Genco Shipping & Trading Ltd (GNK) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd. Third Quarter 2011 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 on 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 by dialing 888-203-1112 or 719-457-0820 and entering the passcode 7436270.

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 pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations.

For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday and 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, 2010 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 & Trading.

Good morning and welcome to Genco's third quarter 2011 conference call. With me today are Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

I will begin today's call by discussing our third quarter 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 months' period ended September 11, 2011. Following this, I will discuss the industry current fundamentals. John, Peter, and I will then be happy to take your questions.

During the third quarter, Genco further expanded its high-quality fleet while maintaining an opportunistic time charter approach. By preserving the ability to benefit from a rising freight rate environment combined with our growing fleet of first-in-class vessels, we remain well positioned to drive future performance.

Turning to slide 5, net income attributable to Genco for the first three months ended September 11 -- sorry -- September 30, 2011, was $1.6 million, or $0.04 (inaudible) basic and diluted earnings per share.

Genco's cash position excluding Baltic Trading Ltd., was $296.2 million, which reflects the cash flows generated by our sizable fleet.

During the quarter, we further strengthened our leading brand as an owner and operator of modern tonnage with the delivery of the Genco Mare, a 34,000 deadweight Handysize newbuilding. This vessel represents the four or five to be delivered to Genco under a 2010 agreement to acquire five Handysize vessels from companies within the Metrostar group of companies.

Consistent with our opportunistic time charter approach, the Genco Mare commands a spot market-related time charter with Cargill International SA, a leading international producer and marketer of food and agricultural products for 45.5 to 50.5 months at a rate based on 115% of the average of the daily rates of the Baltic Handysize index.

Going forward, we will maintain our focus on signing short-term, or spot market-related contracts with multinational charters, a core differentiator for our Company in order to preserve the ability to capitalize on future rate increases.

Moving to slide 6 -- we provide a summary of our fleet pro forma for the last vessel remaining to be delivered. As I mentioned earlier, we recently took delivery of the Genco Mare, the third newbuilding delivered to Genco, to date, in 2011. The five Handysize vessels we agreed to acquire from Metrostar combined with the acquisition of 13 Supermax vessels from affiliates of Bourbon SA, which were completed earlier this year, represent and expansion of Genco's world-class fleet by 31% on a deadweight tonnage basis excluding Baltic Trading vessels.

As we integrate our newly acquired vessels into our existing infrastructure and increased the scale and scope of our operations, we have further enhanced our ability to take advantage of the positive long-term demand for the global transportation of iron ore, steel, and other core commodities. Of note, the delivery and payment schedule of the remaining Handysize vessel to be delivered to Genco is included in the appendix of our presentation.

Upon completion of the Metrostar acquisition and excluding Baltic Trading's fleet, we will own a fleet of 53 drybulk vessels consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax, and 13 Handysize with a total carrying capacity of approximately 3,811,000 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 12 years. With a modern and versatile fleet that adheres to the highest industry standards, we remain well positioned to provide top-rate service for our leading customers.

I will now turn the call over to John.

Thank you, Jerry. Turning to slide 8, I will begin by providing an overview of our financial results for the third quarter and the nine months ended September 30, 2011.

Please note that we are reporting our financials on a consolidated basis as a result of the Baltic Trading IPO in March of 2010 and our 25.2% equity ownership in Baltic Trading.

For the three- and nine-month period ended September 30, 2011, we recorded total revenues of $94.3 million, and $295.1 million, respectively. This compares to revenues of the third quarter of 2010 and nine months ended September 30, 2010, of $118 million and $318 million, respectively.

The decrease in total revenues for the third quarter of 2011 compared to the prior-year period is primarily due to lower charter rates achieved by some of our vessels offset by the increase in the size of our fleet and consolidated revenues from Baltic Trading Ltd.

Operating income for the third quarter and nine-month period ended September 30, 2011, was $23.3 million and $88.7 million, respectively. This compares with operating income for the third quarter and nine-month period ended September 30, 2010, of $57.8 million and $161.2 million, respectively.

The decrease in operating income for the three- and nine-month period ended September 30, 2011, compared to the corresponding year-earlier period is attributable to higher expenses associated with the operation of a larger fleet as well as lower rates achieved for our fleet in the respective periods of 2011.

Interest expense for the third quarter of 2011 was $21.8 million and $64.7 million for the nine-month period ended September 30, 2011. This compares to interest expense of $19.4 million for the third quarter of 2010 and $50.6 million for the nine-month period ended September 30, 2010.

The Company recorded net income attributable to Genco for the third quarter of 2011 of $1.6 million, or $0.04 basic and diluted earnings per share. Net income attributable to Genco for the nine months ended September 30, 2011, was $25.1 million, or $0.71 basic and diluted earnings per share. This compares to net income attributable to Genco of $36.2 million, or $1.07 basic and $0.99 diluted earnings per share for the third quarter of 2010 and net income attributable to Genco of $106.4 million, or $3.30 basic and $3.19 diluted earnings per share for the nine-month period ended September 30, 2010.

For the three- and nine-month period ended September 30, 2011, Genco also recorded income tax expense of $328,000 and $1 million, respectively. This compares to income tax expense in the third quarter and nine-month period ended September 30, 2010, of $467,000 and $1.2 million, respectively. This income tax expense includes federal, state, and local income taxes on net income earned by Genco Management USA Ltd., one of our wholly owned subsidiaries and relates to income generated from the technical and commercial management of vessels from Baltic Trading, Ltd., sale of purchase fees payable to us by Baltic Trading, Ltd., if any, and service revenue from the technical management of vessels owned by Maritime Equity Partners.

Next, on slide 9, you will see the income statement effects of Baltic Trading's consolidation with Genco Shipping & Trading, Ltd. This will provide you with a more detailed breakdown of the financial performance of the two separate companies.

Key consolidated balance sheet and other items as presented on slide 10 include the following -- our sizable cash position including restricted cash was $301.5 million as of September 30, 2011, enhancing our ability to operate in a soft rate environment. Excluding the consolidation of Baltic Trading, Genco's cash position was $296.2 million. Our total assets as of September 30, 2011, were $3.2 billion consisting primarily of our current fleet, cash, and cash equivalents.

Our EBITDA for the three months ended September 30, 2011, was $57.9 million, which represents an EBITDA margin of 61.4% of revenues.

Moving to slide 11, our utilization rate was 99.3% for the third quarter of 2011 compared to 98.4% in the year-earlier period. Our time charter equivalent rate for the third quarter of 2010 was $16,447. This compares to $26,819 recorded in the third quarter of 2010. The decrease in TCE rates resulted from lower charter rates achieved in the third quarter of 2011 versus the same period last year for the majority of the vessels in our fleet.

For the third quarter of 2011, our daily vessel operating expenses were $4,673 per day versus $4,918 per day for the third quarter of 2010. Daily vessel operating expenses for nine months ended September 30, 2011, were $4,706 per day versus $4,785 per day for the nine months ended September 30, 2010.

The decrease in daily vessel operating expenses for the third quarter of 2011 compared to the prior-year period is primarily due to lower [lube] consumption and insurance-related expenses offset by higher crew costs.

While daily vessel operating expenses for the third quarter of 2011 were below budget, we believe daily vessel operating expenses, our best measure 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 operations.

Based on estimates provided by our technical managers and management's expectations, we expect daily vessel operating expenses for the fourth quarter of 2011 to be $5,000 per vessel per day on an average weighted basis.

On slide 12, we present our pro forma balance sheet, which shows our pro forma cash position of $267 million, which includes $19.3 million of estimated debt amortization under our three credit facilities for the fourth quarter of 2011 as well as the remaining $9.9 million cash payment for the delivery of the Genco Spirit, which is scheduled to deliver in the fourth quarter of 2011.

Pro forma cash excludes Baltic Trading Ltd.'s cash balance of $5.3 million. Our pro forma debt-to-total capital ratio was 59% as of September 30, 2011.

As for our credit facilities, we believe we are in compliance with all of our covenants as of September 30, 2011, including our maximum leverage ratio covenant and, except for the collateral maintenance covenant in our 2007 credit facility, which has been waived. Our maximum leverage ratio covenant requires us to maintain a ratio of net debt to EBITDA 5.5 to 1.

However, we believe that given continuing weak rates, we will likely not meet this ratio at some time by the end of the first quarter of 2012. We remain in discussions with our lenders to seek waivers or modifications to our credit agreements. We maintain a good relationship with our lenders and are confident that we will be able to bring these discussions to a positive outcome.

We intend to draw upon our current liquidity position to fund the remaining Metrostar vessel, as mentioned earlier on the call, as we continue to seek opportunities to consolidate the drybulk industry and expand Genco's long-term earnings power.

On slide 13, we present our anticipated breakeven levels. We expect our daily vessel operating expenses for the fourth quarter of 2011 to be $5,000 per vessel per day on a weighted basis of an average number of 52.57 vessels, and we expect our daily free cash flow expense rate to be $14,569, and our daily net income expense rate for Genco Consolidated to be $16,514.

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'll start with slide 15, which points to the drybulk indices.

Represented on this slide is the overall Baltic Dry Index. As can be seen, when looking at the graph, the BDI has shown weakness since the beginning of the year with freight rates under pressure through August of 2011.

A relative rebound was evident going into September and through the middle of October followed by a perceived slowdown in Chinese steel production, which has added pressure to the index over the past two weeks.

On slide 16, we summarized the recent market developments in the drybulk freight market. As mentioned on previous calls, one of the major reasons behind an extended weak rate environment through the first half of the year was significantly reduced iron ore and steel cargos due to weather-related disruptions in Brazil and Australia.

Recovery of coal and iron ore production from mines in September 2011, combined with limited iron ore availability from India resulted in a 24% increase of combined iron ore exports from Brazil and Australia over the first quarter of 2011.

Lower imported iron ore prices versus Chinese domestic prices also contributed to a firmer freight rate environment over the last two months.

Another contributing factor to the latest rate increase was greater fleet congestion due to more Capesize fixtures during September. From the week ending September 9th to the week ending September 30th, 136 Capesize vessels were chartered in the spot market, the largest amount of Capesize vessels charter during a four-week period since March 2009. These fixtures have led to continued congestion throughout October as approximately 115 Capesize vessels are currently bottlenecked at major Australian and Brazilian ports.

Iron ore inventories are declining from their high of 94.4 million tons in the beginning of August to 92.7 million tons.

On the coal front, stockpiles at the port of Qinhuangdao remain low following completion of maintenance at the Daqin railway. It is anticipated that peak winter demand will lead to continued restocking of coal inventories while strong electricity production has led to record levels of coal imports.

Going forward, we believe that a number of catalysts will affect the drybulk market. These short- and long-term catalysts are listed on slide 17.

First, there is an expected rebound in Japanese imports in the medium term as the country begins its rebuilding efforts. The reconstruction of infrastructure in the areas most severely hit by the earthquake will require essential commodities such as iron ore, metallurgical coal, cement, and lumber.

Additionally, as nuclear power plants are still under maintenance, demand for coal-generated electricity has increased imports of the commodity.

Second, the increased scrapping of vessels was a positive trend for 2011 and is expected to continue into next year. Additional scrapping potential is probable as volatility and charter rates continues, and scrap's fuel prices remain high. Indicatively, 64 Capesize vessels were scrapped through October.

Third, an import catalyst from the supply side is expected slippage of newbuilding vessels deliveries as financing concerns continue and certain European banks are reducing funds availability.

China's 12th five-year plan is a long-term catalyst as it stresses numerous infrastructure programs such as the construction of highways, airports, hospitals, railways as well as the urbanization and development of central and Western regions.

As previously mentioned, increasing steel inventories since the beginning of October have resulted in downward pressure for the steel production. Early indications of decreasing steel inventories over the last week could result in higher steel prices and a possible rebound of steel production in the short term.

Finally, cargo volume expansion is expected as iron ore and coal miners increase production over the next few years. In the short term, we also expect coal imports to increase due to the aforementioned rebuilding of stockpiles at Daqin, increased electricity demands, and low hydro power electricity output.

On slide 18, we talk more about the demand side fundamentals, which emphasize China and further detail the impact of its 12th five-year plan. Chinese steel production has increased by 10.7% year-on-year through September of 2011 while urban fixed asset investment rose 24.9% year-on-year through the first nine months of 2011.

Appetite for crude steel production stems from continuous infrastructure projects in China. In terms of housing, China is expected to build as many as 36 million housing units within the next five years. Apart from building affordable housing units, China is expected to invest $185 billion in urban subway systems, and $430 billion in railway construction by 2015.

Incremental commodity demand is also stemming from India and its growth potential, going forward. In the steel sector, the World Steel Association forecast apparent steel usage to grow by 4.3% in 2011, and 7.9% in 2012.

In the coal sector, it's expected that approximately 114 million tons of coal will be imported to the country in fiscal 2011 representing an increase of over 30% from the previous year.

Moving on to slide 19 on the left of the page, we show the expansion plans of key iron ore producers as recently revised by respective companies. You can see the combined iron ore expansion plans for 2015, which accumulate to 501 million tons per annum, or 50.5% of 2010 seaborne iron ore trade.

One of these key producers, Vale, expects their annual iron ore production to reach 469 million tons by 2015 as compared to 308 million tons in 2010. In order to get this target, the Company has invested $2.9 billion in its Ponte da Madeira terminal in northeastern Brazil, which, upon completion, will be able to handle up to 150 million tons of ore, a 50% capacity increase.

Rio Tinto, the world's second-largest iron ore producer behind Vale, expects iron ore demand to nearly double in the next eight years, providing for a yearly addition of 100 million tons on top of the existing production to meet growth projections.

Additional demand for iron ore is expected to come not only from increased steel production in China but also from rebounding steel production in the rest of the world. The World Steel Association forecast growth in the overall market of 6.5% this year, and 5.4% in 2012, to hit a record of 1,474 million tons.

On slide 20, we discussed the supply side fundamentals, which remain uncertain.

First, we'll discuss the drybulk order book through 2014, which is depicted on the graph at the bottom left of the slide. The significant drybulk order book represents approximately 40% of the existing world fleet. Although the commercial buying market has returned, to a certain extent, for existing customers, European lenders are further reducing availability and limiting resources allocated to shipping. Furthermore, depressed vessel values imply higher equity installments for existing newbuilding orders from illiquid owners.

Second, we believe that scrapping will continue to play a significant role in the last quarter of 2011, especially if volatility in the freight rate environment persists.

Approximately 22% of the world's fleet is 20 years or older, and 16% are 25 years old -- greater than 25 years old, sorry.

As illustrated on the graph at the bottom right-hand of the page, 20.1 million deadweight tons have been scrapped to date as compared to 5.7 million deadweight tons for the entire year of 2010.

Looking ahead to 2012, we believe that scrapping could potentially remain high levels considering the percentage of the fleet that's aging I just mentioned as well as the construction of a scrap yard in [Dalian] in China set to begin operation in the middle of 2012.

This yard, when fully operational, will have the capability to scrap approximately 75 vessels a year and will be able to break down vessels as large as 300,000 deadweight.

As we have indicated on past calls, scrapping is essentially a commercial equation. It is our opinion that the current combination of high scrap steel prices and suppressed freight rates would support increased scrapping.

Lastly, we believe that the slippage of newbuilding vessel deliveries continues as financing concerns are still on the table, and the newbuilding price floor is supported by rising steel prices and appreciation of the Chinese currency.

This concludes our presentation. I will now be happy to take your questions.

(Operator Instructions) Doug Mavrinac, Jefferies & Company.

I just had a few follow-up questions with the first one pertaining to the charter [rate] market. You know, clearly, over the last couple of weeks, we've seen some volatility. You know, the Chinese always enter and exit the market for commodities, it's just kind of what they do. But, you know, we're still looking at Capesize rates that are triple where they were in early August. So the market has clearly rebounded with the return of those Brazilian and Australian exports.

My question is, have we seen any sort of buy-in from charters or market participants that the current level of rates and earnings is sustainable? I mean, are we seeing an increase in time charter activity demand? Or are you getting any of those types of calls, or is it still a little bit early in a potential rebound?

I mean, look, charters are interested, but a lot of those charter rates are priced of the FFA curve, which still has a quite a bit of [aggradation]. A lot of it has to do with the fact there's just no liquidity, there aren't a lot of trades passed going out of quarter.

But I think owners are still reluctant because of the rates. I mean, I think indicated one-year rates, again, because of the curve for Capesize, in particular, probably $16,000 or $17,000 a day. So -- I think people are looking for a little more clarity in the first quarter first.

Got you, got you, thanks, John. So nobody is looking to the fact that the order book, the number of deliveries, should start to slow potentially and materially beginning mid next year. They're still kind of focused on where we've come from rather than where we're going to, you think?

I mean, again, unfortunately, particularly in the Capesize sector, the charters are larger, a little more sophisticated, from a financial standpoint, than some of the smaller sectors. And so they're using a lot of FFAs to hedge part of their book. And so that's one of the reasons why the Capesize charters tend to be priced off of that curve or from the other sectors.

Okay, got you. And then when we look at the underlying fundamentals as far as where we're potentially heading and how the move in rates could affect that, have we seen any changes in the slippage rates over the last few months that would indicate that slippage is slowing? Or has it been rather consistent with what we've seen over the last few years?

I think it's probably somewhere around 30% to 35%. And, look, as Gerry pointed out, the bank lending market, particularly from some of the French banks, has changed in the last two to three weeks just with the European issues. So more funding has been effectively pulled from the market, which we obviously view as positive.

Right, right. And then a final question before I turn it over, looking at fleet growth, the order book, and whatnot, it's clear that when you look at the order book, a lot of the brokers that compile it are just kind of kicking the can down the road in terms of just shoving off the deliveries that have not taken place over the course of -- over the last few years, and it looks rather bloated whenever you look at how much is supposed to be being delivered in the near term and then never comes.

So, a few years in now, do you guys have a sense, as far as how much of that is actual cancellation, so it's never going to come and gets perpetually kicked down the road? Or how much of it is deliveries that may have been delayed or what have you? Is there any sense as far as --

It's hard to put a real number on it, Doug. There are definitely cancellations that have occurred, but it doesn't matter who is reporting the order book out of these big firms. They are all different, and they all take different views. I think it's very difficult right now. But I will tell you, I mean, we believe January of this year you saw the peak in Capesize deliveries.

Justin Yagerman, Deutsche Bank.

Good morning, this is Josh Katzeff on for Justin. I just wanted to follow-up on Doug's time charter questions. I guess there's a lot of your fixed charters are coming off in the back half of next year. And I just wanted to maybe get some sort of update on whether you might be looking to replace some of those longer-term charters and, if so, timing?

I think we're going to continue the charter strategy that we've had for the last 18 months, which is focused on these index-related time charters and make sure that we have an option to fix within those contracts and then watch the market carefully, which we are doing right now.

Okay, and I guess, John, you made some comments on the bank debt and your bank discussions. I just want to clarify -- you said that it wasn't going to be an issue until Q1 2012. So does that mean that you're tracking to be okay for Q4?

What I (technical difficulty) was that we believe, at some time by the end of the first quarter of 2012. So -- I actually didn't tag a specific date, and the reason for that is is because we don't know what rates are going to be over the next two months in this quarter.

That's fair enough. And, I guess, can you give a comment on maybe your anticipated timing on maybe an announcement?

Not an announcement but, obviously, I'm very serious about it. We're in active discussions with the lenders right now. I mean, I obviously cannot talk specifically, but, as I said before, we think we'll bring the discussions to a positive outcome.

Great. And then just one last question before I turn it over -- vessel operating expenses continued to be below estimates and have tracked kind of below this $5,000 a day per year. I guess, what's kind of driving the increase off of what you've realized so far?

Timing. You know, timing for the third quarter, we were pretty light on the purchases of spares, and we expect that to take place in the fourth quarter, which is why we gave the $5,000 a day guidance. We think that's a good number for the fourth quarter.

(Operator Instructions) Michael Webber, Wells Fargo.

John, I wanted to talk a little bit about your cap structure, and I know I asked this on the last call and then since then your equity value is significantly stronger. So if you kind of look at the fact that you guys are talking with your lenders about covenants, and you've got a pretty decent size debt load here, and you've got a related party that's basically carrying assets with very limited debt on them -- is this an appropriate time to potentially think about bring Baltic back in house, potentially giving them equity when it's at a pretty high level?

Nothing has changed since the last call.

Okay, all right, fair enough. In terms of your counterparties, I know, again, we touched on this recently, did certainly see some payments issues through the second quarter. That seems to abated pretty recently. Are you guys having any payment issues at all right now? I suspect not. I just kind of want to confirm whether or not you guys are having any payment issues at all from your counterparties here?

No, we are not.

All right, fair enough. And then, again, I guess, maybe back to the covenants. You mentioned potentially popping one by the end of the first quarter, and that's something you guys have been pretty up front about all along, and then kind of having ongoing negotiations there. Are those conversations kind of part of larger conversations around your overall debt package? Or are you guys kind of picking at those waivers kind of as they come about? Can you maybe just give a little bit of color about how you guys are thinking about renegotiating the structure of your debt and how you're thinking about it?

Look, I think -- first of all, again, I just cannot comment specifically. But you look at what we did at the beginning of 2009. You know, we took a much longer-term view. That's how we tend to do things. So I'll just leave it at that. I can't go into the details right now.

Fair enough, fair enough. And then just one kind of blocking-and-tackling question here -- you guys have -- in your deck you kind of put it in your drydock -- your drydock items on a quarter-over-quarter basis and, forgive me if this is in the release somewhere, and I didn't see it -- have you guys given out how many vessels are actually going to be drydocked in the fourth quarter? And can you do that?

Yes, we've done it in terms of number of days. So for the fourth quarter, we have 60 days, so that would be three ships because we usually budget 20 days for each ship.

Greg Lewis, Credit Suisse.

John, you touched on Brazil and the potential rampups in iron ore. In line with that, could you provide some updates on the VLOCs that Vale has ordered? You hear various rumors and chatter about what's going on with these vessels, their utilization levels, et cetera. Are you privy to any knowledge or following this closely that you could provide some color on that?

This is Gerry here. I think we hear the same rumors as you're hearing, and the rumors that we hear is that these vessels may not materialize. So I can't offer you any more than that.

Okay, and then just thinking about the fleet, you know, at this point you have your initial -- the initial Genco fleet, which is starting to get a little bit older. I mean, you have some vessels that are 14 and 15 years old. At a certain point, does it make sense to sell some of those vessels out of the fleet? And at this point, if those vessels were decided to be sold, would those actually generate positive cash for the Company and relative to how much debt is on those vessels?

The older vessels are in the larger facility. If we sold one, I'm not exactly sure what we'd have to repay or not at this point. But I would say it probably wouldn't release that much cash. I can't believe that it would -- basis today's values.

The one thing you've got to keep in mind is, yes, they're older ships, but they're earning good cash flows right now.

And they're operating very, very well.

There you go.

Fotis Giannakoulis, Morgan Stanley.

I want to ask you again about the time charter market and if you have seen more willingness from the charters to provide longer-term time charters. We've seen record activity the previous months in the spot side. But it seems that there aren't so many time charter agreements made recently. Has this been changing during these days?

Yes, hey, Fotis. We actually took this question earlier in the call. But the answer is that there is a willingness for charters to do deals, but it doesn't seem that owners are willing to fix. As I mentioned on the call, there is aggradation particularly in the Capesize curve because of the lack of liquidity past one quarter, and a lot of those charters are priced on that. So we think people are waiting to see what first quarter brings.

Is this something that is happening only on the Capesize? Is there -- have been any differences in other segments?

You're seeing a little more charter activity on the smaller sectors, but I -- at least we believe the rates, even in the smaller sectors right now, are not attractive for locking in for a long period of time. Though, having said that, they have firmed. They're moving in the right direction, and we're definitely keeping a close eye on it.

Okay, thank you. I want to follow up a little bit on your debt facilities. You mentioned earlier that at some point you are going to craft an agreement with the banks on, I understand, about the covenant. Would you remind us what are the covenants that they govern right now, this credit facility? And also can you comment a little bit -- you have one of the strongest cash positions among any other drybulk company. How do you plan to use this cash? Are there any thoughts about acquiring vessels given the fact that potentially even debt-free vessels given the fact that asset values have declined considerably during the last 12 months?

Look, as far as the comments, as I mentioned earlier on the call, the one main covenant is net debt to EBITDA, which is 5.5 to 1. And, as I said, we believe we're in compliance as of this quarter. As far as the cash, I mean, yes, sure, we've looked at transactions but there's still not a lot of things out there, Fotis. You know, I think yards are -- there are some yards that have some distressed deals, and they're putting them away under maybe a very long-term charter or something like that, or having someone manage it for them in the spot market rather than selling it.

I understand that the focus of the Company from your answer is still on younger tonnage rather than above 10-year-old vessels. Is that correct?

Look, on any acquisitions it would focus on younger tonnage. But I've got to couple with that, as I've said on other calls, we are -- our mindset is also to delever. So some of that cash will most likely be used to delever also.

Chris Wetherbee, Citi.

Two questions just on your European banks comment, John. Have you seen anything get done in the last month or so? It seems like we've had pretty much a stalemate as far as any additional facilities or any other agreements coming out of Europe. I'm just curious if you've seen anything different?

You mean as far as European banks financing ships?

Yes.

I haven't seen anything. And, look, the issue with the French banks, in particular, that's really only come about in the last maybe three weeks. But we're well aware of a few banks that have, at least for the time being, stopped looking for new deals.

Okay. And when you think about the order book, I don't know that it's easy to get a great sense, but what do you use as an estimate for the unfunded portion of the order book as it stands right now?

Look, we've been using current slippage rates. And then, obviously, we have our views on scrapping. We haven't talked too much about scrapping, but you still have a firm scrap price, and we think next year could very easily surpass this year in terms of number of ships scrapped.

And on that point, I'm just curious -- is there any sense -- do you have a sense of what the scrapping capacity could be? I mean, we've obviously seen record numbers this year and out guess if rates stay where they are, you'll probably see that rate continue. Do you have any sense of what the upside is potential for scrapping?

I mean, look, I think we all have to keep an eye on what's going to happen in Bangladesh. Fortunately, we have this other yard that's coming onstream in China that looks to be fairly significant in terms of potential numbers. But to actually look at a full capacity number, I think it's a little difficult, Chris.

Sure, yes, that's -- I think that's probably right. And then just my last question is just kind of generally about the state of demand. Have you guys seen anything from Asia or other areas of the world -- of any instances of slowing in the actual demand of raw materials? We've seen the prices come in a little bit, but it seems like that was a bit of an opportunity to pull forward some demand. I'm just curious if you've seen anything in the last several weeks of slowing at all?

Look, fixtures slowed a little bit on the iron ore front last week, but that's a normal process. I mean, the Chinese go in, they buy, and then they pull back. And they obviously go back in. I think the price of iron ore coming down had a lot more to do with just the increase in the supply coming to market. And it looks like the Chinese took up that supply. They just were able to get it at a lower price.

On the coal side, we're not seeing any slowdown. In fact, we expect, particularly, [Thermacold] to actually increase.

Okay. And then just to confirm -- I think it was mentioned -- you said 115 Capes are bottlenecked at various ports -- Australia, Brazil? I just want to make sure I clarify that number.

Yes.

With no further questions in the queue, that does conclude today's conference. We thank you for your participation.