Global Ship Lease Inc (GSL) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Global Ship Release (sic) [Global Ship Lease] Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's presentation, Mr. Ian Webber, CEO, Global Ship Lease. Sir, please begin.

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

As normal, the first couple of slides 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 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 this year. You can obtain this via our website or via the SEC's 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 this 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, which is also available on our website.

We'll follow our normal format for the call. I'll give an overview of GSL and our strategy, and then Tom will provide a market update and review some financial highlights. After that, we'll open the call to questions.

Turning to Slide 3. The second quarter again represented full charter coverage and high utilization for our fleet, resulting in stable financial performance with $35 million of revenue in the quarter, generating $23.4 million of EBITDA. Additionally, we took delivery of the GSL Valerie, a 2005-built 2,800 TEU containership, with the vessel commencing a preagreed 12-month charter with CMA CGM from July 1 at a rate of $9,000 per day.

We're delighted to have expanded our fleet during a time when the supply/demand balance for midsized and smaller containerships has meaningfully strengthened, and this is a topic that Tom will return to in more detail later.

On Slide 4, we've summarized GSL's strategy to benefit from the strong fundamentals underlying the midsized and smaller containership segment. Starting at the top, we seek to maintain consistent full-fleet charter coverage and to maximize utilization through high-quality operations and prudent vessel maintenance. Our charter cover goes out, on average, 2.7 years on a weighted basis and represents some $419 million of contracted revenue.

We maintain a strategic focus on the midsized and smaller containership fleet segment that carries the majority of containerized trade. This segment, in addition to having a truly global deployment profile and a highly liquid charter market, has seen comparatively limited newbuilding investment for much of the last decade as limited capital has been deployed in building the very large container ships that give scale economies and unit cost efficiencies critical to the largest and longest tradelanes.

In conjunction with consistently good demand growth in the non-mainlane and intermediate tradelanes where the midsized and smaller fleet is predominantly deployed, the limited newbuildings and elevated scrapping levels in recent years, although not in 2018 year-to-date due to improved market conditions, have resulted in increasing supply/demand tension, a very low idle fleet and charter rates and asset values that have risen meaningfully in 2018.

On the back of these promising fundamentals, asset values are up from their lows but still, in our view, hold attractive upside potential. We continue to look for opportunities to grow our fleet in a disciplined, highly selective manner that is in line with our charter-attached acquisition strategy, as with the GSL Valerie.

Our strong balance sheet and cash flow profile put us in a good position to pursue additional growth at a time when much of the available capital in the space continues to be focused on strategic investments in the very largest vessels. Such charter-attached growth with top-tier counterparties then further supports our contracted cash flow and, thus, our ability to pursue additional attractive growth opportunities.

Much of Slide 5 will be familiar as we have achieved consistent earnings and operational performance over the years. The standout point here on this slide though is the significant improvement in the timecharter rate index, which runs across the top of the page, and on the top-right side of the slide, you're seeing that it's risen to levels not seen for some 10 years.

Whilst on this slide, I'd also note that GSL Valerie, which commenced her charter with CMA CGM on the 1st of July, will contribute to our revenue and EBITDA in and from the fourth quarter -- from the third quarter.

On Slide 6 is our charter portfolio with the $419 million of contracted revenue I mentioned earlier, spread out over the TEU weighted average duration of 2.7 years. Much of our fleet will continue to operate on fixed-rate charters for some time, with the highest-rated charter at $47,200 per day for the CMA CGM Thalassa continuing through 2025.

We do, however, have some charter expirations over the next 12 months or so. And I'd point out that all of these vessels, bar one, OOCL Ningbo, are currently on charters at relatively low rates compared to current market rates, which means that we're in a good position to benefit from this exposure to the spot market on renewal, always assuming that current market conditions are maintained. Indeed it is with this scenario in mind that we preferred in recent times to agree charters for relatively short periods, maintaining full employment but retaining upside exposure to the improving market.

Note on this slide that we've also got 2 vessels highlighted in light blue, the Kumasi and the Marie Delmas, for which we maintain annual options for the next couple of years, which we can call, providing downside rate coverage at $9,800 per day. These options run through as late as the end of 2020. Depending on our view of the market later this year, we can either take the option for 2019 to extend the charter to the end of that year at $9,800 per day or we can decline the option and increase our exposure to the spot market.

On Slide 7, I'll give a quick update on our main counterparty and largest shareholder, CMA CGM, the charterer now of 17 of our 19 vessels, including the GSL Valerie. We maintain a strong working relationship with CMA CGM, a leading liner company, which consistently outperforms the industry. They're heavily engaged in the charter market with just over 3/4 of their 500-or-so ship fleet being chartered in.

Slide 8 recaps the core strategy that has served us well throughout the cycle. We maximize cash flow and stability by achieving high utilization on fixed-rate, multiyear charters to excellent counterparties with contract terms that limit the exposure we have to external variables. For example, our contracts do not expose us to fuel price as the bunker fuel is borne by our charterer -- the cost of bunker fuel is borne by our charterer. We then look to grow our fleet in a disciplined, opportunistic manner, focusing on acquisitions of high quality, medium-sized and smaller tonnage.

Finally, we maintain a strong balance sheet and proactively delever in order to ensure that we're in a position to act decisively in taking advantage of growth opportunities that may arise in a largely capital-constrained market environment.

On that note, I'll turn the call over to Tom for some additional insight into the industry.

Thanks, Ian. Despite acknowledging the risk of trade tensions escalating, particularly between the U.S. and China, the IMF in its July update to the world economic outlook maintained its global GDP growth projection for 2018 and 2019 at 3.9% per annum, up from 3.7% in 2017. And while sentiment has understandably been a little shaken on the Transpacific container trade, prompting lines to reexamine their service offerings on those routes, the first half of 2018 has seen the continued firming of charter market rates and asset values on the back of supportive industry fundamentals.

We will provide our usual market analysis in the next few slides through rich -- run a handful of recurring themes summarized at the top of Slide 10. Essentially, our thesis is that, one, the first half of 2018 saw the continuation of a fundamentals-driven recovery for the industry, which began in early 2017; two, the containership order book has been rightsizing over time as the industry adjusts to a combination of consolidation and reformed alliances, capital constraints and a new demand growth paradigm; three, an improving supply/demand balance has supported earnings, charter rates that is, in the market and pushed up asset values; and four, and this is a point we've been focusing on for some time and it goes to the heart of the GSL value proposition, we believe industry dynamics continue to be most attractive for midsized and smaller ships, which make up the GSL fleet and represent our focus for growth going forward.

The charts on the lower half of the slide underline the points I just made. On the left, you can see a comparison of demand growth, the dark bars, and supply growth, the pale bars. The jagged red line cutting through the chart is the short-term charter rate index, a barometer of health of the sector. You can see demand growth beginning to overhaul supply growth in 2016, a trend sustained in 2017.

In 2018, overall supply for the global containership fleet is now forecast to marginally outgrow demand, partly due to new vessel deliveries, the majority of which are very large container ships, but also, importantly, because scrapping has significantly slowed as vessel earnings and asset values have continued to improve. Vessel earnings are reflected in the charter rate index, the red line, which, as you can see, has continued to respond positively.

The lower right-hand chart shows how the global fleet 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 the German KG market, had fallen to 12.6% by the end of 2017, although it has since risen a little to 12.9%.

If you drill down further, as we will on a later slide, the order book-to-fleet ratio for sub-10,000 TEU ships, the midsized and smaller vessel segments, is only 3%. And I would clarify further that the actual deliveries from that order book are spread across 2 to 3 years.

Slide 11 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 in 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 intra-regional trades, of which the largest is Intra-Asia. As we shall demonstrate later, these are the trades served primarily by midsized and smaller ships. They're also trades that have tended to show robust growth.

Slide 12 looks at the supply-side fundamentals. Top left, you can see the idle fleet capacity, which, although subject to 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 half of 2018, it was 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 market with rising vessel earnings and asset values has meant that scrapping year-to-date 2018 has been minimal. So the continued compression of idle capacity, which includes the full absorption of around 840,000 TEU of new capacity from the yards delivered during the first 6 months of 2018, has been driven by demand-side growth.

Bottom left is a chart showing the order book. Significant for the big ships, modest for the midsized and smaller segments.

To reiterate, the overall order book-to-fleet ratio at June 30 was 12.9%. For vessels below 10,000 TEU, it was 3%. So existing capacity for midsized and smaller tonnage has been reduced over the last couple of years by scrapping exceeding new deliveries. Further, the order book pipeline for replacement tonnage is limited, and cargo demand has continued to grow.

Slide 13 looks at vessel deployment patterns. The larger of the 2 charts chops global containerized trade into 20-or-so trade groupings, which are ranged 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, roughly 30% of the global fleet of a little over 5,000 ships, is concentrated on the Intra-Asia trade. We'll come back to that in the moment.

The bars in the chart show the maximum vessel size deployed per trade grouping, 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 a constant search for unit cost efficiency, driven by relatively high volumes, decent port infrastructure and long tradelanes. Asia-Europe is the obvious example, served by the largest ships on the water, with a maximum size north of 22,000 TEU, and with an average size around 14,000 TEU.

On the flip side, midsized 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 by midsized and smaller vessels, about 3/4 of which are 2,000 TEU or smaller.

Slides 14 and 15 make the same point as Slide 13, but more graphically. Slide 14 shows the sailings of the big ships, over 10,000 TEU, during a 30-day period in the second quarter of 2018. As you can see, they're primarily employed on the big east-west arterial trades. Contrast this, however, to Slide 15, where you can see the deployment of midsized and smaller vessels during the same period. As you can see, they're everywhere, which underlines their commercial utility and operational flexibility.

Slides 16 and 17 conclude the section. Slide 16 shows how vessel earnings, short-term charter rates and asset values have evolved over the long term, the left-hand chart, and since late 2016, the right-hand chart. As you can see, short-term charter rates have been under sustained downward pressure for the last few years, until during the first quarter of 2017, they began to recover quite sharply.

During the last 12 months, the spot market chart rate index has climbed by almost 50%, with a 37% increase during the first half of 2018. As you would expect, asset values firmed significantly over the same period, up 43% and 18%, respectively. Nevertheless, as you can see from the chart on the left, they remain close to long-term cyclical lows and are well below age-adjusted newbuilding price parity, suggesting a favorable risk/reward backdrop for selective acquisitions, particularly in regards to existing on-the-water vessels.

Slide 17 reemphasizes this last point, demonstrating the liquidity in the sale and purchase market for containerships, in which 116 ships, mostly midsized and smaller, changed hands during the first 6 months of 2018.

One of those vessels, the GSL Valerie, was purchased by us. The Valerie is a high-spec, high-reefer 2,800-TEU vessel, built at the Hyundai Mipo Yard in South Korea. We co-selected her with CMA CGM against their commitment to charter the vessel shortly after delivery, adding about $3.3 million of contract coverage.

We continue to be highly selective in the acquisitions that we pursue. But as you can see, there are opportunities out there, and we actively assess them on a fairly continuous basis.

So to wrap up the market section, although the sector will remain both cyclical and seasonal, first half 2018 has seen vessel earnings and asset values continue to firm as industry fundamentals, particularly for midsized and smaller ships, swing back into balance. And we continue to believe that these vessel segments are especially attractive, given their tighter supply, flexible deployment and commercial relevance to most tradelanes.

So now let's move on to the second quarter financials, starting on Slide 19. We generated revenue of $35 million during the first quarter -- sorry, during the second quarter, and net income of $4 million. Year-over-year reductions result primarily from vessels coming to the end of their original purchase and charter-back contracts and being redeployed in the open market at lower, albeit firming, rates.

We've continued to work hard on further compressing vessel operating expenses, which totaled $10.2 million in the second quarter. Average operating cost per ownership day was $6,174, down 6.9% year-on-year. Interest expense in the quarter was $10.7 million.

Slide 20 shows the balance sheet. As of June 30, we had $69.6 million of cash and total assets of $671.8 million, of which $595.3 million were vessels.

Our total gross debt was $404.8 million, comprising $360 million of senior secured notes, plus $44.8 million under our super senior secured credit facility. The gross totals are adjusted presentationally for $13.9 million of original issue discount on the notes and deferred financing charges.

Slide 21 shows our cash flows. There's little to comment on here other than to observe the impact on net cash used in investing activities of the completion of our purchase of GSL Valerie during the quarter and that of our ongoing deleveraging on net cash used in financing activities.

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

Thanks, Tom. I'll briefly summarize on Slide 23 before opening the call up to Q&A. We have substantial contracted cash flows with excellent counterparties going forward, providing us with consistency and forward visibility to both grow our fleet and to delever. The focus of our fleet and of our growth efforts is the midsized and smaller containership segment, workhorse vessels that are deployed around the world, particularly in the non-mainlane and intra-regional trades, which demonstrate consistent and robust growth.

Whilst there is concern around trade tensions and seasonality continues to be relevant, the market is responding to strong supply/demand fundamentals for the midsized and smaller containership fleet. This is driven by a limited order book, elevated scrapping levels in prior years and continued demand growth. This together results in significant increases in charter rates and asset values in the year-to-date.

At the same time, despite firming recently, asset values remain close to lows, and we exciting -- we see exciting and accretive opportunities to grow our fleet in the way that we did through the acquisition of the GSL Valerie. The sale and purchase market remains quite liquid. And whilst we will maintain strict discipline in assessing opportunities, we fully intend to be active. And as a result of our strong balance sheet and solid industry relationships, we're well positioned to act decisively when we identify the right opportunities.

With those comments, I'd now like to open the call up to any questions which you may have.

(Operator Instructions) Our first question or comment comes from the line of Steve O'Hara from Sidoti.

Just on the purchase and sale market, if you could just talk about it a little bit more, if you're -- when you're focused on growing, where do you expect that growth to come from? I mean, is it more ones and twos? Or is your appetite a little larger for maybe a number of ships at once? And I mean, are you seeing those types of opportunities in the market? And is that any different than it's been more recently? I would think with activity picking up, maybe there's, maybe, larger opportunities available as well.

Steve, thanks for the question. That's a pretty broad subject. Let's approach it from kind of the other direction, which is our ability to grow. And we've talked on previous calls about our capacity to invest in growth. We're constrained under the terms of our bonds to invest only $30 million of equity in growth, and the GSL Valerie [on the face] absorbed around $11 million of that $30 million. But crucially, we are allowed to lever acquisitions. And again, we talked on previous calls about looking for leverage to be able to increase our investment capacity. And if we can find debt capacity at, say, 70% loan-to-value, then our $30 million of equity becomes $100 million of levered investment capacity, of which the GSL Valerie represents around $11 million. So we have up to around $80 million, $90 million if we can find leverage more to invest. Now whether that is a series of single-ship transactions or multi-ship transactions or individually larger transactions remains to be seen.

Okay. And then maybe just going back to the Valerie. There's no leverage on that ship right now, is that correct? And do you expect to do that at some point in the future?

Correct. There is no leverage on her. And we're working hard to find leverage to support that acquisition and future acquisitions.

Okay. And then maybe just a follow-up on the activity in the market. Just wondering, are the sellers in the market more on the liner side or are they more on -- are they changing hands between other charterers?

Primarily, I would say, on the charter/owner side. And historically, there's been quite a significant flow of sale opportunities out of the German market, and I would say that, that is still the case. But whenever we look at a prospective acquisition, it has to fill -- fulfill a number of criteria. We have to like the vessel itself in terms of its specification. We have to have a clear view of its forward employment prospects. In other words, we need to have some forward charter cover. And we need to like the economics of the transaction. Now we managed to tick each of those boxes in the case of GSL Valerie. And GSL Valerie is an excellent illustration of the sort of opportunity we'd look at.

Our next question or comment comes from the line of Angus Rosborough from Park Vale.

Guys, quick -- a couple quick questions for you. First off, is it fair -- actually, more broadly, are you -- where are you guys operating? You emphasized quite a bit Intra-Asia, but is that where most of the vessels indeed are?

Our ships? No, they're not actually. They're global. We don't control exactly where the ships are deployed. I mean, I -- we, obviously, can't allow them to be deployed in unsafe regions in the world, either physically unsafe or politically unsafe. But otherwise, deployment is down to the charterer. A lot of our smaller ships are trading in the East African trades, as an example, that's not Intra-Asia.

The reason for my question is, is you spent a long time talking about how, yes, we are somewhat destabilized by the trade tensions that we're seeing, and that, that's particularly profound for, say, something -- a line running from China to the U.S. But what is out there that is supportive of the drum that you guys beat consistently, which is these smaller trade routes are strong? You cite World Bank forecast, so on and so forth, but is there anything else to suggest that these smaller routes are indeed insulated from the tensions that we're seeing?

Well, it's very difficult to be definitive, and it's also very difficult to form any kind of a view on how trade tensions have actually affected, in the real world, cargo flows. But if you want to have a look at Slide 11 of the slide deck, this is a thesis that we've been maintaining for quite some time now. It might not look like it from the time series that we're showing here. But if you go back further, you'll see that the big trades, the main east-west trades, Transpacific and Asia-Europe, showed very sluggish growth, if any at all. And the non-mainlane trades and the intra-regional trades showed much stronger and more consistent growth. We're not looking at the growth rates of double digits, which we saw in the early 2000s, but we're looking at 3%, 4%, 5% increase in the demand for containershipping services in these non-mainlane trades. At a time when the fleets of midsized and smaller ships is not growing, it is forecast to be pretty static over the next couple of years because the order book is relatively low and scrapping rates have been relatively high. So you've got a fixed fleet being deployed in a growing trade. And that's, we've contended, likely to cause an improvement in the charter market and in asset values. And the proof of the pudding is kind of in the eating because that's exactly what we've seen in 2018 year-to-date, notwithstanding some geopolitical uncertainty.

You guys make the argument...

(inaudible) There's no reason for that not to continue. And we've also said there'll be hiccups. But the fundamentals of an order book under control, a lot of scrapping in '15, '16, '17 and continuing reasonable demand growth should support continuing strong fundamentals.

Okay. I think you guys make the supply argument very well. The demand argument as to why these things will continue to grow at 3%, 4% and 5%, I don't hear as clearly, but maybe I'm just not seeing the argument. And by the way, I'm not questioning it because you can see that the rates are going up, but it's just in terms as to why it will continue, it's less clear. Moving on. On the last conference call, you guys were -- you provided some very interesting data about what you were seeing in the market. I think Tom specifically stated renewal rates that he was seeing out there in the market. Given that you've got some ships coming up for renewal this year, what -- can you give us some examples of what you're seeing specifically, [basically] some anecdotes for ships that are, say, 2,000 to 8,000 tonnage, that one month it was X that we saw, and then the following month it was Y, to give us a sense of that progression in terms of time charters?

Sure. I mean, if you look at the sort of 2,200s to 2,800s, as you will recall, we fixed the GSL Valerie immediately prior to committing to purchase the vessel, which was back in March of this year, at $9,000 a day for 12 months, which, at that time, was the short-term market rate for such a vessel. Today, if you were to refix the same vessel, you would expect somewhere in the high $11,000s to $12,000 a day area. So that gives you a sense of the extent and speed of increase in rates within the smaller vessel cash crews. As far as the 8,000s are concerned, rates have bounced around a little there to tell you the truth. Back in April or so, they were sort of high teens, low $20,000s, up from sort of somewhere in the $12,000 region at the beginning of the year. However, the latest fixture we've seen is down a little on that. And I would emphasize that during the usual summer seasonal lull in the charter market -- so I wouldn't take too much away from this. But the most recent fixture we've seen, which has been very short-term in nature, has been just below $17,000 a day.

Okay. And when was it $12,000? A year prior from earlier in the year, were you doing sort of a year-over-year comparison?

Well, no. I mean, when we fixed the GSL Tianjin, which was at the tail end of last year/beginning of this year, which is unfortunately the very depth of the slow season, the rate was $11,900 a day.

Okay. I just wanted to clarify. I didn't hear you the first time.

Fine, okay.

Yes, okay. That's clear. So this is my last question before I jump back in the queue. Has the thesis here changed a bit? I mean, I think when you guys first did this high-yield deal, I think that what we were looking at was we basically had a situation where we had asset coverage of the debt. And it was an open question as to when we were going to start to see year-over-year improvements in EBITDA because no one really wanted to stick their neck out and predict when time charter rates were going to go up and to what degree. Are you guys now in a position where your confidence has grown to a point where you can say, you know what? 2018 or 2019 is going to actually be a year where when the year is done, we can look back and that year's EBITDA will be greater than the years prior? Are you there yet?

Well, I -- that's a really difficult question to answer. We're not in the business of making forecasts or projections here because we don't control the market. Most of our tonnage is actually fixed for -- on charter for 2018. We've got very limited exposure to renewals at the tail end of the year. So this is not an accurate figure, but 95% of our EBITDA is already fixed in that sense. And we would have to factor in the consequences of the charter rates that we had on the other 8,000-TEU vessels, which, at the time that we issued the bond, were -- all 3 were at $34,500 a day. And as Tom said, the market rates this year have been in the sort of $15,000 to $20,000 per day rate. So it's quite a difficult question to answer. But we've always had the thesis that the midsized and smaller fleet segment should show a recovery in charter rates and asset values when the supply/demand balance has been corrected. 2017 and 2016 were great years in correcting that supply/demand balance because of the high level of traffic as owners were under significant distress. And we've seen the benefit of that through 2018. Maybe in a couple of years' time, we can turn around and say, well, actually you're right, 2018 was the pivotal year, but I think it's too early to say.

(Operator Instructions) Our next question or comment comes from the line of Piotr Ossowicz from Ironshield Capital.

Just following up on the previous question. You have Ningbo renewal coming up. Can you, please, give us a bit more -- out of the larger renewals this year, can you, please, give us a bit more color, like, how this is progressing? And when should we expect any news?

Well, the earliest exploration of the Ningbo charter is in September. You would expect the charterer to want to redeliver the vessel as early as possible because the rate they're paying of $34,500 a day is above market. And that indeed is what's happening. We are expecting to get the vessel back off this charter at that time. We never talk about the status of discussions that we may or may not be having on acquisition of vessels or rechartering vessels. But in the ordinary course, we would make an announcement once the vessel is refixed, which would likely be August-September time.

So basically in the next 2 months?

Yes. Yes, hopefully.

Okay, understood. And how does this -- please remind us, how does this coincide with the slow period of the market during the summer? I mean, what can you do to avoid having to refix the vessel during the slow months?

Well, traditionally, there's a bit of a pick up after the summer is over for a month or 2, and this could be quite good timing in that regard.

Okay. And just very quickly on the cash flow and the capital structure. I can see that you have repaid $10 million of the credit facility. So can you please remind us what was that payment in regards to? And also, what further movement, if any, should we expect on the capital structure side?

Yes, we are committed -- we are obliged to amortize debt at the amount of $40 million in the first 3 years or so of the life of the bond. The $20 million of that $40 million goes directly to reduce the credit facility, and the $10 million that we've paid so far reduces that facility from $55 million to $45 million. There will be a further installment of $10 million in November, which will reduce that credit facility further to $35 million. So the remaining $20 million, we are obliged to offer to bondholders to redeem bonds at a price of [1 02], and that offer will be made in November or so. Now if bondholders accept that offer, then we reduce bonds by $20 million from $360 million to $340 million. If bondholders reject the offer because, say, the bond is trading at above 1 02 , then we are obliged to use that $20 million to further reduce the credit facility. So at the end of this year, that credit facility could be reduced from $55 million to $15 million. And the same again happens next year in 2019. Fixed amortization of $40 million, it goes $20 million to the credit facility to the extent that the credit facility is above $20 million, and the balance is offered to bondholders in November. And then the same in the following year, except that more than likely the credit facility will be extinguished, and so the vast majority of that amortization will go to the bond. And then, similarly, in years 4 and years 5, but the total amount is $35 million.

Okay, this is very helpful. And also in your cash flow statement, you also report the movement in accounts payable and the other liabilities. So there was an outflow of $10 million. Can you please explain why did that happen? And should we expect this to unwind later in the year?

Interest on our bond is paid every 6 months. So our liability for interest, which is roughly 10% on $360 million of bonds, so it's $3 million a month. So we accumulate a payable over a 6-month period of $18 million. And then suddenly that disappears as we pay down the interest, and that's what happened in Q2. So at the end of Q1, there was a significant payable accrual for interest. And at the end of Q2, it was much smaller. And the same thing will happen in Q3 and Q4.

So maybe this is the interest payment?

I hoped you weren't going to ask that. I think it's April and October.

Yes, that's right.

It is April and October.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Ian Webber for any closing remarks.

I'm sorry, we have a follow-up question from Angus Rosborough from Park Vale.

Just a quick question for you guys. Probably a little bit tiresome as a question, but one of the things about your -- you speak a lot about your counterparty, CMA, and how good it is, so on and so forth. And one of the things that you show quite well is just that the margins for CMA as well as the industry are, for lack of a better phrase, going into a bit of a nosedive. And one of the things that we find on our side of the market is just that there's not enough separation or distinguishing between what you guys do as shipowners and what CMA largely does. And it leads to confusion, misgrouping, so on and so forth. I was wondering if you could talk a little bit about why CMA or the industry that CMA is in, why the margins are going down? And secondly, to extrapolate a little bit and tell us why their pressurized margins will not result in pressure on you guys?

Yes, I mean, we're all in containershipping, but as you imply, Angus, we're in very different parts of it. We have a slide in our main Investor Presentation which sets out the differences between liner operators, CMA CGM and the others, and vessel owners like us. Just looking at GSL, we, in the last 10 years or so, have had very stable, very predictable, very reliable earnings because we've had long-term fixed-rate charters, which our customers have honored. And that's generated significant amounts of cash, which has supported our balance sheet and our growth plans. Now we're moving into an area where we have more of our vessels exposed to the spot market conveniently at a time when that spot market is increasing, which is really good news.

CMA CGM and all the other liner companies are much more exposed to short-term market conditions, whether they be the commodities markets, fuel price, where fuel price is -- the bunker prices have gone up significantly recently and that's been an added cost pressure on all of the liner companies' results, or they are exposed to the freight markets. And whilst they can lock in freight rates on a proportion of their volume through annual contracts, quite a lot of what they do is spot and will depend on what the freight market is doing from China to North America or from China to Europe or from Europe to the U.S., West Coast or East Coast or wherever. And although the fundamentals are the same, the demand for containershipping services and the supply of ships and space on those ships for the containershipping services, at the margins, the drivers are a little different, and particularly when you get into the individual tradelanes.

The biggest tradelane in the world, the Asia-Europe tradelane, and we mentioned this on the last call, doesn't use chartered ships, or if it does, not very many of them. Most of the vessels that are deployed on that tradelane are owned ships on liner companies' balance sheets or are under off-balance-sheet financing arrangements. So you -- there's no chartered ships in that tradelane. And that's the tradelane that you see lots of commentary on, on trade rates and volumes and utilization levels, et cetera, et cetera, et cetera. And people tend to extrapolate that to the liner -- to the owner sector in the charter market, and you can't because it's not driven by the same fundamentals. But generally, you will see freight rates and charter rates moving in the same direction over time. Occasionally, they go the other way, but that's not often. That's probably not answering your...

A little bit. And the depths that we're seeing that margins are falling to, I mean, they're not quite the lows, but looking at the lines that you have on your slide, looks like that we might get close. What's their motivation not to take some of the pressure that they are feeling and turn it around to you guys?

Well, the history is that liner companies never have. If you're looking -- if you're suggesting a renegotiation of charter rates, then that's never happened. Certainly in our 10 years of history throughout the worst and most extended downturn the liner sector has ever experienced, we've not suffered from any renegotiation of rates, and there's no indication as to why that would happen again.

Okay, that's good. And I guess the last one is, is just a housekeeping one. You guys have hired a financial advisor, I think, to explore strategic opportunities. What's the status of that?

We can't comment, as you'd appreciate, on the detail. The project is still live. It's still running. And if there is news, we will let you know.

Thank you. At this time, I would like to turn the conference over -- back over to Mr. Ian Webber for any closing remarks.

Thank you all for listening. Thank you for your questions, and we look forward to giving you a further update in a couple of -- in 3 months' time on the third quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.