Navios Maritime Holdings Inc (NM) 2008 Q3 法說會逐字稿

Good morning and welcome to the Navios Maritime Holdings third quarter 2008 financial results conference call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. Instructions will be given at that time. (OPERATOR INSTRUCTIONS). This conference is being recorded.

Now, I would like to turn the conference over to Tom Rozycki, sir, you may now begin.

Thank you for joining us for this morning's call. With us today from Navios Maritime Holdings are Ms. Angeliki Frangou, Chairman and CEO, Mr. George Achniotis, Chief Financial Officer, and Mr. Ted Petrone, President. As a reminder, this conference call is also being Webcast. To access the Webcast please refer to the press release for the web address which will direct you to the registration page. Before I review the structure of this morning's call, I would like to read the Safe Harbor statement. This conference could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios' management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios does not assume any obligation to update the information contained in this conference call. Thank you.

At this time, I would like to outline the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an overview of market fundamentals. Following Mr. Petrone's remarks, Mr. Achniotis will review Navios' third quarter financial results. Finally, Ms. Frangou will offer concluding remarks. After the completion of Ms. Frangou's remarks, the company will open the call to take your questions. At this time, I would like to turn the call over to Ms. Angeliki Frangou, Chairman and CEO of Navios. Angeliki?

Thank you, Tom, and good morning to all of you. The third quarter of 2008 was a challenging quarter for our industry and the Company. Despite these challenges, I'm very pleased with our financial and operational performance. From a financial perspective, adjusted EBITDA was $58.6 million and $142.7 for the quarter and the first nine months of the year, respectively. Net income for the quarter and the first nine months of the year was $30.6 million, and $124 million respectively. George Achniotis, our CFO, will discuss our financial results in greater detail shortly.

In light of the global economic crisis, we embarked on and recently completed an exhaustive review of our business. Its capital needs and prospects for our industry. We considered what would be the best use of our cash from various perspectives. As an example, this review we have acted to trim CapEx as well as expenditures by canceling (inaudible) that do not have any associated capitalized coverage. In terms of the market opportunity, freight rate and market values are seeking new levels. However, we believe that our business model will continue to serve us well. We have consistently entered into long-term charter agreements with counter parties. We have also consistently insured these agreements through our EU backed entity with AA plus rating.

Consequently, we are optimistic about Navios' future. We are also hopeful about our industry. This has been a global coordinated response by several banks to the financial crisis which precipitated our industry paralysis. Despite prospects for a more favorable environment than the current one, our planning has been conservative and we have prepared Navios for an extended trough in the market. If we are correct in our assessment, we will be positioned for risk management in other groups to capitalize on a more robust market. If our worst fears are realized, we will be positioned to survive and prosper as well through our core fleet and COA business. At this point, I would like to review the concrete steps we have taken to prepare Navios for the current market.

As you can see on slide 4, we reduced cash commitment by canceling three Capesize buildings. None of these vessels were chartered out to third party. As an example of this cancellation, we reduced capital expenditures by approximately $265 million. The (inaudible) we taken for the canceled vessels have been reallocated to the remaining three vessels on order. The CPR has agreed to accelerate the delivery of the remaining three vessels by approximately 90 days. As the new vessels been delivered, have all been chartered out for long periods, they will be accretive to our results immediately. We pay the CPR an aggregate termination fee of a $1.5 million total.

In addition, as set forth on Slide 5, we also terminated without penalty nine long-term charters. None of these vessels will charter out to third parties. These cancellations resulted in a nine-months saving of $61 million. We have also paid significant attention to our liquidity. Slide 6 shows that liquidity as of September 30th, 2008 was favorable. Our net debt to total capitalization was 40%. We also had total liquidity available of $168 million, of which $121 million was cash on hand. In addition, after the end of the quarter, we entered into a revolving facility providing for an additional $90 million, bringing our available liquidity to $258 million.

Slide 7 sets forth the funding requirements for our new buildings that we are expecting to be delivered during 2009. As you can see, Navios needs $282 million of additional financing, which we expect to be funded with $230 million of debt financing and $52 million of equity. We expect to resolve the debt requirements shortly and George will provide an update on our long negotiation with Vios Commercial Bank. We are optimistic about completing this new loan agreement because all associated capesize vessels are subject to favorable long-term coverage averaging almost 7.5 years. Six good size vessels are subject to long-term charters with a third party and one is being used to service a long-term COA commitment. Assuming a worst case where we are unable to conclude launch due to the continuing financial crisis, we have sufficient liquidity to fund the acquisition of this vessel from our own resources. Please note, however, that this assumption is not something we consider possible at this point, but something that we simply consider in reviewing future capital requirements.

Slide 8 addresses our operating break even rate for 2009 and 2010. As you can see, 82% of our fleet is fixed for 2009 and 59% of our fleet is fixed for 2010. We have also provided our break even operating costs for the next two quarters. If one were to use this break even rate as a proxy for cost for all of 2009 and 2010, you can see even assuming zero revenue from our unfixed vessels we will still be profitable. Of course we assume we will still be able to charter off our vessels that come open during this period for an amount in excess of zero.

Turning to Slide 9, credit worthiness is perhaps the single biggest issue in our industry. We have taken two critical steps to maximize the likelihood of payment from any commercial arrangement we enter into. After all, there is no piece of paper promising significant payment if payment is not forth coming in difficult times. The first step we have taken is to establish internal committees addressing credit and market. To my knowledge, we are the only public Company that has these functions internally. Our view is that this is too important to be left to third parties and we prefer to build the knowledge base and skill set. The credit committee which makes educated policy in light of market conditions. The market committee meets daily and reviews market conditions, fleet coverage and FFA exposure. We have established internal controls governing FFA duration terms and exposure amount, and established counter parties. Today, approximately 70% of Navios' FFA rates are on a change. We anticipate that at least 80% of FFA will be in 2009 thereby reducing further our counter party risk.

Slide 10 sets forth the second step we have taken to assure payment. We have secure insurance from a AA plus rated EU governmental backed entity. This coverage gives us comfort that our hard work will result in payment in any event. This insurance covers our entire core fleet, meaning all our own and long-term fleet. And also it includes contracts of our freight. In addition, the insurance covers the entire duration of charters overall vessels including future deliveries. Thus, under this program, approximately $2 billion in total amount of revenue is covered.

Let's now turn to Slide 11. As you read in yesterday's press release, we announced the third quarter 2008 dividend of $0.09 per share. Will be December 22nd of 2008 and the payment date will be January 6th of 2009. We also announced a new dividend policy. Under this policy we anticipate that commencing from the fourth quarter 2008, we will be paying a quarterly dividend of $0.06 per share or on an annual amount, $0.24 per share. And you might be sensitive to returning capital to our shareholders. I have personally invested a significant amount in Navios and have never sold any shares. I have schedule that will allow me to purchase an additional $10 million worth of shares. Navios is increasing its share repurchase program by $25 million. The reduction of the dividend and the increase in the sale purchase program into account, we are on a net basis increasing the amount of cash being returned to shareholders by about $12 million on a tax deferred basis. I would also like to add that it is our intention to immediately begin market purchases under this program.

With that I would like to turn the call over to Mr. Ted Petrone, Navios' President, who will take you through the Company, operations and industry. Ted?

Thank you, Angeliki. Please turn to Slide 13. The Navios Maritime core fleet of 52 vessels having 5.2 million deadweight. Today we are one of the largest US-listed dry bulk fleets. Navios' 34 vessels currently in the water with an average age of 4.6 years. Our fleet, one of the youngest in the industry, has 16 Capes, 16 Panamaxes, 18 Ultra-Handymaxes and three Handys. Of our 53 vessels, 25 vessels are owned and 28 vessels are controlled through long-term charters. Navios holds purchase options on 12 of the chartered-in vessels. These purchase options are exceedingly valuable where capital is scarce. Navios also controls between 15 to 20 short-term vessels at any given time in the interest management division.

Turning to slide 14, Navios Holdings continues to lock in long-term cash flow with credit worthy counter parties. Navios' average charter out rate for vessels in the core fleet is 28,515 for 2009. This rate increases in each subsequent year to 35,917 in 2010, 37,533 for 2011 and 37,914 for 2012. In addition, 82% of Navios' core fleet is chartered out for 2009, 59% for 2010, 49% for 2011, contracted revenue is $232.7 million for 2009, $260.8 million for 2010, $229.7 million for 2011 and $204.9 million for 2012. We have insured our cash flow from an EU backed AA entity. This insurance provides coverage in the event of nonpayment. Coverage is also uniquely user friendly. No official declaration of bankruptcy or insolvency is required to trigger the payment. Payment commences effectively after nonpayment by the charter.

Please turn to Slide 15. Navios continues to enjoy vessel operating expenses which are significantly below the average. We achieved this through our in-house technical management team and by proactively maintaining our vessels. Navios' established reputation and strong operating history allow for favorable spreads between its long-term charter-in contracts and medium to long-term charter out contracts. Positive average daily spread of $18,562 for 2009, will increase to $24,988 in 2010.

Turning now to a status report on our industry, please turn to Slide 17. A confluence of events has left the dry bulk shipping market in a perfect storm. Virtually all markets suffered historical losses which started in Q3 and extended into Q4. The financial crisis, combined with the slowdown of Chinese steel demand, and associated reduction of iron ore imports sent dry bulk rates at the end of Q3 to levels not seen since Q3 2006. From a level of 9379 on July 1st, the BDI lost two thirds of its value over the course of the third quarter through the end of September. Further, the global credit crisis made it impossible to fund letters of credit, thereby effectively shutting down basic international transactions. Credit freezes almost completely halted dry bulk trades, causing dry bulk rates to drop to levels not seen since the mid 1980s. Current spot rates are reaching daily OpEx costs for vessel op-- (technical issues)

Slide 19, according to the latest IMS world GDP growth is expected to grow by approximately 3% in 2009. Will be driving growth and may for the first time account for 100%. Developed countries are projected to be in recession. China in particular has been compelling investor production over the past few years. China today is the largest consumer of all basic raw materials except oil. It consumes approximately 50% of (inaudible), 35% of steel, 34% of aluminum, 27% of copper and 24% of nickel. The urbanization after industrialization and resulting infrastructure development requires massive amounts of raw materials for steel manufacturing and power generation. This continued internal growth will continue to support commodity demand going forward and should act to buffer the Chinese economy from the economic slowdown of the developed countries.

Turning to slide 21. Was also interesting to note in terms of China is that net exports accounted for only 8.9% of the 2007 GDP. The biggest contributor to GDP were investments which accounted for 42% and household consumption, which accounted for 35%. Turning to Slide 22, emerging economies and more specifically China and to a lesser degree India take an ever larger role in world steel production. The aggregate production of Europe and the US percentages decreased from 37.6% in 2000 to 26.1% in 2007. During that period, China and India's percentage grew from 17.6 in 2000, to 38.8% in 2007.

Turning to Slide 23, new buildings. At the end of Q3 the dry bulk industry had recorded the largest order growth in history with some 288 million deadweight or 70% of the total fleet on order for delivery over the next four years, just five years ago, limited order books with no plans for expansion. The freight boom created high demand for vessels by owners and soaring new building prices. The shipyard consequently developed plans to expand existing yards and build new yards. The new vessel deliveries were scheduled to begin in earnest in 2009 with a delivery of approximately 65 million deadweight and continue in 2010 with delivery of approximately 104 million deadweight.

These deliveries are suspect for a number of reasons at this point. Prior to the financial crisis there were questions relating to the existence of necessary expertise to build the vessels at the greenfield shipyards. Today there is no financing from normal funding sources. Nor did the shipyards obtain funding from ship owners. The current credit crisis is making funding virtually impossible in many cases. Many industry insiders speculate the funding crisis will cause 50% cancellations in the order books. There are reports of over 150 new building orders already cancelled and some green field shipyards failing. With 200-plus greenfield shipyards in China and 30% of the new building deliveries in new facilities whether green or brown field, you soon may see up to 30 to 50% slippage as well as a similar percentage of cancellations.

Turning to slide 24, scrapping, a revival. The collapse in dry bulk rates has created a renewed interest in scrapping. During the past several years, scrapping has been less than 0.25%. Indeed, it's been six years since the demolition sector has seen real activity. Weak market fundamentals are now firming driving acceleration of traffic. In October, approximately 1 million deadweight of dry bulk sold for scrapping, the highest levels since July 2002. It appears that the results for November will exceed October, with activity concentrated in the Cape and Panamax sectors. Halfway through Q4, 23 vessels or 1 million deadweight have been reportedly sold for scrapping. Additionally, cost is reporting over 50 vessels with prompt delivery known to be candidates for scrapping. In sum the last quarter of 2008 may well see up to 4 million deadweight or 1% of the fleet head to scrap. More than the last four years combined. It appears 2009 could break the scrapping record of 12.3 deadweight set in 1986 and closely match 1998 total.

In conclusion, the dry bulk market is currently posting the lowest daily freight returns in a quarter century. However, with an expected significant increase in scrapping and reduction in new building construction, rates for the medium and long-term demand may firm up. Much of the deterioration in the freight rates resulted from the liquidity and credit crisis as opposed to underlying economic conditions. Now I'll pass the call over to George Achniotis, our CFO. George?

Thank you, Ted. I would now briefly review Navios' financial results for the third quarter and first nine months of 2008. The financial information that I'm about to discuss was included in last night's press release and summarized in the slide presentation on the website.

As shown on Slide 26, total revenue for the three months of operations ended September 30th, 2008 increased by 74% to $371.3 million, as compared to $212.9 million for the comparable period of 2007. Revenue from vessel operations for three months ended September 30th, 2008 grew by 61% to $337.7 million, as compared to $210.1 million for the same period during 2007. The increase in revenue is mainly attributable to the increase in the average time (inaudible) and the increase of the available days of the combined long and short-term fleet. The average TC rate excluding (inaudible) for the quarter was $49,769 to date compared to $31,122 to date for the same period last year, an increase of 60%. The available days of the fleet increased by 16% from 5,207 days in the first quarter, in the third quarter of 2007, to 6,036 in the same period of 2008. Revenue from Navios Logistics was $33.6 million the third quarter of 2008 versus $2.8 million in the third quarter of 2007. The increase was mainly attributable to the acquisition of the Horamar Group in January 2008. Gains were $5.2 million during the three months ended September 30th, 2008 compared to $10.2 million in the same quarter of 2007. We recorded a change in fair value of derivatives at each balance sheet date. The FFA market, similar to the physical market, has experienced significant volatility in the past few months and accordingly, changes in fair value can cause significant volatility in earnings.

The extent of the impact on earnings is dependent on two factors, market conditions and Navios' net position in the market. Due to the recent volatility and the reduced liquidity in the market our hope is near-term. EBITDA for the third quarter of 2008 was adversely affected by a $1.6 million non-cash write-down, relating to the accounting of the acquired in connection with the IPO of Navios Acquisitions. Excluding the effect of this item, adjusted EBITDA for the third quarter of 2008 was $58.6 million compared to $57.9 million in the same period of 2007. The increase in EBITDA was attributable to the sale of five vessels in the last quarter of 2007. EBITDA for the quarter was also negatively affected from the sudden drop in the market due to the timing of cargoes and short-term vessels. This was compounded by the accounting of voyages at the end of quarters where we recorded today loss on the voyage the day that it begins, whereas we recorded profit on a voyage on a pro rata basis.

A $0.7 million increase in adjusted EBITDA was mainly attributable to an increase in revenue by $168.4 million between the third quarter of 2008 compared to the same period of '07, and increasing equity and earnings from affiliate companies by $3.6 million, mainly due to the earnings from Navios Partners. And increasing gain from the sale of assets by $24.9 million due to the sale of the Navios Aurora One to Navios Partners, and a decrease in direct vessel expenses by $0.6 million. The above increase of $187.5 million was mitigated mainly by an increase in time charter voyage and reduced business expenses by $174.8 million. A decrease in gain of FFA trading by $5 million. An increase in general and admin expenses by $4.5 million, mainly due to the acquisition of Horamar, the introduction of a new bonus scheme for the employees of the group which became effective in the last quarter of 2007, and the cost of the credit default insurance which was also set up in the last quarter of 2007, an increase in minority interest of $0.9 million, and a net decrease in all other categories by $1.6 million.

The EBITDA contribution from Navios South America Logistics was $8.9 million in the third quarter of 2008 compared to $1.7 million in the same period of 2007. The increase is mainly due to the acquisition of the Horamar Group in January of '08. Net income for the three months ended September 30, 2008, was $30.7 million, compared to $36.5 million for the same period in '07. The decrease of net income of $5.8 million is mainly attributable to a $6 million increase in depreciation, amortization expense primarily due to the effects of purchase price accounting of the Horamar acquisition, a $1.1 million decrease in interest income, a 0.1 increase in amortization, the $1.6 million unrealized loss on the Navios acquisitions warrants and a $0.7 million increase in share based compensation expense due to the scheme which became effective in the last quarter of '07. The decrease was mitigated by $0.7 million increase in adjusted EBITDA, a decrease in interest expense by $1.1 million, and a $1.9 million decrease in income taxes.

As mentioned earlier, time charter and voyage expenses increased by $174.8 million in the three month period ended September 30th, 2008, compared to the same period in '07. This was primarily due to the increase in market rates, which negatively affected the charter in expenses relating to Capesize vessels, service and related COA basis, the increase in the short-term fleet activity, and the acquisition of Horamar which had a further impact of $20.7 million. Direct vessel expenses for the operation of the fleet decreased by $0.4 million to $6.5 million for the three month period ended September 30th, 2008, as compared to $6.9 million for the same period in '07. Direct vessel expenses include crew costs, provisions, second engine stores, oil, insurance premiums and maintenance and repairs. The decrease resulted primarily from the net reduction of the on fleet by the third quarter of '08 compared to the same period of '07.

Turning now to the nine month results, revenue for the nine months ended September 30th, '08 increased 136% to $1.064 billion as compared to $449.9 million in the same period of '07. Revenue from vessel operations for the nine months ended September 30th, '08 was $983.4 million, compared to $442.2 million for the same period in '07. The increase in revenue is mainly attributable to the increase of the available days of the fleet. The average TCA rate excluding (inaudible) for the first nine months of '08 was $47,798 per day, compared to $25,561 per day for the same period last year, an increase of 87%. The available days of the fleet increased by 37% from 13,125 days in the first nine months of '07, to 18,040 days in the same period of '08. Revenue from South America logistics was approximately $80.5 million in the first nine months of '08 compared to $7.7 million during the same period of '07. This is mainly due to the acquisition of the Horamar Group in January of '08.

As mentioned earlier, EBITDA for the first nine months of '08 was adversely affected by the $1.6 billion non-cash write-down relating to the acquisition accounting of the warrant supplied in connection with the IPO of Navios Acquisitions. Excluding the effect of these items, adjusted EBITDA for the first nine months of '08 was $142.7 million, compared to $135.1 million for the same period in 2007. The increase in EBITDA was achieved despite the sale of five vessels last quarter of '07. As I explained earlier, EBITDA for the nine month period was negatively affected from the sudden drop in the market due to the timing of cargoes short-term vessels. This was compounded by the accounting of loss-making voyage at the end of quarters, which we recorded total loss on the voyage the day the trip begins whereas we record profit on the voyage on a pro rata basis.

The $7.6million increase in adjusted EBITDA is mainly attributable to an increase in revenue by $614.1 million between the first nine months of 2008 compared to the same period of 2007. An increase in equity and earnings from our (inaudible) by $10.8 million, mainly due to the earnings from Navios Partners, a decrease in direct vessel expenses by $2.1 million, and a gain of $27.7 million from the sale of assets. The above increase of $654.7 million was mitigated mainly by an increase in pan charter voyage and logistics business expenses by $625.1 million, between the first nine months of 2008 compared to the same period of '07. An increase in general and admin expenses by $12.6 million, mainly due to the acquisition of Horamar, introduction of a bonus scheme for the employees of the group which became effective in the last quarter of 2007 and costs of the credit default insurance, which was also set up in the last quarter of 2007. The $3.8 million decrease in gains from FFAs, an increase in minority interest by $2.7 million, and a net decrease in all other categories by $2.9 million.

EBITDA contribution from Navios South American Logistics was $21.1 million in the first nine months of 2008 compared to $2.9 million in the same period of 2007. The increase is mainly due to the acquisition of the Horamar group in January 2008. Net income for the nine month period ended September 30th, 2008 increased by 67% to $124.1 million, compared to $74.5 million in the same period of 2007. Net income for the first nine months of 2008 was positively affected by $57.2 million write-off of deferred taxes. After the effect of these items, adjusted net income for the first nine months of 2008 was $66.8 million, compared to $74.5 million in the same period of 2007. The decrease of adjusted net income by $7.7 million was mainly attributable to the $19.8 million increase in amortization expense, primarily due to the effect of purchase price accounting of the Horamar acquisition, a $2.2 million increase in share based compensation expense due to the employee bonus scheme which became effective in the last quarter of 2007, the $1.6 million unrealized loss due the accounting of the Navios acquisitions warrants and a $0.1 million increase in amortization of deferred dry dock expenses. The decrease was mitigated by $7.6 million increase in adjusted EBITDA, an increase in interest income by $1.4 million, a $2.7 million decrease in interest expense, and a $4.3 million decrease in income taxes.

Turning to the next slide, number 27, I will highlight key balance sheet changes between September 30th, 2008 and December 31st, 2007. Navios' cash and cash equivalents balance excluding restricted cash on September 30th, 2008 was $121.2 million versus $427.6 million at the end of December 31st, 2007. The cash is mainly attributable to the acquisition of the Horamar business in January of 2008, the exercise of purchase option for the acquisition of the Navios Orbiter, the advanced payments to GPS for the Capesize vessels under construction and the cash used for the share buyback program. Total assets grew by $235 million to $2.2 billion, Reflecting primarily the acquisition of Horamar. The exercise of the purchase option for the Navios Orbiter and the addition of the vessel into the fleet from the long-term fleet. And the payment of additional installments for the construction of the new capes.

The long-term debt including the current portion increased by -- increased to $455 million at September 30th, 2008, versus $316 million at December 31st, 2007. Due to a new loan obtained for the expansion of the Navios South American Logistics fleet. We assumed debt following the Horamar acquisition and draw down of one of our facilities for installment of the new building program. The net debt to book capitalization ratio remained low at 40% as of September 30th, 2008. I would like to point out that since our vessels were acquired through the exercise of favorable options, they are reflected in our balance sheet at values between 19 and $26 million each, which are below the current market values for these vessels.

Turning now to Slide 28, Angeliki talked about the capital expenditure earlier. On this slide we break down the CapEx requirements between 2008 and 9. I would like to highlight some of our points. We only have $11.1 million outstanding CapEx for the rest of 2008 which can be financed out of existing cash on our balance sheet. In 2010 we have no commitments. And 2009 payments will take place the second half of the year. It is also important to know is that we are in negotiation was the banks in order to obtain financing for the biggest part of the $282 million of required financing. We will inform you once these are finalized.

Turning now to Slide 29, the Company has recently entered a new revolving facility of up to $90 million which can be used for general corporate purposes. The facility is for a minimum period of two years, subsequent extension periods. This enhances significantly our liquidity position in this difficult financial markets. This concludes my review of the financials. At this time, I would turn the call back to Angeliki.

Thank you, George, and this completes our formal presentation. We are opening the call to questions.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from Jonathan Chappell from JPMorgan. Please go ahead.

Thank you. Good afternoon. Angeliki, my first question is on the cancellation of the charter in fleet. How are you able to cancel those at no cost? Did it have to do with the fact that maybe the ships aren't going to be built? I notice they're not for delivery in 2010, 2011, was there a yard issue there or was it just your relationship was able to back out of these contracts? And finally, what does that mean for the industry as far as maintaining long-term charter ins?

First of all, the vessels, this was in Q4 of 2009 and Q1 2010. Remember, we didn't have any of our new building program going beyond Q1 2010. So the reality is that we realized as early as August that market conditions were changing and we did not want any unhedged position because this is the biggest risk for our Company. So we immediately started negotiation and because we knew that the moment this started, a lot of companies will follow. So our advantage in this was to early negotiate the constellations. Because today you have almost every Company going there, negotiating, which we may not be able to get the same favorable terms. So this way we canceled the three vessels. They were totally unhedged. And then we continued on the chartered-in vessels. Those vessels we had no payments down but moved from our open days which in essence created much more visible for us, we have the maximum visible in front of us. We know exactly how 2009, 2010 is developing and also clearing up 2011. This is the biggest benefit of Navios, that by having clear book, today we have fully hedged on our position. If we consider zero income on our open days in 2009, which I don't believe we, higher numbers, we will have a delta of $20 million. So I think this puts us in a very comfortable position.

And I know with your credit default insurance this isn't an issue that's necessarily going to directly impact Navios, but with your ability to back out of the nine charter in vessels at no cost, do you think that's something that could be more prevalent in the industry, more contract defaults?

Listen, I believe that a lot of cancellations will happen. There's going to be cancellation from shipyards and owners across the board. As well as what we experienced and we are hearing today, a lot of dry dock owners are converting vessels to tankers, thinking that the prospect of the tanker market is better than the dry. So what I'm -- what we will be seeing and you will see this developing in Q1 and Q2 next year, because it will take time to really see the book, is going to be changing dramatically on the dry sector. I think that whatever we are looking at long-term, it may, 50% of the delivering.

Okay. Can you talk about your risk management business, what you're -- have you been lessening your exposures to FFAs given the volatility in that business and also it looked like your short-term charter in was about 51% of your total operating days. Are you trying to lessen your exposure to short-term charter-in in this weaker market as well?

The short-term market is, is coming to conclusion on this one here we have. One thing that happens, huge volatility that we have experienced and with a lot of financial place going out of the market on FFA market, the liquidity has dried up, so our corporate position today is that our FFAs, is limited and almost no book because of the liquidity of the -- even though you may have volatility, that may sound exciting and make money, in this market you've got to take positions where you can exit. So today operating book is on FFA. Our COA book, we position ourselves in 2009 is we have a variable in our premium COA book that in the current market conditions it will develop for us a very nice asset that will be able to generate what we are contributing on our risk management team, via a COA book for 2009.

That's actually a good transition to another question is we've been read ago little bit about COA agreements being cancelled. Have you heard anything from your counter parties on the COAs particularly if they'd be in the money for you?

Yes, the COA will have an extremely large entities publicly, huge entities. And as you have noticed our COAs are also insured.

Right. Okay.

So $2 billion approximate insurance revenues is also all our COAs which means if any counter party wants to renegotiate with us we have to first clear it with our insurance Company if we want to mitigate losses. So unless we get that permission, there is no reason for us to renegotiate.

Okay. Final one for George. It looks like in the EBITDA reconciliation table that cash provided by operating activities was a negative $82 million in September in the third quarter. What's behind the big loss in operating cash flow in the third quarter?

As you know, in the previous quarters, through the trading we did through clearing houses, were in the position and we received basically cash out of the clearing houses. Now we have paid in the last quarter more than $140 million in the clearing houses and we expect to receive cash back from that.

Okay.

Created this cash flow.

All right.

One of the things that I would like to add in this is after -- first of all, the value of the contracts are now decreasing. We are going from a Panamax environment of $70,000 per day to Panamax environment of $15,000 per day. The contract are reduced. We do not perceive that on everything will be using so much trading as the market will be far more liquid. There's working capital readjustment on our position. So cash from that division will be reallocated to our main business so we are looking at about 80 to $100 million reallocation by this method.

Very helpful. Thanks, Angeliki, thanks, George.

Our next question comes from Natasha Boyden from Cantor Fitzgerald.

Good morning, everybody.

Good morning.

Hi. I just wanted to dig a little further into some of Jonathan's questions on the Cape cancellation. Regarding the Capes, is there any specific reason why the cancellation fee was so low?

I think we have to do the job.

I understand that. Don't get me wrong. We're very pleased with it. We've seen other companies walk away and they had to pay -- or they've had to leave behind a much larger piece of, say, deposit and $1.5 million seems to be really, really low for three Capesizes. Was that something you managed to negotiate and I'm just wondering why the yard would let three capes go for such a low fee? What's their motivation?

Let me explain. The difference you saw in some of the cancellations was the companies did not negotiate directly with the yards. What they did is they abandoned the 10% they had given to the counter parties that had acquired the contracts. The difference on this is as we negotiated, we went and negotiated very early on and very quickly, because when you see market deterioration you have to decide on moving away from your unhedged and unfixed positions. You have to not be emotional about it. So that one thing we did is immediately we went and we start negotiating directly with the yards. That is the difference on, termination of a $1.5 million. Also, we provided assurances that we will get delivery on the vessels that we have agreed and this created a very profitable environment because we did not disrupt very much that program. They could organize their production line. You made sure that the vessels that you cancel or related ones, which anyway they had not started the work. In any event, you were giving them a very advanced notice, a very timely manner. So I think this was the strategy and the way we had also worked our charters, it gave us opportunity to actually move everything a little bit forward.

Right. So nobody's losing out?

Yes.

Okay. Now, just moving on to the Handys, those were chartered in whereas the Capesizes were owned. In cancelling those vessels, who actually cancels them? Is it the owners of those vessels or you? Because obviously at that point you're not negotiating with the yard, right, because they're not the owners of the vessels.

We're negotiating with owners of the vessels, negotiating with the yard. We explain to them that we will have also, will be losing if they take delivery of this situation and we manage to persuade them that it needs to be cancelled.

Okay. Fair enough. Okay. Great. I just want to move on to the dividend here. Or the dividend cut. You mentioned that you just had a line in your press release that your banks are able to limit your dividend payout. Did you have any pressure from your banks at all to limit the dividend there?

No, because I want to remind everyone that it is only dry bulk Company that has a bond outstanding which is a permanent amortizing part of her debt. This created a much more flexible situation for us because you realize we have not the same requirement, loan to value calculation, our whole debt structure and also we have a harmonized covenant package as we follow a consistent covenant package for all of debt following bond. On the overall position, the way we look in the bulk in Navios, we had to review 2009. We know 2009 is going to be a very severe year from the -- even restarting the economy will take some time. So looking at the situation, we had to take -- even though our financial condition is in good shape and our balance sheet is in good shape, we have to look overall and designing the dividend, we've been pretty much consistent over the years in Navios holdings. We also show up that we will enhance the dividend payment with a repurchase of $25 million buyback program. So the overall target is $12 million higher than our dividend for this year.

Okay. Great. And then I just wanted to, George, maybe this is a question you can answer. You may have addressed this but I think I may have missed it. Just looking towards the balance sheet, your debt increased, your cash position decreased by about $163 million. Could you just let us know what you used cash for during the quarter to -- just let us know why the cash decreased by that much?

Well, the biggest use of the cash was for additional payments to the shipyards.

Okay. Great. Yeah, that's what you mentioned that. I think I just missed it. Lastly, the $90 million credit facility, is there a reason why you chose this amount as opposed to a larger facility, just kind of seems like a fairly small amount and if you would just let us know the credit spread on that.

(multiple speakers) This was done in the middle of the whole crisis, give us an additional safety guard. What we cared about is to have $268 million of cash liquidity in order to cover almost all our new building programs. So if I was reluctant I'm doing it in Q1 or end of the year, would have been much easier. We managed to do this in a very short period when the spreads were going crazy and the banks didn't want to hear anything about lending.

I'm just used to bigger and better from you. What's the spread on that facility, George?

It's 275 basis points.

Okay. Great. Thank you very much.

Thank you. Our next question comes from Omar Nokta from Dahlman Rose. Please go ahead.

Thank you. Good morning, guys.

Good morning.

I just want to revisit just the three Capesize cancellations because it does seem like a really good deal to walk away with just $0.5 million fee for each. What was the order price for those?

Around $90 million, something like that, on average.

$90 million?

Yeah.

Okay. And is that something that other -- do you think other dry bulk companies can do that if they're dealing directly with the yard. I know you addressed the question before that people were dealing with resales. But is that how easy it is to just walk away?

Nothing is quite as easy.

I would understand that your other orders there is basically what allowed that to happen?

Yes.

And just switching gears, just to the short-term trading business, you guys --

Let em explain that we are a Company that they know will do business in the future. You will do future business and that's the way it works.

Yeah. Understood. And just with respect to the short-term business, looks like you guys missed earnings from that. Did that business operate basically at a loss during 3Q?

George says the revenue was about a $14 million delta. Majority, there is some accounting issues of how you recognize revenues if you have a loss, you have to recognize in the quarter and immediately and then the benefit you get for the following quarter and also don't forget that within the quarter you had -- if you had a balance for the quarter on cargoes and vessels, fixing the cargoes in the beginning of the quarter and the vessels in the eastbound end of the quarter you had a delta of 80% so there was a huge volatility within that quarter that is unusual for any market conditions.

Okay. What should we expect for 4Q? Should we expect a positive result or negative?

We have a very good book now. We expect that 2009 will be a very positive year for us, the short-term fleet.

Finally, with the FFAs I know you mentioned that 70% is exchange traded right now. How do you feel about the remaining balance of that? There's been a lot of worrying, concern that come settlement day there will be some defaults. Is there any bad debts that you expect to see?

One of the issues that we show, usually companies are going to default they will see their book, will show up going back. We make a decision when we show their books we're not covering or the Company's not covering. I find it unusual that they will make the October and then they will not make the following settlement. Also, very nice within the industry initiative of doing a multi netting so I don't know if you're aware but that happened on by about 40 counterparties in October and this is something that the industry is moving, is going to be nothing in November and this creates the whole issue of millions of dollars moving around for individual netting. So this is the initial of two settlements, November and December, because after that we don't have really a lot of exposure.

Okay. All right. Great. Thank you so much.

Our next question comes from Urs Dur from Lazard Capital Markets. Please go ahead.

Hi, good afternoon.

Good morning.

Where was I going to be here. I guess this is more for Ted to talk a little bit about what we're seeing now in the shorter term markets. I know there's been a lot of questions about the COA business but you guys really have your finger on that pulse. What is the influence of the credit markets going forward, the trade credit markets going forward for the remainder of the year, what's your outlook there?

Well I think as everyone knows, obviously the banking system is in some turmoil here and this letter of credit is going to take some time. There was a meeting in Geneva the other day, not a lot of news came out of that but it looks like it's starting to thaw a little bit. You can see some pickup on the Panamaxes and the Handys. On the coal and iron ore I think it's pretty much stuck in the ground. A lot of the iron ore isn't moving, period. We don't see a lot of things happening in the market in the next four to six weeks.

Okay. Very good. Little detail question here. How much of the -- you expanded the share buyback to $25 million further. How much is total remaining then? Is it the 25 plus what's remaining?

It's $25 million.

It is just 25. Okay. Very good. And I mean, everything else for me really has been asked. Thank you very much.

Thank you.

Next question comes from John Parker from Jefferies. Please go ahead.

Hi, guys. Looks like your revolver availability was brought down a little bit. Is that a function of the declining fleet value or is that just a function of something else? Because it's $120 million facility and you said in your presentation you have $97 million facility.

We used part of the revolver after the end of the quarter for the acquisition of the Handymax business in the middle of October.

What is the size of your -- not the new facility, the old facility, I thought it was $120 million.

$108 million.

I'm sorry, could you repeat that?

The previous facility is $108 million.

Okay. That remains unchanged?

That remains unchanged, reduced every year by a prearranged amount that was determined when we did our loan agreement in 2006, 7, whenever we did it. 2006.

Okay. And the two construction loans that you were able to secure before things got really ugly here, are those still available at the same amounts they were negotiated at or have those been reduced at all?

No, they have remained.

Okay. Can you tell me how much is drawn on those facilities right now?

We'll give you that, but one thing you have to understand is the new building vessels that we have in our facility are tied to -- our vessels arrive a ten year base, five year base or seven year base. So all of these vessels are hedged. It's a totally hedged position for the banks because they know they will receive their money, they also have AA-plus insurance.

And from the old facility, for the acquisition of the Handymax as I mentioned earlier. Now we have the new $90 million which is undrawn.

I can get to you later on the other balances. The other question I had was in part negotiation of the shipyards, was there any acceleration of payments on the remaining ships or were the payments that went out what already had been planned for the ships that remained in the new build program.

There is no change in the timing of the payments.

Okay. Thank you very much for your help. That's all I have.

Thank you. This concludes today's Q&A session. At this time I will turn the call over to Ms. Angeliki Frangou for closing comments.

Thank you very much for attending the Q3 call.

That concludes the Navios Maritime Holdings third quarter 2008 financial results conference call. You may now disconnect your line. Thank you.