Genco Shipping & Trading Ltd (GNK) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited First Quarter 2018 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. (Operator Instructions) A replay of the conference will be accessible any time during the next 2 weeks by dialing (888) 203-1112 or (719) 457-0820, and entering passcode 7776519.

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. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the 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, 2017, and the company's reports subsequently filed with the SEC.

At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

Good morning, everyone. Welcome to Genco's first quarter 2018 conference call. I will begin today's call by reviewing our first quarter highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then open up the call for questions.

Turning to Slide 5, we review Genco's first quarter highlights. During the first quarter, we benefited from our success transforming and strengthening our leading commercial platform, as well as strategic fleet deployment initiatives we implemented to prepare for the seasonally softer first quarter. We are pleased to have outperformed our benchmark, consisting of the average of the Baltic Dry Indices less commissions adjusted for our vessels specifications and weighted by vessel class. This was driven by the strong performance of our Capesize and minor bulk fleet.

Specifically, the company was able to effectively navigate a seasonally lower first quarter freight rate environment with only marginal drop off from the strong fourth quarter of 2017. Importantly, as we progress through the year, we have maintained significant operating leverage to capitalize on the ongoing recovery in the drybulk market. Before discussing our performance in the quarter in more detail, I would like to highlight our recent success entering into a commitment letter for a senior secured loan facility for up to $460 million. We believe the new facility will strengthen our ability to create value for shareholders during the current market recovery through the removal of restrictions on vessel acquisitions and additional indebtedness, while providing the company with the ability to pay dividends.

The new credit facility commitments are expected to be oversubscribed by approximately 40%. Specifically, the mandated lead arrangers and bookrunners for this facility are Nordea Bank, SEB, ABN AMRO, DVB, Crédit Agricole and Danish Ship Finance. We appreciate the ongoing support of our leading banking group, highlighting Genco's leadership position and strong prospect for capitalizing on favorable industry fundamentals, which we expect to continue at least throughout 2018.

Moving on to our results. We ended the quarter with a $201.2 million cash position, representing one of the highest cash positions in the industry and reflecting our success, growing net revenues nearly 60% year-on-year, our cost leadership and the considerable earnings power of our fleet.

For the first quarter, we recorded a net loss of $55.8 million or $1.61 basic and diluted net loss per share. Excluding noncash impairment charges, adjusted net income was $0.6 million or adjusted basic and diluted earnings per share of $0.02.

Our strong operating performance in the first quarter was a direct result of our commercial initiatives and our ability to provide leading drybulk commodity producers and charters with a full-scale logistics solution. Following our success increasing our [time charter equivalent rate] in each quarter of 2017, we are pleased to have increased first quarter 2018 time charter equivalent rate by 66% year-on-year.

Turning to Slide 6. We have outlined our leading market position. During the first quarter, we continue to improve margins and expect our commercial, technical and operating initiatives to continue to drive results going forward. In addition to outperforming our benchmarks in the first quarter by over $800 per vessel per day, 64% of our [fleet-wide] available days have been fixed at a time charter equivalent of approximately $11,112 per day for the second quarter.

On Slide 7, I will discuss Genco's unique position for capturing market upside going forward, which is made up of 3 main components. First, as we continue to incorporate voyage charters and direct cargo liftings into our fleet deployment mix as part of our full-service logistics solution, we are well positioned to drive revenue growth, further increase margins and outperform benchmarks. Notably, we currently have almost half of our minor bulk vessels fixed on voyage-based business compared to 0 this time last year. Genco's focus on the transportation of both major and minor bulk commodities provides an important differentiator for the company.

Specifically, our direct exposure to the iron ore trades to our Capesize fleet provides us with strong upside potential [while] our Supramax and Handysize fleet transporting grain and various minor bulk commodities enables us to achieve a level of stability. In an effort to ensure Genco maintains significant exposure and optionality in a rising market, we continue to maintain a short-term focus with our fleet deployment strategy. Importantly, several of our Capesize vessels will come open between now and the end of the second quarter, positioning Genco the benefit from improved market conditions.

Second, we will maintain an active approach to revenue generation, leveraging our in-house commercial expertise and relationships to enter into business directly with cargo customers, while identifying key trading lanes by vessel. This strategy continues to generate tangible results. Since last year, we have substantially increased our customer base.

And finally, we have strengthened our global footprint with our Singapore office, as well as our recently established presence in Copenhagen. While the Singapore office provides Genco an active profile in the Far East market, allowing us to better focus on the employment of our Capesize vessels and backhaul trades on the minor bulk fleet, the Copenhagen presence further strengthens the prospects for the company's minor bulk fleet. Together, our European and Far East presence complements our New York operations to continue -- to create a 24-hour operation, while expanding our network appliance and getting the company closer to cargo interest in order to augment earnings and margins.

I will now turn the call over to Apostolos Zafolias, our Chief Financial Officer to discuss our financials.

Thank you, John. Turning to Slide 9, our financial results are presented. For the first quarter ended March 31, 2018, the company's revenues more than doubled to $76.9 million as compared with revenues for the first quarter of 2017 of $38.2 million. The increased revenues were primarily due to higher spot market rates achieved by the majority of the vessels in our fleet and the employment of vessels on spot market voyage charters. These increases were partially offset by the operation of fewer vessels during the first quarter of 2018 as compared to the prior year period.

For the first quarter of 2018, the company recorded a net loss of $55.8 million or a basic and diluted loss per share of $1.61. And this compares to a net loss of $15.6 million or $0.47 basic and diluted loss per share for the first quarter of 2017. Adjusted net income for the first quarter of 2018 was $600,000 or adjusted basic and diluted earnings per share of $0.02 per share, excluding $56.4 million of noncash impairment charges.

Turning to Slide 10. [We present] key balance sheet items as of March 31, 2018. Our cash position, including restricted cash, was $201.2 million. Our total assets were $1.5 billion, which consists primarily of the vessels in our fleet and cash. Our total debt outstanding, gross of $8.5 million of unamortized debt issuance costs, was $509.8 million as of March 31, 2018.

Moving to Slide 11. Our utilization rate was 98.9% for the first quarter of 2018. Our TCE for the first 3 months of the year was $10,463 per vessel per day, which compares to $6,321 per vessel per day recorded in the first quarter of 2017. The increase in TCE was primarily due to higher rates achieved by the vessels in our fleet and the progress we have made in implementing our commercial initiatives.

Daily vessel operating expenses were $4,401 per vessel per day for the first quarter of 2018, below our budget of $4,440 per vessel per day and compared to $4,395 per vessel per day for the same quarter of 2017.

We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's views, our DVOE budget for 2018 is $4,440 per vessel per day on a weighted average basis for the entire year for our fleet of 60 vessels.

As John mentioned, we entered into a commitment letter for a 5-year $460 million senior secured credit facility as outlined in Slide 12. We believe the facility will enable us to accomplish important objectives. Specifically, we expect to simplify our capital structure by consolidating our existing facilities into 1 and paying down debt on 7 vessels identified for sale. In addition, we expect the new facility will reduce our interest expense and extend maturities.

The quarterly amortization under the new credit facility is expected to be approximately $15 million per quarter and can be calculated -- and can be recalculated based on change in collateral vessels upon our request. Importantly, under the terms of the new facility, a number of restricted covenants will be eliminated, enhancing our flexibility to capitalize on attractive growth opportunities and providing the ability for potential dividends.

Borrowings under the credit facility are to bear interest at LIBOR plus 325 basis points through December 31, 2018 and LIBOR plus a range of 300 to 350 basis points thereafter, dependent upon total net indebtedness to last 12 months EBITDA. The final maturity date of the facility will be 5 years following closing, which is expected in the second quarter of 2018 and it is subject to standard conditions and definitive documentation.

Turning to Slide 13. We provide select balance sheet items reflecting the expected refinancing of our credit facilities. Pro forma for the refinancing, our cash and debt balances as of March 31, 2018 would be $137.7 million and $460 million, respectively.

Turning now to Slide 14. We outline our second quarter cash breakeven rates. Our breakeven levels remain among the lowest in the industry, which is a direct result of the vessel operating expense optimization initiatives we implemented over the last several years, reducing operating cost without sacrificing the company's high safety and maintenance standards. We anticipate Genco's cash breakeven rate to be $7,898 per vessel per day for the second quarter of 2018.

We've also provided further detail on those rates in the appendix of our presentation for your reference. In addition, on the bottom of the slide, we have provided a drydocking schedule for 2018. We currently expect 3 of our vessels to be drydocked during the remainder of 2018, 1 of which is scheduled to occur during the second quarter. Following the closing of the new $460 million credit facility, we plan to provide updated breakeven rates to reflect the new structure.

I will now turn the call over to Peter Allen, our drybulk market analyst, to discuss the industry fundamentals.

Thank you, Apostolos. I'll begin with Slide 16, which represents the Baltic Dry Index. Following a strong fourth quarter of 2017 in which multi-year highs were reached, the BDI came under seasonal pressure during the first quarter of 2018. This was primarily due to the front-loaded nature of the order book leading to increased new building deliveries in January, together with weather-related disruptions in Brazil and Australia, hampering cargo availability, as well as the occurrence of the Chinese New Year celebration in February.

Of note is that the BDI averaged 1,175 in Q1 2018, which is nearly 25% higher on a year-over-year basis. Subsequently, in the second quarter, the BDI has rapidly increased over 1,400, led by the Capesize sector, which more than doubled over a 2-week period, which included 3 consecutive days of 15% to 20% increases from April 18 to April 20.

Turning to Slide 17, we outlined some of the key market developments influencing this increase in freight rates. After reaching a [near] record of 100 million tons in January, China's iron ore imports eased during the following 3 months and are essentially flat year-over-year. Steel output restrictions in Northern China that were originally supposed to be lifted in mid-March expanded onwards for several weeks thereafter, which negatively impacted iron ore buying activity. This trend has reversed in Q2, as the lifting of these restrictions in the onset of peak spring construction season have had a positive impact on demand for raw materials since the second half of April.

We believe the recent reaction of Capesize rates to the increased volumes seen over the last few weeks is a healthy sign for the market going forward. To that point, Brazilian iron ore shipments remained critical to the overall performance of the Capesize sector. During the first quarter, Brazilian exports fell by 8% year-over-year. Also during that time, [Vale] produced only 82 million tons of iron ore, which was a year-over-year decline of 5%. Importantly, Vale reiterated its iron ore production guidance of 390 million tons for 2018, which represents year-over-year growth of approximately 23 million tons and applies a higher concentration of output in Q2 to Q4 2018.

This is important given the recent announcement made by Anglo American that its Minas Rio mine in Brazil will cease operations for the balance of the year due to a pipeline rupture. Despite this development, we are still of the view that Brazilian iron ore exports will be weighted towards the second half of the year in line with the historical trend, as [Vale's] S11D mine further ramps up.

Turning to Slide 18, we highlight global steel production. After a strong 2017, China's steel output has remained firm in the year-to-date, having increased by 5% year-over-year. A significant development that materialized during Q1 2018 was the steel inventory build in China. Steel inventory, which has been low for several years, has been built to multi-year highs in March. Despite the rapid rise, steel inventory is traditionally restocked during Q1, then drawn down throughout the balance of the year. Following strong production, steel stockpiles rose to as high as 20 million tons, the highest point since March 2014. Ever since, there's been an aggressive destock as inventory has fallen by over 30% from the March peak due to increased demand, which has also led to firming steel prices.

In addition to strong steel production in China, output in the rest of the world has been solid in the year-to-date led by India, South Korea and the EU. This remains important for the drybulk market and highlights the strengthening of global economy. In addition to the steel industry, another factor impacting the drybulk market has been the relative strength of the Chinese coal trade. China's coal imports rose by nearly 10% for the first 4 months of 2018 on a year-over-year basis. This was primarily due to tight domestic coal supply during peak heating seasons.

With regard to India, coal power plant stockpiles remain low and the lack of a developed infrastructure combined with the fact that many power plants are located near the coast bode well for India's seaborne coal demand.

In addition to the global coal and iron ore trades, we highlight the global grain and certain minor bulk trends on Slide 19. With the improved global economic landscape, we believe this will be beneficial for overall trade growth and will be a positive catalyst particularly for our minor bulk vessels. Specifically, we are currently in the middle of South American grain season, in which we expect a strong Brazilian soybean crop to be exported.

China remains the primary destination for Brazilian soybeans given their high protein content, relative to other soybean producers. We note that soybean shipments from the U.S. are in a seasonally slow period right now and traditionally don't gain momentum until the end of the third quarter.

On Slide 20, we outline current supply side fundamentals. As is seasonally the case, we saw a spike in new building deliveries during January, but then a significant deceleration in the following months. New building deliveries are down by over 50% year-over-year. However, scrapping is also down by approximately 65% over the same period. On the new building front, over -- after over 300 orders in 2017, over 50 have been placed in the year-to-date. This has pushed the order book as a percentage of the fleets to 9.9% from as low as 7.5% in mid-2017.

We do note that the current order book as a percentage of the fleet is in line with where it was at this time last year. The order book also compares to 7% of the current fleet on the water, that is greater than or equal to 20 years old, which could potentially offset some of the new tonnage sent to enter the world fleet. We also point out that it remains to be seen how much of the order book will actually deliver considering that slippage rate is approximately 40%. This concludes our presentation.

And we now would be happy to take your questions.

(Operator Instructions) And our first question today comes from Jon Chappell from Evercore.

John, first question for you is on the fleet renewal plan. And you know you reported 3 months ago the plan to sell some of these older noncore unencumbered vessels and kind of 3 months has passed and not much update there. So just wondering has the S&P market been pretty liquid? Is that what's kind of kept you on the sideline from executing that? I remember your vessel sales from the prior sale process moved much quicker. Was it seasonality kind of holding down massive values, maybe you're holding out for higher prices? How should we think about you proceeding with that plan?

I think you'll start to see us execute on that relatively shortly. You are correct. With first quarter being softer on the freight rate side, which again, you can see is something that we obviously predicted and what we did with the Capesize fixtures. We obviously want to be in a firmer market, where there is more liquidity and asset prices have probably moved up a little bit since the beginning of the year. So I think in terms of executing the sales side of it, we're getting into the right window now.

Okay. And then that naturally leads to the purchase side of it too. So just trying to think about your financial flexibility now, great refinancing, lot of flexibility from that lower cost of debt, all the benefits you laid out. And as we think about this market recovering and the cash flow generation building an already pretty strong cash balance, how are you thinking about adding to the fleet at this point in the cycle versus like a target leverage area that you want to be in on the debt side versus a reintroduction and a potential acceleration of the dividend? And the reason I ask is, I think there's some healthy debate out there right now about, one, whether now is the time to buy or act quickly before the window closes versus kind of return the capital to shareholders? And the big question that -- if it's not out there yet, should be, is do you really get paid in a cyclical industry for dividends? So super-long question, any insights on that would be helpful.

Look, we still -- I mean, the one thing I would tell you is, we still believe that, at least as it stands today, asset prices are still at historical low numbers. We think there are good opportunities in both the Capes and the Ultramaxes, the values have been relatively flat. And I think I've said on the last quarterly conference call, we could be entering a period this year where asset values may not move significantly until we get into the third, fourth quarter of next -- of this year, 2018. So to be able to take advantage of that, you could wind up getting some real outsized return on capital numbers, if you're able to execute today, so to speak. So I still think there's an opportunity there. Clearly by structuring the credit facility the way we did as it pertains to dividends, we obviously have those conversations as a company in terms of what the right strategy is there. I think overall, Jon, you're right, this is a big question. Do you get paid for having a dividend in place, I think the argument is that if you can put in place a sustainable dividend that is there, that can be there throughout any market cycle, then I would be hopeful that, that you would have a valuation that would be taken into the valuation of the equity going forward. I think unpredictability obviously is a problem in that, if you structure a dividend where you're paying out necessarily a variable dividend each quarter, I think that, that becomes a little more difficult. But I think the ability to put something stable in place, and it's certainly something that, that we're going to -- we'll look at going forward, we've made no decisions on it. It could be delayed, yes.

All right. I agree with that. And just the last one because it was lost in the prior question. Now with this refinancing in place, I mean, is this kind of -- I know you've been focused on deleveraging for a long time now, for obvious reasons. Does this feel like the right place, this $460 million facility, you're comfortable with that, both at this point of the cycle and if, God forbid, things were to worsen a little bit?

Yes. Look, I think, again, I don't think our thought process has changed. We want to be in that sort of 40% to 50% leverage range. Again, we -- look, unfortunately -- and we think this market is going to be relatively strong for at least the next 18 months basis, the supply and demand fundamental. But invariably, there will be a softer period and we want the company to obviously be able to take advantage of that softer period, and the way you do that is managing your leverage.

Our next question today comes from Amit Mehrotra from Deutsche Bank.

This is Chris Snyder on for Amit. So my first question kind of follows up on the potential acquisitions. Obviously, your fleet is pretty diverse, but I think the 15 vessels you guys have targeted to sell are on the smaller side. So when you kind of looking at what vessels you guys will be interested in, will it be just very opportunistic based on price? Is there a specific asset class you guys are -- kind of will be focusing on?

So first of all, the vessels that we've identified for sale are the older Panamaxes, 2 of the older Handysize and then the 53,000 deadweight ton Supramaxes. So it's a combination of the older vessels and then the 53,000 deadweight ton. Again, strategy of the company has not changed in the sense that we have built a strong commercial team around our -- the Capesize sector at our Capes as well as the minor bulk sector, which are the Ultramaxes all the way down to the Handysize. In terms of where we want to grow, I would say it's opportunistic, but again, the focus is going to be around growing in the Capesize because of what we see on the demand side and the growth on the iron ore trades. And then in the minor bulks, where we also see growth [based as well GDP], growth on the grain side, growth in the bulk side trades. So that's what we're going to focus on, we will focus less on the mid-range, you know, the Kamsarmaxes or the Panamaxes. And -- if really from an equity strategy, we've been telling the story for a while, we like the idea of having this minor bulk fleet, a very strong commercial team that can use that fleet to trade and be efficient and increase margins, but -- and providing a little more of a stable revenue flow. But then having the Capes, which have your -- you're clearly a volatile, but can have significant upside particularly with the -- all the iron ore volumes that are predicted to come on this year and next year from the longer haul trade in Brazil.

Yes. That's helpful. And then kind of the reason I was asking is because, obviously, [you've risen this] -- you guys have a very healthy balance sheet. Cash flows are starting to inflect higher, well above cash breakeven. So it does seem like you could almost handle more risk in the business by kind of going after more Capes, just kind of given kind of the healthy status of the company.

I think that's right. But with any risk, you want to be paid for it and we think that Capesize sector will do just that.

Okay. And then just the next question is, I think you guys mentioned that the credit facility was 40% oversubscribed. Your LTV at the moment is still very low. I think you guys kind of said you're targeting 40% to 50%. We have you on below that range. So do you have the ability to kind of upsize this facility to take on more leverage and kind of get into that 40% to 50% range? Or is that [going to] be a future transaction down the road?

I think if anything, we'll take advantage of that additional capacity that is available to us down the road. We will not be adding a -- an upsize of this credit facility at this point.

Our next question comes from Randy Giveans from Jefferies.

Congrats on the second consecutive quarterly profit. So hope your streak continues going forward. Few quick questions. One, looking at your strategy for spot versus kind of time charters in the course ahead. I know you mentioned you're kind of allowing some of those short-term contracts to expire in the coming months. So sounds like you're getting a little more focused on kind of true spot exposure in the coming quarters. Is that kind of accurate?

Yes. But I think we've been focused on that since even middle of last year. The entire [minor bulk fleet] is really spot in the sense that we're doing direct cargo liftings, short-term voyages anywhere from 25 to 45 days. That -- that has not changed. And then on the Capesize sector, again, we, for the most part, have been doing short-term voyages, short-term trip charters, because we do believe, again, that as we go through this year both from a seasonal standpoint but also from a demand and supply standpoint, we believe that second half of the year will continue to move up.

Okay. And then looking at the new facility, using kind of current EBITDA run rate, I know the kind of future margin is at 300, 350 basis points is kind of tied to that last 12 months EBITDA. So what -- using current what would that kind of equate to going forward after that 325? Would it be lower to 300, closer to 350? Just trying to add some sensitivity around what is driving that move?

Yes. We expect it to be closer to the 300-mark beginning in the first quarter of 2019.

Excellent. All right. And then one quick market question. Recently announced Chinese iron ore imports last month were basically in line with 2017 at 82 million, 83 million tons. So do you see any impacts on that government mandated kind of production restrictions that have kind of continued in some parts of China affecting the drybulk market in coming months?

Well, I think we really saw a pickup second half of April, in particular, and you saw that with Capes really spiking. They're over $20,000 today from approximately $7,000 earlier in April. So I think seasonally as we -- we're in peak steel construction season right now. And as that continues and as we get to a seasonally stronger second half of the year, we'll Chinese iron ore imports pickup.

Yes, I mean, I think, Randy, that -- I think the biggest thing is what Peter Allen mentioned earlier in the call, and that is that [Vale's] production was below their sales, which means they, at least what we take away from it, is that they actually drew down inventories in order to push product. So that's why we think from here going forward and particularly in the second half of the year, there's pent-up volume that wasn't produced and wasn't shipped in the first quarter from [Vale] that we will see appearing in the second half. And then on top of that, you've got this 23 million ton of growth coming from their new S11D. I think, you know, so on the iron ore front, we expect quite a lot of growth in the second half of this year over the first half. The other thing I'll add is, with the steel inventories in China, there was a lot of talk about that a few months ago. And we have seen [in the] steel inventories come down faster than we've ever seen in -- during this decade. And that really does tell you that -- that the steel industry is strong, the construction industry is strong. So we -- and the margins in the steel industry are strong. So again, it all kind of plays into this higher quality seaborne iron ore trade and the growth attached to that.

Our next question today comes from Espen Landmark from Fearnley.

Just following up on the rate comment, I mean, as you say, Capes are back up at 20s, Supras and [Panamaxes] essentially flat, also confirmed by the guidance you have for 2Q. Seasonally these segments tend to kind of taper off in April, May. And now you also see the Chinese coal import prices down substantially, which historically has been a good indicator for where the [Pana super] rates are going. I mean, I know this will be a smaller part of your portfolio longer term, but what's your take on the outlook for the coal-prone vessels for the remainder of 2018?

Look, coal, in general, is a difficult one. I think coal imports into China in general will be flat. I think you -- and I think you saw a lot of growth in the first part of the year. Some of that may be tempered. The Chinese government has closed some of the ports to coal imports. But I think it's very difficult to tell in China. I think it's a black box in terms of imports, when it gets turned on, when it gets turned off. What I'm more optimistic on is coal imports into India, both on the coking coal side to support their growing steel industry as well as imported thermal coal, because of the inefficiencies they have from an infrastructure standpoint on domestic coal production and transportation moving it around the country. And I also see growth on the coal side in the Philippines, in Taiwan and Vietnam, in particular. So again, China is very difficult, I think, because of the policies of the government on the coal industry. But as I said, I am more optimistic on growth in India this year as well as some of the, well say, lesser Asian countries such as Philippines, Vietnam and Taiwan.

All right. Then maybe can you talk a bit about kind of the -- the progress you're doing on the commercial side, fleet positioning, the new office in Denmark? Whether you feel you have gained any market knowledge so far through these measures?

Well, there is no doubt we've gained market knowledge. I mean, it's an everyday flow of real-time information. I think the -- we have now for the last few quarters been doing more and more direct business with cargo and cutting out the operator, cutting out the middleman and keeping that margin for ourself. What we have also begun doing is performing arbitrage trades, where we have booked a piece of cargo for a -- for one of our ships and when it comes time to ship that cargo, maybe there's a situation where there is another ship that we can take from someone else that's cheaper. We charter that in for a short period of time, move that piece of cargo and then take our ship and do something else with it and capture that spread. So we've been doing a few of those trades. And that's one of the main reasons for opening up the Copenhagen office is to be in a position to do more of those arbitrage trades as well as grow the presence in Europe. A lot of those cargo trades take place before New York gets up and going. So we definitely want to make sure that we are attached to that, that market, that's a big market on the grain side.

Yes. That's interesting. And then you -- I mean, you mentioned that the 50-50 kind of (inaudible) -- correct me if I'm wrong, but I think that's among the highest in the industry. How does that split across the fleet? I mean, are you able to do this on the Cape now or is this essentially still kind of a Supra and [downplay]?

No, the Capes, we've been, we've actually started doing voyage charters directly with the majors. We have been also doing short-term trip charters particularly -- and partnering with somebody maybe on a coal tender, which actually allows us to outperform the market. So it's definitely happening in the Capes as well. There are 13 Capes. So it's a smaller fleet. So we're not doing as much, but -- as we're doing in the minor bulks, but yes, it's the same strategy on Capes as the minor bulks, except everything is based in Singapore for obvious reasons.

(Operator Instructions) Our next question comes from Magnus Fyhr from Seaport Global.

Just one question left. You gave good guidance on the drydocking cost and days for 2018. Have you ever given any thoughts on the 2019, what you're going to do as far as water ballast treatment system installations and [down days]?

Magnus, we have some guidance already in the last Q and we will put some updated guidance in this Q. In total, we expect our 2019 drydocking, including ballast water treatment systems, to be $37.5 million. But that includes some of the sales that are candidates -- sorry, some of the vessels that are sales candidates. So excluding those, that would be about $20 million for the full year of 2019. And again, that will be drydocking and ballast water treatment systems included.

And that's about $1 million per vessel? Or should we assume about 20 vessels [down]?

It would be 13 vessels or so.

Yes, Magnus, I would focus more on the 20, because as you know the fleet renewal plan will be executed.

Our next question comes from Poe Fratt from NOBLE Capital Markets.

Not much left to talk about, but when you look at tying up the loose ends on the new credit facility, when do you expect that to be done?

We expect it to be within the second quarter.

And is that a -- John, you alluded to executing on the fleet renewal program, stay tuned. Is that a [gating factor], getting this credit facility done first and then moving forward? And then when you look at the dividend, would you talk about whether you're thinking about a special versus a regular dividend and sort of the timing of that decision?

All right. So let me take the dividend first. Again, we have not made any -- look, we obviously talk about the idea of a dividend, and again, that's why we structured the credit facility as we did. But no decision has been taken by the board in terms of a dividend going forward at this point. In terms of the fleet renewal, the -- you have to keep in mind, the commitment letter has been signed on the bank facility. So that is in place. So it is just in documentation. Apostolos said by the end of the second quarter, I -- that's not too far away. So this is -- I believe this will happen relatively quickly and no, it's not holding up us in terms of setting up the fleet renewal plan. As you know, when you sell a ship, it still takes usually a couple of months to get from executing an MoA to physical delivery. So those credit facilities will be closed before we get to that. Meaning, just to be very clear, we're actively working on fleet renewal program now.

And then Apostolos, on the working capital, it's pretty negative for the first quarter or at least the use of cash. Can you walk me through the rest of the year as far as working capital changes?

Yes. So for the first quarter, I think the majority of it was a debt pay down amount of $11.2 million. Beyond that, I mean, our cash balance went from $205 million at the end of last quarter to $201 million. And usually the first quarter is seasonally heavier in terms of working capital movements, because insurance payments and other payments are weighted towards the first half of the year or the first quarter of the year. You know, I mean, going forward, I think we have provided a pro forma balance sheet as of March 31. But the pro forma for the credit facilities on Slide 13 of the presentation, that doesn't include any of the vessel sales or anything like that, but it gives you an indication of what the pro forma cash balance will be after the refinancing.

Great. And then if you could just talk about the commercial strategy, opening the office in Copenhagen. Talked a little bit about it, but what's the best measure of success there? I think in the last call, you mentioned that you were doing direct business with 40 customers. Is that a number to focus on? And has that expanded into the second quarter? Sort of if you can give me color on sort of how to measure that commercial success?

Yes. So we're now dealing with 50-plus new customers and I expect that number to continue to grow. I mean, I would expect it to get up to 100 over the next sort of 6 to 9 months. That -- I think the best way to measure how that office is doing and we talked about this earlier, but how the company is doing compared to the adjusted indices. And for this quarter, we outperformed by $800 a day, if you adjust the indices to our fleet specifications. And that's something that we will continue to report going forward. I think that's -- that's probably one of the biggest judges.

Ladies and gentlemen, that will conclude today's conference call. Thank you very much for your participation today. You may now disconnect.