Global Ship Lease Inc (GSL) 2008 Q4 法說會逐字稿

Welcome to the Global Ship Lease fourth quarter 2008 conference call. This call is being recorded. Hosting the call today is Ian Webber, Chief Executive Officer of Global Ship Lease. Mr. Webber will be making some introductory comments then we will open the call up to Q & A. I will now turn the call over to Ian Webber.

Thank you. Good morning, everybody and thank you, for joining us today. Firstly I apologize that our CFO Susan Cook isn't on the call. Susan is unwell unfortunately. It's nothing too serious but she can't travel and can't join the call.

I would like to remind you that today's call may include forward-looking statements, that are based on current expectations and assumptions and are by their nature inherently uncertain and outside the Company's control. Actual results may differ materially from these forward-looking statements due to many factors including those described in the risk factors section of our registration statement, Form F-1 filed on September 23, 2008 which you can access by the SEC's website. All of our statements today are qualified by those risk factors and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of non-US GAAP financial measures to which we refer doing the call to the most directly comparable measures calculated and presented in accordance with US GAAP, you should refer to the press release which we issued this morning, which is available on our website, at www.globalshiplease.com.

Let me start by reviewing the fourth quarter, and year-to-date 2009 highlights. Provide -- provide my view on the industry overall. I will then cover our expanded fleets and -- portfolio and improved financial flexibility with our amend credit facility followed by a review of the fourth quarter financials. After that, the call will be opened up for questions..

Let's begin by reviewing the fourth quarter and year-to-date highlights that is on slide three of the presentation that is also available on the website. Our fully time chartered fleet was again the main driver of our posting strong reviews and generating predictable cash flows during a challenging and volatile period for the container industry overall and clearly the economy in general. This confirms that we are not exposed to the stock charge market. Drawing on our sizeable revenue stream we generated $12.8 million of cash available for distribution in the fourth quarter 2008. And this enabled the Company to continue with its dividend at $0.23 per share for the quarter which was the third dividend we have declared so far at this level since going public in August 2008.

In addition to reporting strong financial results and returning cash to our shareholders through dividends in the quarter we also took critical steps to insure our business remains well positioned over the long-term. Specifically, during the quarter we grew our fleets and contracted revenue by taking delivery of four containerships ranging in size from 4,000 to 11,000 TEU. This was all planned, and the ships commenced 14 to 17 year charters with CMA CGM. These four ships at $46 million a year for review, which is now $143 million annualized on our 17 - on our 16 ship fleet. Complementing this, we also took proactive measures to enhance our financial flexibility, by favorably amending our $800 million credit facility at modest upfront costs. I will review this amendment in further detail later.

Now just to set the scene and provide some background, I would like to review the near and long-term container industry dynamics and specifically how Global Ship Lease with its fully time charted fleet is positioned in this environment. The global economic environment continues to have a negative effect on the demand for containerized goods. Our demand growth in 2008 is estimated to have been 5% to 6% which is lower than the long-term average annual growth rate of 10% plus. We believe that the current low demand fundamentals will continue through at least 2009, probably through 2010. And that growth in 2009 -- and commentator's estimates very enormously -- but growth in 2009 might be in the range of 2% to 4%.

Some trade lanes will be affected more than others. Over the past three years -- past few years -- growth of the Asia Europe and the TransPacific markets were primarily as a result of China's robust export activity and growth in these two trade lanes was substantial. However, these markets are likely to contract in 2009, primarily due to a reduction in demand for Chinese manufactured goods from the US and Europe. These two trade lanes accounted for a little under 30% of total demand in 2008, meaning that there is another 70% of container trade not directly reliant on China. And we expect these other trade lanes such as intra-Asia, the north-south trades, for example, between Europe and Africa, North and South America and the non-mainline east-west trades to continue outgrow albeit at slower rates than we have seen recently. The TransAtlantic, the smallest of the four big trade lanes looks likely to be flat in 2009 as it was in 2008. As we will discuss later on the call, the Global Ship Lease fleet is versatile and is well-suited to operate in these relatively stronger trade lanes.

The other side of the equation is supply and in terms of supply, some 12% to 14% of today's capacity is expected to be built and delivered during 2009. Mitigating this supply growth will be increased scrapping of older ships, some order cancellations or rescheduling, pushing deliveries into 2010 and beyond and increasing layoffs. I believe order cancellations for 2010 deliveries will accelerate through this year in response to oversupply, the lack of financing, as well as the possibility of weaker earners and yards going out of business. So by this time next year I expect the order book to have contracted and hopefully significantly. Notably no new orders for containerships have been placed in the last four months, so the order book is not growing. While near term conditions remain challenging for the liner companies, containershipping continues to show good growth potential over the long-term to achieve high compound annual growth rates once again, once the global economy improves and today's excess capacity is absorbed.

How do we fit into all of this? With our long-term contract coverage, all -- on all of our ships we're not exposed to the spot market and we're confident that we're well positioned to effectively manage the downturn and benefit in due course from the industry's long-term growth when markets begin to normalize. Specifically, we believe we are well positioned to withstand this near-term volatility for a number of reasons. Firstly, our fleet is 100% time charted, for an average of 10 years. Importantly we have no renewals, for four years. Our first two ships -- and it's only two ships come up for renewal at the end of 2012. We have total contracted revenue across our fleet -- including the three ships to be delivered for some $1.8 billion.

Secondly, we continue to maintain a predictable and stable cost effective operating structure, with a majority of our near and medium term expenses fixed, primarily operating costs and interest. Of note during the fourth quarter, we once again held our ship costs below our fixed cap amount by working closely with the ship manager to control those costs in a period when crew and lubricating oil expenses have been under pressure. Incidentally, the downturn in the whole of the maritime sector may well lead to reduced operating costs as demand begins to contract, benefiting our bottom line.

Thirdly, in terms of our ability to withstand the downturn we continue to keep strong relationships with our current charter which remains a significant shareholder and which we believe is well positioned to operate in this challenging environment. CMA CGM is a well established top three liner shipping company with significant operational experience and flexibility. Their experienced management team is led by Mr. Jacques Saade who established the company some 30 years ago and has successfully operated it through the cycles since then. As a measure of their operational flexibility CMA CGM has some 400 ships in its fleet -- all container ships -- of which 280 also are charted from companies other than Global Ship Lease of 280. Around half of these charters are short term and expire during 2009, giving the Company critical flexibility to manage capacity and enabling them to benefit from the current low-spot charter rate environment, should they choose to renew the charters rather than return the ships to their owners. Importantly, as a major shareholder in Global Ship Lease, we believe that their economic interests are aligned with ours, and they continue to have a vested interest in our success.

In addition to CMA CGM, in September last year we agreed to acquire two newbuildings, for delivery at the end of 2010. The vessels are committed to seven to eight year charters to ZIM Integrated Shipping Services, a top 20 global liner operator which has been trading for 60 years. It is 100% subsidiary of its -- of Israel corporation -- a substantial Israeli corporation which has committed financial support to the line. Also, boding well for Global Ship Lease in this environment, we have a fleet, as I referred to earlier, with a favorable mix of ship sizes and staggered expiration of charters. A majority of our ships are between 2000 and 4500 TEU giving our fleet significant flexibility in terms of deployment potential. This is important because for example, much of the new capacity that we expect to come online in 2009 and 2010 and beyond includes larger ships above 8,000 TEU.

Whilst these ships can provide significant economies of scale because of physical and operational limitations they can really only be used on two trade lanes, that is Asia Europe and the TransPacific, both of which look likely to underperform in the near term. It seems likely that there will be an excess of large ships for awhile. So given their sizes -- relatively small ships -- our ships can be deployed on many trade lanes including the more resilient north-south trade lanes and intra-Asia. Eight of our ships are geared which means they have onboard cranes so they can load and discharge themselves. Again this increases their operational flexibility as they can trade to and from parts of the world where port infrastructure is less developed, typically the emerging nations. Just to remind you we don't have to worry about this for quite some considerable time given our ships are fixed, on average, 10-year time charters.

And, finally in terms of our resilience it is important to remember that we have got a very small order book of only three ships and that -- that is spread over the next two years. Slide four, shows our -- our ship fleets, our 16 ships on the water, and three more for delivery over the next couple of years. All are modern, well-maintained, high quality container ships. Our strategy of committing our vessels to fixed rate long-term time charters continues to serve us and the shareholders well. None of our ships are in the spot market and as I have said none are up for renewal until the end of 2012. All of our contracts continue to perform. Our charter is current with all of it payments and there have been no discussions on renegotiating terms.

By taking delivery of the four ships in the fourth quarter we accomplished important objectives relating to growing our fleet and contracted revenue stream adding some $46 million in annual revenue. With a delivery of these four vessels, we increased contracted revenue stream by 47%, grew our TEU capacity by 64%, extended our average time charter coverage from eight years to 10 years, and reduced the average age of the fleet from seven years to five and a half years which compares very favorably with the ship's economic life in our business of 30 years.

Turning to slide five, I would like to review the amendments of our credit facility which significantly improves our financial flexibility. During the fourth quarter, last year, we recognized that there was pressure on asset values, and we proactively approached our lenders to amend our credit facility before any issues materialized -- basically before we had our back up against the wall. Specifically, by working closely with our bank group which has significant experience in ship lending, we increased our loan-to-value maintenance covenant from 75% to 100%. By accomplishing this critical objective in a challenging financing market we have reduced our exposure to the current downward pressure on asset prices and enhanced our ability to continue to provide shareholders with attractive dividends.

Under the terms of the amendment, the allowed borrowing -- sorry, the allowed ratio of borrowing to ship values has been increased from a maximum of 75% previously to 100% now. This ratio is applicable for the next five test dates commencing with the next one due at the end of April of this year. Up to and including a test date due on April 30, 2010. During this period we have no restrictions on our ability to distribute dividends unless loan-to-value exceeds 90%, at which point we're obliged to place half of our quarterly cash flow into a pledged account. So prima facie, that is half available for dividend. That is above 100% loan-to-value. We will have to go talk to our lenders again. The pledged account, should we have to make any payments into it, is released back to the Company if loan-to-value falls below 90%.

There are some other important but less financial amendments to the credit facility. We have increased the number of brokers from whom we can obtain valuations from two to six. We still only have to provide an average of two valuations, so we have been working closely with the broker community to understand their approach to coming up with market values in this challenging environment. We were obliged to increase pricing. The margin paid on the existing loan-to-value grid was increased by 50 basis points and the grid was extended to accommodate the possibility of higher loan-to-value ratios. So now the facility bears interest, margin over LIBOR ranging from 1.25% to 2.75% over LIBOR depending on loan-to-value. Remember that we swapped most of our -- we swapped all of our forecast floating rate debt into fixed at a locked-in LIBOR rate effectively of 3.59%.

We have increased commitment fee to more like market rates of 50 basis points from 25, and brought forward the amortization of the maximum ability of the credit facility. This isn't the amount that's drawn at any one time. It is the maximum availability. We brought that amortization forward from December 2012 to December 2010. The debt incurrence test the level at which we cannot borrow any more under the credit facility remains a loan-to-value of 70%. We continue to develop strong and maintain strong relationships with our lenders, and an ongoing dialogue with the banks which include Fortis, SMBC, DnB Nor, Citi, HSH Nordbank, KFW and Bank of Scotland.

Turning to the numbers, I would like to mention that we have not included any comparative financial information for 2007 in the press release or in this presentation because under predecessor accounting this financial information relates primarily to the operation of the ships when they were owned by CMA CGM and were operated in its of carrying freight. So they were only revenue was from carrying cargo whereas we commenced our business upon chartering the vessels out in December of 2007 and our business model as you know is just to earn rent on the ships. The two business models aren't comparable and it is meaningless to try to compare on a quantitative basis the results. Similarly we haven't included financial information for the full year of 2008 due to the significant change in capital structure and financing charges arising on the merger on August 14, 2008, which also included a change in legal entities. All of the full formal comparatives full year data is included in the Q4 interim financial statements unaudited which we have included in the press release for your convenience.

Turning to page seven, on our financial results for the quarter -- the fourth quarter 2008 -- we show revenue of $26.3 million, mainly from the 12 ships that we earned at the beginning of the quarter right through the quarter, but it includes around 45 ship days for the four ships we purchased in the month of December. There was no loss of revenue from off time and consequently utilization was at 100%.

Vessel operating costs which include mainly crew costs, lubricating oil costs, spares and insurance were $7.9 million which is an average of $6,873 a day, which is 4% below the equivalent cost in the previous quarter. Which is a little bit high due to the affect of lumpy quarterly storing on some ships. This is where the ships are stored for the next few months with spares and so on and so forth and costs increase. Our direct vessel operating costs are capped under our ship management agreements and we continue to be below the cap.

Depreciation for the quarter was $5.9 million, obviously including the effect of the four additional ships in December. General administrative costs were $2.7 million in the quarter. This is our first full year as a public Company and it is important to note that of that charge, some $800,000 was non-cash for the effects of stop base compensation issue to management and the Board. So the underlying cash cost was $1.9 million. That's a little higher than we would ordinarily expect, due to catch up on some public Company related costs, which we could only book in quarter four after we became a public Company, for example, external audit costs.

Interest expense in the three months ended December 2008, were $2.6 million based on the Company's indebtedness through the quarter of $286 million, until the purchase of the four ships in December which led to additional drawings of $256 million. So our total drawings at the end of the year were $542 million. As I mentioned before, we have hedged all of our interest rate exposure by entering into derivatives, swapping out floating rate debt to fixed rate to provide stability to our cash flows. And the average swap rate was 3.59%. These hedges don't qualify for hedge counting under US GAAP. And therefore, we mark them to market so each period ends with any change in fair value being put to the income and expenditure account. And, given the movements in LIBOR down and the flattening of the forward curve, the change in fair value was a loss of some $51 million for the three months ended December 2008. Mark-to-market impacts -- sorry mark-to-market adjustments have no impact on operating performance and no impact on cash generation and do not adversely affect our ability to make distributions to shareholders.

Crucially they provide certainty to cash flow. Including these non-cash charges we reported a net loss for the quarter of $43.7 million. However, excluding this charge normalized earnings were $7 million or $0.21 a share. And we believe this -- measure normalized net earnings -- is useful to assess the Company's financial performance because it does strip out the effective non-cash and other items which don't affect the Company's ability to make distributions on common shares.

Looking at slide eight, the balance sheet, key items of December 31, cash of $26 million, current assets of $33 million, vessel deposits of $16 million on the ships to be purchased at the end of 2010. Total assets of $967 million, of which $907 million related to vessels in operation, and total shareholders equity of $295 million. Slide nine, shows our cash for distribution, which was $12.8 million for the quarter. Our cash flow continues to exceed distributions, despite paying for the first time, a dividend on the 7.4 million subordinated class B shares and on 12.4 million new class A shares arising from the conversion of class C shares on January 1, 2009. These class C shares were issued as a prepayment valued at $99 million, on the December ship purchases, which contributed earnings in the quarter for only 45 ownership days so, we have paid a full dividend on the quarter on effectively the equity element of the purchase price of these shares, but having a very modest contribution for earnings. Ignoring the dividends on these shares, payout ratio was 75%. Consistent with what we have talked to investors about previously.

Slide 10, shows our dividend record, culminating with $0.23 a share, declared for the fourth quarter. It is expected to be paid tomorrow, March 5, to shareholders of record on February 20. So now we have distributed $0.69 in three amounts since our listing in -- on NYSE in August.. Just before I opened the call for questions, I would like to underscore that there has been no change in our business model, and to our potential cash flows despite the turmoil in the global economy and in container shipping.

We do not operate in the spot market. Our fully time charted fleet secured for an average of 10 years continues to perform as expected. And our risk (inaudible) strategy continues to generate stable predictable cash flows which demonstrate the resilience of our model to short term volatility. Going forward, we intend to draw upon our sizeable contracted revenue stream, to continue to pay regular quarterly dividends consistent with the terms of our amended credit facility, and obviously always at the discretion of the Board, but we remained committed to a $0.23 a share a quarter dividend. At this time, the Company's dividend policy remains intact and it is our intention to distribute a sizeable portion of cash flow to shareholders while returning cash - some cash for reinvestment in the business or debt service.

So with the conclusion of my formal remarks I will hand back to the operator who can explain the Q & A process.

Yes, sir, thank you. (Operator Instructions) And our first question will come from Jay Harris from Goldsmith and Harris Division of Axiom Capital.

Good morning, Ian.

Good morning.

I have got a couple of questions. One, I think in your last press release, where you indicated that you had acquired the last two vessels from CMA CGM, you indicated annual revenues of -- $165 million a year, and -- today you talked about $144 million a year. What is the reason for the difference in those two numbers?

Well, the one -- the $143 million relates to our fleets of 16 ships. The fleet that we have today. When we take the last ship from CMA, in July, our annual revenue will be $155 million and when we reach the 19 ship fleets at the end of 2010, at that point, annual revenue will be approximately $176 million.

And what -- can you share with us your estimates of cash operating expenses for the first two quarters of this year before acquiring the 17th ship from CMA?

I don't have that data at hand. It is not too difficult to build on to quarter four, which was a relatively clean quarter. The effect of the four ships we took delivery of in December, given our public disclosure of revenue per ship and the capped operating costs which is a useful measure to base direct expenditure on, and -- I think we have previously said that including an allowance for accidents and the insurance deductibles, if you average insurance costs at about $1,200 a day per ship, that will give you a very good measure of what our income and expenditure capital look like. You have to factor in the interest obviously on the incremental day.

And what will be the interest expense in let's say the March quarter?

Well, it depends -- Where we are now, Jay, is that we're at a loan-to-value of approximately 60%. I will come back on to that if necessary. And we have disclosed our swapped LIBOR rates at 3.59%. We have disclosed the margins applicable to our various loan-to-value ratios, and at 60% -- I'll just total this up very quickly -- that's 60% loan-to-value then we're looking at 130 basis points of margin.

And what will be the depreciation schedule in the March quarter?

I don't have that data with me.

All right. Thank you.

Our next question comes from [Richard Reese from Georgica].

Ian, good morning.

Good morning.

Two things. One on the C share -- just a clarification -- on the C shares that you said were issued recently, that you attached a value of I think $99 million. So just interpreting in reverse, that means that the value is roughly $8 a share for the shares that were issued as part of the consideration?

Yes, let me clarify. These -- this was all agreed before the merger, back in June, July last year. And the C shares were actually issued to CMA GCM on August 14 -- completion of the merger. They were not entitled to any dividend but it was preset that they would convert to our class A common shares on January 1 and become entitled to dividends thereafter. At that time, back in the summer last year, you're right we ascribed a valve approximately $8 a share to those C shares. Which drove the $99 million worth of purchase consideration attributed to. The share price has obviously come down since then but nevertheless in terms of discharging our purchase obligations to CMA in quarter four for these ships, those C shares still counted at the original valuation of $99 million.

Okay. So now within fully outstanding the total number of shares of all classes outstanding is how many?

There are about 46 million A shares, 7 million B shares.

And any warrant?

39.5 million public warrants, struck at $6. 5.5 million sponsored were I would say struck at $6. And $6.2 million, what we call class A warrants which are struck at $9.25.

Okay. Not so bad. And then coming back the other question that I have is on the loan-to-value. Which I think you said is currently about 60%.

Yes.

And therefore well within the bounds of when something is triggered in terms of cash flow being pushed off into a separate account. Is this loan to value calculated based on -- is it calculated every quarter, is it calculated every year, is it done on a trailing quarterly basis? How do you -- how and when is it done?

I am glad you asked that because it gives me an opportunity to clarify the 60%. Let me do that to begin with. That 60% loan-to-value is the formal number lodged for the banks at the moment. It is based on July 2008 valuations on the initial 12 ships in our fleet, supplemented with December 2008 valuations for the four ships that we bought in December. So it is a waited average valuation from two months ago and nine months ago. It will have changed since then and it won't have improved.

It is calculated quarterly, based on independent brokers' valuations, market value, charter free and that's historically in a straightforward process. It is much more challenging in today's environment, where there are negligible number of -- there have been a negligible number of [salient] purchase transactions in the last two or three months. I think there have been nine container ship sales in a couple of months. And they have all been under distressed circumstances. So it is actually extremely difficult to tell where we are because it is a false market. But the facts are that we have quarterly revaluations which we lodge with the bank and they are based on market values of the ships at the time.

These are your classic mark-to-market problem that the banks are having, right? You -- in terms -- when you drive the ship out of the parking lot, it could be down 20% or 25% from what you paid for it.

Yes.

Or more, right?

It could be. I am not speculating on where asset values are today. We don't actually have to submit our next valuation until the month of April and things can and will change either up or down between now and then. But you're right. It is -- for a Company like us, and this I think holds quite a lot of sway with the bank when we were negotiating the amendment. It is a little artificial because providing our charters are performing and we have no reason to believe that they won't continue to perform, our cash flow remains intact so we're able to service the debt in exactly the same way, as we all were expecting nearly two years ago when we set down this process of setting up Global Ship Lease. But banks do like belts and suspenders and they like to have their hands on the assets or their ability to get to the assets as well and therefore we were obliged to accept off loan-to-value restrictions in the original facility.

Thanks.

We will take our next question from Michael Demaray from Elevated Capital.

Hello, Ian.

Michael.

Let's see. Just want to follow-up on some of those valuation questions. You said the next time you present the valuations to the banks is in April. When is that valuation actually conducted?

During month of April.

During the month of April, okay, great. There has been some industry chatter around alternative approaches to ship valuations given the fact that so few are trading. A -- have you heard anything on that? And B -- what do you think the acceptance is going to be of the banks of kind of trying to approach it a different way?

Yes, you're right. The Hamburg brokers and shipowning community are trying to come up with a [formallaic ship evaluation] which takes some subjectivity out of the equation. It is a great initiative. It will introduce some stability. It will take awhile for it to be accepted if it ever is. And it may not qualify. I can only really speak to our credit facility but many others will be structured the same way. It may not qualify technically as a charter-free market value because they are looking at the earnings from charters attached to vessels.

Great. Let's see. Reading through the original credit agreement I noticed that there was a corporate guarantee in there from CMA CGM and that was prior to the marathon acquisition transaction. What is -- has the nature of that corporate guarantee changed and then also is that an outright guarantee or is it a guarantee secured by the lease contracts or both?

Well, it has changed quite dramatically because it has fallen away.

Okay.

So it no longer exists. It was only there, when we were still a subsidiary of CMA CGM and we were wholly-financed by debt.

Okay, I noticed in your registration filing though that there was a line in there that said something about the -- there was a security clause in there about the contracts with CMA CGM? Does that still hold true?

Yes. The banks have access to the charters themselves.

Okay. And so if -- we have talked about this before -- but the -- obviously there is no legal right to renegotiate the contracts, but does that also create the scenario where if CMA CGM did try to renegotiate the charter which again is very unlikely that they would have to involve the banks as well?

You're absolutely right.

Okay.

The banks -- the banks have lent to this entity on the strength of predetermined cash flows on the charter rates embedded in those charter arrangements. If there is any attempt -- and there hasn't been, let me reiterate that -- but if there is any attempt by CMA to renegotiate then the bank group would have to be involved.

Great. Thank you, very much. I appreciate it.

We will take our next question from Carlo Corzine from Newbridge Securities.

Hello, guys. Got a question. After the conversion of the C shares from CMA, what percent do they own currently?

About 45%.

45%. One other question. On the class B, dividend right to holders, the class B shares are subordinated to those of the class A. How that is and how would that be affected?

They are subordinated as to dividends only otherwise they are regular way common shares that still have a vote and all the rest of it. Very simply, if we do not pay a $0.23 dividend on the A shares then the B shares don't get anything. And any deficit against $0.23 on the A shares has to be made up before the B shares get anything.

So they wouldn't be a -- there is only enough cash to pay the As but not the Bs. Or will you pay less on the As and some on the Bs?

No, you can't pay less on the As and some on the Bs. If you pay less on the As, the Bs get nothing.

Okay, very good, thank you.

And that subordination lasts for three years as a minimum.

And our next question comes from [David Bundle from Olevia].

[Dave Wenzel from Alsay Research and Management and Irvine Capital]. Hi, Ian.

Hi.

So -- what -- I am a little confused by a couple of things. The four new ships that you took delivery of, I thought you referenced 45 days in the quarter, but then you're saying December. How many days were those four new ships in the revenue base for the quarter?

45 days.

45 days.

So an average of 11 days per ship.

I got it. So, the difference sequentially in revenue, between third quarter and fourth quarter is entirely attributable to the four new ships?

Yes. With the one [proviso] that we have some [off hire] in Q3 so revenue was down because some of the ships were out of service. A little. It is not significant.

Okay. So, you break out by ship -- do you break out your rate by ship anywhere.

Yes, we do. It is not in the press release. It is certainly in the F-1 dated September 23. And it is on page 98.

So, the rate you're getting on the four new ships -- I am just back of the envelope math. It is certainly higher than the rest of your fleet, your existing fleet.

Yes, for the record, three of them are $25,350 a day. And one of them is at $47,200 a day.

So it would be -- and then are there -- are there any anniversary increases in existing contracts on a calendar year basis for the rate days or rate price or -- how does that work?

No, they are fixed rate through the term of the contract.

No cost adjustments going up?

No. Well, there is one opportunity for us to increase our revenue. But if our operating costs go up by more than a specific amount, above a benchmark level, then we have an opportunity of recovering some of the cost increase from our customer. Which is an important mitigating factor, but in the great scheme of things is not material.

Okay I will come back to that point I guess maybe. So it is pretty easy to get in a straight line -- pretty easy then to get in a revenue forecast for the next quarter sequentially and obviously for the year then if we look at the differences and obviously when you update your S1 we will be able to get a pretty good revenue projection then.

Yes, you can get it from what's out there already. We were very careful to make sure given our simple business model that we put enough information out in the public domain for you guys to build your models.

Okay, and one clarification on the question that was asked on A outstanding, B outstanding, et cetera. There were 33 million shares available for dividend this quarter, is that right --?

Yes, you're absolutely right. There were 33 million A shares, during the course of 2008. The conversion of the 12.3 of million C shares on January 1 took that count up to 46 million.

Oh but they were eligible.

They always existed but they were just class C rather than class A.

So the most shares that could be in the dividend -- let's just say for this coming year is the 47 plus the seven. There is nothing else to be converted or granted? Assuming we don't go into the money on the warrants?

There are restricted stock units out to management, and some 300 -- I'll give you the right number. Bear with me. Some 300,000 of those vest in August 2009. Which would result in 300,000 more A shares.

You address trade lane exposure. Is there is a way to look at your ships in that metrics or is -- is it not really germane when you bring it down to your level.

It is not really relevant when you look at our business. We get paid charter hire irrespective of where the ship is trading and actually irrespective of whether the ship is trading whether it is sailing full or half full. And as it happens, our ships are spread around the globe. One of them is in Asia Europe, that's the big ship. A couple are in India subcontinent to Europe. Four are in Europe to West Africa.

But they can be moved around --

Four are in (inaudible) around the world service. So that is right around the globe. Which is exactly what we would expect. When we were negotiating the composition of the fleet and the duration of the charters with CMA CGM way back 18 months ago we were very mindful of wanting a ship fleet that was broadly representative of the global fleet. With staggered expiration of charter maturities to manage the risk of having to re-fix the ships as they were expiring in their charters in what might then be an adverse market. So we wanted flexible ships and that is what we have got.

One more question I have others but then I will get back in queue. You mention the number of ships that CGA is going -- has the ability to put down this calendar year I think it was in the high 80s or something?

They have 400 ships in their fleet in total. They own around 100 on their balance sheet. They have some 300 charter ships of which we are 16.

Right.

So I said that they have got 280. I was rounding. They got 280 ships on charter from owners other than us. Of those 280, most of those publicly, 150 -- so more than half -- have charters that expire this current year 2009. So they have an option of either just letting the charter expire and returning the ship to its owner, or, if they need to continue to have the ship in their fleet, to complement other ships and services, they will renew at today's relatively low spot rates.

You know what that number is for 2010? How many ships?

I don't, I am afraid. I would be guessing, and I am not going to do that.

Okay. Thanks I will get back in queue.

(Operator Instructions) We will move on to [Stephen Gottlieb] from UBS.

Good morning. On the loan-to-value ratio you said it was an average of July and December valuations; is that correct?

That's correct. Yes.

Why can't we get an accurate number for the end of December on all the ships?

Because we didn't get valuations at the end of December on all of the ships. We only got valuations on the four ships that we were buying in December. We were required to provide the bank with values of those ships which were going to go into the security package. There was no requirement to revalue the whole fleet.

Okay. Thank you.

This just to clarify actually and remind you, I think I misspoke when I was talking about the amendment to the credit facility. I think I said that it begins to amortize at the end of 2010 but it actually begins to amortizes at the end of 2011.

Okay. Thank you.

And we will now take a follow-up question from [David Bunsell].

So, you talked about the lack of -- I guess transactions other than distressed on ship values. I am just curious -- is there any data on any type of longer term contract values that were signed in the quarter, either -- obviously not by you but away from you -- as far as where they are in comparison --

Yes -- the most of the big ship brokers like Clarksons Drury, Howe Robinson, Braemar, a publisher of a weekly or quarterly -- little news -- weekly or monthly newsletter which reports fixings, this is a very transparent industry. Sooner or later you get to understand pretty much every transaction that goes on. So there is data available publicly on what current fixings are. But they are not relevant to our business at all. These are short term fixings of ships, in a spot charter market, where these fixings for three months or for six months in a time when there is [over] supply of ships. And with the charter rates are low so, you can't really draw any parallels. It is really those spot rates and hour rates or other potential long-term charter rates.

Okay, thank you.

We have no further questions. This now concludes today's conference call. Thank you, for your participation. And have a wonderful day.

Thank you.