Navios Maritime Partners LP (NMM) 2012 Q2 法說會逐字稿

(audio in progress) this morning's second-quarter and first-half 2012 earnings conference call for Navios Maritime Partners. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou, EVP of Business Development, Mr. George Achniotis and Chief Financial Officer, Mr. Stratos Desypris.

The conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime Partners' website at www.Navios-MLP.com and you'll see the webcasting link.

I would now like to read the Safe Harbor statement. This conference call can contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in the conference call. Thank you.

At this time, I would like to review the agenda for today's call. First. Ms. Frangou will offer opening remarks. Next, Mr. Desypris will provide an overview of Navios Partners' second-quarter 2012 financial results. Then Mr. Achniotis will give an operational update and an overview of market fundamentals. Finally, Ms. Frangou will offer concluding remarks and will open the call to take your questions. I would now like to turn the call over to Angeliki Frangou, Chairman and CEO of Navios Maritime Partners.

Thank you and good morning to all of you joining us on today's call. I am pleased with the results of the second quarter of 2012. We increased the (inaudible) by 18% and net income by almost 24%. We also increased our annual distribution by $0.01 and announced a quarterly distribution of $0.4425 per unit. The increased distribution represents an annual distribution of $1.77 and a yield of approximately 13%.

As you can see from slide 2, Navios Holdings as sponsor owns about 25% of the equity of Navios Partners. As a result of recent acquisitions, Navios Partners now has a fleet of 21 vessels. Navios Partners has a market capitalization of about $850 million and an enterprise value of about $1.1 billion. Our consistent performance has enabled continued access to the capital markets and we have enjoyed an ability to grow our Company and our fleet.

Please turn to slide 3. Today, we announced the acquisition of three vessels. These acquisitions represent the next step in the evolution of Navios Partners. The first vessel was acquired for $65.5 million through a drop-down from our sponsor. The Navios Buena Ventura is a 2010 South Korean built Capesize vessel and it is chartered out at $29,356 net per day until October of 2020. Navios Partners will also have a 50/50 profit sharing once the reference rate exceeds $38,500 per day. The Navios Buena Ventura provides long-term cash flow and stability to our income statement and balance sheet as the contract is insured with a AA-rated insurance company in the EU.

We also acquired two vessels from the market for purchase prices that we view as attractive today and in the longer term. We purchased the Navios Soleil for $20.650 million. The Soleil is a 2009 South Korean built Ultra-Handymax. It has been chartered out for four months at $13,300 net per day until November 2012.

We also purchased the Navios Helios, a 2005 Japanese built Panamax for $20.8 million. She has been chartered out for $9,738 net per day until September of 2013. I would like to point out that we are profitable even at these low charter rates. Thus, these vessels will not only serve Navios Partners during the current difficult market, but will also preserve the potential for significant additional distributions in an improved market environment.

We funded the acquisition of these vessels from $72.1 million equity raising concluded in May of 2012. We estimate that we will also include about $44 million of bank financing with a term of 5.5 years, amortization of 12 years and a margin of 350 basis points. While this will increase the amount of our nominal debt slightly, we are conservatively financed with a net debt to charter adjusted asset ratio of about 32% as of the end of the quarter.

We look at the acquisitions individually, but we still consider how they will work together for our Company. As you can see from slide 4, these vessels will add about $12.8 million of EBITDA and $9.3 million of operating surplus annually. The two smaller vessels with short charter durations provide positive cash flow generation as their all-in cash breakeven is $8,905 per day. Of course, all of these vessels provide the potential for significant upside, the long-term charter vessel with a profit-sharing mechanism and the other two from the short duration of their charters. And while it isn't clear over what timeframe they may become more robust, we think we are closer now to the bottom of a cycle.

Turning to slide 5, we have multiple avenues for growing our distributions. Since our IPO in November of 2007, we have grown distribution by almost 27% in our fleet by 261%. We have achieved this with assistance of our sponsor through various drop-downs and the exercise of purchase options on our chartering vessels.

Most recently, we have been surveying the opportunities in the sales and purchase market and we will continue to use this market to improve our fleet as opportunities arise. At this point, I would like to turn the call over to Mr. Stratos Desypris, Navios Partners' CFO, who will take us through the results of the second quarter. Stratos?

Thank you, Angeliki and good morning, all. I will briefly review our unaudited financial results for the second quarter and six months ended June 30, 2012. The financial information was included in the press release and is summarized on the slide presentation on the Company's website.

We continue to demonstrate significant increases in our operating metrics reflecting the accretive growth of our fleet. Our operating strength has enabled us to increase our quarterly distribution to $0.4425 per common unit, equivalent to $0.01 on an annualized basis.

As shown on slide 6, revenue increased by 7.4% to $49.1 million, mainly due to the 113 more available days for the second quarter of 2012 compared to the same quarter of 2011. EBITDA increased by $5.6 million, or 18.2%, to $36.4 million for the second quarter of 2012 as compared to $30.8 million for the same quarter of 2011.

Net income increased by $3.2 million to $16.7 million. The increase in net income is mostly attributable to the increase in the number of vessels and available days and was adversely affected by a $1.7 million increase in depreciation and amortization expense. Of this amount, $1.2 million relates to the amortization of favorable leases attached to the acquired vessels. This variable of this component is amortized over the remaining duration of the charter-out contract as opposed to the longer remaining useful life of the vessel. Operating surplus for the quarter was $29.5 million, 2.8% higher than the corresponding quarter in 2011. Our fleet has performed well in the quarter. Vessel utilization was 99.9%.

Moving to the six months operations, time charter revenue increased by $8.6 million to $97.1 million mostly because we have 311 more available days. EBITDA increased by $10 million, or 15.8%, to $63.2 million for the first half of 2012. Net income increased by $3.5 million, or 11.6% to $33.6 million. The increase in net income is mostly attributable to the increase in the number of available days and was adversely affected by $4.8 million increase in depreciation and amortization expense. Operating surplus for the six months ended June 30, 2012 was $59.1 million, which is 7.1% higher than the corresponding period in 2011.

Turning to slide 7, I will briefly discuss some key balance sheet data for June 30, 2012. Cash and cash equivalents, including restricted cash, was $52.2 million. Total assets grew to $936.5 million. Long-term debt, including current portion, decreased by $35.6 million, reflecting the debt repayments made during the period.

From the total amount, $600,000 was paid during the second quarters with approximately $1.3 million remaining for the second half of 2012. Net debt to asset value on a charter-adjusted basis decreased to 31.6% at the end of the quarter, mainly due to the addition of the Navios Buena Ventura. We were able to reduce our net debt ratio despite the decrease in vessel values in the market generally and maintain an at or below leverage ratio. As of June 30, 2012, Navios Partners was in compliance with the financial covenants of its credit facilities.

As on slide 8, our Board of Directors approved an increase in the second quarter's cash distribution to $0.4425 per common unit. This represents an increase to our annual distribution of $0.01, a 26.4% increase over our minimum quarterly distribution. The record date for the distribution is August 8 and the payment date is August 13, 2012. Total distributions for the quarter amounted to $27.6 million. Our distribution coverage is 1.07 times given the 4.6 million units we issued in May. The associated revenue from the acquisitions of the three vessels will be reflected in Q3 onwards. Excluding the effect of these units, our distribution coverage would be 1.16 times, which reflects what we anticipate when the vessels will be in full service.

For US tax purposes, a portion of our distributions is treated as a return of capital. For 2011, the percentage of annual distributions that we consider as a return of capital was up approximately 42.3%. Also for US tax purposes, Navios Partners reports the cumulative annual distributions to come on unitholders on Form 1099.

On slide 8, you can see that we have consistently paid quarterly dividend distributions since our inception in November 2007 uninterrupted by market conditions. Furthermore, we have increased our quarterly dividend distributions nine times since 2008, which represents an average increase of [$1.77 per quarter]. Our current annual distribution of $1.77 provides for an effective yield of 12.6% based on yesterday's closing price.

Slide 9 demonstrates our strong relationship with key participants in our industry. We have collated charters with another remaining period of approximately 3.5 years. These charters are spread among a diverse group of counterparties. In addition, we have insured our charter contracts for credit default with AA-rated European Union insurance company.

As shown on slide 10, our fleet consists of 21 vessels, seven Capesize, 12 Panamaxes and two Handymax vessels. Our fleet has an average age of 5.6 years as compared to the industry average of almost 11 years. We have currently contracted 99% of our available days on a charter-out basis for 2012 and 78.3% for 2013. The expiration dates are staggered and the charter durations extend to 2022 at the latest. I now pass the call to George Achniotis, our Executive Vice President of Business Development, to discuss the industry section. George?

Thank you, Stratos and good morning, all. Please turn to slide 12. World GDP continues to be driven by developing economies. Developing economies now contribute a high percentage of total world growth and their developed economies, representing over half of the global consumption of most commodities. The IMF expects this trend to continue for the foreseeable future.

The IMF recently lowered its forecast for world growth to 3.5% for 2012 and 3.9% for 2013. Emerging economies are projected to grow at 5.6% in 2012 and 5.9% in '13. The IMF lowered its forecast due to the continuing euro crisis and a slowdown in China, India and Brazil. The IMF now expects the Chinese economy to grow at 8% in 2012 and 8.5% in '13. India's economic growth is expected to be 6.1% in 2012 and 6.5% in '13.

Moving to slide 13, the development and urbanization of the western and central parts of China will contribute significantly to steel consumption in 2012 and onwards. Infrastructure, housing construction and consumer spending growth will underpin development in 2012 and beyond. Crude steel production in China for the first half of 2012 totaled 356 million tonnes or about 1% more than in 2011. Even with supply disruptions in Brazil and Australia, China imported 367 million tonnes of iron ore through June, about 10% more than the same period last year.

China also imported 64.2 million tonnes from miner exporters in the first five months of 2012, up 17% over the same period last year. Future growth in worldwide iron ore imports will be constrained until new iron ore mines and expansion projects become operational. Over the medium to long term, minors are investing in additional production. The chart on the upper right depicts potential new iron ore mining capacity above the 500 million tonnes per annum on a cumulative basis through 2014. These expansions will increase the tonnes carried and tonne miles.

Turning to slide 14, India has taken initial steps to industrialize and urbanize. As you can see on the lower right-hand chart, India is expected to increase its urban population to 590 million people by 2030. That means India will have to build about 1.5 [New York Cities] per year during that time.

To keep pace with expanding (inaudible) electricity production, Indian coal imports shown on the left-hand chart have increased at a 25% compound annual growth rate since 2006. According to the Central Electricity Authority of India, substantial demand will continue as 65% of current planned new power generators will be coal-fired. India currently generates 74% of its power using coal. As a comparison, the US uses coal to generate about 40% to 45% of its electricity. India now imports about as much coal as the UK, Italy, France, Germany and Spain combined. Indian companies are buying coal assets globally to assure future supplies to meet projected growth.

Turn to slide 15. Low freight rates, expensive fuel and high ship scrap prices led to a surge in scrapping in 2011 and so far this year. Scrapping rates for older, less fuel-efficient vessels have continued to accelerate this year. Through July 20, about 17.9 million deadweight tonnes was scrapped. This represents an annual scrapping rate of over 32 million tonnes or close to 5.3% of the fleet. The current rate environment should keep scrapping levels high as over 8% of the fleet is 25 years of age or older and 14% of the fleet is over 20 years old providing about 93 million tonnes of scrapping potential. Of note is that the current 2002 scrapping totals include 12 ships that were between 15 and 20 years old. Demolition prices appear to depend on other steel prices and not on the supply of vessels.

Moving to slide 16. Non-deliveries continue to be a substantial part of the drybulk order book. Through June, non-deliveries amounted to 34% as newbuilding deliveries were 56.1 million deadweight tonnes against an expected 85.4 million tonnes. Fleet additions this year are expected to be about the same as 2011, but net deadweight tonne growth should be lower after scrapping is taken into account. The order book declines dramatically in 2013 and beyond.

Please now turn to slide 17. The BDI rose in the second quarter an average 1024. However, the first-half average of 943 was the lowest since 1999. Panamaxes and Supramaxes both showed higher earnings in Q2 than Q1 while Capes earnings in Q2 slipped below Q1 levels. Adverse weather and [echoed] quarterly additions to the fleet were among the reasons for Capes remaining the lowest earning asset class.

Iron ore shipments from Australia and Brazil returned to normal seasonal levels at the end of Q2. Grain and coal shipments held steady, which led to relative stability in Panamax and Supramax rates. Through Tuesday, the BDI was about the same as it was at the end of Q2 due to slightly increased Cape and Panamax rates tempered by modest rate reductions in Supramax and Handysize vessels.

Weakening worldwide steel production, along with the US drought, rising vessel supply and seasonality provide little confidence for rate improvement in the near term. However, lower charter rates should induce more scrapping, which is expected to be seen in September. This concludes our presentation. I would now like to turn the call over to Angeliki for her final comments.

Thank you, George and we open the call and this completes our presentation and we open the call to questions.

(Operator Instructions). Michael Webber, Wells Fargo.

Good morning, guys. How are you?

Good morning.

I wanted to jump in and talk about the acquisitions first and Angeliki, the two, third-party acquisitions seem obviously a bit outside the norm for you guys. I'm just looking to get a little bit more color in terms of the rationale. In terms of incremental leverage to a recovery, if you look at your all's coverage ratios, you kind of already have some levers to that recovery. And the accretion is there in the near term, but it does add some more market exposure. Just curious as to how and why and in terms of specifically using your cash on these kinds of assets, maybe just a little bit of color and then maybe what is out there in the market. Maybe this is the only thing that is out there. Just a little bit of color around the deal.

I think this is a good question and it is also representing new steps for Navios Partners. What we are trying to do is that we are trying to acquire attractive assets, replace -- it lets us have ability to have new vessels that we acquired at attractive rates and we can replace our older fleet at the later stage. So your acquisition at a very attractive point in the market, but also what is very, very important is that your all cash-in breakeven is approximately $8,900 per day.

So in the current charter rate environment, it is very accretive and creates a free cash flow generation of over $0.01. For every $1000 that we fix above our all-in cash breakeven, we have over $0.01 of free cash generation in all units that are outstanding, which is extremely good because you saw that we fixed the one vessel for -- the one vessel is at about $13,300 for five months and the other vessel was fixed for about $9,700. So automatically, it is accretive today. You have free cash flow today and as rates recover, this will give you a better opportunity.

This is vessels that we are not going to fix in long term. Meaning we are not going to do it in today's environment, a two or three-year date, but as rates recover, you will lock them in and this provides the opportunity for Navios Partners to recover cash flow and have additional cash for distributions as our vessels come for redeployment next year and the year after.

All right, that makes sense. So I mean in terms of -- I think you just mentioned in terms of a deployment strategy here, something along the lines of what we are seeing on the assets right now. So in those kind of six months to a year, but keeping it relatively short until we see a recovery?

Yes. This is accretive today because your all-in cash breakeven is $8,900 and as rates recover, this will become -- for every $1000, you become over $0.01 accretive in all your unit -- outstanding units. So, and as vessels come open that we have in 2013, this will provide you the additional distribution that you need -- additional free cash for distributions.

Okay. That is helpful. And just in terms of going forward, I mean how much of this is dictated by what you are seeing in the market. Should we see -- should we expect more of these kinds of deals in terms of shorter charters, lower purchase prices and a little bit more leverage to the market or do you think this is it for now?

We are not going to do an acquisition immediately now. In an evenly manner and opportunistically in the next two years, we will enter periodically to acquire a number of vessels. This will become -- this gives us also a very attractive entry point on the replacement of our assets because one of the things we are viewing on Navios Partners in the longer term, you like to replace your assets with younger ones and this gives you the ability to enter -- in the next two years, we periodically will enter opportunistically to acquire some vessels in the segment that we are in.

Okay, that's helpful. Have you guys -- I am still going through the deck and the release. Have you guys disclosed the sellers and/or the charterers on those assets?

No, the seller is a third party in the international market and the [parties] are short duration, so usually for less than a year. We don't disclose.

Fair enough. In terms of your insurance, I mean were there -- being these are third-party assets -- any differences in that process in terms of getting these revenues insured? Obviously this is not as much to underwrite from an insurance perspective. Any differences there and any I guess headwinds in terms of bringing these kind of deals in and getting them insured under that policy?

The insurance is in place, but if it is a short duration less than a year, you do not insure less than a year.

Okay, so anything under a year, these things are not actually falling under that policy?

Yes. If it is over a year, it is always insured.

Right, okay. That is it for me. I will turn it over. Thank you for the time, Angeliki. I appreciate it.

Christopher Combe, JPMorgan.

Hello. I just had a follow-up question regarding the risk profile. So your response was very clear, but I am just wondering in terms of the overall fleet profile, do you have a specific percentage in mind in terms of how many vessel days should be fixed on longer-term charters as we look 6 to 12 months out?

No, our strategy remains the same. We like long durations. The only reason we enter in this way is because we wanted to be able to -- you have a replacement CapEx, you need to replace assets in the longer term. If you take a look on the next five years, you need to be able to replace. This is an attractive entry point for assets. Of course, nobody has a crystal ball, but we can see that we are in the correct ZIP code. So we enter on the assets today and then this is also -- as you never know how long it can be along the cycle, you know that in today's rate these vessels make sense and they create free cash flow of over $0.01 for every $1000 that they are above the breakeven of $8,900.

So this strategy of long term does not change, but in today's environment if you charter at today's rate, there is very limited downside risk as we see. Your BDI is less than 1950 and you see (inaudible) vessel easily at rates that are above your breakeven.

Okay, that's clear. And since the time of Posidonia, have you seen any change in terms of the type or number of distressed sellers in the market?

I think Posidonia not. The reality is you have a market that was weak and you have the summer life that always happens. So usual economic activity starts again mostly on Q4, from September on, which comes. Apart from the cyclicality, there is always seasonality and we are in the summer life.

The one thing I want to point out is that, if you see the market from a -- you step back and you see the situation around the world, China is growing and it is continuing to grow, which is a driver of our market and you also have US growing in addition at pace. The European problems, that they affect the banking segment and a lot of the media today, is not necessarily the biggest driver in the drybulk today. I am not saying that it is relevant, but it is not the biggest driver and I think with a correction on the supply with the scrapping, the accelerated scrapping, we will see some kind of better Q4 especially with the Chinese fiscal stimulus that they have created.

Okay. My very last question, in these last three deals or acquisitions rather, you disclosed $44 million of targeted debt. That suggests 40% reliance on debt, a far cry from what we saw not too long ago. Is that a good sort of guidepost looking for growth assumptions over the next year or so? Do you assume to see sort of 40/60 split debt to equity?

I think we will have a leverage within 35%, much 40% and we like to be in the low level of leverage. I mean we are not overleveraged.

Okay, thank you.

T.J. Schultz, RBC Capital.

Thanks. Just kind of continuing to follow up on the acquisitions and kind of this evolution to short-term contracts and these evaluations. I guess part of this strategy, if you continue this, is it maybe something where we would see you combine the acquisitions of shorter-term contracts with at least one kind of long-term vessel dropdown as you did here or would you be comfortable with kind of the shorter-term contracts by themselves if the economics make it work? Or maybe put another way, charter duration now is 3.5 years, how much lower are you comfortable with here?

We like to keep our strategy is to have longer-term employment. So that doesn't change. The only reason we did acquisitions in the market is because it made sense on creating free cash flow generation that will provide us additional cash for distributions in 2013, '14 and after. So this is not a change in strategy. We like to have longer duration and we will be doing that -- we will be keeping the profile over three years for sure and longer. It just totally is a strategic fit that makes -- this step that we took is only because we want to be able to replace assets at very attractive entry points and have the opportunity to have additional free cash as our existing fleet comes for rechartering.

Okay, thanks. On distribution coverage, do you have any expectation that you may want to increase your coverage kind of with a lower charter duration? I am just trying to balance the kind of lower duration you have now with your decision to increase the distribution albeit modestly this past quarter.

I think the distribution that Efstratios explained in a minute and he explained also in his speech what you see as a coverage ratio for the distribution is low because we had issued the unit in May, so they got -- there was no asset for the period that we are covering now for Q2. As the vessels are in the water and they generate, their coverage ratio will come to about --.

It is going to come around 115, 116. I mean we have contemplated our strategy in the past, but we will probably be keeping the distribution coverage of 115 to 120 and this is what we have done historically in the past throughout the life of the Company. And this has enabled us to have a cushion on our distributions and be able to absorb any kind of rechartering that we did in our vessels.

So I mean we are not thinking of increasing the coverage. We feel very comfortable today with the coverage the way it is now and we feel that we can absorb all the rechartering that will come in the next couple of months.

Okay, great. Just one last one. Do you have the split on the kind of annual EBITDA contribution from the two most recent acquired vessels? I guess the Buena Ventura was 8.3 and you are saying 12.8 total. So just trying to get the split for the two recently acquired, solely owned Helios.

I think it is recalculated. Our OpEx, you can very easily calculate it at that contribution.

Okay, fair enough. Thanks.

Justin Yagerman, Deutsche Bank.

Hey, how are you doing? First question and then I will get to the acquisitions. You have got the '95 built Panamax Libra coming up in November 2012. So that is this year. That is a 17-year-old vessel. What are you thinking about doing with that when it comes off charter? Obviously you won't be able to recharter it at the levels that it is at. Is that a vessel candidate for disposition or disposal rather?

This is -- what we are planning to do is -- usually when you buy, it is not the right time to sell. So the decision is that we have internally calculated that we can recharter in today's environment and this is something that works in our model. So what we will do is recharter the vessel in today's environment and at a later stage, this is one of the vessels that inevitably will be a candidate for replacement, but not today because you have no problem and you don't have a balance sheet issue. You can afford to have this asset generate cash and at a later stage, when you see a better vessel (inaudible) market, you can sell it and create the positive effect of acquiring the younger assets and better assets at a lull of the cycle where you sell the older fleet at a different point which is more attractive as a sale.

Okay, so, Angeliki, then or Stratos, when you think about that, so that will be a third vessel now that is on short-term duration in today's market, how do you think about a total debt-to-equity level that you are comfortable or debt to EBITDA -- actually what I would prefer to hear you say is debt to EBITDA level that you are comfortable with, especially now that your strategy is taking on this third-party road as well?

The one thing I wanted to explain is that the two vessels are in today's market. They are totally above their all-in cash breakeven. They create free cash flow, so you have -- you do not have a risk on existing vessels. Now there is another four vessels that are coming open between -- in the second half of '12 and the entire 2013. These vessels we have calculated in an internal model to be rechartered in the current environment. This is something that we can easily cover, we easily can cover distribution, our increased distributions without a blink. That is why we are very, very comfortable on how we have placed our Company.

Our EBITDA is low and that is why -- that is why the EBITDA level is about 14 today, so you realize our debt is very limited. We always, in Navios Partners, see that the debt has to be limited because we are doing distributions and we have low debt and we feel very comfortable this was not -- there is no surprise. Actually, in 2012, we were expecting a market like that. We can afford this market. This was a strategy we started early on. That is why we acquired a lot of assets. So you now have 21 vessels, so you have a bigger portfolio, but you can absorb the current market environment with a bigger portfolio.

And I appreciate that and I guess what I am trying to get an understanding of is how many more of these lower cash coverage vessels would you entertain acquiring or are they going to have to come on the back of a drop-down, which is a bigger EBITDA contributing event for you guys?

It may be. I mean we are not going to say particularly one way or the other. The number we are looking of adding in the next two years is limited. The reason it is limited is we are actually looking on these acquisitions purely as a replacement to our existing vessels that we will have to sell on a different point of the cycle. So this is not a huge amount of vessels. It is with a disciplined way, we are just looking at our portfolio and the age profile of our portfolio. And we are looking of how many vessels we will need to dispose in order to have our average age at around five or six years that we like to have it.

So if we are looking at it in a very disciplined way. It is a limited number. I don't want to articulate the exact number because it will not be very clever in the market and what we are looking is buying these vessels at this level of the cycle where we sell our older fleet at a different point, in a disciplined way in order to keep our portfolio average age on the same, around five years old.

Got it. And when I look at the acquisitions that you made, curious how many ships did you guys look at before you settled on these vessels?

I can tell you one thing. As Navios, we look on almost every vessel existing for sale. Our job is to know what is for sale and to be very knowledgeable. That is our duty.

What kind of competition was there for the vessels? Or were these off-market transactions?

It depends. Some vessels may be off-market because you have a very limited time for reacting. Others is more a bigger group of buyers looking at the vessels. But in the one transaction, it had to be a very effective way of acting and this is the one thing we are able to do. We connect very quickly. We don't wait, so we are able to inspect and move extremely fast.

And lastly, I think Mike may have asked this, but I didn't understand the answer. I didn't hear it. Was the size of these vessels (technical difficulty) deliberate? What was available in the market at the time? So I guess asked a different way, would you have bought Cape if it was at the right price or were you specifically looking at the sub-Cape classes?

Listen, the Cape in today's market -- if it makes sense on cash flow, we will have bought it. In today's market, the vessels we bought created free cash flow in today's environment. So our target is specific. The Supramax and the Panamax have a better earning capacity today than the Cape. So if you take a look on the breakeven, it makes more sense because we don't like to buy a vessel and be -- not have free cash generation. So we are very disciplined the way we do it.

All right, hey, thanks for answering all my questions. I appreciate the time.

Thank you. That doesn't mean that, at a later stage, you could not have a Cape size having the same characteristics, but in today's market right now, it didn't.

Fair enough. Thanks, Angeliki.

Ken Hoexter, Bank of America-Merrill Lynch.

Great. Good morning. Angeliki, if I could just follow up on that last question there on -- as you look to replace your older vessels and you were talking about some that -- maybe the three Panamaxes that are pre-2000s. Are you looking to then replace them with the free cash flow characteristics? Do you need to replace them on size to have that same earnings potential to keep the cash flow coverage? Can you just maybe flesh that out a little bit further than you kind of just threw out there?

We don't have to exactly replace a Panamax with a Panamax or a Supramax with a Supramax. You can replace it with a portfolio of assets. What you get about is average age, which is on the portfolio and also the cash flow generation, even in today's market. You don't want to -- you never know how much -- how long can be the low of the cycle. You want to make sure that you are not buying an asset that is burning cash because you don't know how imminent or when -- I mean we always like to have free cash generation even in the levels we are buying.

So then when you look at the -- again you have got a lot of questions on the short-term nature here. Is there -- just to put a percentage, you have now got 21% that are expiring in that one to three-year period. Is there a level that you sit there and say, yes, we think that we are at the bottom and rates are going to go up, but just in case, there is a certain level we can't risk just given the structure of the Company and kind of the consistent payout that you want to keep that you wouldn't be comfortable?

And I guess don't you get that market exposure or the cyclical exposure by having the profit sharing kind of on some of the longer-term vessels? So just wondering is there kind of a level there that you are not comfortable going past on that percentage?

What we care about is we look at our entire fleet and we look on the portfolio for the next five years. So we want to make sure that we have a comfortable level, continual distribution, continual commitment while at the same time be able when we charter the vessels at lower environment having enough assets that create free cash flow to be able to cover this additional -- to cover this additional cash that we will have to recharter in today's environment. It is purely a portfolio approach.

Got it. Any issue in today's market with the [Korea] line payments?

I think, as you very well know, this is well taken care of. We have an uninterrupted cash flow.

I'm sorry, so I know it --.

We have an uninterrupted cash flow as you know.

So are there any -- is every customer timely and paying on time? Are there any issues in this market that you are having with any other carriers right now?

We do not have any problem that we have not disclosed.

Okay. On the market chart, you talked about China iron ore being up 10% yet steel production being up only 1%. Just wondering what your thoughts then are on building inventories and if we are starting to see even an accelerating slowdown in demand right now, which could further pressure rates as we move forward.

I think now with the iron ore prices moving downward, you may see a restart -- actually more restarts because there will be an (inaudible) between domestic iron ore and imported iron ore. So actually with a drop of the iron ore prices, you may see more of a restocking for China. This will also be created by the stimulus that may be kicking in by Q4.

I'm sorry. Just to clarify that, you are looking at continued -- you said something about restocking, but you are looking for continued pressure, but then you think starting in Q4, we could see -- that is when you see the -- kind of you are forecasting the bottom?

Today, the iron ore prices, the imported iron ore (inaudible) with the drop of the iron ore prices internationally between domestic and imported. So that will move more iron ore imported into China somewhere in Q4 because when you have this -- usually this kind of arbitrage, there is more imported iron ore because it makes more sense than the domestic. There is a shift between domestic and imported. So we expect to see more movement of iron ore imported on the mix. And also we believe that because of the stimulus, you may have an additional short-term kick in Q4 because of China and the stimulus that will be coming into effect.

Okay. Just lastly, you noted that you kind of plan to stop the purchasing right now for a little bit. You have done your reshaping here, yet it is still a good market to be buying in. Is that because you don't want to overextend the Company in this market in case it does get a little bit worse or just wondering why, if it is a good buyer's market, you felt kind of the need to send the comment out there that you are kind of done for now?

You are a disciplined buyer, so if you have to acquire a certain number of vessels, you will do it in an orderly fashion. You don't want to enter in one point and acquire everything at one point. You will do it in an orderly fashion, waiting and seeing where market balances. So you are able to do your targeted number of acquisitions over a period of time.

Great. I appreciate the insight. Thanks for the time.

Ben Nolan, Knight Capital.

Okay, great. Thanks. And a few of my questions have been asked. I guess I need to be a little quicker on the button. But I was wondering, and this has been rehashed a number of times, but on the acquisitions, would you categorize those as distressed purchases? Were you able to come in where someone needed to sell or were they just normal asset sales?

I think we would say that at least the one was very distressed. I mean you needed to get delivery of the vessel in an extremely short period. So yes and also like the one vessel was delivered in Atlanta. Purely from a positioning point of view, you get about $1 million more than if you had delivered in a different place. So it was good position and a very motivated seller that needed to complete the transaction extremely quick.

Okay. And that sort of leads me to my next point and this is a little bit different. We have -- it appears as though we have seen a number of distressed sales, but not only in the drybulk space. I mean even yesterday, we saw Costamare taking a containership. And specifically in the container shipping segment, there I think is probably more ability to do things that are on long-term time charter. Have you guys ever considered maybe moving outside of the core drybulk business and just looking at shipping assets from a rate of return basis and with long-term time charter profiles and buying shipping assets in general that are cheap than provide long-term cash flow?

We are an MLP and we have concentrated on the drybulk. That doesn't mean that we don't review all asset classes. Be sure that we are doing that in a constant manner. This is our job and if we see that there is a reasonable opportunity on cash flows and price, we will do that immediately.

On the vessels we acquired, we believe were very, very attractive assets and at very attractive, you could -- you would have very nice breakevens that made a lot of sense over the (technical difficulty) longer term. So if you see on the longer term the acquisitions we did, they come at a -- came at a very attractive entry point.

So we -- just to summarize, we always review markets and asset classes. We thought that these two market opportunities made sense in a lot of ways and we are not shy of reviewing every asset class that exists.

Okay, now that is helpful. That definitely put some context around it. The next question I had, again sort of related to the acquisition and the thought process that went through it, could you maybe break down why it was decided to do those vessel acquisitions at the MLP level as opposed to doing them on the parent level and maybe funding it through the drop-down of an existing asset on the parent?

Navios Holdings has a fleet of vessels and a substantial presence in the drybulk market. On the Navios Partners, what you are looking is asset replacement. And this is where you get the bulk. You have vessels that are coming near that we need in the next three to five years to be replaced. So you needed to do acquisitions that were attractive in the purchase price. This is purely a matter of your portfolio on Navios Partners. You needed to acquire vessels today that are at very attractive cost. I mean on the replacement CapEx, they came at very attractively at even whatever calculation we have done. And they gave you also the opportunity to be cash flow positive, free cash flow generation. So they combined two things that we care very much in Navios Partners.

Navios Holdings have a young fleet and a lot of vessels in a different portfolio when we will present Navios Holdings. But Navios Partners had a specific need for replacement of assets in a disciplined way.

Okay. And that makes sense. Although I guess my thought was that obviously it is necessary to replace the fleet eventually on the partner level, but that could also potentially be done through drop-downs where you do have longer-term time charters. Although I assume that it would not come as discounted of an evaluation because you do have the attached time charters. So that --.

I think you just pointed the obvious.

Okay, okay. So that is sort of the reason is these were just really cheap assets and good for replacement as opposed to having to pay out for charters. That is kind of the idea.

Exactly. And the current charter rate were above provided free cash flow. That is why it made a lot of sense. That is why we did not go for a Cape, but in today's environment, you wouldn't have free cash. This was a disciplined purchase that made sense in today's market.

Okay. Now that is very helpful. That definitely clears it up for me. So that pretty much wraps up my questions, but I appreciate you guys taking the time.

We have reached our allotted time for questions. I would now like to turn the call back over to Ms. Frangou for closing remarks.

Thank you for attending our Q2 results.

Thank you for participating in today's conference call. You may now disconnect.