Genco Shipping & Trading Ltd (GNK) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping and Trading Limited fourth quarter 2010 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 of the company's website at www.gencoshipping.com. We will conduct a question-and-answer session after the presentation materials, instructions will follow at that time. A replay of the conference call will be accessible at anytime during the next two weeks by dialing (888) 203-1112 or (719)457-0820 and entering the pass code of 9223068. 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 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 related to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission, including with amortization, the Company's annual report on the Form 10-K for the year ended December 31, 2009 and the Company's subsequent reports filed with the SEC. At this time, I would like to introduce Gerry Buchanan, the President of Genco Shipping and Trading.

Good morning, welcome to Genco's first quarter 2010 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 fourth 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 December 31, 2010 and following this, I will discuss the industry's current fundamentals. John, Peter and I will then be happy to take questions.

During the fourth quarter and full year 2010, Genco posted strong results for shareholders despite being a challenging drive up market. The past success we achieved in signing multi-year charters with top counter parties while expanding our high-quality fleet continues to differentiate the Company within the industry and bodes well for future performance. Turning to slide five, net income attributable to Genco for the three months ended December 31, 2010 was $34.8 million or $0.99 basic and $0.90 diluted earnings per share. Genco's cash position, excluding Baltic Trading Limited, was $274.1 million which reflects the sizable cash flows generated by our high-quality fleet.

During the fourth quarter, we continued our opportunistic approach to employing our vessels on short-term contracts with high-credit quality counter parties, while maintaining the ability to benefit from future rate increases. Specifically, we secured 2007 built Capesize, the Genco London and the Genco Tiberius on time charters with Cargill International ASA for 11 to 14.5 months at a gross rate of $31,000 per vessel per day. We also fixed the Genco Cavalier, a 2007 build Supramax vessel on a time charter with MUR Shipping BV for 11 to 13.5 months at a gross rate of $19,200 per day.

Going forward, we will continue to seek opportunistic -- opportunities to increase of timeshare coverage, a diverse group of reputable multinational companies and preserve the ability to generate significant operating leverage as the rate environment improves. Additionally, we have achieved strong fleet utilization of 99.4% for the fourth quarter, which is testimony to Genco's leading brand as a known owner operator of modern tonnage. Moving to slide six, we provide a summary of our fleet portfolio four vessels remaining to be delivered. During 2010, management continued to actively consolidating the dry-bulk industry through its agreement to acquire 13 Supramax vessels from Seatas, FCS, a wholly-owned subsidiary of Borbon, SA, and five handy size vessels from companies within the Metrostar group of companies that attractive prices near historic lows. With the addition of these 18 vessels which will expand our fleet by 31% on a deadweight tonnage basis, excluding Baltic Trading's vessels, Genco has solidified its position as an industry bellwether.

We are pleased to have taken delivery of 14 of the 18 newly acquired vessels to date as we integrate our latest acquisitions into our existing infrastructure for the benefit of the Company and its shareholders. Of note, a detailed delivery and payment schedule of the four remaining vessels to be delivered to Genco is included in the appendix of our presentation. Upon delivery of the three remaining Handysize vessels and one remaining Supramax vessel that we agreed to acquire and excluding Baltic Trading's fleet, we will own a fleet of 53 dry-bulk vessels consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels with a total carrying capacity of approximately 3.812 million deadweight tons. At that time, the average age of our fleet is expected to be 6.5 years, well below the industry average of approximately 15 years. Our modern and diverse fleet position sets Genco well to continue to provide service, adhere to the highest operational standards and take advantage of the positive long-term demand for the global transportation of iron ore, steel and other core commodities. I will now turn the call over to John.

Thank you, Gerry. Turning to slide eight, I will begin by providing an overview of our financial results for the fourth quarter and 12 months ended December 31, 2010. Please note that we are reporting our financials on a consolidated basis as a result of the Baltic Trading IPO in March 2010 and our 25.4% equity ownership in the company.

For the three and 12 month period ended December 31, 2010 we recorded total revenues of $130.6 million and $448.7 million respectively. This compares with revenues for the fourth quarter 2009 and 12 months ended December 31 2009 of $96.2 million and $379.5 million respectively. The year-over-year increase was mainly due to the increase in the size of our fleet. Operating income for the fourth quarter and 12 month period ended December 31, 2010 was $60.1 million and $221.3 million respectively. This compares with operating income for the fourth quarter and 12 month period ended December 31, 2009, a $51.9 million and $210.5 million respectively. The increase in operating income for the three and 12 month period ended December 31, 2010 compared to the corresponding year-earlier period is attributable to higher revenues offset by higher expenses, both of which are associated with the operation of a larger fleet. Interest expense for the fourth quarter 2010 was $22 million and $72.7 million for the 12 month period ended December 31 2010. This compares to interest expense of $16.4 million for the fourth quarter of 2009 and $61.8 million for the 12 month period ended December 31, 2009.

The Company recorded net income attributable to Genco for the fourth quarter of 2010 of $34.8 million, or $0.99 basic and $0.90 diluted earnings per share. Net income attributable to Genco for the 12 months ended December 31, 2010 was $141.2 million, or $4.28 basic and $4.07 diluted earnings per share. This compares to net income attributable to Genco of $35.5 million, or $1.13 basic and diluted earnings per share for the fourth quarter of 2009 and net income attributable to Genco of $148.6 million, or $4.75 basic and $4.73 diluted earnings per share for the 12 month period ended December 31, 2009. For the three and 12 month period ended December 31, 2010 Genco, also recorded income tax expense of $654,000 and $1.8 million respectively. This income tax expense includes federal, state and local income taxes on net income earned by Genco Management USA Limited, one of our wholly-owned subsidiaries, and relates to income generated from a technical and commercial management of the vessels for Baltic Trading Limited, sale and purchase fees payable to us by Baltic Trading Limited and the technical management of vessels for Maritime Equity Partners.

Next on slide nine, you will see the income statement effects of Baltic Trading's consolidation's with Genco shipping and trading limited. This will provide you with the more detailed breakdown of the financial performance of the two separate companies. Key consolidated balance sheet and other items as presented in slide 10 include the following. Our cash position, including restricted cash, was $279.9 million as of December 31, 2010. Excluding the consolidation of Baltic Trading, Genco's cash position was $274.1 million. Our total assets as of December 31, 2010 were $3.2 billion consisting primarily of our current fleet, cash and cash equivalents, deposits on vessels and our investment in Jinhui Shipping and Transportation. Our EBITDA for the three months ended December 31, 2010 was $91.9 million, which represents an EBITDA down margin of 70.3% of revenues.

Moving to slide 11, our utilization rate was 99.4% for the fourth quarter of 2010 compared to 99% in the year-earlier period. Our time charter equivalent rate for the fourth quarter 2010 was $24,303. This compares to $30,567 recorded in the fourth quarter 2009. The decrease in time charter equivalent rates resulted from lower charter rates in the fourth quarter of 2010 versus the fourth quarter of 2009 for 12 of the vessels in our fleet, as well as the addition of sub-Capesize class vessels from the Metrostar and Verbone acquisitions and the consolidation of Baltic Trading's fleet, which also consists predominantly of sub-Capesize vessels.

For the fourth quarter of 2010, our daily vessel operating expenses were $4,990 per day versus $4,817 per day for the fourth quarter of 2009. Daily vessel operating expenses for the 12 months ended December 31, 2010 were $4,852 per day versus $4,796 per day for the 12 months of December 31, 2009. The increase in daily vessel operating expenses in the fourth quarter of 2010 compared to the prior period is primarily due to slightly higher crew costs. 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. Consistent with our objective to maintain an efficient cost structure, our daily vessel operating expenses for the 12 months ended December 31, 2010 were below our initial budget of $5,350 per vessel per day on a weighted basis due to the timing of purchases of spare parts, as well as lower than anticipated crew, lubricants and insurance costs.

On slide 12 we present our pro forma balance sheet which shows our pro forma cash position of $245.5 million, which includes $18 million of estimated debt amortization under the three credit facilities for the first quarter of 2011, as well as the remaining $10.6 million cash payment for the delivery of the Genco realm. Pro forma cash excludes Baltic Trading Limited's cash balance of $5.8 million. Our pro forma debt to total capital ratio was 59% of as of December 31, 2010. We intend to draw upon our strong liquidity position to fund the four remaining new buildings to be delivered to Genco as mentioned earlier on the call. Complimenting our built-in fleet growth, we intend to pursue additional acquisition opportunities that further expand the Company's earnings power and strength in Genco's industry-leading position. As we remain focused on executing our growth strategy, we will seek to maintain our disciplined approach by adhering to strict set of return criteria related to earnings and cash flow accretion, as well as return on capital hurdles, as we have consistently done since our IPO in June of 2005.

On slide 13, we present our anticipated breakeven expense levels for 2011. We expect our full-year 2011 daily vessel operating expense budget to be $5,200 per vessel per day on a weighted basis of an average number of 50.79 vessels. We expect our daily free cash flow expense rate to be $15,022 and our daily net income expense rate for Genco consolidated to be $17,115 per vessel per day.

On slide 14, we provide the convertible debt terms and guidance on the accounting treatment of the securities. As a reminder, in July of 2010, we completed an offering of $125 million in convertible senior notes due August 15, 2015. The convertible securities carry an annual coupon rate of 5% and can be converted into shares of Genco common stock at a strike price of $19.60 per share, representing a 22.5% conversion premium. Diluted earnings per share is accounted for using the if converted method under US GAAP. The reconciling items for that treatment concern net income in the numerator and diluted shares outstanding in the denominator. Total interest expense associated with the convertible notes, which already flows through the income statement is added back to net income while the number of shares of the convertible notes could convert into get added to the denominator under weighted average common shares outstanding. This is fully detailed on slide 14. Thank you, and I will now turn the call back to Gerry.

Thank you, John. I want 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 end business. Represented on this slide is the overall Baltic dry index as can be seen when looking at the graph, the BDI showed a relative weakness beginning in November 2010 and going through the beginning of this year. The lower index was mainly driven by a deteriorating freight rate environment and the Capesize sector. Supramax and Panamax vessels on the contrary maintained a more stable earnings profile through the cycle as a result of broader cargo versatility of the vessels and demand strength of minor bulks.

On slide 17 we summarize the main drivers behind the current suppressed rate environment and the catalyst as we see it for the dry-bulk freight market going forward. As mentioned earlier, we believe the Capesize index led the most recent decrease in the BDI mainly due to a drastic decrease of available cargoes and the iron ore and coal trays. Substantial rainfall in eastern Australia caused the flooding of many coal producing mines in Queensland, as well as a related infrastructure such as rail tracks used to transport the commodity to the shipping terminals. The return of these cargoes is subject to further weather items, but it's hard to estimate considering that this is the only the beginning of the cyclone and season. While US coal exports have covered any incremental coal demand in the past, an unusually cold winter and continuous snowfall also limited the coal cargoes coming out of the US. Lastly, supply chain issues were also present in the iron ore sea borne trade as weather related issues caused intermittent iron ore loading at the Brazilian and South African ports.

ICAP shipping estimates that approximately 5% of the global coal and iron ore trade was affected due to the above weather disruptions. At the same time, iron ore of entries at Chinese ports increased as January saw a new record in iron ore imports from cargoes booked in November and December, ahead of the Chinese new year vacation. On the supply side, new building deliveries spiked during the first month for the year, as is usually the case due to owners' efforts of registering a more modern vessel. Furthermore, China's continuous monetary policy tightening increasing bank reserve requirements and the restructuring of the Korea Line Corporation has negatively affected sentiment, something that we believe is reflected more so in the foreign markets than in the physical market.

Going forward, we believe that a number of catalysts will affect the dry-bulk market, as listed on the bottom left side of slide 17. Firstly, we expect the eventual reversal of weather related patterns and return of coal cargoes into the market, although timing is hard to estimate. Second, China's 12 five-year plan is expected during March of 2011, which should release information of expected infrastructure programs going forward. On the supply side, we believe the most important catalyst to be the delivery of new vessels as compared to what is currently recorded in our large order book. Although it's too early in the year to predict which delivery rate going forward will be, we believe that potential slippage in 2011 should alleviate some of the concerns of oversupply when coupled with growth and demand. And lastly, we note that scrapping could potentially increase, especially if rates for certain classes of vessels continue at similar levels as was currently seen.

On slide 18, we talk further about the demand side fundamentals. As indicated on the graph at the bottom right, Chinese steel production reached 627 million tons in 2010, showing a 10% increase over last year's production figures. Over 619 million tons of iron ore were imported into China for the same period. Interestingly, iron ore imports into China actually showed a slight decrease of 1% on a year on year -- year-over-year basis.

Strong iron ore trade was supported by the return of the traditional importers such as Japan, South Korea and Europe are beginning to reestablish a base line amount of sea borne trade as indicated on the bottom left of the slide. We believe that a low iron ore inventory levels at Chinese ports are being comparably high over the past few weeks. Iron ore trade fundamentals remain intact in the long-term as we expect trade to be fueled by continued growth in China. China's GDP growth of 9.8% for quarter four of 2010 and plans for continued housing and other infrastructure projects bode well for the dry-bulk market.

The coal trade played an increasingly important role in 2010 with coking coal trade showing 18% growth for 2010 and steam coal trade 12% as reported by ICAP shipping. Imports into China and India were the main factors behind these increases as higher power generation demand, as well as steel production in both countries increased their dependency on the imported commodity. Indian coal imports rose 14% in 2010 to 86.3 metric tons, and they are expected to import over 100 metric tons in 2011 as 4000-megawatts of coal fired power generation capacity is added. Lastly, we mentioned that Russian grain export restrictions are still in effect. Which, when combined with a drought in China, should positively influence ton mile demand going forward.

Moving to slide 19, we show the expansion plans of key iron ore producers as recently revised by the respective companies. On the left side of the slide, you can see the combined iron ore expansion plans through 2015 which accumulate to 427 million tons, or 41.9% of 2010 sea borne iron ore trade. India's steel demand is also indirectly influencing the iron ore trade. As the country's iron ore production gets absorbed by domestic demand for the commodity, the government is taking measures to reduce exports there by increasing the need for China to source from Brazil and Australia. The federal government has already imposed a 5% duty on exports and is considering raising it to 20%. Local governments have gone as far as placing a ban on iron ore exports. Although the most recent ban in the Kanakaka region is expected to be lifted, a ban in the region of Arissa may counteract it, maintaining the possibility of greater ton miles. Additional demand for iron ore will come not only from the increased steel production in China, but also rebounding steel production in the rest of the world.

Forecast for growth in the overall steel market stand at 5.3% for 2011. China amounted to 45% of world steel production in 2010, and we do not expect any major shifts in that number going forward. On slide 20, we present our view for the supply side of the equation, which we feel is also the most important going forward, but also the one of the highest level of uncertainty. Looking at the graph at the bottom left of the slide, we can see the dry-bulk order book through 2013. That significant dry-bulk order book still projects to present approximately 50% of the existing fleet. However, it is questionable whether it will be delivered in its entirety. In the past conference calls, we have suggested that although the commercial bank market has returned to certain extent, capital is still scarce, and banks only lend to select clients. Furthermore, depressed vessel values imply higher equity installments for existing new building orders from illiquid owners.

Slippage also continues to be a major factor on the supply side, representing approximately 35% to 40% of the total order book for 2010 and estimated to continue at approximately 40% into 2011, according to Clarkson's. We also believe that scrapping will play significant role in 2011, especially if the freight rate environment remains at suppressed levels over prolonged periods. Approximately 28% of the world fleet is 20 years or older and 21% is greater than 25 years old. As we have indicated in past calls, scrapping is essentially an economic equation. It is our opinion that the current combination of high scrap steel prices and suppressed freight rates would support increased scrapping. According to internal company estimates, we calculate that they cash flow breakeven rate for an unlevered 20-year-old Capesize vessel, and without accounting for any overheads or G&A expenses, is approximately $12,500.

Taking into consideration a discount on rates and lower utilization due to the age of the vessel, we believe this corresponds to approximately $17,500 on a similar sized five year-old Capesize vessel. As illustrated on the graph on the bottom of the page, 2.1 million deadweight tons have been scrapped year-to-date as compared to 5.7 million deadweight tons for the entire year of 2010. This concludes the presentation. I will now be happy to take your questions.

Thank you. The question-and-answer session will be conducted electronically today.

(Operator Instructions)

We'll take our first question from Doug Mavrinac with Jefferies & Company.

Guys, just had a few follow-up questions, with the first one being, last year you guys bought the Supramax vessels during the summer. And true to form, that particular asset class has continued to outperform the bigger dry-bulk asset classes. Is there something structural that you saw at the time and/or see today that has resulted in a structural shift that should allow that asset class to continue to outperform its larger peers?

I think you see these things from time to time, but I think over the long-term, the asset classes all perform as they should. But I think for short periods of time; six months, 12 months, 18 months, you will see one asset class outperform the other. But what we tend to do, we've done it historically, is when we do see a dislocation, where we do see one asset class mispriced versus another, we'll go after that asset class, and that's what's good about having a mixed fleet the way that we do, and take advantage of that situation. I mean today, the reason the Capes are having the problems they are having and are being thrown -- in other words, that asset class is suffering is because a lot of it is weather related. The amount of iron ore and coal that has not moved out of both Australia and Brazil as a result of the weather is tremendous. So, I think once that corrects itself, you'll see the Capesize market come back, and things will get more into the way they should be priced.

Got you, got you, great. Thank you, Peter. Perfect. And then, sticking with that thought, and then something that Gerry mentioned, to the extent that rates remain below operating cost breakeven levels -- clearly, we've seen scrapping picking-up. We've almost equaled 50% of last year's scrapping total, and we're not even out of February yet. So, to the extent that rates remain weak, I would imagine first, that that's a self-correcting mechanism that should alleviate some of the order book overhang but, second, you guys provided a Capesize estimate in terms of an earnings threshold at which point scrapping is likely. Is there a similar Panamax estimate that you guys can throw out? Or should we just think of it as, so long as rates aren't above daily operating cost breakeven levels, then we should continue to see scrapping since 20% of the fleet is still over 25 years of age.

I think it's a little bit more than that. And the other thing that you'll see by this market too is not only the scrapping, but also orders not -- I think the order book is not going to be as big as people think it is, but let's -- that's a different answer. But I think the other issue you'll see, and you saw it happen, let's use Genmar as an example. You'll have a ship that is 20 years old, you've got that fifth special survey, it's a big number, and you say, you know what, I'm just not going to put $3 million into a ship that in two-and-a-half years, I have to do it again. And so, I think that's where you'll see -- it is not just the -- it is the breakeven, but then you get to a point where you've got that fifth special survey, and at that point you're doing them every two-and-a-half years, and people don't want to put the amount of money into them until they have to. And again, if you look historically, the bigger a ship is, whether it's Capesize, then down to Panamax, or VLCC down to (inaudible). The bigger a ship is, the earlier in its life it gets scrapped.

Right. Excellent.

The stresses on a Capesize -- well, I mean, the stresses on a Capesize are more than any other ship, but the stresses on Capesize or VLCCs are much more than on a 5,000-ton ship, a small -- some small ship. Because of -- if you think about the length of a ship, and the twisting that goes on in the steel, you'll see cracks in it, and that's where these ships get scrapped. And then, add iron ore into that, and these ships -- so, I think you'll see an acceleration in scrapping.

Doug, the other positive thing is that scrap rates have remained very firm. They're close to $500 today for dry-bulk ships, and as long as the price of steel remains firm, which we think it will, I don't see a lot of pressure on the scrap rates, so there should be incentive.

Okay, perfect. Great, excellent, excellent points. I didn't even think about, like for Genmar, the final -- the fifth special survey and whatnot -- excellent. And then final question, and Peter, it's a question that I had, but it's also something that you touched on. Everybody is all bulled-up on the container shipping sector. Is it possible for some of those longer-dated dry-bulk new building orders to be converted to other types of ships were maybe market sentiment is a little bit better?

Yes.

Okay, perfect. That's all I had. Thank you for the time.

Thanks, Doug.

Next, we'll hear from Jon Chapelle with JPMorgan.

Thanks. John, I had a couple questions for you on the capital structure. You clearly have enough cash to fund the rest of your capital commitments for this year, and by our estimates, even as your contracts roll off, you'll be quite cash-flow positive in each of the next two years. How are you thinking about paying down your debt, versus keeping the cash on the balance sheet for a rainy day or for any opportunities?

Look, I think it's a combination. We're -- as we said last quarter, we're definitely in the mode of deleveraging. So we've obviously -- we have amortization there. We've continued to do that, and I think we'll probably look to pay down a little more debt ahead of that as well.

You know, you have the $18 million of amortization in the first quarter, is that a quarterly run rate we should think about going forward?

It is a quarterly run rate for 2011 and the first part of 2012, yes.

Okay, and when is the next big-bullet amortization?

The next big-bullet amortization is not until June of 2012.

And can you remind us what that size is?

It's -- well, the D&B facility which has the large amortization beginning in June of 2012 is $48.5 million.

Okay. All right, thanks. And then, you have the indefinite waiver on your covenants, as far as the acid dyes are concerned. Can you just remind us if there are any other covenants related to EBITDA, and how you're doing relative to those?

Yes, we have an average net debt to EBITDA covenant. We passed it no problem in the fourth quarter and, in fact, even if you moved EBITDA 10%, 15%, we still wouldn't have had a problem with it. I mean, obviously, it's a tough market. I'm not going to make any predictions as far as where things go, and we obviously provide all the expense numbers. So, you guys can certainly run sensitivity analysis, but we'll continue to watch. I mean, keep in mind, we have a large cash position, as you pointed out.

Right. And then two other ones. You obviously did a lot last year on the growth side, and there are a lot of question marks about asset prices. Do -- you mentioned in your commentary flexibility to grow. Do you really think that 2011 could potentially be a growth year for Genco, or do you think that deleveraging is really going to be the primary focus?

Right now, deleveraging is the primary focus, but that doesn't mean we're not going to look at transactions, and if we think it makes sense, then we'll, as we have in the past, figure out a way to do them. But deleveraging is number one; we've said that since last quarter.

Okay. And then finally, a quick industry question. You mentioned the reasons for scrapping and the slippage, et cetera, yet people still are ordering, and not so much the public companies, but do you have any insight as to what people may be looking at, while they're still adding to the order book? Even though ordering is down this year, it seems like dry bulkers are representing a fair amount of the new orders in 2011.

No, Jon, I don't know why people are ordering. I don't understand it, and I don't understand why the banks would actually be financing these new buildings if they are.

A [little] speculation goes on in the order book as well, so.

Right. Okay, thanks a lot, John. Very helpful.

Gregory Lewis with Credit Suisse.

Yes, thank you, and good morning.

Good morning, Greg.

John, I think you mentioned briefly that typically you guys tend to look at mispriced assets, and I don't want to really follow-up on Jon's question, but I guess I will ask it a different way. Do you see any assets at this point, whether it is Capes or Handys or Panamaxes, that you think at this point could be mispriced, or is it more sort of everything looks kind of where it should be?

Look, I still think there are opportunities in the smaller ships right now, but what we're not seeing are large deals. We're seeing one or two ships that are available for sale right now. That may change depending on where the market is over the next few months, but I still think -- and it's another reason why we bought the [Bourbon] ships and the Metrostar ships, is we're seeing a recovery in the minor bulks with the world economy. And as Peter said, on the larger ships, as Australia gets itself back online over the next few months and coal starts flowing more in normal numbers, we should see a recovery in the larger ships as well.

Okay, great. So, in other words, it doesn't sound like the weak rates have really pushed down Cape asset prices at this point. And actually, I had another question for you. It looks like SG&A spiked-up a little bit in Q4. What was that driven by?

We did some hiring for the fourth quarter -- really during the third quarter, for the expansion of the Baltic ships, the expansion -- the major expansion we've done here at Genco, so it's really a personnel issue. But Greg, I will remind you all, we did put out the number in the third quarter, and we were very close to the breakeven number that was put out into the market.

Sure, sure. Okay, great. And then just one last question. You mentioned at the beginning of the call at this point that GNK owns about 24.5% of Baltic Trading, and I realize that Baltic is consolidated because of the special preference shares that GNK holds. Do you foresee a point in the future, maybe, where those shares are released their preferred status, and at that point maybe Baltic won't be consolidated in the GNK, or is this sort of how it's going to be going forward for the long-term?

Definitely for the foreseeable future; I do not see any change in the voting status.

Okay, guys. Thanks for the time.

Okay, Greg.

Justin Yagerman with Deutsche Bank.

Good morning, this is Josh Katzeff on for Dustin.

Good morning, Josh.

Hello. I just wanted to maybe touch-up on your chartering strategy. Looks like a lot of your vessels that have come up higher have been placed on the spot link charters with -- and I know that they have the option to be converted into fixed charters at [FFA] rates. What catalyst are you looking for before we start to see a shift to fixed versus spot?

An improvement in the market.

Can you go into that a bit further? Are you looking at rates above cash breakeven, or are there any kind of targets?

Well, look, Josh. I think the first thing we want to see is we want to see Australia get back into the market. I think that is -- could be a significant catalyst, and we definitely want to wait to see how that plays out.

Okay, great. And I guess touching-up on your conversations with your bankers, and I was wondering if you are getting the sense that bankers may not be so willing to issue other companies waivers, whether -- that they've normally been pretty easy to get, whether it's loan-to-value tests or minor breaches in no net debt to EBITDA clauses, which might see some distress sales or bank repossessions.

I haven't seen that. I haven't heard anything about that, no matter what sector we're talking about. I can't -- I don't know what happens six months from now, but certainly not hearing any talk of that right now.

And, I guess, one last question before I turn it over. With road to slow steaming, we saw it in containers, started to see it in tankers and, I guess, we're seeing it with some of the larger dry-bulk vessels. Is there any talk about maybe slow steaming or slowing down the vessels while they're laden, and is this something that owners are trying to take a uniform approach on?

Based on [the owners] it's actually [done] to charters and, yes, we are seeing that with certain charters at the moment. We get instructions to slow steam the vessel to the next port or whatever, and we follow charters instructions.

Great. Thanks.

(Operator Instructions)

Next, we will hear from Urs Dur with Lazard.

Good morning, it's Tatiana. My question is also on those new charters in the quarter. It looks like almost all charters that expired the end of last year were switched to indices, except for those two Handymaxes and the Handysize that were fixed at about 12K a day. So, I would just ask you about your rationale behind those three and why you chose to fix [Handysize].

I'm sorry, it was very difficult to hear you, but were you asking about the fixtures of --?

Yes, I was asking, it looks (inaudible) all of the charters that expired last year is a switch to indices in this quarter, in the first quarter, except for two Handymaxes and the Handysize that you guys think (inaudible) a day. So, I was just curious (inaudible) that was (inaudible). What's your rationale?

I understand what you're saying. The reason we didn't put them on long-term charters -- we did them on and index because we believe the market is going to improve, and what we didn't want to do is fix them into a three-year contract at the rates -- the current rates. I mean, I think that's what you're saying.

That I understand. Why did you fix the three vessels though for just 12 a day?

The three vessels that we fixed were two Capesize and a Super. Is that what you are referring to?

No, I was talking about two Handymaxes, it looks like you fixed the Handymaxes. Maybe I am wrong.

Yes, I'm not sure. I do know we fixed two Capesize.

Okay, so Genco Wisdom and Genco Muse, those are not new?

Genco Muse is only until March of --

Yes, yes, it's very short-term. Genco Wisdom, though, is until December 2011, so it's nine months.

Yes, I think that was fixed a while ago.

Was it? Okay. All right then, sorry. Thank you.

Thank you.

Doug Garber, FBR Capital Markets.

Thank you, and good morning, guys. My first question is on your vetting process for charters. You guys have a pretty good track record of not having defaults. I was hoping you could share some color on the process you go through? And I was also curious if there are other companies like Korea Line that you would put in a bucket as very -- you'd be very cautious to do business with, if there are other major charters like that.

Look, we have from day one, had a pretty strict credit review that we go through. Without going into too much detail, we obviously are looking at financial statements, we're looking at their capital structure, the number of ships they own, who our counterparty actually is. And then, most importantly, reputation in the market and, clearly, we've been doing this now at Genco anyway for six years, so we know the charters very well. We have, obviously, opinions on who we'll do business with and who we won't. I don't want to get into a list of charters that we're not going to deal with. I don't think that's very productive, but we continue to do a lot of business with Cargill and Dreyfus and Pacific Basin and Lauritzen, and a full list in the back of the presentation that we're comfortable with.

All right, thank you. And my next question is, I want to come back to the large cash balance that you guys have, and if you do find acquisitions that you find appropriate, how much of that cash balance would you be willing to draw down? Is there a minimum amount of cash you want to keep on the balance sheet for your future amortization payments as they increase in the next few years?

Yes, look, as I've said before, delevering is what we are going to concentrate on, and if we find an acquisition, then we'll look at it at the time and, obviously, look at what we need to do from a cash standpoint. It's kind of hard without having a specific acquisition to talk about to really get into the nitty-gritty on the numbers.

Okay. So, there's no minimum amount of cash that you really want to earmark to keep on the balance sheet at this time?

No.

All right, thanks guys. I'll turn it back.

Thank you.

Fotis Giannakoulis with Morgan Stanley has our next question.

Yes, good morning. I want to ask you about the overall state of the market, and you mentioned earlier about the Korea Line and the turmoil that it has created. Although you do not face any problems, all your charters are very high quality, but do you see that there might be other large operators, that they might have excess risk-taking over the previous months? And do you anticipate any other high -- potentially high-profile defaults?

All we -- I can't answer about other operators or other high-potential defaults. All I can tell you is we're very confident with the charters that we have, and throughout this whole crisis, we haven't had anybody default on us. So -- but to talk about other people, I can't do that.

Yes, I am just trying to understand how risky the market is out there, and if you think that there are a lot of people exposed. If you can give us your analysis on the market, not about the --

Hey, you know what, we run a company here, we do our job. We have the charters that we want to do business with that do a good job for us. For 20 years I have done this, both in tankers and dry, and no one has ever walked on one of my charters. You are the analyst, you should know the market, you should talk to the other companies. How am I going to tell you about my competitors? I can't tell you about my competitors. I don't know what they do.

Okay, I understand. And can you also gave us a little bit, your overview about the supply/demand balance for next year? You talk about the very strong crude steel output, and even the Chinese government expects that the steel output will grow by 5% next year. However, it seems that there are little bit mixed signals about the iron ore imports. Do you have any view about that?

Yes. I mean, look, right now inventory levels are the high side. The only caveat I'll put on that is steel production, as you said, continues to grow. So, naturally, those inventory numbers need to grow as well but, as you well know, inventory numbers go up and then they're drawn down and imports start, and then they go up again. It's a cycle that we've seen for at least five, six years; it's nothing new. And I think that, as we talked about, India I think is really in flux as far as exports. It's very difficult to tell whether that's going to get started again. But we do see over the next -- in the medium to long-term pretty large growth as far as volumes of iron ore coming out of Brazil and Australia due to new projects, and we think that is, again, it's positive, it's why we're here, it's why we're still in the business. We continue to think China is going to continue to take up that -- those commodities.

Yes. Most of the projects from Brazil are a little bit further ahead. They are mainly -- the additional capacity is going to come after 2013. How long before do you think that the charters will start trying to secure tonnage, and when provide -- how long in advance do you think that we might see some increase in the time charter business -- that kind of give some further support of the markets? Is it a year or two, or how long?

Time charter business, once this weather in Australia clears up, the time charter business will come back. For projects in 2013, I can't tell you when people are going to -- at the end of 2012, they'll take ships. But I think in terms of where the market is going to come back, when Australia comes back and Brazil because of weather, the time charter market will come back. Actually, the time charter market is there right now. You can fix the Cape at far in excess of the spot market, You can fix the Cape over $20,000 a day for a year. So, there is a time charter market there.

Fotis, I'll also just point you back to slide 19, with the expansion plans. I agree with you, there's a large spike in 2013, but even '11 and 2012 you have got somewhere between 70 million and 80 million tons being done per year. And obviously, this is all taken from publicly available information.

But again, despite what the spot market is today, you can fix the Cape for a year at over $20,000 a day.

Okay, gentlemen, thank you.

Chris Wetherbee with Citi.

Good morning, it's [Wolf Thompson] sitting in for Chris. Most of my questions have been answered, so I'll keep the short. Just a follow-up on the index-based charters. What you think would be a reasonable timeframe for you to get back to your target charter coverage of 70% to 75%.

Yes, I think we went through that, but one of the things that we're at least waiting for short-term is Australia to come back online, and then we'll assess rates. The goal of the Company hasn't changed long-term, but right now, we just don't think it's the right thing to be doing is -- in fixing ships.

All right, fair enough. And then, following the recent rate of financings, what do you expect to be reasonable interest expense going forward?

If you turn to slide 13, we've presented the 2011 interest expense breakeven.

Oh, sorry. I missed that.

That's okay. The chart is all there with all the expenses on a free cash flow and a net income basis per day --

Perfect, thank you. That is it for me.

All right.

Scott Malat with Goldman Sachs.

Hi, thanks. I just wanted to ask a question about the daily vessel operating expense outlook. It looks like something around a 7% increase in 2011. I just want to understand that. Can you help me think about the puts and takes? Is it the crewing costs that is the biggest factor? Insurance rates rising significantly?

Well, from a budget standpoint, we're actually pretty flat. The guidance that we gave originally was five-three, five-zero per day. We took it down to five-one, five-zero for the fourth quarter, and we're projecting for all of 2011 to be 5,200. So, from a budget standpoint, we are actually flat. From a standpoint of quarter -- 2009, December 31 to December 31, 2010, it's up slightly due to crew costs.

The lube oils and insurance.

Yes, but it's not -- these are not big numbers here. I'm not sure if it's really --

But you came in well under that in 2010, so now starting from that run rate, you look, it's a 7% increase from -- I understand where the budget levels were, but you came in under that; right?

Correct.

So, now you are implying a 7% increase from the run rate. I just want to understand that, I guess.

It's the budget. We do it every single year. We obviously hope that we come under budget, but these are the numbers that we obviously set with the ship managers and management here.

And all of our suppliers. We sit down with all of our suppliers of all the commodities, whether it be crewing, lube oils. We estimate insurance; we go through the whole thing. We start the budget process in August, and we finish it at the end of November, beginning of December, and it is a pretty thorough review that we do before we put our fingers out for the next year.

All right, thanks. The other question I had just was on -- you had mentioned that you are seeing in the marketplace, you see one or two ships available. In the past, you've tended to do larger type purchases. If we look forward, is it possible you do want one-offs or two-offs? Does that make more sense than it has in the past, or no?

No, we'll probably stick to what we like to do.

Okay. Thanks.

Thanks.

And that's all the time that we have for questions today, so that will conclude today's conference. We thank you for your participation.

Thank you.