Global Ship Lease Inc (GSL) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Global Ship Lease First Quarter 2018 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded. Now I would like to turn the call over to Mr. Ian Webber, Chief Executive Officer of Global Ship Lease. Please go ahead.

Thank you very much. Good morning, everybody, and thank you for joining us. I hope that you've been able to look at today's earnings release, which we issued earlier on and been able to access the slides that accompany this call. As usual, Slides 1 and 2 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 of the company's control. Actual results may differ materially from these 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 on Form 20-F, which is for 2017, and was filed with the SEC on March 29, 2018, and which you can obtain via our website or via the SEC's. 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 this call, to the most directly comparable measures calculated and presented in accordance with GAAP, please refer to the earnings release that we issued this morning, which is also available on our website.

For today's presentation, I'll briefly recap the quarter and review our charter portfolio, market position and growth strategy. I'll then turn the call over to Tom to discuss the containership market in more detail and to give an update on our financials. After which, I return to summarize and then open the call up to questions.

Turning to Slide 4. We've successfully maintained full charter cover for our fleet by securing extensions and we've begun to benefit from the marked strengthening in the market for the midsize and smaller vessels that make up our fleet. This was most visible through the charter extension that we signed for the OOCL Qingdao in February at $14,000 per day, up significantly from the $11,900 per day rate achieved by her sister ship just one month earlier, and well up on the approximately $8,000 per day market rate from a year ago. I'm pleased to say that this upward trend has continued and has in fact accelerated, with the current prevailing rate for a comparable vessel, an 8,000 TEU ship, in excess of $20,000 per day.

Whilst we don't necessarily expect rates to continue to appreciate at this place, we do believe that this trend points to the tightening supply-demand fundamentals underlying the critically important but significantly under ordered midsized and smaller vessel classes. As you would expect, and as we have discussed before, we've sought to keep charter extensions to relatively short durations in order to preserve the upside exposure to the strengthening market.

Additionally, I'd remind you that we've agreed to purchase a 2005-built 2,800 TEU vessel, which we expect to take delivery of during the second quarter, when she will immediately commence a 12-month time charter to CMA CGM. This charter was agreed before we committed to the purchase, consistent with our policy of requiring employment for acquired vessels. We're not in the business of speculating on open tonnage.

On the next slide, Slide 5, we've sought to summarize the strategy and positioning of GSL. Starting from the top blue circle, we first and foremost seek to maintain charter cover for our fleet, ensuring consistent cash flow, assisted by the near 100% vessel uptime, other than for drydockings that we've historically achieved. We have some $455 million of contracted revenues, including the new vessel, spread across a little less than 3 years of average -- of weighted average remaining charter duration, noting that the highest paying charter extends through late 2025. This gives us meaningful forward visibility and a stable platform from which to both meet the deleveraging requirements under our notes and super senior credit facility and to focus on accretive growth at a time when vessel purchase prices remain attractive.

We have been and continue to be focused on midsized and smaller container ships, which are the vessels, which carry the majority of the world's containerized freight, servicing the generally faster-growing non-mainlane trades and are thus subject to the most widespread demand. Our fleet is of vessels between 2,200 TEU and 11,000 TEU, with an average size of a little under 4,500 TEU.

These sized vessels also represent the most active elements of the charter market. Indeed, there are few ships of over 11,000 TEU actually trading in that market.

Speaking of market dynamics, I'm pleased to say that supportive fundamental backdrop that we've long pointed to, that is, in the midsized and smaller categories, vessel demand growth outpacing supply growth on a sustained and multiyear basis, exemplified by a significant reduction in the idle fleet, which has now fallen to below 1.5% on a tonnage -- on a capacity basis. This supply-demand tension is driving upward pressure on short-term market rates and on asset values.

Moreover, given the continued low levels of ordering of new midsized and smaller vessels, ongoing scrapping of older vessels, albeit, as to be expected in a firming market, scrapping rates down on the record level seen in 2016, plus the long lead times at shipyards and most likely the some portion of the current idle fleet may never return to operations following extended period of layup, we believe that there is reason for continuing optimism about the supply-demand dynamics.

Finally, given that outlook, our cash flow generation and the fact that secondhand vessel values remain well below both long-term averages and new building price parity, we are eager to continue to add vessel to our fleet, whether vessel, the terms of the charter and the charterer, we still require charter cover at the outset, all meet our criteria. Obviously, acquisitions provide additional charter coverage and cash flow to support further growth and deleveraging.

Turning to Slide 6. You can see the stability of our financial and operational results over time, even as the short-term market, the red line being a charter rate index at the top of the page, even though that index has fluctuated significantly. Clearly, we expect to see a higher degree of variability in our earnings going forward as a few of our legacy charters come to an end, and we pursue renewals at market rates. But as of today, we believe that there is cause for optimism about the state of the charter market. As I mentioned earlier, and as Tom will further substantiate shortly and thus for GSL earnings going forward.

Slide 7 is our charter portfolio, totaling $455 million of contracted revenue, spread out over a weighted average of 2.9 years, including the shortly to-be-acquired vessel, which is in the red box, which adds some $3.3 million of gross revenue over a 12-month period.

As you'll notice, all but 1 of the vessels, which we expect to renew in the short-term market over the next 18 months or so is already in that market at relatively low rates, reflecting the state of the market at the time in the last 6 months also when those terms were agreed. The one exception is the OOCL Ningbo, which is still in the last 6 months of its initial 3-year charter back following the sale and leaseback transaction with OOCL back in 2015. She's currently earning $34,500 per day but will come open later this year. As I said earlier, the current rate for such a vessel is in excess of $20,000 per day, up significantly over the last 15 months.

Hopefully, the encouraging market trend will continue, which will support a renewal at improved terms in the short-term market.

Additionally, we maintain options on 2 vessels, the Kumasi, and the Marie Delmas, which are in light blue, that enable us to either increase our exposure to the short-term market at the end of the year by not declaring our option to extend at the agreed rate of $9,800 per day. We won't declare that option if we believe market rates will continue to be above that option rate. Or otherwise, we can maintain that rate for those 2 vessels potentially to the end of 2020 as we have a further option at the end of 2019.

On Slide 8, a quick update on our main counterparty and largest shareholder, CMA CGM, a charterer of 16 of our current 18 vessels. We continue to have very strong working relationship with CMA CGM, which is one of the most active liner companies in the charter market. We work with them when we look at acquisition targets. And as I've said, they've agreed to take on our 2,800 TEU vessel on charter once she delivers. CMA CGM continues to be the third largest liner company by operated capacity, utilizing chartered-in tonnage for approximately 75% of its fleet. They continue to outperform the industry, the chart on the bottom left page of that page. And in that context, perhaps, note that Standard & Poor's just last week, upgraded CMA CGM's outlook to positive as they consider the industry to be less volatile and also give credit to CMA CGM's prudent treasury management and ample liquidity headroom.

Slide 9 presents a brief recap of our core strategic focus, which has created resilience through the cycle. We look to ensure consistent deployment for our entire fleet on industry-standard noncancelable contracts. We have no exposure to day-to-day fuel costs, limited foreign exchange risk and comprehensive insurance. We maintain our vessels in good operating condition to maximize both uptime whilst on charter and also rechartering prospects, which are further enhanced by our focus on midsize and smaller vessels, which are the workhorses of the global fleet.

As I mentioned, we're also looking to grow our fleet on a prudent basis in order to take advantage of attractive fundamentals in the space. We are focused on vessels that either have charters attached, as in, say the leaseback transactions with (inaudible) company or the purchase from another owner with an existing charter, or where we can pair a vessel with a charter that we've arranged in parallel as with our recent acquisition and its charter to CMA CGM.

Finally, our balance sheet and contracted cash flows put us in a position to utilize our capital on an accretive and opportunistic basis through the cycle, applying funds not only to committed and contracted deleveraging to ensure resilience and stability but also to grow and historically, proactively delever depending on market conditions. On that note, I'll turn the call over to Tom for some additional insight into the overall industry.

Thanks, Ian. According to the IMF, global growth in 2017 was the fastest since 2011 and with conditions still supportive, they expect broad-based growth to strengthen further in 2018 and 2019. So notwithstanding some downside risks, including trade tensions between the U.S. and China, the macroeconomic backdrop for container shipping is encouraging. With this in mind, the next flew slides provide some data on industry fundamentals.

There are a handful of recurring themes, which are summarized at the top of Slide 11. So essentially, our thesis is that: One, after a long, challenging period, we believe that 2017 marked the beginning of a fundamentals-driven recovery for the industry, with positive momentum continuing in 2018. Two, the order book has been rightsizing over time as the industry adjusts to a combination of capital constraints and a new demand growth paradigm. Three, improving supply-demand fundamentals are supporting earnings in the short-term charter market and pushing up asset values. And four, and this is a point we've been focusing on for some time and that goes to the very heart of the GSL value proposition, we believe industry dynamics continue to be most attractive for midsize and smaller ships, which make up the GSL fleet and represent our focus for growth going forward. As we see it, these segments are set to be supply constrained, while also being core to most tradelanes.

The chart on the lower half of the slide underlines the points I've just made. On the left, you can see a comparison of demand growth, dark blue bars, and supply growth, the pale blue bars. The jagged red line cutting through the chart is the short-term charter rate index, a barometer of health for this sector. You can see demand growth beginning to overhaul supply growth in 2016, a trend sustained in 2017 and one that is forecast to continue through 2018. And charter rates, the red line, have responded positively as long-standing oversupply begins to swing back into balance.

The lower right-hand chart shows the global fleet and how it has evolved since 2007. Most significantly, you can see how the order book-to-fleet ratio, which was north of 60% in 2007 on the back of speculative orders largely out of German KG funds, had fallen to 12.6% by the end of 2017. It has since fallen further to 12.1% by the end of the first quarter of 2018. And if you drill down further, as we will on a later slide, the order book-to-fleet ratio for sub-10,000 TEU ships in other words, the midsize and smaller vessel segments we focus upon, is now only 3%.

Slide 12 focuses mainly on demand-side fundamentals. The pie chart at top left shows the composition of global containerized trade in 2017. Almost 30% of volumes were carried on the mainlane trades, by which I mean Asia-Europe, the Transpacific and the Transatlantic. More relevant to us, however, is the fact that, in aggregate, a little over 70% of global containerized trade volumes were carried in the non-mainlane, intermediate and intraregional trades, of which the largest is Intra-Asia. As we shall demonstrate later, these are the trades served primarily by midsize and smaller ships. They're also the trades that have tended to show most robust growth.

Slide 17 looks at the supply-side fundamentals and illustrates that dynamics continue to improve for the midsize and smaller vessel segments. Top left, you can see that idle capacity, although subject to the usual seasonal variations, is trending down. At its worst, back in 2009, the idle fleet peaked at around 11%. By the end of the first quarter of 2018, it was below 2%, despite creeping up a little around Chinese New Year. During April, which isn't captured by the chart, idle capacity has fallen further to just below 1.5%. Scrapping, which is the focus of the chart at top right, helped to reduce idle capacity through 2016 and 2017. However, as you can see, strengthening in the charter market has meant that scrapping year-to-date 2018 has been minimal. So the continued compression of idle capacity has been driven by sustained demand-side growth, an encouraging sign.

Bottom left is a chart showing the order book. Significant for the big ships, very small for the midsized and smaller vessel segments. To reiterate, the overall order book-to-fleet ratio at March 31 was 12.1%. For vessels below 10,000 TEU, it was only 3%.

So existing capacity for midsized and smaller tonnage has been reduced over the last couple of years by scrapping. The order book pipeline for replacement tonnage is limited and cargo demand continues to grow. Furthermore, most investment activity in these segments has been focused on the purchase of existing vessels.

Slide 14 looks at vessel deployment patterns. The larger of the 2 charts, charts global containerized trade into 20-or-so trade groupings, which are arranged along the horizontal axis. Immediately below these, you will see the number of vessels operated in each trade grouping. The largest number of vessels, by quite some margin, over 1,700 units out of a global fleet of around 5,000, is concentrated on the Intra-Asia trade. We'll come back to that in a moment. The bars in the chart show the maximum vessel size deployed per trade grouping, which are the pale blue bars, and the average vessel size, the dark blue. Clearly, the really big ships are key to a handful of trades, driven by constant search for unit cost efficiency, driven by relatively high volumes, decent port infrastructure and long term -- and long trade distances. Asia-Europe is the obvious example, served by the largest ships on the water, with a maximum size north of 22,000 TEU and an average size around 14,000 TEU.

On the flip side, midsize and smaller ships are core to most other tradelanes. Returning to the largest single trade grouping, Intra-Asia, the breakout chart on the right shows that this trade is served exclusively by midsized and smaller vessels, more than 3/4 of which are 2,000 TEU or smaller.

Slide 15 and 16 make the same point as Slide 14, but more graphically. Slide 15 shows the sailings of the big ships, over 10,000 TEU, during a 30-day period in the first quarter of 2018. As you can see, they're primarily employed on the big east-west arterial trades. Contrast this to Slide 16, where you can see the deployment of midsize and smaller vessels during the same period. They're everywhere, which underlines their commercial utility and operational flexibility.

Slide 17 and 18 conclude this section. Slide 17 underpins our thesis that market fundamentals are driving a recovery to the sector, especially for midsized and smaller tonnage. Idle capacity is now at very low levels and demand growth is outpacing supply growth. Short-term charter rates, a leading indicator, increased by around 40%, albeit from a very low base, between the first quarter of 2017 and the first quarter 2018. Asset values firmed equally significantly over the same period. Nevertheless, as you can see from the chart on the right, they remain close to long-term cyclical lows and are well below new building price parity, suggesting a favorable risk reward backdrop for selective acquisitions.

Slide 18 reemphasizes this last point, demonstrating the liquidity in the sale and purchase market for containerships. Many of the sales are still coming out of the German KG environment, which was the source of the 2,800 TEU vessel we agreed to buy during the first quarter and expect to take delivery of during the second quarter. This is a high-specification vessel, built at the Hyundai Mipo yard in South Korea. She has a high reefer content and is of a design popular in the charter market. We co-selected her with CMA CGM. And crucially, they have agreed to take her on a 12-month charter, ensuring that on delivery, she will be immediately EBITDA accretive. And to remind you, we're permitted to put leverage up to 70% loan-to-value on new vessel acquisitions.

So to wrap up the market section. Although, the sector will remain both cyclical and seasonal, we see the foundations for continued recovery and for selective growth, with midsize and smaller vessels especially attractive given their tighter supply, flexible deployment and commercial relevance to most tradelanes.

Let's move now to the fourth quarter financials, starting on Slide 20. We generated revenue of $36.1 million during the first quarter, down $3.5 million from the comparative 2017 period, with reduction due mainly to the effect of the new charters of Julie Delmas, Delmas Keta, GSL Tianjin and OOCL Qingdao at lower rates as compared to the previous charters. In the first quarter 2018, there were 17 days offhire, of which 13 were for scheduled dry docking, giving an overall utilization of 99%.

Vessel operating expenses were $10.5 million in the first quarter compared to $10.4 million in the prior year period. The average operating cost per ownership day was just under $6,500 per day, which is broadly in line with the prior year period.

Interest expense in the quarter was $10.8 million, down $0.2 million from the 2017 period.

Net income for the first quarter was $4.2 million as compared to net income of $6.8 million in the first quarter of 2017. The year-over-year decrease is mainly due to lower revenue as vessels rolled off their initial sale and leaseback charters, partially offset by lower depreciation. Normalized net income is the same as reported net income.

Slide 21 shows the balance sheet. As of March 31, we had $91.3 million of cash and total assets of $689.1 million, of which $592 million were vessels, including the 10% deposit on our new acquisition.

Our total gross debt was $414.8 million, comprising $360 million of senior secured notes plus $54.8 million under our super senior secured credit facility, which were adjusted for $15.1 million of original issue discount and deferred financing costs.

Slide 22 shows our cash flows. I'd highlight that net cash provided by operating activities was $20.4 million in the first quarter as compared to $8.2 million in the same period last year. I'd now like to turn the call back to Ian for some closing remarks.

Thank you, Tom. So to summarize, on Slide 24, we continue to generate consistent contracted cash flow from our full fleet charter cover with top-tier counterparties, maximizing our operating profitability and thus cash flow, by prudently controlling costs and delivering extremely high vessel utilization across the fleet. Our strategic focus is on the midsized and smaller container ship sector, critically important vessel classes that carry the majority of global containerized freight and which are deployed in the faster and more consistently growing tradelanes.

In addition to this decent demand growth, a long period of heightened vessel scrapping and minimum ordering of midsize and smaller vessels have resulted in increasing supply-demand tensions that have shrunk the idle fleet to less than 1.5% and which are putting upward pressure on both charter rates and asset values, positioning Global Ship Lease to realize additional benefits as a number of our vessels come into the short-term market.

In this environment and with the support of contracted cash flows that enable us to both delever and to invest in growth, we are pursuing attractive, immediately accretive acquisition opportunities in an increasingly liquid secondhand market, focusing on high-quality vessels to be charted to top-tier counterparties. In this way, we believe that GSL is in a strong position to seize the opportunities that exist in the market in order to create lasting value for our shareholders. With that, I'd now like to open the call up to any questions that you may have.

(Operator Instructions) And our first question is from Howard Blum with UBS.

In talking about future objectives and deleveraging and rebuilding the fleet, one of the things you didn't mention was the possibility of reinstituting dividend payment to this common shareholders. There hasn't been any dividend since 2015. Obviously, that's a subject for the directors to deliberate about. But can you give us little bit of color as to the thought process that goes into that? And what you think we should anticipate as shareholders?

Sure. I'll come on to constraints in a minute, and we are constrained in our ability to pay a dividend. But considerations that the board would have, absence constraints, would be is it the right corporate finance decision to return capital to shareholders by way of a dividend or even stock buyback. Or is it the right corporate finance decision to invest that capital in growing the business bases an ability to generate incremental value from so doing. And historically, we've chosen to use that cash to delever and to grow the business rather than pay dividends, at least until late 2015. Now we are constrained. One of the terms of our refinancing in the fall of last year is that we are unable to pay dividends on common stock until January 2021 unless we raise equity capital. And if we do raise equity capital then the principal reason for so doing would be for further growth. So I guess that answers your question, at least for the next year or 2.

Our next question is from the line of Richard Smith with Muzinich.

Two questions for me. First of all, can you give me a little bit of color as to what lies behind the increase in general and admin costs? And then also, usually, I've always thought of Q1 as being pretty negative in terms of working capital absorption and yet, this quarter was actually quite strong. Now Q4 looked maybe a little bit soft. So is that -- is Q1 a little bit of a catch up of that? Or should we expect some of that to unwind in Q2?

To answer the second question first, we haven't yet paid the first installment of interest on our bond that's coming up in May. So our accrued liabilities are increasing and therefore, working capital is benefiting. That will, to a degree, unwind next quarter. And to answer your first question, there are a whole bunch of reasons why SG&A in Q1 this year is up, one of which is increased levels of activity and professional advisers that we're using.

Okay. Is that expected to kind of -- I mean, should I think of that as the kind of new normal for G&A? Or is it you consider it to be somewhat high?

No. I would say that Q1 is somewhat high.

Our next question is from Angus Rosborough with Park Vale Capital.

Question for you is in regards to debt amortizations. I was wondering if you could refresh what the intention is -- indeed, what the requirements are for debt amortizations this calendar year. I understand that there's some amount that you do have to repay. But in addition to that, there is some level of flexibility in terms of what you repay i.e. term loan or bond?

Yes. You're right. There is flexibility although it's not at our choice. The rules are that we are obliged to amortize debt by $40 million this calendar year, $20 million of that must be directed towards the secured term loan in 2 installments of $10 million. And the other $20 million is offered to bondholders at a price of 102%. A bondholder can take that if they want, in which case we will redeem $20 million worth of bonds or bondholders can reject it, in which case, we are obliged to direct that $20 million to further reduce the secured term loan. And the same thing happens next year as well.

That's helpful. When do you have to bid 102% for the bonds?

I forget the details, but it's essentially during the month of November.

Okay. Fantastic. I guess, next question I have for your relates to -- and by the way, before I move on, can you satisfy the requirement on the bonds to -- basically bid at 102%, could you satisfy that by chance, by actually having gone out and bought and buying $20 million of bonds in the open market at a price that was not 102%?

I wish we could. That would be great. But sadly, we can't opportunistically purchase bonds until the secured term loan is fully extinguished. So we're obliged to pay down the cheap debt first.

Okay. Understood. Okay. Now looking elsewhere, in terms of impacts on your capital structure, I noticed that you bought a ship. And it sounds to me like you've put the down payment for 10%. And it also sounds like in the second quarter, and correct me if I'm wrong, that you will pay off the remainder of the ship i.e. put down $1.1 million, you're going to pay another $10 million in 2Q. Is that correct?

Yes. Yes. Order of magnitude, that's right.

Got you. You have a large amount of cash on the balance sheet. Do you anticipate using, basically, that cash to buy this ship and looking at leveraging acquisitions at a later date? Or would you, perchance, lever this acquisition?

If we can find financing on appropriate terms, we would consider leveraging this acquisition. That would improve returns on the individual investment in that vessel. And don't forget as I mentioned earlier, we've got a large amount of interest to pay shortly, and we also have the amortization of the debts, which I have discussed earlier, both of those will take up a portion of our balance sheet cash. So we are keen to see if we are able to leverage our acquisitions to enhance our investment capabilities.

Got you. I would take it that this ship, as it now stands, is outside the restricted group for the bonds and the term loan. Is that correct?

Yes. And that's the way it will continue.

(Operator Instructions) Our next question is from Julien Raffelsbauer with Cantor Fitzgerald.

Could you give us a little bit of color why on one hand we sold the freight rate. So what your clients gain under pressure because of trade tension, why not the opposite, the container rate, which is what you receive and you show that in the graph, were not at all affected by the trade tensions?

Sure. It's quite a difficult question to answer. And we kind of have a view on the freight markets but we're not in the freight markets, that's more our customers. What -- you may not, but generally people get a feeling for what's happened in the freight markets by looking at Asia, Europe and the Transpacific, they're the 2 tradelanes that are most well reported and they're also pretty volatile. They're actually tradelanes, which certainly in Asia, Europe, the ships that are deployed are very large and very, very few of them, if any, will be sourced from the charter market. So to a degree, the charter market and the Asia-Europe freight market are independent. But it is generally true that the same overall economic factors of demand for container shipping services and the demand for container ships and the supply of container shipping services and the supply of container ships move the freight markets and the charter markets in the same direction. The freight markets tend to be more responsive and more volatile and the charter markets tend to be a little less responsive and often lag as well. And the charter markets are affected by what's happening in the particular regions. The Intra-Asia trade is about 1/3 of the container ship fleet and there's a lot of chartered vessels in that deployment. And if that's doing well then there's a demand for container ships, which will drive up charter rates and you won't necessarily see that being reflected in freight rates.

And just to add to Ian's remarks, there's a fairly fresh report that we were looking at today, which suggests that freight rates in some of the long-haul trades are turning the corner. So rates in the China-Europe trade according to the Shanghai Containerized Freight Index are up roughly 22% month-on-month, while rates on the Transpacific and this will vary by coast, are up between 10% and 25% month-on-month.

And are you seeing any of your clients delaying a decision on charter because of all this trade tension or not really?

Well, not really in our case, because we really deal with our clients for OOCL and CMA CGM on the tonnage that's in our fleet. We don't have visibility on wider activity.

Our next question comes from the line of Piotr Ossowicz with Ironshield.

Just following up on the previous question. Can you give us a bit more color on how do you see the market's timed charter rates shaping up, especially, in those larger vessels that are a bit less transparent from our point of view, so the 6,000s, the 8,000s and 10,000-plus?

Sure. It's -- Peter. It's probably easiest to use the 8,000 as they, at least, provide some concrete benchmarks. Back when we fixed the GSL Tianjin at the very beginning of the year, the market was roughly in the $11,900 per day region, which is where we fixed. When we fix her sister vessel, the OOCL Qingdao, roughly a month or so later, 1 month to 6 weeks later, the market had risen to roughly $14,000 per day, which is where the rate of which we fixed her. And if those same vessels were to be in the market today, the market rate would be in the low $20,000s per day. So that gives you a sense of the trajectory during the first 4 months of this year. Hard to know where things go from here. But to our mind and looking at the data, this recovery is fundamentals driven, so we would expect a continuation in the firming of charter rates.

Right. And just following up on this. Answering the previous question, you said that there was a bit of decoupling between the timed charter rates and the freight rates. And so on the freight, you are trying to allude to the fact that maybe this is caused by the fact that the freight was turning the corner and now we are going to see a strong recovery in the liners or fleet? Or are there any other reasons for this decoupling?

Again, it's tough to know. You might be better-off asking a liner operator for their views on that. All that we can say is that the fundamentals data that we're looking at are suggestive of a sustained recovery. And that's what we're seeing at least in the charter market.

Okay. So maybe just last point. Where do you see the market for the Panamax is now? For the old Panamax, obviously, the business schedule was very much under pressure. Where do you see the timed charter rates and potentially, where do you see the freight rates as well for this asset class?

Freight rates, I can't really comment on them, I'm afraid, Piotr. But as far as spot market charter rates for Panamax is sort of mid-10s to mid-11s, I would say at the moment.

Our next question is from the line of [Peter Levinson] with B. Riley FBR.

Two questions for you. One, it was disclosed I think in January, that you had engaged Evercore to pursue strategic alternatives. We've seen since then your first acquisition. Are we to believe that that's the culmination of Evercore's work? Or is there still more to come potentially along those lines? I'd point you toward Seaspan and their recent recap and some free non-Evercore advice reach out The Carlyle Group. Second question is, seems to me you have plenty of cash to pay down the bank debt if that's what getting in the way of you buying back debt at a discount in the open market, why not pursue that? Again, question for Evercore, potentially.

Yes. Thanks. Again, on the second question first. We prefer to use our cash at the moment to invest and growing the business. That, we think, is the correct thing to do where we would be able to deliver decent returns. And from balance sheet management perspective, we kind of want to keep as much of our low-cost debt in the mix for as long as possible. But as I say, we would also hope to put leverage on new acquisitions if we can agree terms with potential lenders. On Evercore, I don't think you can necessarily link Evercore's engagement to our purchase of a vessel. We said last time that we're not going to give any running commentary on the Evercore process. But it is a strategic-level process, not tactical-level process, which is how I would describe ship acquisitions.

So still ongoing, in other words?

Yes. Yes.

Great. Again, I'd point you towards the Seaspan transaction and the parties involved there.

Our next question is from the line of Pieter Staelens with Janus Henderson.

Given the move in charter rates, when would you expect secondhand prices to follow that trend?

Pieter, I would say that they're already following that trend. In fact, there's a chart in the presentation, if I can find the slide, I think it's Slide 17, which provides graphically data on both the time charter rate index, which is the red line and then also the index driven by secondhand prices. And you can see that, over the course of the last 12-or-so months, both charter rates and asset values have climbed by roughly 40%.

And ladies and gentlemen, this concludes our Q&A session. I would like to turn the call back to Ian Webber for his final remarks.

Thank you, everybody. Thank you for listening. And thank you for your questions. And we look forward to providing you with a further update on our Q2 earnings call in the summer. Thank you.

And thank you, ladies and gentlemen, for participating in today's conference. This concludes the program, and you may all disconnect. Have a wonderful day.