Genco Shipping & Trading Ltd (GNK) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited first quarter 2009 earnings conference call and presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the Company's website, www.gencoshipping.com.

We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible at anytime during the next two weeks through May 15, 2009 by dialing 888-203-1112 or 719-457-0820 and entering the pass code 9899034. At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and uncertainties that could cause actual results to differ from the forward-looking statements.

For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call posted on the Company's website, and the Company's filings with the Securities and Exchange Commission, including without limitation the Company's Annual Report on Form 10-K for the year ended December 31, 2008, and the Company's subsequent reports filed with the SEC. At this time, I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning and welcome to Genco's first quarter 2009 conference call. With me today is Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer. I will begin today's call by discussing our first quarter and year to date highlights as outlined on slide three of the presentation. I will then turn the call over to John to review our financial results for the three month period ended March 31, 2009. Following this, I will discuss the industry's current fundamentals. John, Peter and I will then be happy to take your questions.

During the first quarter, Genco continued to benefit from its past success in executing its time charter strategy by securing a large portion of our modern fleet on long term contracts with high quality charters well raised for storm. The Company once again posted solid results for shareholders during a volatile market.

Turning to slide five, for the first quarter, net income was $41.2 million or $1.32 basic and diluted earnings per share. John will discuss the quarter results in more detail later in the call. During the first quarter, we significantly enhanced our financial flexibility by amending our $1.4 billion credit facility under favorable terms. While John will discuss the benefits of the amended facility in more detail, I would like to note that this proactive measure combined with our past success solidifying our financial liquidity positions Genco well to emerge from the current market environment as an industry bellwether.

In maintaining our focus of preserving the Company's financial strength, we utilized the considerable cash flows generated by our modern fleet to increase Genco's cash position to $175.8 million as of March 31, 2009. Moving to slide six, I will now discuss our time charter coverage in more detail. Consistent with our focus on providing shareholders with sizeable contracted revenue streams, the majority of our vessels are locked away on time charters with an average remaining duration of approximately 14 months as of March 31, 2009.

Currently, we have approximately 60% of our fleet's available days secured in contracts for the remainder of 2009 and 41% in 2010. Of note we have the option to secure the three vessels that currently trade in leading spot pools at fixed rates as the freight market improves. In seeking opportunities to increase our significant time charter coverage, we will maintain our focus on signing contracts with high-quality counterparties. Our world-class customer base, which includes reputable multinational companies such as Cargill International, Lauritzen Bulk (inaudible) AS, Louis Dreyfus Corporation and others shares as a core differentiator for our company and bodes well for Genco's future performance.

The considerable support we have gathered from world-class charters is attributable to our strong brand as an operator of modern tonnage. Upon the expected completion of the Metrostar acquisition outlined on our latest slide, Genco will own a high quality fleet of 35 (inaudible - background noise) vessels consisting of nine Capesize, eight Panamax, four Supermax, six Handymax, and eight Handysize vessels, with an average age of approximately 6.7 years, well below the industry average of approximately 15 years. I will now turn the call over to John.

Thank you, Gerry. I will begin my remarks by directing you to slide nine, which presents our financial results for the three months ended March 31, 2009. For the three month period ended March 31, 2009 we recorded revenues of $96.7 million. This compares with revenues for the first quarter of 2008 of $91.7 million.

The year-over-year increase was due to the operation of a larger fleet, offset by lower charter rates achieved for some of our vessels, the non-payment of hire for the Genco Cavalier resulting from the bankruptcy of Samsun Logix Corporation, and the lack of revenue from the profit sharing agreements on two of our Capesize vessels. Operating income for the first quarter ended March 31, 2009 was $55.1 million. This compares with operating income for the three month period ended March 31, 2008 of $85.3 million, which included $26.2 million resulting from the gain on the sale of the Genco Trader.

The decrease in operating income is attributable to increased vessel operating expenses, management fees, as well as depreciation and amortization associated with the operation of a larger fleet. Of note, general and administrative expenses decreased to $3.9 million from $4.4 million during the year earlier period due to lower cost associated with employee non-cash compensation, legal fees and other administrative expenses.

Interest expense for the first quarter of 2009 was $13.9 million. This compares to interest expense of $11.8 million for the first quarter of 2008. The Company recorded net income for first quarter of 2009 of $41.2 million or $1.32 basic and diluted earnings per share. This compares to net income of $74 million or $2.57 basic and $2.56 diluted earnings per share for the first quarter of 2008.

Key balance sheet and other items as presented in slide ten include the following -- our cash position was $175.8 million as of March 31, 2009, and our debt to capital ratio was 61%. Our total assets as of March 31, 2009 were $2 billion consisting primarily of our current fleet, deposits on vessels to be acquired and cash. Our EBITDA for the three months ended March 31, 2009 was $76.1 million, which represents an EBITDA margin of 78.8% of revenues.

Moving to slide 11, our utilization rate was 98.4% for the first quarter of 2009 compared to 99.8% in the year earlier period. Our time charter equivalent rate for the first quarter of 2009 was $33,203. This compares to $35,891 recorded in the first quarter of 2008. The slight decrease in TCE rates was due to lower charter rates achieved in the first quarter of 2009 versus the first quarter of 2008 for three of the Panamax vessels, four of the Supermax and Handymax vessels, and one of the Handysize vessels in our current fleet.

Furthermore, lower TCE rates were achieved in the first quarter of 2009 versus the same period last year due to the non-payment of hire for the Genco Cavalier resulting from the bankruptcy of Samsun Logix Corporation, as well as the lack of revenue from profit share agreements on two of our Capesize vessels. This was partially offset by higher revenues on two of our Panamax and five of our Handymax vessels.

For the first quarter of 2009, our daily vessel operating expenses were $4,931 per day versus $4,278 per day for the first quarter of 2008. This increase is due to higher crew and insurance expenses as well as costs associated with the operation of six Capesize vessels. As we have stated in the past, we believe daily vessel operating expenses are best measured for comparative purposes over a 12 month period in order to take into account all the expenses that each vessel in our fleet will incur over a full year of operation.

Based on estimates provided by our technical managers and management's expectations, our full year 2009 daily vessel operating expense budget is $5,350 per vessel per day on a weighted average basis. On slide 12, we detail our amended credit facility. As Gerry mentioned earlier on the call, we amended our ten-year $1.4 billion credit facility with DnB NOR Bank ASA and Bank of Scotland PLC. Management's ability to amend the credit facility under favorable terms demonstrates the confidence and our banking group has in Genco's future prospects and underscores the Company's leading reputation among global lending institutions.

Under the terms of the amended facility, the facility availability of $1.4 million reduces at 12.5 million per quarter effective March 31, 2009 and bears interest at LIBOR plus 2%. Based on the recent amendment the collateral maintenance covenant has been waived, which is paramount in today's environment of volatility in asset prices. While Genco's dividends and share repurchases have been suspended under the recent amendment, the Company will be able to reinstate both programs once it is able to satisfy the collateral maintenance covenant. Also of note, no additional restrictions were imposed on our cash balance and we have retained the ability to use the facility for future acquisitions.

On slide 13, we present our balance sheet and liquidity position. As of March 31 2009, our liquidity after giving effect to the $12.5 million facility reduction at March 31, 2009 totaled $367 million and our debt to capital ratio was 61%. On slide 14, we detail the upcoming capital expenditures associated with payments on remaining vessels to be delivered to Genco. We expect to take delivery of the three remaining Capesize vessels between the second quarter of 2009 and the third quarter of 2009 under our agreement in 2007 to acquire a total of nine Capesize vessels from companies within the Metrostar Management Corporation Group.

We plan to utilize the undrawn portion of our credit facility as well as our strong cash flow from operations to fund the Genco Commodus, Genco Maximus, and the Genco Claudius. As a reminder, we made the prudent decision to cancel the acquisition of six drybulk vessels during the fourth quarter of 2008 due to the drop in asset prices following the credit crisis in September. Management remains committed to further expanding Genco's leadership position in the drybulk industry by utilizing the Company's liquidity to take advantage of current market weakness.

In pursuing future growth opportunities, we will remain disciplined in our approach of adhering to a strict set of return criteria related to earnings and cash flow accretion as well as return on capital hurdles. On slide 15, we present our anticipated breakeven levels for the second quarter. We expect our Q2 2009 daily vessel operating expense budget to be $5,350 per vessel per day on a weighted average basis of an average number of 32 vessels. We expect our daily free cash flow breakeven to be $13,580 per day per vessel and our daily net income breakeven rate to be $19,945 per vessel. I will now turn the call back to Gerry.

Thank you, John. I will now take this opportunity to spend a few moments discussing the industry fundamentals. I will start with slide 17, which points to the drybulk indices. Representative on this slide are the overall Baltic Dry index, the Baltic Capesize, Baltic Panamax and the Baltic Supermax index. As can be seen when looking at the graphs, after reaching a low around the 600 point level at the end of 2008, the Baltic Dry index rebounded significantly in the beginning of this year and has been trading in a fairly stable range between 1500 and 2000 points for the first three months of 2009.

Moving on to slide 18, we summarized the current demand side of fundamentals which we believe have recently showed some positive signs. As indicated on the graph at the bottom right, Chinese steel production reached 127 million tons for the first three months of 2009 showing a 2.1% year-over-year increase, while 132 million tons of ore were imported into China for the same period.

Iron ore imports represented new records both for the months of February and March, and grew at approximately 20% year-over-year basis. In connection with increased steel production for the first three months of 2009 as well as record iron ore imports, increased Capesize vessel activity from Brazil and Australia into China was a result of lower prices for imported iron ore over domestic.

It is also important to note that while one would expect much higher BDI levels, and vessel rates as a result of the record iron ore imports into China, the effects of the financial crisis on the rest of the world have thus far been preventing that. To illustrate the above, we note that iron ore imports into Japan for the first two months of the year totaled 16.8 million deadweight tons representing a 28% decrease on a year-over-year basis with a similar picture apparent for iron ore imports into Europe.

As a result of the higher imports, we also experienced increased stocking of iron ore at Chinese ports through the first three months of the year. On the graph at the bottom left of the page, iron ore inventory showed a trough in February of this year, but have since increased to levels of approximately 69 million tons as of the week ending April 24, 2009.

Although the increasing of iron ore stockpiles is a standalone data point, might seem a bearish mark for the market, we believe that when combined with the significant cut backs in domestic iron ore production at points to the increased demand for the commodity from Brazil and Australia, which results in longer trade routes and therefore higher number of vessels employed over longer period of time.

Lastly, the grain and coal trades, which normally displays seasonal strength in the beginning of the year boosted the Panamax trade for the first quarter of 2009. On slide 19, we present our view for the supply side of the equation. Looking at the graph at the bottom left of the slide, we can see the drybulk order book through 2013. Although we project that drybulk order book remains at approximately at 70% of the existing fleet, it is questionable whether it will be delivered in this entirely. As presented below, approximately 40% of the new building orders scheduled to deliver in 2009 and 2010 are contracted at newly established expansion or Greenfield yards.

If one also considers estimations from industry sources that only 40% to 50% of the current order book has financing in place, we believe it is fair to assume that part of the current new building orders will ever be completed. For the first quarter of 2009, only 7 million deadweight tons of a planned 70 million deadweight tons scheduled for 2009 were delivered according to Simpson Spence & Young, who predict by an estimated 30% of the vessels scheduled to enter the market in 2009 will slip into 2010. And at the same time, an estimate of 260 new building vessels were cancelled during the same period.

It's also important to note that as the BDI and respective vessel class rates have shown signs of stabilization, the increased number of vessel reported as laid up during the end of 2008 has now retreated to more normalized levels. Mainly by the end of March 2009, 33 vessels were in short term lay up or idle as tracked by Lloyds MIU in active vessel report. Lastly, over 30% of the world's fleet is 20 years or older. As we have indicated in the past calls, bulk carrier scrapping is not mandated, it is more of an economical equation.

It points at weak spot freight environment that charters become more selective towards hiring younger vessels, while at the same time owners choose to scrap their vessels instead of incurring the cost of repair to comply with requirements of a fifth or a sixth vessel survey. The above has been evident through the last quarter of 2008 as well as the first three months of 2009. As illustrated on your graph at the bottom right of page, 129 vessels have already been scrapped year to date as compared to approximately 80 vessels scrapped in 2008, a number heavily weighted towards the end of the year.

Turning to slide 20, we note that as visually illustrated on the graph at the bottom of the page, the main engine of growth for the Chinese economy has been fixed asset investment as opposed to consumer spending. Outlining the country's efforts to boost economic growth through the fiscal policy of the Chinese government announced during 2008 a stimulus plan totaling $586 billion in long-term projects which concentrate on housing and transportation infrastructure.

$292 billion investment has been earmarked for railway expansion aiming to double the existing railway network from approximately 48,000 miles to 75,000 miles by 2010. Initial indications of the anticipated positive effects of this economic stimulus are planned to come not only from the new PMI numbers, which illustrate expansionary territory for the first time since September 2008, but also a record of $277 billion of new loans remain in China through the first month of the year. It is an encouraging measurement, especially when compared to the same number in December as last year. At last, I point out that Chinese fixed asset investment increased to $411 billion or 28.8% on year-over-year basis.

To summarize the above on page 21, we illustrate some of what we believe to be turnaround catalyst for the drybulk industry and the latest developments concerning each of them. Pointing out a few of the most important ones in this page, we believe that after a recent proposal by the G20 summit, normalized trade credit, which should help worldwide trade, is becoming available. Moreover, the fact that $477 billion of the $585 billion Chinese stimulus package is planned for the years 2009 and 2010, along with the concentration towards infrastructure projects bodes well for the drybulk industry.

On the supply side, we see the reduction of vessel lay ups from 33 to a high of over 100 -- from a high of over 100 as well as a net fleet growth of only 3.6 million deadweight tons as positive factors for the medium term, since they point to a reduced rate of new supply entering the market. This concludes our presentation, and we will now be happy to take your questions.

(Operator Instructions)

We will take our first question from Jon Chappell with JP Morgan.

Thank you. Good morning, guys.

Hey, Jon.

I wanted to ask about asset values, you've been pretty consistent in your comments and the press releases and whatnot about still being able to fund maybe fleet expansion at the right prices. There has been a real dearth of transactions taking place. Are the prices that we are seeing in brokerage reports different from what you are seeing out there and really the core of the question is, are the things that are being done more distressed sales or where do you think real asset prices are vis-a-vis, say, six or nine months ago.

Nine months ago, they were obviously lower. But there really haven't been any transactions, and to be honest with you we haven't even seen many ships put up for sale. The only sales you do end up seeing over the past few months have been, if someone's got a ship targeted with a purchase option and the purchase option is very low and they can make some profit, they will do a quick flip. And so there are distressed sales, but they are sales where they just want to try and make whatever they can on it. Those are really the only kind of sales we've seen recently, we haven't seen much else.

Do you think there is a wide kind of chasm between buyers' ideas and sellers' ideas right now, or are sellers still trying to hold on with the expectation there might be a recovery sooner rather than later?

I think that's what it is.

Okay. As far as the time charter potential for your ships that are rolling over soon, can you talk about what's out there for the three smaller vessels that are on the spot pools right now and then also are you seeing anything of a long term nature for the Capes as they come out of the yards.

Yes, I mean, Jon, as far as the ships are trading the spot market or in the pools, they will continue to trade. We certainly have the option if the market does pick up to lock those in under long term, and we will do that at that time. As far as the Capes, what we are actually seeing and it's not just the Capes, it's all the way down to the vessel classes, we are seeing a lot of enquiry for longer term charters from charters, but including ourselves, we don't have much of a willingness right now to fix long term in the current rate environment, so we've been saying short. You've seen us been doing three to five month charters on the ships that have been rolling off.

Right.

But there has been more enquiry, which there wasn't six months ago.

But just not the rate that you find attractive yet.

Not yet, but we are hopeful.

Okay. One last one on the industry, I just hoping you could maybe clarify something that I've been kind of questioning. Yesterday one of the Chinese Ministers was out saying that iron ore imports in China would be down 21% fiscal year '09 year-over-year, yet the imports were up significantly record highs in February and March. Is this a function of them just trying to improve the negotiating stance with the suppliers and that 21% decline might be extremely exaggerated or was there significant stockpile build in the first quarter and it would be safe to assume some declines in import levels going forward?

I don't think so, I think the import levels were very high in the first quarter and I don't -- if you think about it, importing a lot in the first quarter and then trying to negotiate it down by saying it's going down -- I mean if they were really wanted to get the prices down, they just wanted imports in the first quarter.

Right.

I mean you can't take -- this is the problem with these markets, people take what one guy says and take it gospel and then markets reacts to it. And then I don't know who said, I didn't hear the quote, but I can't really comment but we think that, based on what we have seen, we think it will continue through the year.

Yes, the other thing to keep in mind, Jon, is if you look at the steel production numbers for March, they are actually flat, which I view as very optimistic. And if you also keep in mind that the major iron ore producers in Brazil and Australia are now selling at 20% to 25% below the contract prices. That ore that's being imported is actually cheaper than domestic ore in China and you've seen almost half of the Chinese mines, I don't know if mines are actually shut down because it's too expensive to run them. So I would actually argue that you could have a higher level of imports in this environment just because of the lack of domestic ore.

Okay, great. Thanks a lot Peter and John.

We will take our next question from Urs Dur with Lazard Capital Markets.

Hi, guys. Thank you very much. I have no further questions at this time.

Thanks, Urs.

We move on to Natasha Boyden with Cantor Fitzgerald.

Good morning, gentlemen.

Good morning, Natasha.

Hi, Natasha.

Yes, I think John pretty much covered everything, but I did want to sort of ask you about in terms of asset values and if things become attractive, how would you look to just to fund maybe any kind of transaction that you did find attractive and would you -- at this point, with your stock being where it is, obviously it's had a great run, would you open to issuing equity at the current strength of your stock price or would you look to try and finance that by a debt.

We would try to answer by debt. We wouldn't sell stock at these levels.

You wouldn't, okay. Sorry Peter, I think I interrupted you.

You didn't. We just were to sell them at these levels.

Okay. And as you said, there is -- you're just not seeing anything out there, be it distressed or otherwise.

No, we've not seen any distress and no, we really haven't seen even anything interesting -- couple of things there, but nothing really interesting.

In terms of the yards, you talked about the yards, obviously people are looking to delay or even try and cancel that. Have the yards been approaching you in terms of trying to get you to look at anything there?

No.

They have neither.

You know, it's interesting -- I saw an interesting statistic. In the first quarter, there was roughly 255 ships delivered. That was the schedule for the first quarter of '09, there were only 77 delivered. And in that same period, 70 ships were scrapped. Basically in the first quarter of '09 where we felt we are going to have 255 additional ships in the market, we really had basically zero.

So if the yards aren't approaching you, where are the yards trying to make up this short fall, do you think?

I think we are still negotiating with the people who have the deliveries. I think doesn't done about a point yet.

Okay.

I think what we've heard from the Korean yards is they are saying listen, hey, for the ship there is no negotiation, this is what they are telling people. And I think their philosophy is, the strong people will pay, the weak people will not and then they will try and come to someone to make a deal. And I think in a way that philosophy works because at the end of the day, the strong ones are going to pay and the weak ones aren't going to pay, so why make a deal with the weak ones.

Okay, but hasn't got to a point yet where the yards still like to have to move out and try and reach to with somebody else.

Not yet.

No, okay.

It's probably going to be more towards the end of the year that you see those types of transactions when those owners can't come up with bank funding and they have 30% to 40% of the purchase price already down and then it's very easy for the yard to go to a high quality owner to make up the difference.

That's helpful. Just one last question, can you just give us a rough idea of what rate your spot Handymax shipped for you during the quarter, so that would be helpful if you have it on hand.

One second. So really -- you are referring to the Genco Predator?

Yes, basically. I am just curious given where the market was. I am looking to this off line, if you don't have it on hand.

Yes, I don't actually the pool results in front of me, but we will try to put that out.

Okay, that's not a problem. All right, thank you very much. That was very helpful.

(Operator Instructions)

And we will take our next question from Chris Wetherbee with Merrill Lynch.

Great. Good morning guys.

Good morning.

Wondering if you could just, from a modeling perspective the cape that's expected for delivery in the second quarter, do you have a sense of when there in the second quarter you expect that delivery, I mean should we modeling kind of the end of the quarter pushing it back or what are you thinking there?

June 30.

June 30. Okay, very helpful and I guess a similar approach for the two in the third quarter.

We don't have exact dates for those ships yet.

But the contract dates are still there.

Okay. John, you mentioned the spread between imports and domestic iron ore prices in China, just trying to get a sense of -- what is that spread right now, how does that trend and has it been trending over the last couple of weeks, is it still pretty wide?

Yes, I mean including shipping it's probably $15 to $20 per ton.

Okay. All right. And then --

-- coming from Brazil or Australia.

I am sorry.

Depending on the freight differential between Brazil and Australia.

Yes, no, that's fair enough. And then I guess the only other question I had I guess was just on the laid up fleet that you talked about the 33 vessels. Any sense of kind of what the make up of that -- of those vessels are, I am assuming its kind of skewed to the older tonnage, but I am just curious kind of do you guys have any details on that.

Yes, I would imagine it is the older tonnage, but actual details, we don't have any.

Okay. And then I guess just one other modeling question. The Cavalier, when did it come back into service, I know post the accident it was out for about 16 days, just kind of curious when it came back in.

Yes, it was somewhere around seventh or eighth I believe.

March seventh or eighth?

Yes.

Okay, great. Thanks very much for your time.

Thanks, Chris.

We will take our next question from Gregory Lewis with Credit Suisse.

Thank you and good morning.

Hi, Greg.

John, I just have about, just two quick questions on the debt. The $12.5 million amortization in Q1, is that reflected in the slide on slide ten?

Yes. Slide ten it should be on the balance sheet slide.

Yes, that slide ten, okay.

Not slide ten, so it's actually on slide 13 where we present the 3/31 balance sheet.

Okay, great. And then --

Greg, just keep in mind that it's not real amortization in the fact that we made a payment, it's a step down on the availability from the 1377 starting January 1st. It steps down 12.5 on March 31st and each quarter after that.

Okay, great. And then just a quick follow-up. Clearly, when you are talking about looking at making future transactions, given the fact that you had to have covenant waivers for the revolver, does that at all hinder you from using what's remaining on the revolver to go out and purchase additional ship.

No, I think that was John pointed earlier where we said, we are not going to buyback shares and pay dividends, but we can go by ships with it.

Okay, great. Thank you very much.

Thanks.

We will take our next question from Scott Burk with Oppenheimer.

Hi, good morning guys.

Hi, good morning.

Hey, just a few follow-up questions here. I wanted to ask you about your spot arrangements in the pools, would those rates end up being pretty close to the indexes or do you have the opportunity to make slightly higher rates?

I am sorry, Scott. Can you give that to me again?

Yes, basically just wondering if your pooling arrangements will allow you to beat index spot rates or should we just expect you to be in line on the spot vessels.

Well, theoretically we obviously like to beat it. On a month-to-month basis, it can vary. So I would just go with the index at this point and as I said before, it's the market -- when the market picks up, we clearly have the option to lock it in.

And we say have adoption to lock it in, you're just saying that you would have the option to go out and lock it in with a different charter or that will be part of the pooling arrangement as well?

Its part of the pooling arrangement.

Okay. And then one final thing on the -- just on interest expense guidance for the first quarter obviously quite a bit lower than for the full year, I assume that's just the -- just gives you how to step up with the delivery of the vessels, new buildings in the third and the fourth quarter.

No, it actually has to do with the fact that we are in a much lower interest rate environment than what we had anticipated. And so we've actually if you look at the break even side, we moved our target LIBOR rate down to 2%.

Okay.

Which is probably still conservative, but we obviously don't know what the rest of the year is going to look like, so we are trying to estimate it for the floating rate debt.

Okay. So what kind of step up based on those new LIBOR assumptions, what kind of step up could we expect once the new vessels are delivered for the impacting third and fourth quarter.

Well that's what I said, I mean that's why we give on a quarter-by-quarter basis, our estimated breakeven levels and will continue to do that. So for the second quarter, the daily interest number is there. And then we also as you know we put our guidance for the full year a couple of months ago.

Right, yes, which was -- but that was -- that's kind of what I am asking about the -- that was higher than the guidance for the second quarter. So that step up is -- okay so I guess it get back to my original assumption that some of this is due to the additional interest expense for the new vessels.

Yes, I mean the previous -- the previous year guidance was based on 3.5% LIBOR rate.

Okay.

The second quarter guidance, we have lowered the LIBOR rate to 2%.

Okay.

But the floating rate debt, keep in mind we had swaps in place which we have outlined before.

All right, very good. That's all I've got. Thanks.

Thanks.

We will take our next question from Justin Yagerman with Wachovia.

Hi, good morning guys. This is Mike Blum filling in for Justin. How are you?

Hi, Mike.

Hi, just a couple of follow-up questions, first I guess getting to asset values, maybe getting into, I guess, second derivative change here. Are you guys starting to see buyers and sellers getting any closer together and I guess may be seeing an increased inspections, is there any indication I guess that we are starting to reach approach some degree of normalcy with the asset and the asset market. I mean we saw (inaudible) come in and buy some tonnage and we see a handful of larger producers come in, is that a positive sign? I mean how are you guys making about it right now?

I think it's any kind of sign, but I don't think, no, there is just not -- there is really nothing going on and I think -- I mean think the best thing that we see is that, if your assets in October, November, December was vessel values are going down every day. Now for several months now, they've just sort of stabilized and I think for us that's a positive sign that we've stabilization in the asset values. I think the fact that some of these big producers have come into buy ships is opportunistic, I think it's a good sign. They figure, why not take advantage of cheaper prices, we need these ships, we are going to use them to move iron ore for the next 20 or 30 years, so let's take advantage of it.

Great. I think getting to the purity you are guys are noting, how far forward are people looking to charter vessels, I guess and I know this hasn't really been your MO, but would you consider chartering-in in this environment?

No. It's interesting, we see deals like that type from time to time and I don't know, I think the risk you take of taking in the ship and then putting it out for in this kind of market a couple of thousand dollars a day is just too big a risk.

Yes.

If you get your time -- the thing about buying a ship and owning it, if you get your timing wrong, you buy a moderate ship, eventually you will hit it right. You're charter shipping for three years and you get your timing wrong, you have bad luck, the date of ship expires and market takes loss.

Got you. Is that a game you guys just wouldn't want to play or do you just need more visibility before you'd entertain doing that.

It's just something -- it's just never -- I mean, even (inaudible). I have been doing this for 20 years and it's never been something that we've liked to do. We rather just own the asset, and if things get bad, hunker down right of the storm, and then you buy a good quality modern ship and you get to live another day. You don't have a gun to your head to make the money in a year, two years or three years.

Fair enough. I guess finally, looking at I guess the domestic prices for Chinese iron ore and you guys talked about the 15% to 20% spread between imports and the domestic production, the domestic production tends to be kind of black box and getting a gauge on I guess the elasticity that domestic Chinese ore price is pretty difficult. Is there any color you guys can provide on I guess when you guys are looking at the industry and what you see there, and I guess how much downside there could be to Chinese domestic ore prices and where that could impact input volumes?

I attended a conference last week in Singapore and some this was discussed and the feeling from the conference was that the imported iron ore would increase through this year going into 2010, and that China would be mining less and less domestic ore.

Yes. I mean is there any indication at all where I guess the hard stop is or we already seeing the hard stop I guess as far as on a per ton basis for domestic Chinese ore?

I think it's difficult to tell. I mean, anecdotally look at the numbers, you've had up to half of the Chinese iron ore mines closing. That's obviously a pretty good sign that they are not crazy about domestic iron ore.

Sure.

But getting hard numbers, as you said, is a black box.

Got you. All right, well I appreciate the time, guys.

Thank you.

We will take our final question from Tore Fugelsnes with Nordea Markets.

Good morning, gentlemen. I have a question regarding the capital expense on the (inaudible) vessels that are to be delivered in this year. I see you have an expense of about 290 million.

Right.

And the remaining credit, I think, of about 190. So my question is, how much -- can you say anything about how much you will finance this expense by debt and existing cash?

Yes. I think at this point, we will use the credit facility to its maximum to finance those three ships and the remainder will be cash, which even as of 3/31, if we weren't even earn another dollar of cash this year, which is obviously not the case, we still have plenty to take delivery of those three ships.

Okay. Thank you.

You are welcome.

There are no further questions, so that does conclude today's conference call. Thank you for your participation and have a great day.

Thank you.