Genco Shipping & Trading Ltd (GNK) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading, Ltd. First Quarter 2012 Earnings Conference Call and Presentation. Before we begin please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com.

To inform everyone, today's conference is being recorded and is now being webcast at the Company's website at 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 of 9694849.

At this time, we'll 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. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believes, and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances, or future operating or financial performance. 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; 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, 2011; 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 and welcome to Genco's First Quarter 2012 Conference Call. With me today is Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

I will begin today's call by discussing our first quarter highlights as outlined in slide 3 of the presentation. I will then turn the call over to John to review our financial results for the three-month period ended March 31, 2012. Following this I will discuss the industry's current fundamentals.

John, Peter and I will then be happy to take your questions.

During the first quarter Genco maintained an opportunistic time charter approach while strengthening its capital structure in a challenging drybulk market. By taking proactive measures to increase our financial flexibility combined with the ability to benefit from a rising freight rate environment, we have further enhanced our position to emerge from the current downturn as a stronger company.

Turning to slide 5, Genco recorded a net loss of $33.1 million, or $0.87 basic and diluted loss per share for the three months ended March 31, 2012. Genco's cash position excluding Baltic Trading, Ltd., was $251.2 million, which reflects the cash flows generated by our large and modern world-class fleet.

During the first quarter, we increased our financial flexibility and strengthened our balance sheet by completing a $53 million call-in share offering and lowering the effect of interest rate for $1.4 billion revolving credit facility, which John will discuss more in detail later in the call.

Additionally, we've maintained our focus on signing vessels to short-term or spot-market related contracts with reputable multinational companies during the quarter, effectively preserving the ability to take advantage of future rate increases and generate significant operating leverage when market conditions improve.

Moving to slide 6, we provide a summary of our fleet. In 2011, we further strengthened Genco's leading brand as an owner and operator of (inaudible) tonnage by completing the acquisition of 13 Supermax vessels and five Handysize vessels.

By integrating our newly acquired vessels into our existing infrastructure and increasing the scale and scope of our operations, we've enhanced Genco's future commercial prospects and strengthened the Company's long-term earnings potential.

Excluding Baltic trading fleet, we currently own a fleet of 53 drybulk vessels consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax, and 13 Handysize vessels with a total carrying capacity of approximately 3,810,000 deadweight tons.

Importantly, the average age of our fleet is seven years, well below the industry average of approximately 11 years.

Genco's diversified approach of operating a modern fleet across the entire drybulk sector strengthens the Company's ability to deliver first-rate service to leading international charters and take advantage of the long-term demand for essential commodities in China, India, and other developing countries.

I'll now turn the call over to John.

Thank you, Gerry, and I apologize in advance -- I have a cold and some laryngitis.

If we turn to slide 8, I will begin by providing an overview of our financial results for the first quarter ended March 31, 2012. Please note that we are reporting our financials on a consolidated basis as a result of Baltic Trading's IPO in March 2010, and our 25.1% equity ownership in Baltic Trading.

For the three months ended March 31, 2012, we recorded total revenues of $59.8 million. This compares with revenues for the first quarter of 2011 of $101.4 million. The decrease in total revenues for the first quarter of 2012 compared to the prior-year period is primarily due to lower charter rates achieved by the majority of our vessels as well as a higher number of days that our vessels were on plan to (inaudible) to complete drydocks during the first quarter of 2012 compared to the first quarter of 2011.

The decrease in revenues was partially offset by the increase in the size of our fleet. The operating loss for the first quarter ended March 31, 2012, was $12.5 million. This compares with operating income for the first quarter ended March 31, 2011, $33.7 million. The operating loss for the three months ended March 31, 2012 is attributable to higher expenses associated with the operation of a larger fleet and lower rates achieved for our fleet compared to the corresponding year-earlier period.

Interest expense for the first quarter of 2012 was $23.7 million. This compares to the interest expense of $21.3 million for the first quarter of 2011.

The Company recorded a net loss for the first quarter of 2012 of $33.1 million, or $0.87 basic and diluted loss per share. This compares to net income attributable to Genco of $13.4 million, or $0.38 basic and diluted earnings per share for the first quarter of 2011.

For the three months ended March 31, 2012, Genco recorded income tax expense of $271,000. This compares to income tax expense for the first quarter of 2011 of $359,000. 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 for the technical commercial management of vessels for Baltic Trading, Ltd., sale of merchant's fees payable to us by Baltic Trading Ltd., if any, and service revenue from the technical management of vessels owned by Maritime Equity Partners.

Moving to 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 in slide 10 include the following -- our sizable cash position including restricted cash was $256.4 million less than March 31, 2012, significantly enhancing our ability to operate in a soft rate environment. Excluding the consolidation of Baltic Trading, Genco's cash position was $251.2 million.

Our total assets as of March 31, 2012, were $3.1 billion consisting primarily of our current fleet, cash, and cash equivalents.

Our EBITDA for the three months ended March 31, 2012, was $25.2 million, which represents an EBITDA margin of 42.1% of revenues.

Moving to slide 11, our utilization rate was 99.3% for the first quarter of 2012 compared to 99.5% in the year-earlier period.

Our time charter equivalent rate for the first quarter of 2012 was $10,480 per day. This compares to $19,155 per day recorded in the first quarter of 2011.

The decrease in PCE rates resulted from lower charter rates achieved in the first quarter of 2012 versus the same period last year with a majority of the vessels in our fleet.

For the first quarter of 2012, our daily vessel operating expenses were $4,933 per vessel per day versus $4,748 per vessel per day for the first quarter of 2011. The increase in daily vessel operating expenses for the first quarter of 2012 compared to the prior-year period is primarily due to higher crew costs and maintenance-related expenses partially offset by lower lube consumption, insurance costs, and expenses related to spare parts.

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. While daily vessel operating expenses for the first quarter of 2012 were below budget, we expect our full year of 2012 daily vessel operating expense budget to be $5,200 per vessel per day on an average weighted basis of the 53 vessels in our fleet excluding vessels owned by Baltic Trading, Ltd.

On slide 12 we present our pro forma balance sheet, which is our pro forma cash position of $196.1 million, which includes $55.2 million of estimated debt amortization under our three credit facilities for the second quarter of 2012. Pro forma cash includes Baltic Trading Ltd.'s cash of $5.2 million. The pro forma debt to total capital ratio was 56% as of March 31, 2012.

Let's discuss our previous conference calls. We amended our $1.4 billion credit facility to our $253 million senior secured term loan facility and our $100 million term loan facility during the fourth quarter of 2011. Specifically, both the maximum leverage ratio covenant and the interest ratio covenant have been waived for each facility through and including the quarter ended March 31, 2013.

In connection with these agreements, we prepaid an aggregate amount of $62.5 million in principal owned amounts and agreed to a new covenant related to Genco's leverage for the same period. Consistent with our objective to preserve the Company's financial-strained flexibility, we completed a public offering of 7.5 million shares of common stock during the first quarter. Proceeds were approximately $53 million, and the offering will be used for general corporate purposes.

In connection with the offering, we lowered our credit facility fee from 1% -- sorry -- to 1% from 2% for our $1.4 billion revolving credit facility, effectively reducing our all-in margin to 3%. By lowering the Company's borrowing cost, we expect to significantly reduce future interest expense.

We appreciate the support that we have consistently received since going public in 2005 from both the banking and capital markets, which underscores Genco's leadership position and future prospects. Going forward, we will continue our efforts to build a strong financial platform for the benefit of the Company and its shareholders.

On slide 13, we present our anticipated break-even expense levels for the second quarter of 2012. We expect our daily vessel operating expenses for 2012 to be $5,200 per vessel per day on a weighted basis and an average number of 53 vessels.

Before I turn the call back to Gerry, I would like to reiterate that during these challenging times, we continue to maintain a strong liquidity position including $251.2 million in cash at the end of the first quarter, which enhances the Company's ability to operate in a soft rate environment, and we intend to draw upon our strong bank relationships as we have in the past in order to preserve a strong financial foundation.

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. The BDI has shown weakness at the beginning of the year with freight rates under significant pressure through the first week of February. The primary factors contributing to the pressuring rates where order timing issues for the iron ore cargoes due to the celebration of Chinese New Year; a front-loaded 2012 order book; and short-term weather-related issues in Brazil and Australia temporarily reducing the iron ore and coal output.

A marginal rebound has taken place after the index reached a low of 647 points on February 3rd as the BDI increased for 27 consecutive days in March. This was primarily due to a pickup in iron ore and coal fixtures as steel production rebounded, and the South American grain season commenced.

Overall, while we believe that demand-side fundamentals have rebounded to a certain extent on the back of enhanced signs for Chinese economic growth, supply side fundamentals remain relatively weak as the drybulk fleet continues to grow despite the increased scrapping activity observed.

On slide 16 we summarized the recent market developments in the drybulk freight market. As previously mentioned, one of the reasons behind the weakened freight rate environment through the beginning of the year was the early timing of the Chinese New Year, which led to a lower steel production and a record 101.5 million tons of iron ore inventories.

As Chinese fuel production rebounded in February, and reached a high of 62.6 million tons in March, iron ore inventories have decreased for five of the last seven weeks and currently stand at 97.1 million tons. Notably, while higher steel production would normally imply higher stockpiles and lower steel prices, strong demand has maintained a firm price level and absorbed any excess capacity with steel stockpiles decreasing over the last eight weeks.

Easing monetary policies by the Chinese government have proven effective as property sales are now recovering with positive momentum observed over the past six weeks. Renewed signs of the ongoing expansion of the Chinese economy combined with unusually warm weather have also led to increased coal imports pushing rates for Panamax and Supramax vessels up.

As hydropower generation remains low due to a drought in the southwest of China, we expect that higher dependency on thermal coal-derived electricity will lead to higher coal imports into the country. Coal stockpiles at China's largest coal port currently stands at 5.2 million tons below their target of 7 million tons, which represents approximately seven days of consumption. A restocking of inventory levels is expected following the completion of the Daqin Railway scheduled maintenance at the end of April.

Panamax and Supramax rates have also benefited from the return of the grain cargoes in the Atlantic due to the South American grain season.

Lastly, a quick note of the supply side -- scrapping levels experienced a 38% increase year-over-year during the first quarter of 2012.

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, after a period of sustained monetary tightening, the Chinese government decreased buying reserve requirements by 50 basis points on February 24, 2012, their second such decrease in the last six months. As anticipated, this move led to a 49% year-over-year increase in bank loans, spurring growth in the infrastructure and housing sectors.

Second, China's 12th five-year plan is a long-term catalyst, as it stresses numerous infrastructure programs as well as the organization and development of central and western regions. In line with the government's efforts to stimulate the economy, the National Development and Reform Commission is reported to have recently secured $7.9 billion to fund railway projects that were previously suspended. Seaborne trade should also be positively affected by planned volume expansion, as iron ore and coal miners increase production and invest into higher-capacity port facilities over the next few years.

Higher imported volumes could further induce a price arbitrage between domestic and imported iron ore prices, thereby enhancing ton miles in the long run.

On the supply side, as volatility and [charter reach] continues and scrap steel prices remain high, we expect to see the increased scrapping of vessels witnessed in the first quarter continue with 2012 possibly being a record year for scrapping.

Slippage of newbuilding vessel deliveries for the first quarter of 2012 was 35% as compared to 32% for the same period of last year. As financing concerns continue and certain European banks have reduced funding availability, we expect similar levels of slippage to continue through the end of the year.

On slide 18, we talk more about the demand-side fundamentals. Chinese steel production increased by 2.5% for the first quarter of 2012 as compared to 2011 while urban fixed asset investment rose 20.9%. The extent to which China influences the world's steel and iron ore market is evident by the fact that out of a record 1.5 billion tons of steel produced in 2011 globally, China accounted for 45% of it.

Ongoing development is also increasing electricity demand in the country, and its dependence on coal is apparent as 84% of total electricity generation in March was produced using thermal coal. Coal consumption is expected to grow by 150 million tons in 2012.

China's growth potential, going forward, also bodes well for the drybulk market. Current steel usage is forecast to grow 6.9% in 2012 and 9.4% in 2013 as organization and infrastructure investment accelerate, according to the World Steel Association. The country's steel industry also plans to increase production by over 40 million tons by 2020.

India's growing steel demand is also reducing iron ore exports to China, forcing Chinese mills to source imported ore from longer ton-mile origins.

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 the respective companies. The combined iron ore expansion plans through 2016 accumulate to 487 million tons per annum, or 46% of 2011 seaborne iron ore trade.

Brazilian iron ore exports showed weakness during the first two months of the year due to weather-related issues but rebounded in March showing an 11% increase over 2011.

Going forward, we expect exports from both Brazil and Australia to increase as miners bring greater amounts of iron ore into the market. Indicatively, Australian exports are forecast to grow by 12% in 2012 reaching 493 million tons.

Rio Tinto expects iron ore demand to nearly double in the next eight years in order to meet growth projections providing for a yearly addition of 100 million tons on top of existing production.

In order to keep up with this expected growth demand, Rio Tinto, as well as [miners'] BHP Billiton and Fortescue intend to boost iron ore shipping volumes at Cape Lambert and Port Hedland. Specifically, at Port Hedland, ongoing expansion could lead to a total capacity of 500 million tons by 2015, representing a 280 million-ton increase from current levels.

Volume capacity is also planned at receiving ports with China expected to add 390 million tons of iron ore port capacity by 2015.

On the coal front, we expect demand to increase in the medium term as a result of both higher steel production in China and India and higher power consumption in the growing countries. Indian coal demand is projected to claim 41% to 980 million tons over the next five years with the potential of 265 million tons to be sourced from imports as compared to 108 million tons imported in 2011.

On slide 20, we discussed the supply fundamentals, which remain uncertain. First, we will discuss the drybulk order book through 2014, which is shown on the part of the graph on the bottom of the -- the left of the slide.

Although we see a decreasing schedule in vessel deliveries, the order book remains at significant levels representing approximately 25% of the existing world fleet.

Newbuild orders have, however, decreased by 70% for the first quarter of 2012. Declining newbuilding activity along with strong steel prices have put pressure on shipyard margins increasing the potential of bankruptcies by some of the less developed Chinese yards.

At the same time, European lenders are still limiting availability and resources allocated to shipping market. It's harder for all of us to finance vessels.

Scrapping will continue to play a significant role through 2012, especially if volatility in the freight rate environment persists. Approximately 21% of the world fleet is 20 years or older, and 16% is greater than 25 years.

As illustrated on the graph at the bottom right of the page, 2011 was a record year for scrapping with 22.5 million deadweight scrapped. As pressure in freight rates persist, 10.8 million deadweight have been scrapped in only the first four months of 2012, a trend, which we expect will continue.

Lastly, we note that operations in Bangladesh yards have resumed after a brief shutdown with April seeing a yearly high of 12 vessels being scrapped, the country's highest monthly total since June 2011.

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

(Operator Instructions) Doug Mavrinac, Jefferies.

I just had a few follow-up questions. With the first related to idle capacity. I've seen a couple of media reports recently talking about a fairly significant number of drybulk ships being idled, which isn't consistent with what we're seeing nor is it consistent with the economics of where charter rates are right now. My question to you guys is do you have an estimate as far as how many or percent of the Cape or Panamax fleet is sitting at anchor doing nothing right now? I mean, is it a significant number? Is it a minimal number? Do you have an estimate?

I don't think it's a big number, Doug. It may be a little bit on the Capesize sector on some of the old ships, but --

They're probably going to be scrapped.

Exactly.

I don't think anything that's operating is sitting.

Right. And that's kind of what I'm seeing, as well, Peter. I was just trying to kind of reconcile some of the reports that are out there versus what we're seeing. I just wanted to make sure that what we're seeing is consistent with what you guys are seeing.

Doug, I'm pretty close to the managers in various other companies, and they operate big fleets, and nobody is talking about any layoffs of Capesize or any other drybulk tonnage.

Okay, perfect, great, thank you. And then my second question relates to the developments on the supply side of the equation. Obviously, China is at its lowest pace of growth right now in the past three years. We all know the impact that that's had on the BDI and on charter rates. But it's kind of masking what's happening on the fleet growth side, I believe. And it relates to the level of non-deliveries. Everybody talks about slippage but, in reality, it's really non-deliveries.

My question for you guys is when we consider at the level of non-deliveries and, Gerry, you mentioned that the order book is 25% of the existing fleet, factoring in non-deliveries, what could the real order book, as a percent of the existing fleet, be? Do you have an estimate as far as if it's not 25% is it a one-third smaller? Or what is your estimate for the real order book?

The run for the last four years has been somewhere between 30% and 40%. And I should know, so one-third smaller is probably a good guess. But then you have to add scrapping on top of that, which is running at record levels. We're sort of getting to the end of this nightmare.

Right, exactly, so if you lop one-third off, you're talking about maybe a 16% order book before scrappings? With a front-end loaded delivery schedule, it seems like we're just about done.

Yes.

Okay, perfect. And then you guys also mentioned, as it relates to how that order book is building or how it's played out, the level of -- or the lack of newbuilding orders placed over the last year or so, what impact are we seeing that that's having on some of these shipyards that have aspirations of producing a lot? What sort of financial stresses are they under right now and what impact could that have to the supply side of the equation?

Boy, you've had a lot of coffee this morning.

It's early, it's early.

Look, a lot of the marginal yards have shut down or are being shifted over to repair yards or scrapping yards. And we think that's a great thing that there's more scrapping capacity being built in the world because we think we need it.

If you look at this year -- last -- before last year, the biggest year was, I think, 5 million tons. Last year was about 20 million tons -- it was over 20 million tons, and this year is projected over 30 million tons. So -- last year were four times the biggest year; this year will be six times the biggest year prior to last year, so we think that's a good thing. But we think these marginal yards, or these smaller yards, or these experimental yards, or the repair yards that tried to jump up to be building yards are all being shut down or going back to what they were before. The ones that are staying in business are the bigger, stronger yards -- the government-run yards in China and then the big Korean yards.

But the Korean yards, the Samsungs and Hyundais of the world stopped building bulk carriers a long time ago. They're trying to build LNGs and drilling rigs and container ships. The orders for those things are still going on. So you've got some of the Chinese yards, which are really the ones building the bulk carriers.

Got you, got you, it totally makes sense. And then just a final question before I turn it over. We've seen a big emphasis on newbuilding orders being placed at yards that can build more fuel-efficient designs. How much of an impact is that potentially going to have in terms of kind of weeding out some of these yards that had aspirations of being big drybulk builders? Will that be a factor in terms of the number of yards that can build drybulk ships, going forward? Just their ability to build these more fuel-efficient ships?

Well, it's not played out yet. We have been hearing from people about the fuel-efficient ships. There have been some efficiencies in the last few years. I've asked people for sort of a side-by-side breakdown. I don't think -- which we haven't seen yet. I don't think that that's going to be what makes those yards uncompetitive. I think they're going to be uncompetitive because they're small, the quality might not be there, they're not going to get the orders.

If there's a new design out there, I think pretty soon all ships will be able to figure it out and do it -- all shipyards will do it themselves. What we have to do now is to differentiate -- we haven't seen that as a differentiator in the market yet.

Justin Yagerman, Deutsche Bank.

I wanted to address the debt side of things here and get a sense for -- as you look out, obviously, it's tough to know how fast rates recover as the supply side starts to show a better balance in the back half of this year and maybe into next year. So in the meantime, you guys do have a hefty amortization schedule. You have nice cash to cushion you for a bit, but are you looking at options and talking to the banks right now in terms of trying to reschedule some of that debt repayment that will be onerous in terms of drawing down the cash balances if we stay at today's rates? How do you think about that in terms of managing through the next, call it, six to eight quarters?

Yes, hey, Justin, it's John. Yes, look, we obviously have a large cash balance. It does give us quite a bit of run room. Having said that, if you look at what we've done in the past, we've always tried to be ahead of potential situations. I don't think there's anything different. We have initiated discussions with the banks, but beyond that I really can't comment. But like I said in the past, we've tried to stay ahead of things.

Oh, that's fair and, obviously, with the equity offering and all that other stuff, you guys haven't been doing that.

As I think about the situation right now, in the market, are you getting any inquiries? You guys have a lot of ships that are on spot-related charters. Are you getting any inquiries for any longer periods as those ships start to come off charter in the back half of this year and early part of next year? Are folks looking at the supply/demand dynamic and trying to lock up tonnage at fixed rates now? Is there any of that going on? Just curious.

No. No.

Okay, that's a simple answer. And if you could talk a little bit to the difference between the strength that we're seeing in the Atlantic versus the weakness in the Pacific and what you guys see as a major driver to that, I'd be curious just to hear any commentary around your view of those two markets right now.

No, it's actually pretty simple, Justin. It's the South American grain season getting in full swing. We've seen a little bit of weakness in the iron ore markets over the last week and a half, but we expect that to come back, just looking at what China's doing on the steel side. And we've seen a real firmness on coal fixtures going into both India and China.

(Operator Instructions) [Fotis Janicklewis], Morgan Stanley.

Justin has asked most of my questions. I just wanted to ask, since you just mentioned that you have initiated some discussions with your banks, whether in these discussions or in your thoughts between (inaudible) liquidity Baltic could be potentially a part of this equation or this is something that you wouldn't consider it at all?

We're not considering it.

Ben Nolan, Knight Capital.

Great guys, and I had just a couple. The first one comes -- it sort of just relates to the debt side. I believe I saw on the presentation that you guys paid down, what, $55 million or so in debt in the second quarter. That's a little bit more than the scheduled amortization, I think.

Hold on a second, hold on a second.

Ben, no, and it's a pro forma number.

Oh, okay.

So the large number in that is the $48 million that is due on June 30 to be included on a pro forma basis.

I see. So it's just as it was -- just -- I got you. Okay, so that sort of resolves that.

The other question I was going to ask is sort of more business-related. With respect to some of your older ships, you've been able to get some contracts on those vessels that are spot related, and that's good and that secures employment for those. But has there been any -- whether it's in your own fleet or among some of the other players in the market, is there an increasing level of discrimination, I guess, against these older ships? Are they operating at meaningfully lower utilization levels? And, obviously, you guys haven't had that problem, but is it getting to the point where a 15-year-old ship or 18-year-old ship is just not working enough to make sense to keep it in the market?

No, I don't agree with that. These ships are running very, very efficiently, and we don't see anything of discrimination related to the age profile at all.

Yes, Ben, once you get to 20 years, then you start to see that discrimination because of the fuel efficiency and the lower utilization.

But we have a ways to go for that yet.

Yes, but we haven't seen anything from our side.

That's good, okay, good. All right. And then I guess the last question sort of related to one of Doug's questions earlier with respect to the eco-ships and that kind of thing. I guess it doesn't seem as though people are convinced enough that those numbers are real such that there's been a massive level of ordering. Do you think that that's a risk or, at the end of the day, the financing is just not there, and --

There's been no ordering. I mean, it's even simpler than that. At $5,000 a day, who is going to order a brand-new ship? The charter doesn't care that you're more fuel efficient. It's $5,000 a day, so -- the charter rate.

So it's just economics, right?

It's economics, and so I don't think you're going to see these things being built until this fleet is way worn out and the market is chugging along at a very strong rate. But who would go out today in this environment and order a fuel-efficient ship. To do what? To earn $5,000 a day.

And the other part of that is the banking side. Banks are not lending to drybulk shipping. You look at -- you take a pool of banks, I would bet you maybe 25% are actually still lending, and they're focusing on LNG and offshore.

Michael Webber, Wells Fargo.

I just wanted to go over a couple of questions. [One have] already been asked, but with regards to equity, you guys already clearly came in and raised some earlier in the year, and so now it's just a -- it's lower year, overall, interest rate. But if I think about the next three to six months and given your outlook, would you guys say that you guys are pretty satiated right now from an equity perspective? Or would you still come out and do something opportunistic, if they opportunity would arise, and over the next three to six months, how much visibility do you have?

I think we're good for the time being.

Okay, that's helpful. John, you mentioned earlier some preliminary conversations with your lenders, and we've seen this with some other companies as well. You mentioned having a pretty long lead time. Are they willing to come in and have really concrete conversations with you guys right now, or are you guys still back burner considering your cash position and the fact that you do have a little bit of a window here?

No, concrete conversations but, like I said, beyond that I just can't comment.

Sure, all right. The next one is actually for Peter and maybe just kind of an open-ended kind of high-level question. You guys give a lot of detail in your deck and in your presentation. It's appreciated, and clearly it's a pretty complex supply and demand balance. I'll try to put this as simply as I can. Peter, when do you think we're going to see a turn in the drybulk market? And are you factoring in that turn when you think about managing your liquidity over the next one to two years?

Let me answer the first part first -- I wish I knew when there was going to be a turn in the drybulk market.

I think, all joking aside, because, look, I obviously don't know, and I'm purporting to know. I think we're bouncing around the bottom here. I think we've definitely hit bottom, and it's just a matter now of how long this bottom lasts. We're starting to see signs -- when you see the fundamentals, you see orders not coming in, you see scrapping at just tremendous levels, and then you see what the need for iron ore and coal are, and especially if you look toward the back end of this year. I mean, I'm not predicting a boom, but I think things will begin to get better in the back end of the third quarter this year.

We obviously look at that, but, as you know, we're always trying to be ahead of the curve when it comes to whatever we do, and so we're obviously having discussions to try and preserve our liquidity as best we can.

Fair enough. I guess the second part to that question, when you think about -- you've got an 18-month to two-year window here and obviously you've got a lot of debt coming due about two years on. Are you factoring in an improvement when you're thinking about managing that liquidity?

No, we're doing it -- we're managing it and having our discussions with the banks as if it's going to stay like this forever.

Okay, all right, that's helpful. And I guess, just finally, and maybe this is one for Gerry, and as you think about -- I guess your chartering strategy here and you're obviously getting more short-term, which makes sense considering how low long-term rates are here, but you've got a lot of vessels rolling off this year and into early 2013. Is there a baseline level of longer-term employment you guys would look at? I mean, it comes off pretty hard. Can you envision a situation in which 80 to 85-plus of your fleet is trading in the spot market or more? How do you think about that over the next (inaudible) year?

No, I don't think so. I don't see that.

Well, no, that's basically what it is right now. You've got 80% trading in the spot market, and at these rates we don't see the -- why you would fix at these rates.

Right, okay, so (inaudible) if you look at 2013, and we've got a 7% charter coverage for you in 2013, I mean, could it get north of 90% or is there a baseline level at all from just a cash flow perspective you guys would want to keep or do you not look at it that way?

We don't look at it that way. If rates improve --

We'll put the whole fleet away.

Exactly.

Chris Wetherbee, Citigroup.

Pretty much everything has been asked and answered, I guess, just from the back of Mike's question there -- when you think about the potential for an increase in the rates, could you give us a sense of what kind of level you would look at before you started thinking about putting things away -- does it need to get to that $22,000 a day level where you guys are free cash flow breakeven with the amortization schedule? How do you think about that? That's really all I have.

You'd want to be above breakeven.

And, ladies and gentlemen, that does conclude our conference for today. We thank you all for joining.