Star Bulk Carriers Corp (SBLK) 2014 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers conference call on the third quarter 2014 financial results.

We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers of the Company.

At this time, all participants are in a listen-only mode. (Operator Instructions).

I must advise you this conference is being recorded today, Tuesday, December the 2nd, 2014.

We now pass the floor to one of your speakers today, Mr. Petros Pappas. Please go ahead, sir.

Thank you, operator. I'm Petros Pappas, the Chief Executive Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers conference call discussing third quarter and nine months of 2014 financial results.

Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide number 2 of our presentation.

Ladies and gentlemen, it is with great pleasure to report profits in the first quarter following the two transformative transactions announced back December. We do look to more profitable quarters in the future, but this is certainly a good start. In particular, for the third quarter of 2014, Star Bulk reported net revenues of $25 million, adjusted EBITDA of $9.7 million, and net income of $200,000, or $0.003 per share.

Going through our recent corporate events, on July 11th, 2014, we successfully closed the merger with Oceanbulk, approved essentially by all shareholders of Star Bulk. As a result of this transaction, we have recognized a non-cash gain from bargain purchase of $12.3 million.

Furthermore, we continue to take delivery of the 34 vessels acquired en bloc from Excel Maritime. As of today, we have taken delivery of 20 vessels, nine of which during the third quarter of 2014. We expect to complete the delivery process by the end of the year.

Total cash consideration paid, as of today, is $176 million, financed by $156 million debt, and the remaining from cash on hand. We have drawn circa $131 million from the bridge loan facility provided by Oaktree and Angelo, Gordon, while $24.75 million debt financing has been provided by DVB Bank.

Having commissioned a major growth plan, we have shifted our focus on securing financing for it. On November 7th, 2014, we successfully completed the public offering of 2 million notes due in 2019 bearing fixed interest at the rate of 8% per annum, raising $50 million in gross proceeds. This does demonstrate our access to various sources of capital.

In addition, we agreed to procure $30 million debt financing on 11 vessels acquired by Excel, which will further boost our liquidity position when drawn.

We also secured the commitment of $157.3 million from two major lending institutions for ECA-backed financing of eight Ultramax new buildings due for delivery in 2015.

On the new building front, this quarter we have taken delivery of two Japanese-built Capesize vessels, both with fuel-efficient specifications. We clearly believe in the [eco] story, and in the potential of these vessels, and we look forward to the delivery of the remaining 35 new building vessels over the next two years.

Total financing committed or nearly committed from June 30th to date of $694 million against 40 vessels.

Finally, we have settled a past claim with STX Pan Ocean regarding a repudiated long-term chart of Star Borealis, netting $8 million of cash compensation, collected in full in October, plus $1.4 million in banker compensation.

Our long-term goal remains to build a large, well-capitalized dry-bulk shipping company, while in the short term smooth execution of our growth plan and bridging of our new building funding gap remain top priorities.

Let me now pass the floor to our President, Hamish Norton, who will drive you through a brief overview of our current fleet and its lined-up growth plan. Hamish, the floor is yours.

Thank you, Petros.

Please turn to slide number four for a brief review of the characteristics of our fleet following the two transformative transactions with Oceanbulk and Excel Maritime. This graph illustrates our pro forma fleet, which is diversified across all size segments.

You can see how the acquired fleet from Excel Maritime complements our existing fleet in sizes in which we had little exposure. We believe that this versatility and diversity will enable us to better service our customers' needs commercially. We will be able to do business with a variety of charterers and handle all types of dry bulk cargoes.

Furthermore, operating a large fleet allows us to provide scale to our dry bulk customers, since they can charter many similar and sister vessels from us instead of the logistic issues of having to shop through various owners.

Excluding the older 1990s-built Panamaxes, the average age of the fully delivered fleet in August of 2016, when our last new buildings will have been delivered, will be 6.5 years.

It is worth mentioning that in terms of deadweight tonnage, over 60% of our fleet will be Capesize and Newcastlemax vessels, with 39 vessels, such vessels in operation on a fully delivered basis.

Newcastlemax vessels are slightly larger Capesize vessels, which are optimized for carrying iron ore. Our Newcastlemax vessels can carry 208,000 to 209,000 tons of cargo.

On slide number five, you can see our contracted growth by number of ships and deadweight tons. In December 2014, when we expect to have taken delivery of all 34 vessels of the acquired fleet, Star Bulk will own 68 ships in the water, up from the 52 currently, and up from the 17 prior to the merger with Oceanbulk. By Q4 2015, when we will have taken delivery of the majority of our eco new building orders, we will own and operate 96 vessels, followed by our full fleet of 103 ships by August of 2016.

This expansion plan was well timed across the shipping cycles from both a short and a long-term perspective. Slide number six provides a more detailed view.

First of all, our new building orders were placed at one of the lowest points of the new building price cycle. Subsequently, we merged with Oceanbulk at an opportunistic time in July, after high price levels of March had faded. We then agreed the acquisition of the Excel vessels in August, taking advantage of even lower vessel prices at that time. Going forward, we continue to explore consolidation opportunities.

Let us now turn to slide number seven of the presentation. With an on-the-water fleet of approximately 6.8 million deadweight tons as of December 2014, and a total owned fleet of 11.9 million deadweight tons on a fully delivered basis, we are, by far, the largest listed -- US-listed dry bulk company by deadweight.

I would like now to pass the floor to our Co-Chief Financial Officer, Christos Begleris, to walk you through our third quarter and nine month financial statement.

Thank you, Hamish. Let us now turn to slide number nine of the presentation for a preview of our third quarter 2014 financial highlights in comparison to last year's.

In the three months ended September 30, 2014, net revenues amounted to $25.2 million versus $17 million during the same period of 2013. Net revenues represent our total revenues, adjusted for non-cash items, less voyage expenses.

The reason we refer to our net revenues is because this figure nets out any difference in revenue recognition between voyage charters and time charters, and, therefore, is directly comparable to other periods. This increase is attributed to the increase of the average number of vessels to 31.5 in the third quarter of 2014, from 13 vessels in the third quarter of 2013.

Note that the majority of the revenues from the management of third-party vessels was being generated from Oceanbulk's vessels, which, as of July 11, became owned vessels, and thus, we will not be getting management fees going forward.

Adjusted EBITDA for the third quarter 2014 was $9.7 million, increased by 24% versus last year's respective figure.

Net income for the third quarter 2014 was $0.2 million, or $0.003 per basic and diluted share, versus $0.2 million net loss, or $0.01 per basic and diluted share, in the respective period of 2013.

Excluding non-cash and one-off expenses related to the Star Bulk-Oceanbulk merger, our adjusted net loss for the third quarter amounted to $2.2 million, or $0.03 per basic and diluted share, versus $2.3 million adjusted net income, or $0.13 per basic and diluted share, during the respective period of 2013.

Our time charter equivalent rate during this quarter was $11,159 per day compared to $14,652 per day last year.

Our average daily operating expenses were $5,192 per vessel compared to $5,675 during the same period last year, representing an 8.5% reduction. The reduction is even bigger if we exclude approximately $1.1 million or $376 per day of pre-joining and pre-delivery expenses related to the acquisition of Excel vessels and the two new buildings delivering that period.

Continuing with slide number 10 of the presentation, and the preview for nine months 2014 financial highlights in comparison to last year's.

In the nine months ended September 30, 2014, net revenues amounted to $65.6 million, 28% higher versus $51.4 million during the same period of 2013. This increase is attributed to the increase of the average number of vessels to 21.5 in the nine months of 2014 from 13.4 in the nine months of 2013.

Adjusted EBITDA for the nine months ended September 30 was $27.1 million, 8.5% higher than the $24.9 million versus last year's respective figure.

Net loss for the nine months ended September 30, 2014, was $3.7 million, or $0.08 per basic and diluted share, versus $1.8 million net income, or $0.19 per basic and diluted share, in the respective period of 2013.

Excluding non-cash and one-off expenses related to the Star Bulk-Oceanbulk merger, our adjusted net loss for the third quarter amounted to $2.4 million, or $0.05 per basic and diluted share, versus $7.6 million, or $0.82 per basic and diluted share, during the respective period of 2013.

Our TC equivalent rate during this nine-month period was $12,813 per day, compared to $14,414 per day last year.

Our average OpEx were $5,302 per day per vessel, compared to $5,622 per day per vessel during the same period last year, representing a 5.7% reduction. This reduction is even bigger if we exclude $1.5 million or $256 per day of pre-joining and pre-delivery expenses related to the acquisition of Excel vessels and the two new buildings delivered during that period.

Kindly turn now to slide 11 for a review of our balance sheet as of September 30th, 2014. This is the first consolidated balance sheet of Star Bulk and Oceanbulk following the merger of July 11, 2014.

Total cash, including restricted and pledged cash, stood at $107 million. Other current assets stood at $47 million, increased from $14.5 million in the previous quarter.

Net fixed assets stood at $1 billion versus $377 million on June 30th, 2014. Please note that this figure includes the 30 on-the-water vessels owned by Star Bulk and Oceanbulk prior to the merger, two new building Capesize vessels delivered during the third quarter, and nine of the 34 vessels acquired from Excel Maritime during the same period, i.e., 41 vessels in total.

Advances for vessels stood at $392 million, as of September 30, 2014, and were basically comprised of $219 million of cash paid for new building installments for our 35 new buildings, $25 million for the two vessels to be acquired from Heron Ventures, and $10 million of capitalized borrowings and supervision costs. The figure also includes a figure that comes from the process of consolidation with Oceanbulk as per US GAAP provisions for business combinations, which is a fair value adjustment of the $138 million recorded in this account on top of the cash new building installments paid.

On the liability side, total debt as of September 30th, 2014, stood at $576.25 million versus $253.9 million on June 30, 2014. The former figure includes $59.8 million of the bridge loan facility provided by Oaktree and Angelo, Gordon to take delivery of the nine vessels from Excel Maritime we took delivery during the third quarter 2014.

Total shareholders' equity as of September 30, 2014, stood at $1 billion versus $264 million as of June 30, 2014.

Based on the above, our net debt was at $470 million, approximately, implying a net debt to capitalization ratio of 30%, which we clearly feel comfortable with.

And now, I will pass the floor to my Co-Chief Financial Officer, Simos Spyrou, to continue with an update on our current debt, our CapEx and overall leverage profile.

Thank you, Christos. Let us now move to slide 12 to discuss the current status of our balance sheet and leverage profile.

Currently, our total debt stands at $716.3 million, and our total cash position at $110.7 million. Consequently, our net debt is $605.6 million. The above figures are inclusive of certain changes since September 30th, 2014, such as the successful public offering of $50 million worth of senior unsecured notes due in 2019, the drawdown of an additional $71.67 million from the bridge loan provided by Oaktree and Angelo, Gordon, the drawdown of $24.75 million of debt financing provided by DVB, in order to finance the acquisition of Christine.

Going forward, as you can see from the bottom graph, our principal repayment so far this year stands at $32 million, while our remaining scheduled principal repayments for 2014, 2015, and 2016 stand at $5.8 million, $70.8 million, and $53.9 million, respectively.

Moving to slide 13, this is a list of the 35 new building vessels we are scheduled to take delivery by the second quarter of 2016, and status of financing for each one of those. We have obtained committed financing for 24 out of the 35 of our new building vessels. We are in negotiating for the financing of nine new building vessels, and we expect these negotiations to turn into committed financing in the next one or two months. There are only two vessels for which we have not commenced negotiations yet, and for which we are targeting a total of $65 million of senior debt financing, which is the equivalent figure we have obtained for sister ships of those vessels.

Regarding the on-the-water vessels, we have recently signed committed term sheets with CiT for up to $30 million secured debt financing on 11 1990s-built vessels being acquired from Excel Maritime.

Furthermore, we are in discussions to proactively refinance the $231 million bridge loan facility provided by Oaktree and Angelo, Gordon, and we have signed committed term sheets for 17 out of the 33 vessels securing the facility.

In addition, we are currently in preliminary discussions to refinance certain of our balloon payments during 2016, aiming to smooth out our cash flows during this year.

Overall, we see strong demand from major lenders to finance our vessels, and this is reflected in the terms offered to us. For example, our cost of debt financing has been reduced by 50 to 75 basis points as a direct result of the improving financing market, as well as the increased size of the Company following the merger with Oceanbulk.

Moving now to slide 14, you can see that our CapEx plan is mostly addressed. The total constructed cost of our 35 vessels on order stands at $1.5 billion. Aside from new buildings, as of today, we have $12.5 million of cash to be paid to Excel Maritime for the delivery of the remaining vessels representing our equity portion of them.

We have also paid $244.6 million in the form of advance payments for the new building vessels. We have committed debt financing of $717.4 million, while we are currently on the final stage of negotiating with lenders another $305 million of debt financing.

Assuming 60% debt financing for the non-financed new building vessels on the contracted values, as we said before, we estimate another $65 million of debt financing there.

Subtracting the total debt financing of $1.04 billion from the remaining CapEx leaves a remaining equity CapEx figure of $186.2 million. Furthermore, the 11 1990s-built vessels acquired from Excel Maritime have today an aggregate scrap value of $49 million, which, if netted against the $30 million of the aforementioned CiT facility, results in $19 million net scrap proceeds from the potential sale of these vessels. We may be able to sell them for more, but we are clearly taking the conservative side here.

Adjusting for our cash on hand, expected cash inflow from refinancing, and undrawn committed debt, and minimum liquidity requirements leaves an equity/CapEx gap slightly north of $102.7 million, which is a figure that we feel comfortable, given the size, the visibility, and the shareholder base of this Company. Just to clarify, this amount is spread over a period of 1.5 to two years, so we have some time ahead of us to select the best financing solution.

Let me now pass the floor back to Petros, to give you an update on the market.

Thank you, Simos.

Let's now turn to slide 16, in order to summarize the dry bulk trade demand dynamics. Commodities and raw materials currently experience substantial price corrections, with oil, iron ore, and thermal coal prices being reduced by 32%, 49%, and 21%, year on year, respectively. The top-right graph illustrates this exact point.

It is clear to us that this weakness in commodity markets is mostly supply-related and not demand-related. Commodity demand remains healthy, while substantial supply expansion has resulted in surpluses across various commodity markets.

These low price levels, and the related trade arbitrage, clearly provide a great incentive for importing countries to continue to source commodities carried through the international seaborne market.

Turning to China now, Chinese crude steel production growth has grown by 4% year on year, lower than last year's respective figure of almost 10%. At the same time, Chinese steel exports are up 54%, year on year, which might not be a sign of weak domestic market, as many analysts suspect, but may also be due to the trade arbitrage between Chinese and USA steel prices.

Furthermore, given the fact that steel prices have fared better than iron ore and coking coal prices, Chinese steel mills' production margins have increased substantially, incentivizing production expansion.

As you can see from the bottom-right graph, the cost to produce one ton of crude steel in China used to be 73% of its selling price, while now it stands at only 54%.

The above situations should support a revival of Chinese crude steel production growth. Interestingly, Chinese iron ore imports have grown, year on year, by 13%, which may be explained by the substitution of domestic production by imports, and inventory buildup.

Aside from increases in the volume of iron ore imported to China, the source of imports and the average differences are also very important for ship owners. This year, while the iron imports grew at 13% year on year, this figure when translated to ton-miles was lower at 9%.

This has put a ceiling on Capesize rates, and it was mostly due to the substantially higher expansion of mining capacity and export volumes of Australian iron ore majors versus Vale from the Atlantic.

We expect that in the next two years, Vale will cover the lost ground, as it ramps up its production, given also its target to essentially double its sales to the Pacific market by 2018. As we have explained in the past, this will increase ton-miles approximately three times the tons transported.

Moving on to slide 17, we will try to provide an update, of the coal and grain trade. Chinese coke trade has contracted by 12% during 2014 due to the substantial increase in hydropower electricity production. In our view, the effect of the recently announced coal import restrictions was minimal, while the signing of a free-trade agreement between Australia and China can be considered a very positive development going forward.

In that respect, there may be little downside with regards to the Chinese coal imports, while I would like to note that hydropower production is volatile. The bottom-left graph highlights this last point exactly.

Turning to India now, Indian thermal coal imports are up 18% on a quarterly basis. This is due to thermal electricity production, which as you can see from the top-right graph, is increased by 13.6% year on year. Going forward, thermal electricity output is projected to increase by more than 25% over the next three years, providing for a meaningful upside in Indian thermal coal imports.

With regard to grain trade, this is expected to increase by 6% this year from the US and Europe to the Middle East and Far East, generating substantial ton-miles as a consequence.

Let us now move to slide 18 for an update on supply side. As you can see on the top-right-hand graph, deliveries in the period 2008-2012 compared to the schedule order book had an average annual slippage rate of around 30%, whilst the respective figure for 2013 was close to 40%.

For the 10 months of 2014, 42 million deadweight of dry bulk vessels have been delivered versus 75 million scheduled for the whole year. Assuming the regular slowdown in the last two months of the year, we would expect total deliveries for the year to be in the tune of 49 million deadweight, implying a slippage rate of approximately 35%.

The nominal order book presently stands at approximately 23% of the fleet.

On the bottom-right-hand graph, we also provide the order book for the remainder of 2014, 2015, 2016, and 2017, broken down in vessel classes. At this point in time, we can safely say that the order book for 2015 is closed, while for 2016, capacity is almost non-existent, especially in Japanese and Chinese first-tier yards. We see limited risk in orders being placed in second and third-tier Chinese yards, due to the current freight environment, as well as the scarcity for bank financing for such low-quality vessels.

A positive sign is a recent slowdown of contracting, which, for the first nine months of 2014, was running approximately 7% of fleet on the water. During September 2.8 million deadweight of dry bulk vessels were ordered, versus 14.5 million in January.

Overall, we see slowing fleet growth across the three larger dry bulk vessel segments during 2014, while total fleet growth currently stands at 5.8% versus 6.8% during the same period last year.

Let us now move to slide 19 for a summary on key market trends going forward. According to Clarksons, iron ore and coal are expected to grow by 6.6% and 2.3%, respectively, in 2015. As outlined earlier, we are slightly more bullish on the iron ore ton-mile side, due to the expected increase in the Brazilian export share to China.

Clarksons also expects that bauxite and nickel ore trade will resume positive growth, 2.8%, and 11.3%, in particular, which, if it materializes, it will greatly support Kamsarmax, Panamax, and Supramax vessels after the severe trade disruptions this year due to the Indonesian raw material export ban.

The former is also based on the fact that Chinese bauxite inventories will be essentially depleted by the second half of 2015, especially if Chinese aluminum production continues to grow at current rates of 19%.

Overall, and according to the Clarksons forecast, the dry bulk demand is expected to grow in tons by approximately 4% next year, essentially in line with 2014. Given our more favorable view on iron ore dynamics, this might be the lower point in the range of our expectations, especially in ton-mile terms.

On the supply side, we believe that, aside from the factors highlighted in the previous slide, we might see a further slowdown in fleet growth, due to the application of environmental regulations, such as the water ballast system, and consequent scrapping of older vessels.

Having said that, I will now pass the floor back to Hamish for an update on our Company.

Thank you, Petros.

Turning to slide 21, we have an overview of our fleet employment and the portfolio of key charterers with whom we do regular business. As a result of our diverse fleet, we serve almost every major charterer around the globe, including steel mills, trading houses, and multi-national mining companies.

From a commercial standpoint, we're currently exploring opportunities for direct and long-term cooperations with major dry bulk consumers and producers, which should provide us with steady flows of cargoes and business. As Petros outlined earlier, our market outlook calls for a more spot-oriented vessel employment, at least in the short to medium term.

Currently, including the influx of the new fleet, we have secured about 71% of the limited remaining available days in 2014, 9% of those days in 2015, and just 2% in 2016. Overall, as of today, our total contracted revenue amounts to approximately $72.8 million.

On slide 22, we present Star Bulk's operating leverage after the acquisition of the 34 vessel Excel fleet, which provides Star Bulk with significant earnings and cash flow upside in an improving market environment.

On a fully delivered basis, we expect to have about 37,000 spot days in 2017, which would be after all of our new buildings have been delivered. As you can imagine, each $1 swing in spot rates will have a material impact on our cash flow.

For example, a $1,000 per day increase in Cape rates, combined with a $400 per day increase in Panamax and Supramax rates, would translate into an increase in EBITDA of approximately $23 million, once the fleet is delivered.

Let's now turn to slide 23 for a presentation of our commercial performance. As you can see from the slide, we have consistently outperformed the Baltic Capesize index and the Baltic Supramax index on our Capesize and Supramax vessels, respectively, while -- and this trend continued for this past quarter, as well.

Turning to slide 24, we will try to evaluate our operational performance over the last five years. As a general comment, our cost-cutting efforts in our operating and G&A expenses have played an important role in our financial and operating performance in this challenging market environment. This, of course, has been achieved without a compromise in our high quality and operational standards.

On the bottom-left graph, you can see the evolution of our average daily operating expenses. Since 2009, our daily operating expenses have been reduced from $6,903 per day to $5,192 in the third quarter of 2014, which is a 25% cumulative reduction. This increase would have been higher if we exclude approximately $376 per day of pre-delivery for our new buildings and acquired ships, resulting in an average resulting OpEx per vessel of $4,816 per day.

It is also important to note that the reduction in average daily OpEx is even more important if we consider that the average size of the fleet has been increasing over time.

On the bottom-right graph, you can see the evolution of our average daily net cash G&A expenses per vessel versus personnel growth over the years. Overall, while we grow our personnel head count to accommodate the managed fleet growth over the years, we've been lowering our core overhead costs per vessel. You can see that for the nine months of 2014 our average daily net cash G&A expenses per vessel have been essentially the same as 2013 levels, while at the same time, we have increased our onshore personnel by 43%, so as to accommodate the 34 vessels already acquired and to be acquired from Excel.

So, basically, once the transition is complete, we expect our daily G&A expenses per vessel -- and this is the transition with Excel and also the new building deliveries. We expect our daily G&A expenses per vessel to move below $1,000 per day per ship on a run-rate basis.

This is one area where we clearly look to benefit from economies of scale and the projected cost synergies with our G&A expenses developing from over $1,400 per ship per day for a fleet of 17 vessels to below $1,000 per ship per day for a fleet of 103 vessels.

Moving forward, we expect that the expanded size of our operating -- we expect the expanded size of our operating fleet to make Star Bulk the lowest-cost operator amongst our peer group.

And now, let me pass the floor back to Petros for his closing remarks.

Thank you, Hamish. Before we close this presentation and pass the floor back to you for any questions that you might have, let me walk you through a summary of our strategy going forward, as presented on slide 25.

On the chartering side, we will continue the spot employment of our fleet, except in cases where we see opportunities to fix vessels for decent medium-term charters. We want to be well positioned to capitalize on increases in demand for dry bulk shipping in the second half 2015 onwards, when we believe that cheap oil and raw materials will have kickstarted the world economy.

We intend to employ our fleet in an active and sophisticated manner, tailored to the fuel efficiency and other specific attributes of each vessel. In particular, our eco new building vessels are ideal for employment on a voyage basis, while our older vessels may be more appropriate for time charters. Once we see the market sentiment improving, we may start taking some of these vessels on longer-term charters.

Furthermore, as we have already demonstrated, we will keep on monitoring the market for further acquisition opportunities, aiming to further consolidate the industry. We intend to continue to opportunistically acquire high-quality fleets at attractive prices, as long as such transactions are accretive to our shareholders.

We aim at maintaining a young average age for our fleet, and may opportunistically dispose some of our older assets, depending on the market conditions and their overall commercial prospects.

We will also continue to improve the performance of our fleet, through modifications and enhancements that increase efficiency.

The above will be facilitated by the combined 120 years of shipping industry experience that we have as a management team. Our relationships with charterers, shipyards, ship brokers, bankers, suppliers, et cetera, have developed across several shipping cycles, and we believe they will give us a significant advantage.

On the operational side, we view that the new, enlarged Star Bulk will serve as a highly efficient platform, which will strive for the lowest operating expenses and corporate overhead amongst our peer group in the years to come.

Investments like the one we're making for our vessel performance monitoring department will help us have real-time feedback on various vessel parameters, including consumption of fuel and lubricants, in order to be as efficient as possible and minimize the daily operating costs of our fleet.

At the same time, we plan to maintain a healthy balance sheet through the moderate use of leverage, while we strive to reduce costs of financing through our access to equity and debts and debt capital markets.

Last, but not least, we have a transparent corporate structure, as our Board of Directors is mostly comprised by representatives of institutional investors and the technical and commercial management are performed in house, in contrast with the majority of our peers.

Overall, we believe Star Bulk has a good set of characteristics that place us among the most promising companies in the dry bulk industry, and with delivery of our new building vessels, we aim to become the lowest cost operator in the peer group.

In closing, I would like to thank our shareholders for their ongoing support and loyalty, and reassure them that we will continue our efforts to ensure the Company's long-term success and enhance their shareholder value.

Without taking any more of your time, I will now pass the floor over to the operator. In case you have any questions, we will be happy to answer them.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And your first question comes from the line of Doug Mavrinac from Jefferies. Please go ahead.

Thank you, operator. Good afternoon, guys, and thank you for your detailed commentary and, in particular, your market outlook. I thought that was very good.

My first question pertains to just something much shorter term in nature, and that is the current market conditions. When you look at Capesize spot charter rates as a gauge for what's going on, they've been extraordinarily volatile since, really, the beginning of August, with the most recent volatility being to the down side over the last couple of weeks.

So, can you describe to us what's happening, most recently in the Capesize market that caused us to see the downdraft, really I guess, since mid-November?

Hi, Doug, thank you for the question. What's happening actually is that Vale has not exported in the open market any cargoes for the last 2.5 weeks. I think this is the reason why this is happening for the time being.

I don't think this can continue for long, and I believe that in case Vale puts some more cargoes in the market, we will see a potential upturn within December, or even January.

Got you. And, Petros, following up on your commentary about the importance of the ton-mile impact on Vale's exports, as soon as those come back, we should expect to see the same impact that we saw in mid-October. Would you agree with that?

Yes, I would agree with that. It's -- I mean, Brazil is very material in what is going to happen, and according to what we see coming out of Vale, they say that their production is increasing by, I think, about 50 million tons next year. So, under normal circumstances we should be seeing the longer distances, going forward, and that would help the market.

Yes, yes, for sure. For sure.

And then, on the topic of volatility itself, what does the fact that Capesize rates can go from $6,000 a day to almost $30,000 in a short period of time, what does that tell you guys about the underlying supply/demand balance, i.e., vessel utilization levels? And, in short, how close are we to being in a more sustainable charter rate environment, based on what you may be able to infer from that underlying supply/demand balance?

Well, to me, when you can go $6,000 to $30,000 and from $30,000 to $6,000, it means that we're very tightly balanced, in a way. And, I think, actually, charterers and shippers also realize that, and I think, actually, in a way, they try to manipulate the market. But the fact that the minute five new cargoes will come on Monday or Tuesday in the market and the market goes from $6,000 to $26,000, I think that means that it is relatively finely balanced.

Got you. Yes, I would totally agree. And then, just two final questions before turning it over.

When we look at the sale and purchase market, what have you guys been seeing in terms of activity in the S&P market? And then, also, given the volatility in the spot market, how have asset values been trending?

Asset values actually since July and until end of November that we did our various calculations, have gone down by like about an average 12%. We've seen values go down more on second-hand vessels and less on new building vessels.

Got you. And so, that could be an opportunity, I guess, given the outlook.

And just final question. You guys have a lot of things going on. You've been very busy in the corporate M&A front in recent months. Given that, what would you list as your top two or three priorities as a management team, say over the next few months? I mean, you've got a lot of things going on. What do you see as being most important between now and, say, March?

Well, you mean commercially, or, in which sense?

Yes, just the integration of the fleet, and whether as you're doing that, if acquisition opportunities enters the discussion, does a share repurchase program enter the discussion? I mean, as you're kind of balancing all of your priorities, what is most important to you, and then, maybe what's second?

Well, first of all, the first priority is kind of a defensive one, like putting our house in order, because we're still taking delivery of the Excel vessels, and we have new buildings to take delivery of. So, that is one main thing, and we'll organize our Company accordingly.

So, that's one thing. That's the defensive part. We're also dealing with our funding gap, which is important, as well.

Now, on the commercial side, we don't believe that we should stay stagnant. We think there's going to be opportunities coming up. We have people approaching us and wanting to, potentially, merge with us. We have opportunities. We think that we might see some, perhaps even lower prices beginning of next year, especially due to the yen going down, and that might create some other opportunities.

So, we are looking at the market in -- we have one eye in the market, but we have also one eye in our in-house -- doing -- putting our house in order.

Yes, perfect. That's very, very helpful, and thank you for the time.

Thank you.

Thank you. Our next question comes from Jon Chappell from Evercore. Please go ahead.

Thank you. Good afternoon, guys.

You just addressed, I think, the key to the whole story going forward, which is the funding gap. A couple of questions on that.

First of all, what options are you looking at for the shortfall? You, obviously, just called some 8% senior notes, which isn't horrible from an interest rate perspective. Are you thinking about pursuing other public debt issuances, equity? How much leverage could you possibly take from the banks, in addition to what you've already take on and negotiated and are targeting?

So, Jon, it's Hamish, Hamish Norton. Look, we're looking at several alternatives. We continue to examine the bond market for opportunities, we (technical difficulty) for opportunities, and, of course, we do have some vessels that are probably non-core to our fleet that would be an opportunity to raise liquidity and, frankly, between those three methods, I think we'll be more than well covered.

Just as a follow-up to that, you mentioned the older vessels, and you have that in this slide 14. I think Petros just mentioned that you think that asset values may fall, actually, in the beginning of next year, mostly due with the yen, I guess, probably also some market sentiment.

What's a realistic timing on the potential sale of those older ships, number one, since you just got a new facility associated with them, and then, number two, with your expectations that asset values still may come down?

Well, look, it's very hard to predict. It could be soon. It could be a little bit later, but I'd point out that these older vessels are on our books for not much above scrap value, and they're unlikely to be the vessels that would fall in a falling market, to any great degree.

And then, also, just the last bar on that graph, the fully delivered minimum liquidity. I'm just wondering if you can provide kind of your base-case scenario for that number? Obviously, with a fleet your size, almost all spot exposed, there's a lot of leverage to rates. So, if there's upside, obviously that minimum liquidity can be covered by operating cash flow, and then some. But if there's downside, that gap could also potentially widen.

So, could you just give an idea of the base case that goes into that number?

Yes. Look, we have in our bank covenants a minimum liquidity covenant of $500,000 per vessel. So, with 103 vessels, that's $51.5 million, and that's basically what we're referring to.

And, look, just getting to your -- I realized I didn't answer your question about bank lending, but, I mean, we've been doing a pretty good job levering up our new buildings and our second-hand acquisitions, and I wouldn't expect that we would be squeezing the banks for more senior secured debt. The -- what we need to raise now is something that's unsecured debt, equity, equity-linked, or possibly some vessel sales.

Okay. One last one that's not on this topic. Can you just remind us of the lockups for Oaktree and insiders, I guess, Angelo, Gordon, Monarch and the family, both for the Oceanbulk transaction and Excel, if there were any?

There were no lockups, as such, but Oaktree and Monarch are affiliates of the Company and have to sell pursuant to a registration statement. And there has been an effective lockup in Excel, simply because we're taking the ships one by one, and we understand that there's an intention to make a couple of distributions of Star shares by Excel to its shareholders. And those shares, when they're distributed, would be covered by a registration statement.

Angelo, Gordon is not an affiliate of the Company, and so, could sell as they chose. Oaktree, even for its Excel shares, still remains restricted by its status as an affiliate, and so, it would be covered by volume limitations, unless it sold pursuant to a registration statement.

Okay, understood. Thanks a lot, Hamish.

Okay. You're welcome. Thanks.

Thank you. Your next question comes from the line of Ben Nolan from Stifel. Please go ahead.

Yes, thanks. Sort of circling back around to the funding gap, I think it was mentioned that sort of the net funding gap after vessel sales and other adjustments was a little over $100, if I heard correctly. Does that -- first of all, does that include any operating cash flow assumptions in that $102.7 million number that was given?

Yes, it includes, basically, zero net operating cash flow after debt service.

Okay. Now -- and that -- sort of on that basis, what kind of timeframe should we think about that coming due or needing to be resolved, either in part or in whole?

Well, look, our new buildings deliver through August of 2016. So, this is kind of a continuing obligation to make equity payments on the new buildings. So, we've got some time, but, look, we did a baby bond issue recently, and that buys a fair amount of time before we have to do anything else.

Okay, that's helpful. Well, and sort of associated, I suppose with that, and I know, Hamish, you outlined a number of alternatives, do you think that there would be any or there is any likelihood of sort of a -- would be, maybe, some sort of a bridge loan or something from Oaktree or other affiliates should the capital market not be available at the time that you may need the capital? Is that at all an option or something that's been considered?

It's certainly not being considered. I think it's unlikely that we would want something like that, but, obviously, Oaktree is a very large shareholder. They'll be a 57% shareholder, roughly, once all the Excel ships deliver, and they're presumably going to want to make sure that their investment is protected. But, I mean, we haven't discussed anything like a bridge loan with them, and, again, I doubt that that or anything like that is going to be required.

Right. Yes, I agree, and just currently the market sort of a bit tumultuous, and so, you never know, I guess.

But the -- but in my opinion, at least, the funding gap is relatively small and should be not too challenging to fill, but that sort of gets to my next question. With respect to the bank finance, both what's already on the books, and what you're seeking to finalize, are there asset value covenants in those loans that might -- should asset prices fall further, might limit the amount that you could ultimately draw down on those facilities relative to sort of the stated amount?

Hi, Ben. This is Christos. Effectively, we have a corporate covenant of net debt to market value of the assets being at 70%. So, we are far off this covenant. Especially as the new buildings get delivered, the financing that we booked for the new buildings in the high 50s, with a couple 60% to the fair market value of the vessel at the time of delivery of the vessel, and, therefore, we would not expect under any potential scenario, reasonable scenario, that we would breach the 70% threshold on the corporate guarantor level.

Okay. No, that's very helpful. So, I suppose there -- the answer is, there is an outside shot, if things really got bad, but you have so much clearance right now that it would -- such an event would be pretty remote in your opinion. That's a fair analysis, correct?

(Inaudible - microphone inaccessible).

Okay. All right. Well, hey, that actually does it for my questions. I mean, it's certainly an exciting time for you guys with an awful lot of moving parts and more to be done, but it seems like you're making good progress. So, I look forward to seeing what comes.

Thanks, Ben.

Thank you. Our next question comes from Sal Vitale from Sterne, Agee. Please go ahead.

Hello. Good evening, gentlemen. Thank you for taking my question. I just have a quick question, first, on the utilization. It was in the high 70s for the quarter. I assume that has to do with accepting delivery of the Excel vessels and repositioning them or redeploying them, and, I guess the question is, should that continue into 4Q and you get back to some kind of normalized mid-90s level, say, in 1Q? How do I think about that?

Sal, hi, this is Simos. This has nothing to do with the delivery of the Excel vessels. This is purely an accounting treatment, and based on the US GAAP. According to US GAAP, basically it's a distortion there.

The ballast leg of when you do a voyage trip, the ballast leg of the voyage, you are not basically allowed to book revenues up until the time that you sign the time charter agreement with the charterer. So, if you take the vessel from China to Brazil, and basically you sign the time charter with -- the voyage charter with the charterer in 20 or 30 days, the first 20 or 30 days of your ballasting, basically, you're getting no revenues and are considered to be off-hire for the accounting according to US GAAP.

So, this is the reason that we are showing this reduced utilization.

And this --

Okay, thank you --

Yes, just to clarify. This is because we have a lot of vessels on voyage charter. A company that uses short-term time charters instead of voyage charters is not going to have this accounting issue.

Yes. Basically, the number of voyage charters that we had this quarter versus the same quarter last year were significant higher.

Okay, thank you for that explanation. I appreciate it.

And the next question is really on the funding gap, and I apologize, I don't have the presentation in front of me. You mentioned several figures earlier. The $102.7 million, in particular, just to clarify, is that after -- does that reflect already some vessel sales in that, or is that before the effect of any vessel sales?

Yes, basically, if you see it on page 14, what we have assumed there is that the 11 1990s build Panamaxes, which are -- do not fit our profile are basically sold, and what we have said is that we are a bit conservative there. We are considering for the funding gap calculations that these vessels are being sold for scrap. So, there is room that we might be getting something more there, but just for being conservative, we are calculating this sale at scrap value.

And that's why, on the last column of this table, this -- we have the minimum liquidity requirement, $46 million, is for the 92 vessels. So, it's the 103 minus the 11 that will be sold.

Understood. So, just following up on that --

(Inaudible - microphone inaccessible).

Thank you for that clarification. I'm sorry, go ahead.

Sorry. That's a very conservative, obviously, estimate because these vessels, in this set of vessels you have vessels built in '97, '98. So, assuming these are sold for scrap, these vessels, is extremely conservative, even in today's market.

Okay, that's helpful, and then, just following up on that -- thank you for the clarification -- is -- are there, number one, are there any other vessels that you would consider selling, and, I guess -- and maybe you can answer that question in the contest of, if you look at addressing your funding gap, you mentioned three options, one being corporate debt, then asset sales, and you mentioned equity. How do I think about where you're leaning or what your preference is, I guess?

And if I could frame it this way, perhaps accepting a slightly lower price than you would like on selling a vessel versus having to issue equity at this unattractive price. As you know, your valuation is very low at this point. How do I think about that?

Look, we'll have to examine our alternatives and opportunities every day. I suspect that it's more likely that you might see us selling other vessels if we see opportunities to buy better vessels than other vessels to fund our funding gap, but you never know.

Okay, that's helpful. And then, just last thing on that, on the vessel sales, you said that you're assuming scrap value. That's what you're assuming in that slide. If you assumed, say, the most recently quoted Clarksons prices, which I don't have in front of me, what would that do to the funding gap? Would it take it down from $102.7 million to what?

It would definitely take it down, but, I mean, we don't have the Clarksons values in front of us. But, I mean, the Clarksons values would be a good bit higher than scrap.

Okay, thank you for your time. I appreciate it.

Thank you. Our next question comes from Noah Parquette from Canaccord. Please go ahead.

Thanks for taking my questions. Firstly, I just had -- going back to the industry side, on kind of the Indian coal situation, they've been running at critical stockpiles for a while now. I mean, I guess what have you see in terms of increased trade coal into India?

And then, looking forward, it seems like the government's trying to restructure the coal monopoly there to, hopefully, increase production domestically. How do you see -- how are you judging the success of that initiative, and over what timeframe do you expect that to occur?

Thank you, Noah. It's going to take at least three years, the Indian government to manage to create the necessary infrastructure for even a percentage of their needs. So, this is not a short-term matter, I would say. I look at it as something of the medium term.

In the meantime, they're saying that in the next two, three years, India will probably increase imports, coal imports, by about 25%, and this will mostly benefit the smaller sizes of vessels, up to Kamsarmax, we think, and, hopefully, it will create at some point some concession, as well.

Okay, I think that's great. And then, continuing, I guess we've seen a dramatic fall in oil prices and bunker fuel. I mean, I know it's a complicated calculation, but have you seen any speeding up of vessels? With rates where they are, probably not, but how does that -- how close to that are we?

I don't think we're close enough to that. There's two reasons why vessels would speed up. One is that fuel prices fall, of course, but the main thing is, the vessel will speed up if rates go up, and rates have not gone up. They would need to go -- for the Capes, they would need to be above $20,000 at least for vessels to have to increase speed by about one quarter or half a knot. So, we are not there yet.

On the other hand, this is the micro picture. On the macro picture, we believe that low oil and low material prices will have a beneficial effect worldwide in the economies. And usually that comes with a lag of, like, six months. So, we think that we're going to see better demand, going forward, because of that.

Also, of course, low material prices, as you know, enhance trade. And they replace local production. So, we see at lower material -- lower raw material and low oil prices, we see that as a bonus to the market going forward.

So, would you even take a step further and say lower bunker fuel prices make shipping longer distances more feasible, and the overall cost is lower?

Yes, definitely. Definitely. Especially -- you're very right, especially for iron ore from Brazil to China and all types of grains from the Atlantic to the Pacific and the Middle East.

Okay. And then, just really quickly, the non-cash stock compensation, I think, was just shy of $3 million this quarter. Was there anything one time with deals that have been closed, or is this kind of a regular number that we could expect, going forward?

I think we may have not completely heard your question.

Oh, non-cash stock compensation. I think it was just shy of $3 million, so I want to know if there was anything one-time in that, or what can we expect going forward?

Yes, actually. There is a portion associated with the transaction between -- the merger between Star Bulk and Oceanbulk. There was a severance payment for the CEO, who left after the merger, and this was a one-off.

So, yes, that's a one-time expense.

Okay, all right. Thanks very much.

Thank you, and there are no further questions at this time. I would now like to hand back for any closing comments.

As I already said, our aim is to run a low-cost, transparent, and efficient organization that is always in position to take advantage of opportunities and create value for its shareholders. So, we will try for that.

Thank you, again, for joining us in this call, and for your support and belief in our Company.

Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.