

Yes. Because if we were to reduce our order book or convert ships into options, that would have a loss of above market long-term charters associated with that.

Absolutely. That is helpful. In terms of your existing fleet or your on the water fleet, it looks like you do have a number of vessels coming up for a recontracting this year. I think the earliest for delivery is the Goldeneye in May.

What are your plans in terms of redeploying those ships? Are you going to look to operate them on the spot market until the end market looks better or would you just look to do short-term contracts (inaudible) per year? What are your plans for those?

I think our overall strategy of staying conservative and always having long-term cash flow visibility and stability remains intact. However, we have been opportunistic with a very small portion of the fleet to -- if there is positional dislocations in the market, for example, if there is a big difference between the Atlantic and Pacific markets as we have seen in the last three months where you have seen the Atlantic be two times the charter rate of the Pacific market. Depending on where our ships are redelivered to us, we will look to potentially capitalize on shorter-term charters.

Specifically with the Goldeneye, I believe that ship is due for a dry docking. So, we may want to actually control the voyages on that ship so we can position the ship into dry dock.

Okay. And then lastly, perhaps more of a tricky question. Several of your peers have in the last couple of days issued equity given the run-up in the stocks and obviously you do have an ATM facility out there. Given the run-up in your stock, in particular, any consideration of issuing equity here? Or have you issued any equity since quarter end?

Natasha, leave it to you to ask the tricky questions.

Of course.

Well, I just want to remind everyone, I think the best way to answer that question is to remind everyone what we said when we announced the program on the last call when we were asked actually the same question. And I think our strategy is very much the same. We put it in place, call it have another tool in the toolbox to keep Eagle very flexible as the market changes and to keep the availability of capitalizing on opportunities through a financial flexibility is very important.

I did say in the last call, which I will say again, we will be very responsible. I think I had said last quarter, don't be surprised if in the subsequent quarter we report we have not done anything with this program. And as I can report today, we didn't. It is more of an opportunistic sort of tool, if you will, to broaden the company's financial flexibility going forward.

So, to clarify, since quarter end you have not issued any shares under these programs?

That's correct.

Great. Thank you very much. That is all I had.

Seth Glickenhaus, Glickenhaus & Co.

I want to congratulate you and the team. In a very difficult time, you fellows have done beautifully I think. The only other question I have, I had about five questions all of which have been answered. Are you eager to borrow any money at this time? You answered the question. You're going to be very flexible as far as equities are concerned, but how about borrowing?

That's a great question Seth. We, as we discussed earlier, are privileged if you will to have been prudent in our managing of the debt side of our financial position and we have $566 million of current availability and liquidity for the company. So, the ability of this company to continue to use the debt side of the equation efficiently and prudently is there.

We will intend to use cash from operations and debt to fund this fantastic growth we have for the company so we can benefit from the significant, above market long-term charters that are associated with each of the new builds as they deliver into the fleet over the next 2.5 years.

Very good. Keep up the good work. Thank you.

Urs Dur, Lazard Capital.

Good morning guys. I guess you just answered the equity question. That really was mine as well. But I had to step away for one second. You haven't done anything so far this quarter?

That is correct.

Thank you very much.

Chris Wetherbee, Merrill Lynch.

I guess my only question is really on daily OpEx. I know Alan you mentioned you expected to smooth out for the rest of the year. Just trying to get a sense of what caused the elevation relative to expectations, or at least my expectations, in the first quarter if there was something in there in particular.

I think it's mostly timing. Every year you establish a budget with the managers. You decide on which projects you're going to undertake. And then it is just natural that the managers spend some of that money on spare parts, for example, that will be implemented on the ship over the course of the year. That is just an example only.

Chris if I could also jump in here. I think if as a company we believed that Q1 was indicative of full-year 2009, we would be giving you an updated budget forecast. We're not changing our budget for '09 because we believe it is just the lumpiness of the quarter.

That's very helpful. I appreciate it guys. The only other question is, and I missed it. I think you mentioned there was a potential dry dock coming up for one of your vessels. I think you had said the Kestrel as well was going in to dry dock. How many vessels do you expect in the second quarter to be out of service for dry docking?

We have two scheduled, I believe, for the quarter.

Okay, great. Thanks very much for the time guys.

Scott Burk, Oppenheimer.

I guess two follow-up questions. You talked about how older ships are not getting the rates that the younger ships are. Specifically you pointed out your fleet is built earlier (sic) than 2000 or the majority of your fleet, 97% or whatever. Can you kind of describe what kind of spread are these 25-year-old vessels? How much lower rates are they making compared to the newer vessels?

Scott, I think that is a very valid point to make. It is not so much what the spread is, but whether or not they are employable. Given that we are not in the market we were 12 months ago where charters were just looking for any ship to take their commodities from point A to point B. Truth be told, charters can be a little bit more selective. That is why I think the difference if you have a 25 year old ship versus a 5 year old ship that can load.

As I said for example, this grain phenomenon if you will, moving grain where I believe three of our ships actually ballast it and were paid to ballast 30 days from the Pacific into the Atlantic to load grain and go back. That is the example of an important cargo movement that 25% of the fleet was involved in, in Q1, where an older ship is not going to be chartered to do a ballast leg like that to load grain.

So, I think the point is not so much what the spread is but that the market has dictated that overage ships are just not going to be participating in a greater number of trades, if you will.

Okay. And I guess the implication is you would expect those ships to go to scrap more quickly?

Right. Because what happens is there is the sphere of trades that they can be involved in shrinks quite dramatically. The other thing I would like to point out to people to remind people is that a ship owner's decision of whether or not to scrap is made at a specific point in time.

For example, if you have a 25 your old ship that is up for a special survey in June of 2009, and you don't have the flexibility of postponing that dry dock or postponing your trading certificates. The dry docking costs and getting recertified for five years might be a $3 million or $4 million proposition.

So the owner has to make a split-second decision at that moment in time. Do I spend $3 million or $4 million to keep trading or do I scrap and hopefully make $2 million or $3 million where a delta is $6 million, $7 million. Most owners are going to gravitate towards the safer decision in today's market.

Okay, thanks. And then I wanted to follow-up on the details your new build slide that you had on your slide 8.

For the new building you talked about on the right-hand side of that slide, what -- could you remind me of the details behind that slide? How many vessels and what was the total purchase price? And does that contract price include the capitalized interest expense?

I'm looking at the slide. Just to clarify, the prompt delivery slide on the left side of that slide which I think is what you're talking about.

I was referring to the new building contracts. That's where more of the vessels are, right?

Okay. Now I understand. The question is -- what is your specific question then? I thought it was more other vessels.

I'm basically asking how many vessels and what was the total price for the vessels and does that include capitalized interest expense?

Sure. Just so you know the prices, and I think I said this in my remarks. I'm sure I said in my remarks. Of the 22 new builds, the prices for the contracts run between a low of about $33 million and a high of about $36.5 million. Obviously you have capitalized interest and other bits and pieces associated with supervision and things like that. But those you never know until you actually get the ship delivered. So the only thing you know for sure is what your contract price is and that is what we were able to give you.

Okay. Thank you.

Justin Yagerman, Wachovia.

I wanted to get a sense of -- thanks for the clarification on the deferred charter income that hit the cash flow statement. How's that going to work from a GAAP standpoint in terms of reported revenue? Are you still going to recognize revenue under the same charter rate that is flowing through the model now?

That is absolutely correct. Also, I just want to point out we do have an appendix to the presentation to show the accounting rate and the cash rates.

Got it. Another question, as you guys have moved around your order book a little bit, I know that you mentioned you have swapped out 96% I think it was of the debt. And I was curious in terms of the timing of how those swaps work. Is there any kind of overhang that could result in terms of the change in your delivery schedule? And how, I guess, do you reconcile that as you move forward and interest rates move around on you?

We have a detailed schedule of all of the swaps in the financial statements for the Q and the K. And the amount of debt currently swapped is actually below what we owe. So we have not sort of made a decision on how we are going to manage the interest-rate exposure going forward.

I think if I understand your question is also with regards to timing differences between new build deliveries and when the swaps rolloff, is that correct?

Yes.

So on that point, and again this is sort of underlines why it is great to be associated with very high quality shipyards. Our delivery schedule is right on track with both projects. So we were able to effectively time the swaps very, very close to the delivery dates.

Now if you have a couple of days to one side or the other, which is inevitable, you will have it -- it won't be perfect to the day marriage of the swap to the delivery. But what we have found so far in the five ships that we have taken delivery of, they have been delivering within I think a week or two of the swap. So it is a marginal adjustment.

Got it. And I guess given the relationship you guys seem to have with your yards, I was curious when you talk to them what currently is the lead time on a new build order? If you decided prices are good or I'm getting a decent enough deal from a new build standpoint right now, how long will it take for an order today to take delivery of a ship?

Well, the truth is the high quality shipyards have a full order book effectively for two years. The lower quality shipyards that are having maybe operating problems, either they're having working capital issues, that 40% number that I discussed on the supply side slide, they probably have a much shorter lead time. But I what I would caution people to be wary of is, in this environment a ship owner probably -- a good shipowner is probably going to wait for a slot at a good shipyard because if shipyards are under pressure you want to be associated with a good shipyard, not necessarily ones that are having trouble anyways because those are the ones that are going to have the availability.

Got it. One last question and I'm kind of surprised it hasn't come up yet. But with you guys having as much availability on your credit facility as you do, are you saying deferred --rather distressed offerings coming to you? Shipowners who haven't done the same work you guys have on the financing side, you know, come to you and try to offload parts of any of their new builds or their fleets?

The short answer is yes Justin. That is a great question. I guess I'm also surprised it wasn't brought up earlier. Our answer to that is yes. We have tremendous liquidity. And as I mentioned earlier, the equity program we have in place is an ability for us to finance growth as well.

But the opportunities aren't quite good enough for us, if you will. So, we are waiting until we see a better alignment of cash flow to acquisition cost. And frankly there haven't been a lot of trades because a lot of sellers and buyers are still with a very wide sort of bid offer if you will.

As you look out, I guess the natural follow-up to that is do you think it is more likely that asset prices come down or rates come up in the near future?

It is probably a mix of both at some point. But as I said we believe Q1 was a very important quarter for the market because as I said in Q4, we really -- it was really hard to get any feeling of the market. We're for the very first time in almost 6 months starting to see indicators that trade is coming back and trade finance is coming back.

So demand -- next quarter we will hopefully have much better data points to get a sense of the directionality of the market which then will correlate to what opportunities there are. So I would say we have started to see people call us with deals, nothing too appetizing yet. And there's probably going to be movement from buyers and sellers, ultimately meet somewhere in the middle.

Is the fear though if we do see rates remain above cash breakeven and the market kind of move along at a semi-healthy pace where we are right now, that you don't get the cancellations and you don't get the asset opportunities that would drive a stronger growth going forward?

I think as I said on one of the earlier questions which is -- and I think Scott asked, if ships remain above cash breakeven will that slow down demolition?

I think my answer to him applies also to this question, which is if you want to bifurcate the market at a specific age if you will, if you want to use the 20 year as a breakpoint so that happens to correspond to when, from a charter's perspective, ensuring cargo movements becomes much more expensive from an insurer's perspective. And also insurers start to put restrictions on cargo movements on ships over 20 years old. The message is the same that even though rates have improved, the over 20-year-old market is still going to be under pressure even if the sort of five-year-old ships are doing better.

That's really helpful. Good color. Thank you.

Ladies and gentlemen, this is the conclusion of your question and answer session. I would now like to turn the call back over to Mr. Sophocles Zoullas for closing remarks.

I would like to thank everyone again for joining us for our first quarter 2009 earnings call and we look forward to keeping you updated of new developments in the future. Thank you very much everyone.

Thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a great day.