Genco Shipping & Trading Ltd (GNK) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Genco Shipping & Trading Limited Second Quarter 2009 Earnings Conference and Presentation. Before we begin, please note there will be a slide presentation accompanying today's conference. 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 any time during the next two weeks through August 13, 2009 by dialing 888-203-1112 or 719-457-0820 and entering the passcode 9944035. At this time, I would like to 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 risks and uncertainties that could cause actual results to differ from 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 and 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 Second 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 second quarter and year-to-date highlights, as outlined on slide 3 of the presentation. I will then turn the call over to John to review our financial results for the three- and six-month period ended June 30, 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 second quarter, Genco continued to take advantage of both the sizeable contracted revenue streams and profit-sharing agreements which enabled the Company to once again cause strong results for shareholders. The successful execution of our time charter strategy has continued to serve the Company well during a volatile, dry bulk market, and bodes well for future performance.

Coming to slide 5, for the second quarter, net income was $37.6 million for $1.20 basic and diluted earnings per share. While John will discuss the financial results in more detail later in the call, I would like to note that Genco's cash position increased to $228.8 million as of June 30, 2009, due to the strong cash flow that was generated by our high-quality fleet.

In further strengthening our leading industry position, we took delivery last week of the Genco Commodus, a Capesize newbuilding. This vessel increased our strategic presence in the Capesize sector of the largest class of dry bulk vessels, and commands the long-term time charter with Morgan Stanley Capital, Inc. for 23 to 25 months at a gross rate of $36,000 per day.

We also reached agreements to lock away six sub Capesize vessels on fixed, short-term charters with durations ranging from three to six months. By maintaining our portfolio approach in signing contracts with staggered durations, we were able to provide shareholders with a sizeable contracted revenue stream and maintain the ability to benefit from future rate increases.

Consistent with our goal to take advantage of the freight rate environment as market conditions improve, we reached an agreement to enter five Handysize vessels chartered to Lauritzen and bulk carrier fares in a leading spot fueled under the management of Lauritzen Bulkers. The expiration of the current charter is in August 2009.

Moving to slide 6, I will now discuss the time charter coverage for the Genco fleet in more detail. Based on our success of locking away a large portion of our vessels on time charters with a diverse group of reputable multi-national companies, we currently have approximately 67% of our current fleet's estimate available days secured in contracts for the remainder of 2009 and 44% for 2010. Complementing our significant time charter coverage, three of our Capesize vessels have profit-sharing arrangements that enable the company to earn a rate that was higher than the contract's base rate in the second quarter.

As we have in the past, we will maintain our focus on employing a large portion of our fleet-run contracts with high credit, quality counterbodies and providing service that adheres to the highest industry standards as we continue to grow our fleet.

Building on the successful delivery of the Genco Commodus, we expect to take delivery of two remaining Capesize newbuildings, which we will discuss later in the call. This expansion will enable the Company to grow its fleet to 35 dry bulk vessels, consisting of nine Capesize, eight Panamax, four Supramax, six Handymax, and eight Handysize vessels, with an average age of approximately 6.8 years, well below the industry average of 15 years. I will now turn the call over to John.

Thank you, Gerry. I will begin my remarks by directing you to slide 9, which presents our financial results for the second quarter and six months ended June 30, 2009. For the three- and six-month period ended June 30, 2009, we recorded revenues of $93.7 million, and $190.4 million, respectively. This compares to the revenues for the second quarter of 2008 and six months ended June 30, 2008 of $104.6 million and $196.2 million. Year-over-year decreases were due to lower charter rates for certain vessels due to the challenge.

Operating income for the second quarter and six-month period ended June 30, 2009 was $53.3 million and $108.4 million respectively. This compares with operating income for the second quarter and six-month period ended June 30, 2008 of $70.8 million and $156.1 million respectively. The decrease in operating income for the three- and six-month period ended June 30, 2009 is attributable to increased vessel operating expenses, management fees, depreciation and amortization associated with the operation of a larger fleet, as well as a $26.2 million gain in connection to the sale of the Genco Trader during the first half of 2008, partially offset by lower G&A expenses.

Interest expense for the second quarter of 2009 was $15.4 million, and $29.3 million for the six-month period ended June 30, 2009. This compares to interest expense of $11.6 million for the second quarter of 2008, and $23.4 million for the six-month period ended June 30, 2008. The Company recorded net income for the second quarter of 2009 of $37.6 million or $1.20 basic and diluted earnings per share. Net income for the six months ended June 30, 2009 was $78.9 million or $2.52 basic and $2.51 diluted earnings per share. This compares to net income of $60.9 million or $2.05 basic and $2.03 diluted earnings per share for the second quarter of 2008, and net income of $134.9 million or $4.61 basic and $4.58 diluted earnings per share for the six-month period ended June 30, 2008.

Key balance sheet and other items as presented on slide 10 include the following. Our cash position was $228.8 million as of June 30, 2009. And our debt-to-capital ratio was 58.9%. Our total assets as of June 30, 2009 were $2.1 billion, consisting primarily of our current fleet, deposits on vessels to be acquired, cash and cash equivalents. Our EBITDA for the three months ended June 30, 2009 was $73.9 million, which represents an EBITDA margin of 78.9% of revenues.

Moving to slide 11, our utilization rate was 99.3% for the second quarter of 2009, which is the same compared to the year-earlier period. Our time charter equivalent rate for the second quarter of 2009 was $32,245 per day versus $40,945 recorded in the second quarter of 2008. The decrease in time charter equivalent rates was due to lower charter rates achieved in the second quarter of 2009 versus the second quarter of 2008 for six of the Panamax vessels, five of the Supramax and Handymax vessels, and three of the Handysize vessels in our current fleet. Furthermore, lower TCE rates were achieved in the second quarter of 2009 versus the same period last year due to the comparatively low revenue from the profit-sharing agreements on two of our Capesize vessels. This was slightly offset by higher revenues on two of our Handymax vessels.

For the second quarter of 2009, our daily vessel operating expenses were $4,556 per day, which compares to $4,378 per day for the second quarter of 2008. Daily vessel operating expenses for the six months ended June 30, 2009 were $4,743 per day versus $4,328 per day for the six months ended June 30, 2008. The increase in daily vessel operating expenses is due to higher accrue in insurance expenses, as well as costs associated with the operation of six Capesize vessels.

While we are pleased by our ability to maintain an efficient cost structure during the second quarter, and as we continue to grow our fleet, 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 fleet will incur over a full year of operation.

On slide 12, we present a pro forma balance sheet that reflects the drawdown of $96.5 million related to the delivery of the Genco Commodus on July 16, 2009. As you can see, our pro forma cash position for the quarter is $228.8 million. As of June 30, 2009, our pro forma liquidity totaled $311 million. And our pro forma net debt to total capital ratio was 61%.

On slide 13, we detail the upcoming capital expenditures associated with payments on remaining vessels to be delivered to Genco. As Gerry mentioned earlier, we expect to take delivery of the two remaining Capesize vessels in the third quarter of 2009 and the fourth quarter of 2009 under our agreement in 2007 to acquire a total of nine Capesize vessels from companies within the Metrostar Management Group.

In further expanding our high-quality fleet, we intend to utilize the undrawn portion of our credit facility, as well as cash flow from operations, to fund the purchase of the Genco Maximus and the Genco Claudius. Going forward, Management remains dedicated to consolidating the dry bulk industry and strengthening our industry leadership. In pursuing future growth, we will draw upon our strong liquidity position and seek to capitalize on additional acquisition opportunities that meet our strict return criteria related to earnings and cash flow accretion, as well as return on capital hurdles, as we have done in the past.

On slide 14, we present our anticipated break-even levels. As we mentioned earlier, we budgeted daily vessel operating expenses at $5,350 per vessel per day for 2009. However, daily vessel operating expenses year-to-date have been below this budget, in part due to the timing of the purchases of spare parts and lubricants, as well as lower than anticipated crew costs. We are therefore adjusting our estimate down to $5,150 per vessel per day for the third and fourth quarter of 2009.

We expect our daily free cash flow break-even to be $12,785 per day per vessel, and our daily net income break-even break to be $19,945 on a weighted basis of an average number of 32.76 vessels for the third quarter of 2009.

Before turning the call over the Gerry, I would like to mention that as previously announced during the first quarter, the Company has suspended its cash dividends and share repurchases under agreement, which waive the collateral maintenance requirement under its $1.4 billion credit facility. We will be able to reinstate our cash dividends and share repurchases once we can represent that we are in a position to again satisfy the collateral maintenance covenant. The amendment to the credit facility places no further restrictions on uses of the Company's cash. I will now turn the call back to Gerry.

Thank you, John. I would like to take this opportunity to spend a few moments discussing the industry fundamentals. I'll start with slide 16, which points to the dry bulk indices. Represented on this slide are the overall dry index under the Baltic index. As can be seen when looking at the graphs, the Baltic Dry Index has shown a significant strength since the beginning of the summer, albeit with increased volatility. As I'll explain later in more detail, we believed that the strength in the dry bulk market has been almost exclusively driven by China's infrastructure growth. And the volatility has been a factor of increased reliance on the stock market for iron ore recoveries.

Moving to slide 17, we summarize the current demand side fundamentals which we believe stand behind the recent strength of the dry bulk market. As indicated in the graph at the bottom right, Chinese steel production reached 266 million tons for the first six months of 2009, essentially flat over last year's production figures. However, almost 298 million tons of iron ore were imported into China for the same period, showing a 29.4% increase on a year-over-year basis. The substitution of domestic ore for imported iron ore points clearly to the cost efficiency and higher quality of imported ore from Brazil and Australia versus locally mined ore.

Although China's iron ore restocking can be viewed as speculative by some, we believe that it's not only a factor of cheaper imported ore as mentioned above, but also the immediate effectiveness of the country's stimulus, mainly driven by infrastructure projects and general fixed asset investment. Futhermore, while we believe that the conclusion of the iron ore price negotiations will not be as significant an event as it has been in previous years, we have not seen any significant headwinds so far this year and trust that much of the volatility caused by the freight markets is due to the dependence of small cargos.

As a result of the higher imports, we also experienced increased stocking of iron ore in Chinese ports through the first six months of the year. On the graph at the bottom left of the page, iron ore inventory show their peak in May of this year, but have since decreased to levels of approximately 71 million tons as of the week ending June 24, 2009. Moreover, along with higher number of iron ore cargos landing in China came increased port congestion at the Chinese ore ports, which reached a high of 17 days during June of 2009, and currently stands at approximately 14 days. Congestion in Australian coal ports also spiked in the second quarter and into July of 2009, mainly due to record levels of coal movement from Australia to China.

To illustrate, it is worthwhile mentioning that China, while a net importer of 36.6 million tons of coal in the first six months of 2009, while a net exporter of 3.94 million tons over the same period last year. While one would expect much higher BDI levels in freight 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.

On slide 19 -- I'm sorry, 18, we see the effect of this trade imbalance through the first six months of the year. While iron ore and coal imports into China increased by 29% and 123% respectively, imports in Japan, South Korea, and the European Union showed decreases for both commodities. As previously stated, we believe that although this trade imbalance explains the market's dependence on China currently, it might also prove to be beneficial in the medium to long-term, as the dry bulk industry could receive further support with a potential recovery in the rest of the world. Indications of a bottom for the rest of the world have already emerged as pick-up in iron ore and coal imports into Japan and Europe over the last couple of weeks signal the beginning of their inventory restocking due to higher demand for the respective commodities.

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 dry bulk order book through 2013. Although the projected dry bulk order book remains at approximately 70% of the existing fleet, it is questionable whether it will be delivered in its entirety. 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 that it is fair to assume that part of the current new building orders will never be completed.

Over 30% of the world's fleet is 20 years or older. And, as we've indicated in past calls, bulk carrier scrapping is not mandated. It is more of an economical equation. To that extent, scrapping showed significant strength through the last quarter of 2008 and first quarter of 2009, leveling off into the second quarter of 2009 amid a high export rate environment. As illustrated in the graph at the bottom of the page, 160 vessels have already been scrapped year-to-date, as compared to approximately 80 vessels scrapped in 2008.

Turning to slide 20, we note, as visually illustrated on the graph at the bottom of the page, the main engine of growth for Chinese economy has been fixed asset investment as opposed to consumer spending. Leading the country's efforts to boost economic growth through the fiscal policy was the Chinese government's $586 billion stimulus plan, which we have always argued would stimulate demand for the commodities our vessels carry.

What we had not foreseen was the short-term horizon within which its impact has been felt. And that is mainly due to the Chinese government's instruction to local banks to increase lending. Furthermore, a $292 billion investment has also been earmarked for railway expansion, aiming to double its existing railway network from approximately 48,000 miles to 75,000 miles by 2010.

Indications of the positive effects of this economic stimulus plan come from a variety of different metrics, of which I will mention only a few, namely the country's GDP growth on a year-over-year basis of 7.9%. As previously mentioned, China's push for increased private lending resulted in $234 billion of new loans being made for June 2009, representing over two times the loans extended in May, and approaching a record of $277 billion made in January of the same year.

Lastly, I'd point out that the Purchasing Managers Index rose to 53.2 in June, continuing its expansionary territory. And fixed asset investment increased to 33.5% on a year-over-year basis through June 2009. This concludes the presentation. I will now be happy to take your questions.

Thank you. (Operator Instructions). We'll go first to Doug Mavrinac of Jefferies & Company.

Morning, guys.

Morning, Doug.

I just had a handful of questions. I guess one of the biggest takeaways that I have from your earnings release, and as you mentioned in your comments, you guys have accumulated quite a bit of cash during the quarter, I think almost $230 million as of the end of the quarter. Any color on the priority in which you are thinking spending that cash, if you are thinking of spending that cash?

Well, the first thing is we're going to be using part of that cash to take delivery of the last two Capesize vessels towards the end of the year. And then between paying down debt, looking at acquisitions, I'm not sure if there's a priority, but those two things are definitely going to happen.

Okay. Great. Thank you. And then the second thing, looking at your fleet, you guys obviously have a number of ships either being delivered that are currently charter-free or ships that are being redelivered over the next several months with the contracts expiring. And based on your preference of maintaining substantial time charter contract coverage, leaving some spot exposure for upside potential, is there an asset class that you'd prefer to lock up of those vessels that are coming up with time charter contracts by default, providing spot market exposure to another? Or do market conditions more or less dictate that you continue to be flexible and opportunistic?

I think the market, what you said, the market, yes, can dictate. We'll pick our spots when to charter the ships away. Some of the ships that we fixed this Spring, if we had fixed them last Fall it would have been $7,000 or $8,000 a day. You don't want to lock yourself into that. So we'll play the spot market until we see a spot that fix a ship away at a rate that we can live with for a couple of years.

Okay. Perfect. Thank you, Peter. And then just a final question before I turn it over. How would you describe or would you guys describe the current environment in the sale and purchase market? Is there anything of interest yet? And are there any takeaways that you guys have based on who the current market participants are in the S&P market and the type of deals being struck?

I think it's very quiet.

Yes.

Yes.

There were a couple of deals here and there. But I wouldn't say that there's any trend. I think it's quiet, and I mean, I think it's been quiet. And I think it will be quiet through the rest of the Summer.

Okay. Okay. Perfect. That's all I had. Thank you, guys.

Thanks.

Thanks, Doug.

We'll go next to Jon Chappell of JPMorgan.

Thanks. Good morning, guys.

Good morning, Jon.

If I could just follow up on that last question about the deal activity and maybe ask it another way, there seems like there's a lot of money waiting on the sidelines to buy assets at the trough. Peter, in your opinion, has the trough already passed? I mean, have we seen asset prices start to move up here. And are the best opportunities maybe behind us?

The asset prices definitely have moved up since, say, the first quarter. But I mean, I think those were unrealistic prices in a panic. And I don't know that anything got done. I think there were theoretical prices that people were putting on in a panicked state. So, have they moved up off the theoretical bottom? They've moved up. Definitely people are feeling more confident.

I keep on hearing about all this money on the sideline. I'm not sure I really believe it. There's a lot of talk, and everybody has guys who have either stolen money from people or never done anything in their lives have money from private equity. I don't believe it. So, I'm not really sure. I think when the right deals come along, you'll see people like us, real players. People who have acted, people who have acted fast and have a great track record, you'll see us jump on them.

Okay. And then on the chartering of the two new Capes, as well as the Capes that rolling off later this year or early next year, the two-year $36,000 with Morgan Stanley seems to be a pretty good deal. Are there other deals out there like that? And, more importantly, is there anything in that three- to five-year range that we were seeing maybe a year or two ago?

Look, we hope there's more stuff like that out there. And, as we said earlier on the call, we're going to just sort of wait and pick our spot to fix that ship away. There hasn't been that much of the three- to five-year. And we're happy with the two-year because we think that will get us through this difficult period of time.

Yes, Jon, one thing to add is that there are definitely charters out there looking for three to five-year deals. But there really aren't many owners who are willing to bite on those rates today.

Okay. The last thing, Gerry, one of the things mentioned was the substitution of ore imports into China because it was just cost-competitive, I guess. As the iron ore prices have been increasing, do you think that domestic ore is becoming more cost-competitive now and that might have an impact on imports? And, also, are there any other differences between the domestic ore versus imports? Is there a quality issue that, even if the price is similar, people would still prefer -- mills would still prefer imported ore?

I think if you look at domestic ore at the moment, there's more of these ores -- sorry, mines that were sort of closed down that are opening up. And there's more domestic ore coming into production. But, you know, who knows what's going to happen when the price negotiations are over and where the price settles for the imported ore? And my feeling is that imported ore is still going to be the choice, the first choice. Yes, there is a quality issue. Domestic ore, the ferrous content is only about 15% to 18%. And it's double or more that for imported ore. So, you know, I think that imported ore is still going to be the first choice.

Yes. And, Jon, keep in mind as far as the price movements, whether they're the contract prices or the spot market, the prices are just approaching equilibrium with domestic ore. And that in itself is not a reason to spend the money and open up these domestic mines. I think it's going to take a lot more before you see a lot of the domestic ore coming into the market.

Okay. Great. Thanks, John, Gerry and Peter.

Thank you.

Urs Dur with Lazard Capital Markets has our next question.

Hi, guys.

Hi, Urs.

Hi. I guess the vogue call of this week, and as you know it changes week to week, is that China's pace can't keep up and could very well come unhinged. And so if China slows, are we seeing -- are you seeing demand coming from elsewhere, picking up in the other parts of the world, the developed world and not, such as Europe and Japan? Are you seeing more demand from those regions?

No.

No?

I mean, not a meaningful amount.

No? Do you anticipate a bit of a pickup?

Yes. I mean, Urs, there are a couple of things that came out this morning in that Metallic said they're going to crank up idle capacity in Europe. I think they were saying their utilization in the second quarter was 45%, but demand was more like 55% to 60%. Nippon Steel is planning to raise output in the third quarter. US Mills are planning to reel steel prices. So things are moving in the right direction, but we haven't seen the big liftings of iron ore yet. That's for sure.

Okay. In regards to, and I guess it's been touched on already, but can you give us any color on what you're seeing --

Urs, just to jump in, I didn't catch the vogue of the week of China slowing down. So --

No. I meant in the "Wall Street Journal" today, for instance, there's a piece in there saying, "Well, eventually, China is going to come unhinged from this pace and slow down." And it was --

And eventually the US is going to come out of its recession. So --

Right. Right. And I'm just wondering -- it was more a lead into the question as to what's happening elsewhere in the world? What else are we seeing other than China? I feel that it does keep up for some time. But can you give us some color on the order book details that you're seeing? Are you seeing an awful lot of slippage? Have you seen any new news from that front as to the pace? And are there any hard and fast real, say, cancellations of orders that you're seeing in 2011 and '12?

There's been a lot of slippage, a lot of delays. But a lot of it's anecdotal. I don't know. John, do you have anything?

No. I mean, there have been a few stories. I mean, I think, Urs, you've probably seen everything that we have. Costco canceled a few ships in their own yard. And the problem is, as we've said many times, in the private market which represents 95% of the ownership of vessels, you just don't hear about these things and these cancellations until months down the road because they're kept private.

Yes. Exactly. I was in a couple of yards in Asia just over the last couple of weeks. And I asked the same questions, and I got the same answers. They're very guarded with giving out that kind of information about cancellations. But they did admit to vessels being delayed.

Right. And I guess a follow-on to that, at these vessel values would it make any sense at all for anybody to, instead of even buying something if it were to be available prompt, to order something at these lower levels?

You know, Urs, we obviously watch all the asset classes. If you're talking about ordering something today for 2011 delivery or 2012, you can't get charters out that far right now. So I'm not sure if it makes sense. But if you're looking at more prompt tonnage, we've obviously talked about values and time charter rates coming into numbers that make sense under return on capital. And I think the Capesize are probably the only ones that are near it right now.

All right. That's extremely helpful. Thank you. Thank you, guys.

Thanks, Urs.

Moving on, from Merrill Lynch we'll go to Chris Wetherbee.

Hi. Great. Thanks, guys. Just a follow up on that iron ore question. John, you mentioned that the price for spot or contracted iron ore is still below the level you'd need to see for Chinese domestic production to ramp up. What do you think that level is? I know it's going to be hard to tell. But what do you think, as you get above $90 a ton, are we starting to approach that level? Or do we still have a ways to go, in your opinion?

Look, my opinion is I'm not an expert on domestic iron ore production. But I've got to think it's at least 10% cheaper before they start cranking up those mines, and we're just not there yet.

Okay. I guess just a technical question on the interest expense. It just looked like you had a step up from quarter to quarter. I know in the third quarter you've made a drawdown there. But it looked like that level has remained the same. I was just curious what drove that little uptake in interest expense on the sequential basis.

If you'll recall last quarter, we put our amended credit facility in place in the beginning of January. So our interest costs, our interest spread, went from 85 basis points to 200 basis points over LIBOR. So that's the difference.

Okay. So it's just simply the extra month that you didn't have it in in the first quarter relative to the second quarter?

Yes.

Okay. Okay. And I guess just on the spot vessels that you've placed into the pool, I guess just how do you think about exiting that? Obviously this is going to be a case by case basis. But is this just something to tide you over for the medium term? Or do you think that this is something that maybe gets you through the next year or two before you start thinking about the charter market?

It's going to depend on the charter market. As you said before, it's definitely going to be opportunistic. And with these five ships, we've had them on [delorisan] for a while. We've been happy with the way that they've been operating. So we put them into their pool. And we'll monitor it, and see how it works out.

And just I missed your discussion on daily OPEX. I saw you brought down the target there. Can you just run quickly through what was driving the decreases there?

Well, we moved the target down by $200 a day because of lower crew expenses, specifically. We did have, to our advantage, some timing issues with purchases of spares and maintenance. So that's why we only moved it down for the crew costs.

Okay. And then just last one on the housekeeping side. Do you guys -- can you break out the profit sharing revenue recorded by the Capes in the period? Do you have a sense of what that was?

I don't have that at my fingertips. But we can get that for you. I mean, that's not difficult to calculate.

Okay. Great. Okay. Great. Thanks very much for the time, guys. I appreciate it.

Okay.

We'll go to Gregory Lewis of Credit Suisse.

Good morning.

Morning.

It looked the Newbuilding Cape, the Commodus, was delivered about the third week in July. When was that vessel organically scheduled to be delivered? And really what I'm trying to figure out is do you expect delivery delays in the two Capes in the back half of this year?

The original date was in April. So, yes, there is a late delivery there from the original contracted date. Do we expect delays in the other two vessels? Well, they've been delayed already. As John said, the first one would be in the third quarter. The second one will be in the fourth quarter. But they are slightly delayed already.

Okay. Okay. So, when you're targeting, do you think it's safe to say the middle of each quarter or towards the end of each quarter?

Right up towards the end of quarter. Well, towards the end of quarter for the second one -- the middle of the quarter for the second one. Sorry. The Maximus, which is the next delivery, will be the end of the quarter. Then the Claudius, which is the last of the vessels, will be in the middle of the quarter.

Okay. Thank you very much.

Thank you.

From Cantor Fitzgerald, we'll go to Natasha Boyden.

Thank you. Good morning, guys.

Hi, Natasha.

Hi, Natasha.

I think most things have been covered. I do have a quick question on your amortization of fair value of time charters. Can you just let us know how much, if you had any during the quarter, and how much it was? Because I think you recorded about $4.7 million in the first quarter.

Yes. We can get that exact number. One second.

Thanks.

As you know, in the Appendix of the presentation, we give you guys obviously the rate that we book versus the cash rate.

$4.7 million.

So it's about $4.7 million.

Okay. So the same as the first quarter?

Yes.

Okay. Great. Thank you. And then just some kind of macro questions. There's been a lot of discussion recently about China moving about $2 trillion plus reserves away from the dollar and into other assets, particularly commodities. What do you -- how do you see this trend affecting the bulker market over the medium term or the long term?

I don't know. That's a big question.

What?

That's a very macro question. So --

Yes. Sure, I just you'd maybe have some thoughts on it. If not, fair enough.

No. I don't have any thoughts on it. John or Gerry?

No.

Look, there's obviously some talk about that, Natasha. But I think you've got to look at what's going on in China on the fundamentals. You've got to look at the recovery in the real straight sector. You've got to look at the recovery in their automobile sector. Actually look at what's been happening to Chinese steel prices. They continue to firm. Those are all very positive things. There may be some of this speculation going on. But I just don't think it's a lot. I think the fundamentals are there to support it.

Natasha, if you look at the production of cement in China, it's gone up 21% year-on-year. And that's the figures at the end of June. So, there's a big, big move in the infrastructure.

I'll tell you they're not going to move it to the ruble. That I'll guarantee.

That could make life very interesting. And then just last --

I can guarantee that one.

Okay. We'll hold you too that Peter Peter. With the iron ore negotiations that you're still not completed with in China, with the issue of China arresting Rio Tinto executives, it is a bit of a mess-up. But what do you think the chances are that the market does move towards a more spot-oriented index base system? And, if so, what are the implications for the market? I'm feeling very macro today.

I think right now, it is a bit more of a spot market. But I think with these big ore companies and the steel companies, I think you'll see it. I think the trend is the trend. I think it will continue to be a long-term charter market.

Okay. Are you seeing at all -- do you hear -- Caesar is obviously trying to take control of the steel mills. Do you think they're going to be able to do that? Or are a lot of those smaller mills still going to cause some problems?

They've been talking about this for at least eight years, and nothing has really happened, so --

Right. So there's no reason to think it might happen now?

No.

Okay. All right. Well, thank you very much for your thoughts.

Thanks.

We'll move next to Scott Burk of Oppenheimer.

Hi. Good morning, guys. Just a couple of follow-up questions. First, you've talked about you're going to be opportunistic with your chartering strategy. But I was just wondering, you've got about 44% coverage for 2010. At what point do you say, "Listen, we've got to have a certain amount of coverage or we're not comfortable," and so you just start putting vessels away for longer terms? And specifically, I'm wondering how that might affect your -- the way you look at chartering out the two Capes that are coming online in the third and fourth quarter.

We never say that. If we didn't say it in the Fall of 2008, we're not going to say it now. That was the worst time that any of us have seen in 25, 30 years. So if we didn't panic and put stuff away then, we're not going to do it now. So I think we're going to continue. And I've been doing this for 20 years, and that's the way we've done things and it's always worked for us.

So, conceivably, you could see your -- if you roll over to 2011 or whatever, you could see - you'd be comfortable with only 20% coverage?

Sure, if that's what the market bears.

Okay. And then I had -- I guess this is a macro question, as well. But we saw BHP yesterday. They agreed --

But we do believe -- but, Scott, we do believe that there are going to be spots in there, as we have shown in this past six months, where by being disciplined and waiting for your spot and to be able to pick your spot and get a better charter than you would have a month or two months or six months ago. So we believe that over the next several months/years, we'll have our spots to pick to put our ships away. So it won't be that 20%.

Yes, Scott, people focus way too much on what your coverage is. You can't look at the coverage. You've got to look at what the rates they're moving at --

We could have 100% covered at $8,000 a day.

Exactly.

Yes.

And, more importantly, our 45% going into next year, the majority of that are legacy charters that were done a year or more ago and are at significantly higher levels than where we are today.

Yes, and that shows up in your EBITDA, and obviously very helpful. I wanted to move on to more of a macro question. BHP yesterday said they're going to do about 30% of their iron ore exports next year on a spot basis or index basis. And I just wondered what your thoughts are as the iron ore movement goes more towards a spot-based movement. Do you think that's beneficial or detrimental for the outlook for dry bulk shipping in general?

I think it will cause rates to be higher because it will be more of a spot market, and it will be more of a speculative market. So I think you'll see rates, in general, being higher.

Okay. Just because there will be more speculation on both sides?

Yes.

Okay. Interesting.

There will be more volatility. Let's put it that way.

Yes. Yes. And then one question about the deliveries for the second half. Are you starting to -- you kind of discussed the potential for a lot of things to be delayed. First, I wondered if you have a breakdown. You mentioned three vessels -- or 300 vessels that have been cancelled. Do you have a breakdown in vessel class for those vessels? Is it mostly Capes? Mostly Handys?

I think it's across the whole class of carriers. (crosstalk)

Okay. And then the second half, we are supposed to see quite a few more deliveries than we saw in the first half of 2009. Are you starting to see any indication of increased competition from those new vessels entering the fleet in the second half?

No. Not really.

Okay. Okay. Thanks very much.

Thanks.

From Maxim Group, we'll go to Charles Rupinski. Mr. Rupinski, your line is open. Please check your mute button.

Sorry about that. Hello, everybody. Thank you. Most of my questions have been answered, but just a quick one on the rest of the cycle of -- or the next couple of years on operating costs. Given the downturn in the economy and what we're seeing in general, how would this play into, say, crewing costs and things like that over the next two to three years? Do you have a view on that?

Well, two or three years is pretty far out, to be honest with you. But we've done a good job of controlling our costs in 2009. And we're pretty confident that we can continue to do that as we move forward.

All right. Well, thank you.

We'll go to George Pickerel with Stephens.

Hi, guys. Thanks for taking my call. I have a longer-term question here. As you look out in the market and think about growing your fleet over the next few years, does one class of vessel look more attractive than another, either due to market dynamics or types of vessels that need to be scrapped, or average ages of fleet? Any color there would be appreciated.

No. As we've shown in the past, it really depends on -- sometimes you see different classes of ship, and sometimes it's for strange reasons a very short period of time we'll have a disconnect in there, price versus the rates you can charter them away for on a long-term charter. So that's when we've typically gone in to buy something. There was a case a couple of years ago where Panamaxs to buy were trading in less than Supermaxs. Meanwhile, they're a larger ship that makes more money. So we went and we bought a bunch. So, I think it really depends on what's happening in the market at the time we're looking. As John mentioned earlier, he said that right now the only ships with charters that meet our return criteria are Capes at this point in the market. That may change in September.

Okay. Thank you for that. And real quickly, why the increase in legal fees this quarter?

Why the increase in legal fees?

I think you said your legal fees were higher than -- I guess they were up year-over-year.

Yes. I mean, that's just inflation more than anything else.

Okay. So nothing --

It's not a large number.

Plus we had the bank --

Yes. We had our bank amendment that we did. But it's nothing --

Nothing out of the ordinary?

No. No.

Okay. Great. That's all I have. Thanks for your time, guys.

Thank you.

Next from Deutsche Bank, we'll go to Justin Yagerman.

Hi. Good morning, guys.

Good morning.

Good morning.

Could you quickly -- on the balance sheet, I'm curious about you mentioned that you'd use your cash either opportunistically or to pay down debt. Is there a specific leverage ratio that you guys think about? And is it influenced by your charter coverage when you're trying to think of an optimal level of balance sheet leverage?

Look, I'm not sure if we necessarily target a leverage number. But we know where we want to be. I think charter coverage has something to do with it. Obviously we've cut the dividend out temporarily. So that enters into our decision-making, as well. But to give a specific number, I wouldn't say that there's a plan for a specific number at this point.

In the market right now, should we be expecting to see you pay down debt if you're not finding opportunities for vessels out there on the water?

Yes. If we're not finding opportunities, absolutely.

Okay. And then I guess just a bigger picture question. You mentioned that most of the demand is coming from China right now, and that makes sense. But as you look out and your fleet gets bigger over the next several years, is it a priority to diversify where you're getting your demand from? In other words, are you looking at building relationships in places like India and Africa that are up-and-comers in this market?

I mean, you can do it all you -- I mean, you don't really target a region and get -- because whether it's Cargill or BHP, that's what you're really targeting. We don't target one area anyway. That's -- what you do do is you take what the market will give you. And right now what the market is giving us is demand into China. And so that's what, not just us, that's what the market is serving. If demand in Africa picks up, which I've got to tell you, I don't -- maybe my grandson will shoe that. But if the demand in Africa picks up, we'll be right there. So I think we just take what the market gives us.

Got it. And when I look at the increase in coal in China, how should I be thinking about that? Is that more driven, in your opinion, in the quarter by the steel production? Or is that electricity output from thermal coal that's coming in? What do you guys think is moving more?

Well, I'd say both.

Both.

Definitely both.

Definitely both? Thanks. I appreciate the time.

Thank you.

And those are all the questions we have for today. And that does conclude today's conference. We thank you all for joining us.

Thank you.

Thank you.