Global Ship Lease Inc (GSL) 2014 Q3 法說會逐字稿

Thank you very much. Good morning, everybody, and thank you for joining us today. As ever, I hope you've been able to have a look at the earnings release that we issued early this morning and been able to access the slides for our website that accompany the call.

Slides 1 and 2 of the presentation remind you that the call today may include forward-looking statements that are based on current expectations and assumptions and are by their nature inherently uncertain and outside of the Company's control. Actual results may differ materially from those forward-looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation.

We also draw your attention to the Risk Factors section of our most recent annual report filed on Form 20-F, which you can obtain via our website or via the SEC website. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during the call to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning.

I'll start today's call by reviewing the third-quarter highlights and will then provide an overview of our fleet and our growth strategy. After that, I'll offer some comments on the container shipping industry, as well as the market opportunities that exist for acquisitions in the space. Following that, I'll turn the call over to Susan for her commentary on our financials. Then after brief concluding remarks, we would be pleased to take your questions.

Slide 3 shows the highlights for the third quarter. The third quarter of 2014 was a milestone quarter for Global Ship Lease. First, we continue to generate strong and predictable results for our shareholders with revenue of $34.2 million and adjusted EBITDA of just over $20 million. Second, we successfully returned our fleet to full contract coverage earlier in the quarter by agreeing to an additional time charter for Ville d'Orian with Sea Consortium. Sea Consortium now charter our two 4100 TEU vessels, O'rion and Aquarius.

Third, we take important steps in improving our financial and strategic flexibility and expanding our earnings power by redeeming the $45 million Series A preferred shares at a significant discount to their liquidation value, funding the redemption primarily through the issuance of 35 million Series A cumulative perpetual preferred shares. This transaction replaced short-term debt that the Asia -- the A preferred shares with permanent capital that the perpetual preferred shares -- that is effectively non-dilutive equity -- whilst generating a non-cash gain of $8.6 million. This not only strengthens our balance sheet, but also removes the restrictive covenants included in the old Series A preferred shares, which handed our ability to raise unsecured capital down the road, meaningfully enhancing our ability to pursue further growth.

Finally and most importantly in the quarter, we took a major step towards -- a major step forward in the execution of our growth strategy. The purpose of which is to bring us to a position where we are able to pay a meaningful and sustainable dividend by entering into a $55 million sale and leaseback transaction for an 8100 TEU containership, the OOCL Tianjin. That transaction was with Orient Overseas Container Lines Limited, OOCL, a top-tier container liner company. We completed on that purchase two days ago of Tuesday this week, October 28, and the vessel immediately commenced its time charter back to OOCL for a period of 36 to 39 months at the charter's option and at a rate of $34,500 a day.

This acquisition, which I will come back to in more detail later in the call, significantly increases our earnings power as it is expected to add approximately $9.4 million of annual EBITDA and will increase our total contracted revenue by between about $38 million and $41 million. Further, the transaction diversifies our customer base with a top-tier charter in OOCL and takes us a big step forward in our objective of being unable -- able to unlock value for shareholders.

Moreover, we see further scope for transactions comparable to this one to take advantage of cyclically low asset values to create value for our shareholders, adding additional earnings to put us in a position to introduce the dividend.

Later in the call, I will provide more detail on the trends and opportunities that exist in the current market.

Slide 4 summarizes our financial results over the past five years. Our business model of focusing on long-term fixed-rate charters with high-quality counterparties has offered us consistency and stability in the market with significant cyclical volatility, which you can see at the top of the slide, which is an indication of time charter rates, the red line.

In contrast, our results at the bottom of the slide are largely insulated from the dramatic swings of the broader market. This strategy has also enabled us to consistently maintain the fleet utilization at or near 100%, excluding scheduled dry dockings resulting in strong, unpredictable cash flows.

Our utilization of 97% for the third quarter, down from the 100%, is primarily attributable to 16 days of idle time at the start of the quarter related to the Orion prior to its deployment on its new charter with Sea Consortium and 29 days of off hire for planned dry dockings for two vessels. After these dry dockings, there are no further regulatory dry dockings scheduled for 2014. Next year, only the Tianjin early in the year is scheduled for a dry docking.

On slide 5, we show our fleet and charter portfolio, including the recently purchased Tianjin. The weighted average age of our fleet is approximately 10.6 years out of an economic life of 30 years. As I mentioned previously, we have significant forward visibility with an average remaining contract term of 6.5 years, excluding the two 4100 TEU vessels which now operate on short-term contracts. As of today, our total contracted revenue stream stands at approximately $900 million. That includes the Tianjin.

We are all substantially insulated from market volatility in the coming years with no charter explorations until late 2017, aside from the two spot market vessels that we have continued to have success in employing.

As I mentioned on the second-quarter conference call, the Julie Delmas, one of our geared vessels, which had operated earlier in the year at a reduced daily charter rate related to a damaged crane, was fully repaired and from July 14 this year moved back to her full $18,465 per day charter rate.

Our substantial contracted revenue stream, strong consistent earnings, and insulation from the swings of the market puts us in a strong position from which to execute our growth strategy. And this is our find on slide 6.

First, it is our intention to maintain strong contracted coverage for our fleet with high-quality counterparties, primarily on longer-term fixed-rate charters. That provides a base load of earnings on which we can capitalize.

Second, we're looking to diversify our charter portfolio with additional top-tier liner operators to complement our strong relationship with CMA CGM. We have made considerable progress in diversifying our customer base by placing the two vessels onto charters with Sea Consortium and establishing a relationship with OOCL through the sale of the lease back of the Tianjin, and we remain focused on this as an important component of our strategy.

Third, we have seized opportunities throughout the year to improve our financial and strategic flexibility, add to our immediate liquidity, and strengthen our balance sheet, increasing the control we have over our future rather than just working for the banks for as long as the restrictive loan to value covenants in the old credit facility obliged us to do.

Our recent Series B perpetual preferred offering and the redemption of the Series A preferred shares at a discount is the latest in a series of actions regarding our balance sheet taken during 2014, which included the $420 million bond offering in March and the concurrent establishment of the $40 million revolving credit facility. All of these put us in a position to be able to grow, allowing us to use our liquidity and act decisively and effectively when the opportunity arose, for example to purchase the Tianjin.

We've paid for this vessel out of our cash resources, leaving the $40 million revolver undrawn and representing, therefore, immediately available liquidity, and this will be augmented month by month by our positive cash flow.

Consequently, we are well-positioned to affect further acquisitions, which I will come back onto.

The improvements that we've made to the flexibility of our capital structure through 2014 have also established our ability to access a number of different sources of capital to fund accretive growth without diluting our equity shareholders. Continuing to identify and act upon opportunities to further improve our balance sheet and financial flexibility remains an important real-time objective for us.

Finally, we continue to strongly believe in the importance of a meaningful and sustainable dividend for our shareholders. As we evaluate additional charter attach vessel acquisitions at a time of cyclically low asset values, we do so with the goal of generating additional EBITDA and net income that will enable and sustain the payment of such a dividend.

At this time last year, we were totally bound by a restrictive credit facility that prevented even the contemplation of a dividend payment. Through the refinancings that we have affected earlier this year, we removed that restriction and established a way forward by which we could begin returning value to shareholders in the form of a dividend.

Our subsequent success in swapping out our old preferred shares for new perpetual preferred shares that are treated as equity has expanded our capacity to pay a dividend as the net proceeds from a $35 million perpetual offering increases the size of the basket out of which dividends can be paid.

As you may know, we can begin to access that basket when our fixed charge coverage ratio is over 2.25 times. This ratio is based on the last 12 months actual results, adjusted pro forma for acquisitions and the associated financing. The addition of the $9.4 million of EBITDA to our run rate from the Tianjin is a huge step towards meeting that test. We continue to focus on further additions that will increase our EBITDA to be able to pass that test. And to be quantitative, we believe that by executing another transaction similar to the Tianjin would get us very close to achieving a fixed charge coverage ratio of 2.25 times or more.

When we do, and as with all dividend declarations, the specific timing and size of the dividend policy will be determined by our board, taking into account our circumstances at the time. However, I can assure you that we consider the payment of a meaningful and sustainable dividend as soon as possible to be an objective of central importance to us.

Turning to slide 7, you'll see an outline of the sale and leaseback transaction that I previously mentioned, which provides a good example of the successful execution of the growth strategy that I have just outlined. Indeed, this transaction matches the acquisition characteristics that I have discussed on previous calls. Specifically, a midsize vessel to be time charted back to a quality counterparty with an immediate and significant addition to cash flow and strong overall return metrics.

So earlier this week, we took delivery of this 8100 TEU vessel built in 2005 and immediately commenced time charter back to the seller at a rate of $34,500 a day for three years and one quarter at charter as option. This immediately accretive acquisition diversifies our charter portfolio, increases our contracted revenue by up to $41 million, and is expected to generate annualized EBITDA of around $9.4 million, representing a purchase price to EBITDA multiple of better than 6 times and equivalent to a 17% free cash flow yield.

Overall, we assessed the IRR on this project to be mid-teens and higher. These are the criteria which we have outlined to you on previous calls, and we have done what we said we would do.

As I will describe and quantify in the coming slides, this vessel also complements our existing fleet composition and falls into the range of small- to medium-sized vessels that should benefit from an attractive supply/demand balance coming in the coming years as the order book, as you know, focuses on very large vessels but are ill-suited to serve some of the world's more active, and by volume, larger in aggregate, trade lanes.

Slide 8 illustrates the increasing flexibility of vessels like the Tianjin. 8000 TEU vessels entered the global fleet in the early 2000s, being deployed mainly on the Asia Europe trade lane and then into the transpacific. As the industry has upsized, these vessels have been deployed on an increasing number of trade lanes. The slide shows at the end of 2012, they were deployed on about nine trade lanes in the world. A year later, it was 12. Consequently, we believe that this is flexible tonnage being deployed in an increasing number of trade lanes around the world with a good future.

Our success in purchasing this vessel was a result of our industry contracts -- contact and experience. The Company's track record for operational performance as an owner with minimal off hire other than for dry dockings and our strong balance sheet and immediate liquidity.

The transaction meets our strict vessel investment criteria. It diversifies our charter portfolio. It is immediately accretive to earnings and cash flow, allowing us to benefit from a countercyclical growth opportunity, and stands as an important milestone in the execution of our growth strategy.

Furthermore, we believe that additional attractive opportunities exists in the market, and it is our intention to seize upon those opportunities for the benefit of shareholders.

In the next several slides, I will briefly discuss the state of the market and the positive acquisition environment. You've seen these slides before, and the essential messages are unchanged. So I will move through it reasonably quickly.

The key takeaway from slide nine is the forecast for demand growth in 2014 and 2015 exceeds forecasts for supply growth. This is good news for the overall supply demand dynamic.

Furthermore, not on the slide, but the order book remains low by historic standards at a touch under 20% order book to fleet ratio. Scrapping continues at record highs with over 350,000 TEUs scrapped in the first nine months of the year.

So all things equal, there should be a tightening of the supply/demand equation, which should lead to improved economics for vessel owners and for operators. However, as we know, the macroeconomic environment is currently fragile and at a time when the container shipping industry enters its seasonal slowdown. But for GSL, we have only two vessels on short-term charters. We are thus largely insulated from short-term market conditions.

As we have previously discussed, the order book is itself heavily skewed towards the very large containerships over 10,000 TEU, putting added pressure on the main East-West trade lanes, Asia to Europe, and the transpacific, and also onto the cascade. All of this leads to potential weaknesses in freight rates and continuing depressed charter rates and asset values in the short-term markets.

The corollary to this, which is our investment thesis, is that the midsize and smaller fleet is underrepresented in the order book, leading to modest supply growth and potentially completely offsets by accelerated levels of scrapping.

These vessels, midsized and smaller, are deployed in the midsized and smaller trade lanes, which, as slide 10, shows in aggregate represents approximately 70% of global container trades -- that's the pie chart on the left -- and which are showing the most resilience in terms of demand growth, the bar chart on the right. Midsized ships and smaller is our area of focus for both our existing fleets and our growth opportunities.

Slide 11 is an update of the freight rate environment which continues to be volatile, although periodic general rate increases imposed by the carriers can be seen to have a positive effect. This slide also shows that time charter rates remain flat. The time charter line on the chart masks the fact that recently panamax time charter rates in the spot market have firmed, driven by lines upsizing their West Africa services together with the effects of scrapping levels. It is unclear whether this improvement will continue as we enter the slow season.

Finally, slide 12 shows how asset values have developed in the last 14 years or so. With the decline in the secondhand price index in the last quarter of, say, quarter three of 2014, the environment remains extremely impacted for purchases of tonnage with immediately available liquidity. We will, however, remain disciplined in our approach to acquisitions and will only enter transactions that meet our strict investment criteria.

Let me now hand over to Susan for her commentary on our financials.

Thanks, Ian. Please turn to slide 14 for our summary of our financial results for the three months ended September 30, 2014. We generated revenue of $34.2 million during the third quarter, down $1.9 million from revenue of $36.1 million in the comparative period in 2013. The decline is due mainly to reduced revenue on four vessels following three-year charter extensions at a lower daily rate of $15,300 compared to $18,465 previously. These were effective February the first this year and from 16 days idle time at the start of the quarter for Ville d'Orian until the commencement of the new charter with Sea Consortium on July 17 this year and together with 29 days off hire for two planned dry-dockings. These 45 days, plus five days of unplanned off hire during the three months ended September 30, resulted in a utilization rate of 96.8%. In the comparable period for 2013, there was no off hire for utilization of 100%.

Vessel operating expenses were $12.5 million for the three-month period with an average cost per ownership day in the third quarter of $7984 compared to $7127 for the same period in 2013, up $857 or 12%. The increase was primarily related to a $0.4 million repositioning cost for Ville d'Orian prior to commencement of a new charter, which is equivalent to $261 per day in the quarter across the fleet and to higher crew costs.

Interest expense for the three months ended September 30, 2014, was $11.9 million, including interest and amortization of deferred financing costs and original issue discount on the note, interest on the $45 million Series A preferred shares until they were redeemed, and the commitment fee on the Company's undrawn $40 million revolving credit facility. In the prior year period, interest expense was $4.7 million on borrowings under the Company's credit facility and the $45 million Series A preferred shares.

Our derivative hedging instruments, which were all terminated on March 19 this year, had no effect on the results for this Q3. This compares to a realized loss of $2.9 million and a $1.4 million unrealized gain in the comparative period last year. Net income available to common shareholders for the third quarter was $6.4 million after the non-cash gain on redemption of the Series A preferred shares of $8.6 million.

For the prior year quarter, net income was $7.3 million after the $1.4 million non-cash interest rate derivative mark-to-market gain. Our normalized net loss adjusted for non-cash items was $2.2 million for the three months ended September 30, 2014, and normalized net income for the comparable prior year period was $5.9 million.

Slide 15 shows the balance sheet, and the key items as at the quarter end this year includes cash at $64.4 million, out of which we funded the purchase of OOCL Tianjin, total assets of $877.5 million, of which $790.6 million is vessels, a total debt of $414.3 million following the redemption of Series A preferred shares and shareholders equity of $439 million, which includes net proceeds from the issuance of the Series B perpetual preferred shares during the quarter.

Slide 16 shows our cash flows. The main items to mention here are the issuance of the new Series B perpetual preferred shares and associated redemption of the old Series A preferred shares for $36.4 million.

I would now like to turn the call back to Ian for closing remarks.

Thank you. Before we move on to your questions, I would like to use slide 17 to briefly summarize our core strengths and our strategy for creating value for our shareholders.

First, our sale and lease back of the OOCL marks a major step forward for Global Ship Lease, adding up to $41 million of contracted revenue and generating approximately $9.4 million in annual EBIT in each of the next three years. We diversify our charter of portfolio with this 36- to 39-month charter to a top-tier container liner company, OOCL. We are delighted to have established a relationship with them.

Second, excluding the two 4100 TEU vessels, our fleet is fully contracted through to late 2017 with contracted revenue of approximately $900 million and a weighted average remaining contract duration of 6.5 years as of the delivery of the Tianjin this week. The strong contracted coverage and our forward visibility on cash flows insulates us from market volatility and puts us in a strong position to pursue additional growth opportunities that will support the payment of a dividend in due course.

Third, we benefit from a strong and stable capital structure with no refinancing requirements until 2019 when our secured notes fall due. Incidentally, they are callable in April of 2016. And we no longer have any of the restrictive maintenance covenants, particularly loan-to-value, that prevented us from growing in the past.

Additionally, we were able to successfully replace short-term debt represented by the old Series A preferred shares with new perpetual preferred shares, the Series B shares, that are treated as equity without any dilution to our common shareholders.

Finally, even after funding the OOCL transaction, we have capacity to continue to execute our growth strategy. In the current market conditions, opportunities exist to make immediately accretive charter attached acquisitions while asset values are still significantly below their historic averages.

We will remain disciplined in our evaluation of such opportunities, but we are not content with the purchase of only a single ship. Rather, we are determined to follow on the success of that first transaction, requiring additional vessels that will expand our contracted revenue and our EBITDA to further diversify our charter portfolio with high-quality charters and build our cash flow and EBIT for the future to create value for our shareholders.

We believe that there is considerable value in Global Ship Lease based not only on our existing vessels and the substantial contracted revenue attached to their charters, but also on our financial position, our demonstrated access to new capital sources, and our compelling growth prospects. And as a result of all of this, we believe that our shares are undervalued at their current levels.

I would like to take this opportunity to remind you, as I think I have said before, that growth is not simply growth for growth's sake. Cash accretive additions to our fleet are essential to unlock our capacity to pay a meaningful and sustainable dividend, and we are committed to executing on that plan to ensure that the inherent value in GSL is reflected in our market valuation.

In the meantime, we welcome ongoing conversation with our shareholders and remain committed to telling the GSL story to both the buy and to the sell side.

With that, I would now like to hand the call back to the operator who will explain the Q&A process.

(Operator Instructions). Mark Suarez, Euro Pacific Capital.

Maybe we can just talk about your acquisition strategy for a second. My understanding -- obviously you talked in the past -- your strategy here is to continue to take ownership of charter-attached vessels as you have done with the sales leaseback transaction.

Now looking at the market right now where we stand, especially given the cascading effect of the post-panamax to the panamax and the sub-panamax segments, do you not have a preference as to what sort of vessel subsegment you're willing to consider a little bit more closely as you engage in your growth strategy?

Mark, thanks. While our view does evolve at the margins -- we said previously that midsize and smaller is $7000, $7500 and below, that we've done a lot of work during this year on the 8000, 8100 TEU segments, and we now consider as the industry has generally upsized, that that category of vessel is midsized or counts is midsized and smaller, and we've included that slide in the presentation showing how those vessels are being deployed in ever-increasing numbers of trade lanes throughout the world. And we think that they sit at the top of the cascade and will have a long-term future.

And you're right. We continue to focus on charter-attached deals, whether they are sale and leaseback transactions, which is the most obvious one for us to look at replicating the sort of deal that we have just executed or whether they are existing vessels with existing charters. They are less prevalent.

And with continuing pressure on the sector, the asset values remain low and, therefore, provide a good countercyclical investment opportunity. And operators remain pushed for liquidity, which may lead to an increased level of activity in sale and leaseback transactions as they offload some of their ships to generate cash.

Okay. So do you think sales leaseback will continue to be the main strategy going forward and looking at more over the next 12 to 18 months? Or --

Yes, yes, in a word.

Okay. And then I think you also touched -- when you talk about the -- talk about the market environment, we have seen an improvement in panamax's rates with accelerated scramping. And now as you look into the sub-panamax category, are you beginning to see that same trend in terms of premature scrapping, if you will? Is that something that you think is taking hold now vis-a-vis the last six to 12 months?

Yes, there's some of that, Mark. It's mainly focused on the panamax segment, as we have said. It's great to see that spot rates have moved up. We are concerned that the improvement is not sustainable as we move into the slow season, and indeed, there are some signs that the spot market rate is softening. But irrespective, it's good to see rates off the floor.

Okay. And then -- and just lastly on the daily vessel operating expenses, I know you had some one-off repositioning costs. But as we take a look at 2015, should we think about a $7500 to $7700 OpEx range as a reasonable run rate?

Well, I would look at historic performance for us, and then the long-term inflation of ship operating costs is 2% to 3% a year.

Okay, that's fair enough. That's helpful. Well, that was all I have for now, guys. Thanks for your time.

Andrew Casella, Imperial Capital.

I guess first, just a housekeeping item. Just on the dividend payment ability, when we look at the bond indenture you guys can pay, $7.5 million of general car vet and then you said basket was increased by the proceeds from the recent preferred sale and then you said it's all subject to a 2.25 fixed charge coverage test, just curious, is that something you have to achieve before you can pay out any dividend, or is that just to get access to the incremental basket that was generated from the preferred capital raise?

Andrew, I'm sorry if I wasn't clear. That is, indeed, a test to allow us to access the incremental basket. The $7.5 million general restricted payment basket is fully available to us right now.

Okay. Great. That's helpful. And then when you guys think about capital deployment strategy and also the fact that your acquisition was funded all with cash on hand or equity, what kind of other fancy mechanisms are you thinking about? Why didn't you use leverage in this case? I know you have access to the preferred market, also attack on with the 10% notes, but also the term loan market. If you just kind of take us through -- why not lever some of these transactions and potentially get to that 2.25 test by accelerating acquisitions faster?

Well, indeed and I did say I think in my prepared remarks that we continue to look at alternative sources of capital to improve our immediate liquidity. You're right. We could do a tack on to the bond. We could raise additional perpetual prefers. We could look at putting regular weight bank debt on an individual asset, and we could look at equity. But I will say now we would not look at raising any equity capital based on today's valuations.

The Tianjin -- could we have put leverage on her? Maybe. Did we need to at the time? No. Can we in the future? Yes. So we have maintained flexibility. The amount of leverage that we can put on an almost 10-year-old vessel with a three-year charter wouldn't be massive, but it would contribute to driving up the internal rates of return. So that is something that we are actively looking at. It clearly will provide us with incremental investment capacity. So there are lots of potential options for us to supplement the immediate liquidity that we have today.

Got it. That's helpful. And then another question, just one of the trends we are seeing in shipping outside the containership sector is definitely towards consolidation. How do you see Global Ship Lease in that respect? And also to the extent you see some of these charter-attached vessels coming for sales, do you see any larger deals that are potentially coming down the pipeline, or how are you kind of thinking of the opportunities going forward and the potential to do something a little more transformative that might be a larger fleet acquisition versus a single vessel?

Well, that's a huge question. Clearly a sort of corporate transaction or participation in, for example, a significant new building program would be transformative, and we keep an open mind for those sorts of things. Clearly, we wouldn't want to talk about anything specific, but we are aware about the opportunities that could exist.

In the meantime, and alongside, we focus on our core strategy of developing Global Ship Lease itself whilst keeping our eyes open for other opportunities which might accelerate progress.

Got it. That's helpful. And just my final question, I know you said the dividend payment policy is subject to the conditions at the time, but I guess just generally speaking, should we look to other yield cos as potentially what type of dividend payment can be implemented like a ship finance or Ocean Yield? Just kind of general thoughts there.

Sure, yes. The first thing that we need to do is get ourselves in a position where we can access that to that build a basket because that then provides us with the funds if you want. This isn't a ring fenced pot of cash sitting in our balance sheet that we can only access. It's a notional amount that the bondholders will allow us to pay away as dividend. But to access that, we need to pass on a sustainable basis this fixed charge coverage ratio test, and we need to grow to be able to do that. So our immediate focus is on being able to access that basket.

I know -- I would like to be able to give you a figure and the timetable and all the rest of it on the dividend and so on, but I think that's premature. That said, looking at the source of yields that competitors who do pay dividends pay, that would be an important factor in the Board's consideration of a dividend level at the right time.

Okay. Great. That's all I had. Appreciate the time.

John Race, DRZ.

Can you comment upon whether or not you're looking at what, for example, [Coast Amari] has been doing, which is aligning with private equity as a source of capital with which to make acquisitions, and then even further the possibility of dropping down assets and doing MLP? Have you investigated any of that?

Yes, we have.

Is that potential, or are those discussions available to you?

We believe those discussions will be available to us as I previously said on -- to the last question that we can't comment on anything specific. But we've seen what Coast Amari has done. We've seen what C-SPAN has done. We've seen what private shipowners have done. They are teaming up with major capital providers. Would we like to be able to access a much bigger pot of money to be able to play in the sector? Yes, we would, even if we had a relatively small share of OpEx. Will it help us get to our objective of creating shareholder value? Yes, probably. So we certainly don't rule that out.

As to MLPs, we need to look more closely at that type of structure. You know we were originally created as a synthetic MLP. It would be great to be able to return to that sort of a profile. But as we said on the call and as I've indicated in previous answers to questions, we need to put ourselves in a position to be able to pay our dividend first.

So you've talked a lot about improving shareholder value, which hasn't availed itself to you in this market. You do -- but you also have I think in this call, more so than any other call, talked about the need for a dividend, and hopefully you are doing that because you realize that a dividend in those companies that pay a dividend traded about twice the valuation you are trading at, and that would be a great way to enhance shareholder value. You agree with that?

No, absolutely. This is an evolution at Global Ship Lease. We have been taking huge steps forward in 2014. I believe the only reason that we have taken these steps forward is to be able to support a dividend, to support the equity price, to return value to our shareholders, and to be able to, therefore, have more flexibility go forward to do other things.

It has to be a serial process. We had to take out the old restricted debt. We did that in March. We are not directly associated with the -- the objective of reinstating a dividend, but we also tidied up the balance sheet by removing the old Series A preferred shares and eliminating what we describe as an equity claw in that instrument. So that gives us more flexibility down the track to raise unsecured capital including equity without looking for the holders of those preferred shares consent.

And then finally along that path, we have completed on the acquisition of this containership, and we've demonstrated quite clearly that we can grow, we can grow in a way that we said we were going to. We can grow away from CMA CGM. Other people will do business with us, notwithstanding our close association with CMA, and we have talked a number of times on previous calls about the importance of a dividend.

I agree with you that we have been less quantitative previously. But now that we've actually completed on this acquisition and another obstacle toward the goal of instating a dividend has been removed, we felt it appropriate to be more transparent with you guys.

Okay. So this last transaction that you referenced in acquiring your latest vessel, what -- that took roughly nine months from when the new strategy was implemented to being able to get that deal done. Do you foresee a similar time table for the second deal that you need to get in order to achieve your debt coverage ratio? Do you think it is going to take another nine months, or do you think you are further along as a result of the process?

Both. We recapitalized refinance in March, and we announced the acquisition of this vessel in September. So it is six months. Nevertheless, it's a long time, and your point is valid. No, I would be very disappointed if it was another nine months or six months before we were able to effect a further transaction.

Okay. Thanks, Ian.

[Chuckie Medina], [Southpaw].

First, the bunker cost pressure you talked about the cost pressure, but bunker costs have gone down significantly in this quarter, as you know. I was wondering if you could comment on the positive effects of that, but also couple that with the maybe bounce back in costs -- related costs given the ECA regulations coming into effect in January? Then I have a few more.

Sure. Yes, bunker cost has come down significantly, as you know, which is good news for us indirectly. We only incur bunker costs if ships are off hire or idle. Otherwise, regular weight bunker costs are for the account of our customers, and the indirect benefit to us is if our customers are charterers, CMAC consortium, OOCL are paying less for bunkers, then they are earning more than their stronger counterparties.

The other are increased regulatory hurdles to overcome. That's a continuing trend. We will have to deal with it. Is the cost of compliance with ECA and all of the rest of it significant for Global Ship Lease? No, it's not. Again, the majority of the ongoing cost is for our charters. They have to dual -- source dual field and so on and so forth, and lower sulfur content fuel in the emission control areas and regular way fuel elsewhere.

We, as owner, have to make sure that if the vessels are going to trade to those areas and they are equipped to carry the relevant field types, and that is a relatively modest amount of capital investment, which we have done where we have needed to.

Okay. Next, the drop in the secondhand index, it's a pretty -- it's a not insignificant drop. I was wondering -- and transactions are few and far between here. Can you please give us a sense behind this drop, age of vessels and size of vessels that have been transacted?

Yes. Yes, it is quite a steep drop. It's very difficult to determine exactly what is driving these sorts of movements, as indeed it is very difficult to determine exactly what is driving short-term charter rates. However, as the year has gone by, increasing numbers of owners, particularly in Germany, have been distressed, running out of liquidity. Now that has led to accelerated strapping levels perhaps with -- for ships which are less attractive in the repurchase market, and that's forcing asset values to close on scrap values.

Okay. Lastly --

And scrap value has gone down a little in recent weeks as well.

And lastly, what is the expected dry docking cost of the Tianjin for next year, please?

Well, what we've said previously is that on average, the cost of dry docking one of our vessels based on our actual experience is approximately $1.6 million. And that is on average $300,000 of loss of revenue because the vessel is off hire 10 to 14 days. And the balance, $1.2 million, $1.3 million is the check that we have to write to the yard and the suppliers of spare parts and paint. And I would expect the Tianjin to be there or thereabouts.

Okay. Thank you.

(Operator Instructions). Jeff Marrone, Singular Research.

First of all, Ian, just wanted to congratulate you on a job well done as far as restructuring with the refinance and removing those restrictions and then pursuing your growth through acquisitions. So nice job. Well done.

Thank you.

Yes. And then the question I had was in regards to lower bunker costs and how it would affect your operations, but I think it's been addressed in the last question. So I don't have any further question other than that.

Okay. Thanks. We may get a small benefit eventually as lubricating oil costs might come down. We as owner bear the cost of putting the oil in the engine, and that tends to move over time the same way as bunkers. But I think oil prices tend to be sustainably lower than it was previously for that to flow through into lubricating oil, which is a distillate, obviously, of crude.

Thank you.

Zvi Rhine, Sabra Capital.

Thank you and good morning. Just a quick question on the Aquarius. I think that charter expired November 4. They could have elected to terminate it earlier. They clearly didn't do that. Have they given you any indication as to what their intention is to expand that at least for the next 30 days.

Well, look the -- thanks for the question. There's always a period -- there is a range of redelivery dates. This special was plus or minus 30 days. As we have commented, spot rates for panamax vessels have firmed recently. And given Aquarius is out at a touch under $7500 a day, that's below current market. And one would expect the charterer to keep the vessel for as long as possible at the cheaper rate.

So we would expect her to stay on charter toward the end of the maximum term. But yes, she does come open this year. And as we said previously, we have a number of options. We could agree a new charter with Sea Consortium if they were minded to. If they are not for whatever reason, we can seek a different charterer. If nothing was available now in the seasonally weak part of the year, we could idle the vessel, if we were confident of future employment opportunities at decent rates, and the last option would be to sell the vessel either with the charterer if we have one or more likely in these circumstances without. So those options remain available to us.

And Sea Consortium hasn't given any indication if they want to continue on with the new charter at this point in time?

I wouldn't, as you would expect, discuss commercial discussions. We will make an announcement in due course when it's appropriate.

Fair enough. And then last question, maybe you won't be able to comment on this either, but given the increase in the spot rates, if you did a similar type of charter, where do you think it would be at? What would the daily rate be? And I know that you think you are going into a seasonally slow period when it comes down, but can you give us an indication where it is right now?

Well, I would think if someone was trying to fix a vessel for delivery today, you might be looking at $8000 or a little bit more $8000 a day, $8500 a day maybe. But don't forget, we are looking -- or Sea Consortium at least will be looking at this transaction from the perspective of agreeing a REIT to apply from early December. So they will be taking a forward view, and the spot market, as I've indicated, is softening. So we would love to be able to fix at today's levels, but the reality is that there is a tension in the negotiation between any charter and any owner. Owners and charters have different views.

Okay. Thanks for the color, Ian.

Thank you and I'm showing no further questions at this time. I would like to turn the call back over to Ian Webber for further remarks.

Thank you, everybody. Thanks for listening. Thanks for your questions. We look forward to giving you a further update on our progress after we issue our fourth-quarter results next year. Thank you.