SFL Corporation Ltd (SFL) 2010 Q3 法說會逐字稿

Good day and welcome to the Ship Finance International third-quarter results presentation.

Today's conference is being recorded.

At this time, I'd like to turn the call over to your host today, Mr.

Ole Hjertaker, CEO.

Please go ahead, sir.

Thank you very much and welcome, everyone, to the Ship Finance International third-quarter conference call.

As mentioned, my name is Ole Hjertaker.

I am the CEO of Ship Finance Management and with me here today I also have Senior Vice President, Mr.

Harald Gurvin; and Vice President, Mr.

Magnus Valeberg.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements.

These statements are based on our current plans and expectations and involve risk and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual results to differ include conditions in the shipping, offshore, and credit markets.

For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission.

The Board of Directors has declared an increase cash dividend of $0.36 per share this quarter.

This is the third dividend increase in 2010 and the dividend represents $1.44 per share on an annualized basis or 6.6% dividend yield based on closing price yesterday.

We have now declared dividends for 27 consecutive quarters and we have paid $12.12 per share in total aggregate cash dividends over the last six to seven years.

The adjusted net income for the quarter was $36.7 million or $0.46 per share.

Adjustments include our $400,000 booked profit linked to a sale of a single-hull VLCC and a $2.5 million negative non-cash mark-to-market adjustment linked to interest rate swaps.

The reported net income after these non-cash adjustments was $34.6 million or $0.44 per share.

Gross charter revenues, including subsidiaries, accounted for as investment in associate, was $197 million or $2.49 per share including profit share.

The EBITDA equivalent cash flow also including profit share was $176 million or $2.22 per share.

The profit share contribution was lower than the $11.4 million in the second quarter, but we still generated $5.8 million despite a weak spot tanker market in the quarter.

According to Clarkson, the spot market in the fourth quarter has been in line with the third quarter.

And the Clarkson reported average VLCC earnings of $25,900 in the third quarter and they indicate based on previous Friday's information $25,200 per day so far in the fourth quarter, but on a rising trend with $35,100 reported last week.

The reported market rates in the third quarter were lower than the average base rates we have with Frontline of approximately $26,000 per day for the VLCCs.

Many of Frontline's vessels have been sub-chartered on profitable terms above our base rate and will therefore provide a positive contribution to profit share calculation irrespective of the spot market.

In total, more than $500 million in profit share has accumulated since 2004 in addition to the base rates.

We placed $84.6 million senior unsecured bond in the Norwegian market in late September with maturity in April 2014.

Closing took place in early October, so this financing is not reflected on our balance sheet for our third quarter.

The loan is denominated in Norwegian krona but all payments have been swapped to US dollar and the fixed interest rate is 5.32% per annum.

In addition to the three 57,000 deadweight tons Supramax bulk carriers we announced in August, we have now increase this by another two vessels.

All the vessels are of so-called dolphin design and built at reputable yards in China.

One 2009 built vessel was delivered to us in early October 2010 and another new building is expected to be delivered from the shipyard in December this year.

The remaining three vessels will be delivered in the first, second and third quarter of 2011.

The aggregate purchase price is $161 million for the five vessels and we have already secured financing for two of the vessels at very attractive terms.

The charter for all five vessels is Glovis, an investment-grade Asia-based logistics company with a market capitalization in excess of $5 billion.

Average net charter rate for these five vessels is approximately $16,800 per day and we estimate operating expenses of approximately $5300 per day for the vessels.

There are no purchase options attached.

We have also secured five-year charters for our remaining four Handysize bulk carriers.

The charterer is (inaudible) Shipping, which is part of the (inaudible) Group, a privately-owned Chinese industrial conglomerate.

With these charters, all our new-buildings have been chartered out.

In November we announced the sale of the 13-year-old Panamax bulker, Golden Shadow.

We purchased the vessel in 2006 in a sale leaseback transaction where Golden Ocean was granted fixed price purchase options and [their node] decided to exercise a purchase option in connection with the sale to an unrelated third party.

Our sales price is $21.5 million pursuant to this purchase option and we expect net cash proceeds from the transaction of approximately $4.5 million after pre-payment of associated debt.

We do not expect the transaction to have a material impact on our profit and loss statement.

I would now like to take a step back just to illustrate the development of the Company over these past seven years.

In 2004, the Company had 47 vessels which all operated in the crude oil market and all vessels were chartered to Frontline.

The chartered backlog at the time stood at $4.8 billion.

After that and particularly the last four to five years, the Company has diversified and grown very significantly and the backlog now stands at $6.8 billion and offshore is now a bigger segment for us than tankers.

And in addition, we have diversified into dry bulk and containers.

The fleet, including new-buildings, consists of 72 vessels across our four core markets and we now have 13 customers of which three have been added over the last three to four months alone.

Our ambition is to continue growing this portfolio with accretive acquisitions.

One of the very important features with Ship Finance is our long-term charter portfolio that gives us a very transparent and predictable cash flow.

We believe Ship Finance is in a different league than most other shipping and offshore companies with almost 12 years weighted average charter coverage.

We have a total of $6.8 billion fixed rate order backlog which is approximately $86 per share and the EBITDA equivalent of this backlog is approximately $5.9 billion or $75 per share.

These numbers are before profit share and does not include any re-chartering after the end of the current charter period.

If we look at the segments where this cash flow will be generated, we see that offshore is the largest currently and tankers with the light blue part of the bar where the Company started is now only approximately 35%.

The quality of the portfolio is of course also very important for all our stakeholders.

And on the left side on slide seven, we have illustrated the chartered backlog as a percentage of our counterparts' size.

We see here that 49% of our chartered backlog is with companies with a market capitalization in excess of $5 billion and 39% is with companies with a market capitalization between $1 billion and $5 billion, only 12% below $1 billion and of that, only 3% private companies.

That gives all our stakeholders and the Company a very good visibility on the quality of our charter backlog.

And it's also very easy for us to monitor our development in these companies in their respective markets.

Also, when we look at the remaining charter term, on the right side of this slide, we see that 80% of our charters have more than 10 years remaining, 16% have between five and 10, and only 4% have less than five years maturity.

This is in a different league than most other companies who generally have charter coverage maybe of two, three, four, maybe five years.

And we believe the quality of this portfolio is very important in the markets going forward.

If we go back to the operating performance in the quarter, Ship Finance generates a very significant cash flow.

And this overview includes all our 100%-owned assets, including the vessels and rigs classified as investment in associate based on US GAAP.

The EBITDA equivalent cash flow before profit share was $170 million in the quarter and after profit share, it was $176 million or $2.22 per share after profit share.

If you look at the change from the second quarter to the third quarter, the main difference is relating to VLCCs where the single-hull Front Sabang was sold with delivery in early September and has never been taken out of the fleet, and also the remaining two non-double-hull vessels in our fleet that our chartered to Frontline reached their anniversary date, and therefore have a reduced charter rate, and this happened during this quarter.

In addition, four of the five single-hull vessels chartered to Frontline have now been re-chartered on bareboat basis which has further reduced the revenues on the VLCC side, but that is also matched by slightly lower (inaudible) operation costs relating to these vessels.

On the offshore side, the change from the second quarter to the third quarter is relating to a scheduled reduced rate on the jack-up drilling rig drilling rig, West Prospero, where the charter rate reduced from $81,000 in the second quarter to $54,000 per day in the third quarter.

And that took effect from the very start of the third quarter.

The operating expenses were lower in the quarter due to some of the single-hull vessels that now are on bareboat charter, as I mentioned.

And also, the G&A expenses have been lower than previous quarter in part due to lower stock option accruals.

Going forward, the first Supramax bulker called SFL Hudson was delivered to the Company in early October 2010 and will essentially have a full quarter of revenues in the fourth quarter.

And the second bulker, SFL Yukon, is expected to be delivered in December and will only have a marginal impact in the coming quarter.

Average charter rate is close to $17,000 per day.

The 1700 teu container vessel, SFL Avon, was also delivered from the shipyard in early October and went straight on a charter and will therefore have economic effect for most of the quarter.

And that has been chartered at $8100 per day for the first six months.

In the fourth quarter, there will be a minor effect relating to the Panamax bulker, Golden Ocean, that will be sold with delivery in December, but that transaction will have more impact in the first quarter of 2011.

Also, I would like to highlight that the profit share, of course, will depend on actual performance, so we cannot make any predictions or projections relating to the profit share going forward.

The full breakdown on charter hire per vessel, including accounting treatment, is available upon request to IR@ShipFinance.no.

If you look at normalized contribution from our projects which includes all the vessels accounted for as investment in associate, we see here in the illustration of the EBITDA which consists of $2.42 fixed-rate charter revenues in the third quarter, $0.07 per share profit share, we subtract $0.27 per share OpEx and G&A and get to the $2.22 per share.

Net interest in the quarter was approximately $40 million or $0.50 per share and normalized ordinary debt installments relating to the Company's projects was approximately $99 million in the quarter or $1.25 per share.

This is approximately $400,000 on an annual basis and this compares to our approximately $3.6 billion of net interest-bearing debt.

By applying these numbers, you can see that it represents a repayment profile equivalent to approximately [nine years profiled to zero].

And this also compares to our weighted average age of the fleet of around 5.3 years.

In the Company's opinion, this also is a sign that we have a quite conservative repayment profile on our debt and we hope we are building up very good buffers going forward.

The net contribution from our projects in the quarter after the above significant repayments of debt was approximately $38 million or approximately $0.48 per share.

The declared dividend for the quarter was $0.36 per share, so there is a good cash flow buffer also after our heavy debt repayments.

If you now switch to the income statement as we have reported, I would just like to highlight a few items.

First of all, a significant portion of charter hire is excluded from booked operating revenues at the upper end of the income statement due to finance lease accounting and also charter hire from assets in subsidiaries accounted for in investment in associates.

We have a separate presentation which is available on our website with a more detailed explanation of how this works.

I also want to highlight that the contribution from our 100%-owned subsidiaries accounted for as investment in associate is included in results in associate and interest income in associate.

There's been a minor accounting adjustment in the quarter where some of the equity in these subsidiaries has been changed to an inter-company loan in order to simplify administration and accounting when sourcing the cash flow up to the parent company.

Normally, this would not have a book effect if the asset had been fully consolidated, but due to the requirements under US GAAP, we now have to report these items on two different lines, both on the income statement and also correspondingly, on the balance sheet.

On the balance sheet, I would therefore like to highlight the lines, investment in associates and amount due from related parties long term.

This is essentially the equity we have invested in our 100%-owned subsidiaries that are not fully consolidated based on US GAAP.

In addition to that, I would like to comment that there has been a balance sheet reclassification relating to certain single-hull vessels chartered to Frontline.

These vessels have been moved from investment and finance lease to vessels and equipment when they reach their phase out -- their anniversary date in 2010.

All vessels have now been reclassified and they have a combined book value of approximately $68 million.

Also, when we look at the stockholders equity, I would like to note that there is an equity element of $184 million that should be added to that, to the stockholders equity, and the adjusted book equity ratio is based on that around 32%.

On the cash flow statement, we see under investing activities that repayment of investment and finance lease for all the consolidated assets are included under investing activities where part of the charter hire from these consolidated vessels are not included in the operating income.

Only if we would go further down, we see that only a part of the net payment from investment in associates is included in the lines called Cash Received from Associates.

The balance of the payments or the cash flow from our investment in associates are recorded as interest income from associates and reflected in the Company's income statement.

If you then turn to an investment in associate, we have here a summary of numbers relating to these three subsidiaries who owns four of our assets.

We have preliminary accounts for each of these subsidiaries separately and they are available on our webpage.

I would note that all of these subsidiaries have finance lease accounting and therefore the net income -- in addition, the net income from these subsidiaries appears on the consolidated accounts as a combination of result the associated companies and the inter-company interest charge appears as interest expense related party.

We have approximately $1.9 billion of net interest-bearing debt on a consolidated basis and if we include also the financing of assets classified as investment in associates, the aggregate number is $3.6 billion.

It is important to note that only 50% approximately of this debt is guaranteed by our parent company and the balance is nonrecourse to our balance sheet.

We completed an $85 million bond offering in the Norwegian market in early October with 3.5 years maturity at an attractive rate of 5.32% which was fully swapped with the US dollar.

And we've also recently announced the financing of two of the Supramax bulkers which represents 80% financing of the cost price or a $55 million loan facility and an eight-year tenure.

Similar to many of our other financings, there's only a limited recourse to the Ship Finance balance sheet relating to this financing.

A week ago we announced the potential refinancing of our 2013 bond loan.

For us, it was an arbitrage opportunity where we thought we could refinance at a level sufficiently below current coupon to compensate for [cold] premium on the old bond plus a good margin.

Unfortunately, we launched the deal into a market that suddenly changed and last week had the biggest outflow of capital from the high-yield funds since early 2009.

This is not a market setting to issue new capital in unless you're desperate, as we see it, so we decided to suspend the offering until further notice.

The old bond loan runs for another three years, so there's no rush, and we have significant flexibility with fixed price call option at 101.4 currently reducing to par from next year onward.

If we look at the new-building schedule, the gross remaining capital commitments totals approximately $293 million including the new transactions announced subsequent to quarter-end.

Compared to our overall asset base, this is a very moderate number.

The first of the Supramax bulkers built in 2009 was delivered to us October 2010 while the second vessel is expected to be delivered from the shipyard in December.

We took delivery of this 1700 teu containership in October.

And the remaining three Supramax bulkers are expected to be delivered in the first, second, and third quarter of 2011 while the seven Handysize bulkers are scheduled to be delivered from the third quarter 2011 through the fourth quarter of 2012.

So far we have funded all payments from our cash position and we expect to secure financing in due course at attractive terms as illustrated by the 80% financing on two of the Supramax bulkers.

The profit sharing agreement with Frontline has generated a lot of additional cash flow for Ship Finance.

The original charters were structured fairly low in the tanker cycle which also meant that there is a fairly moderate profit share threshold relating to these agreements.

$5.8 million of profit share was generated in the third quarter and the aggregate profit share year to date of $28.6 million is then payable in March 2011 together with whatever will be accrued in the fourth quarter.

On average, the profit share has been approximately $76 million over these past seven years and the profit share has generated more than $500 million of incremental cash flow.

This has enabled the Company to fuel significant growth.

As I mentioned earlier, Frontline has several sub-charters on the vessels and based on our estimates, we think that the average breakeven timecharter level for spot VLCCs net of these sub-charters is closer to $15,000 per day in the fourth quarter of 2010.

Frontline will report tomorrow morning and we can therefore not comment on the detailed charters revenues per segment.

So therefore to sum it up, we have just today increased our quarterly cash dividend from $0.35 per share to $0.36 per share which represents a 6.6% dividend yield.

This is the third consecutive dividend increase in 2010.

The quarterly adjusted net income was $0.46 per share or $36.7 million and this included a crude profit share of $5.8 million or $0.07 per share in the quarter.

We generated very significant aggregate EBITDA in the quarter of $176 million including profit share and also the associated companies.

And we have continued to increase our fixed charter backlog and we have further diversified our portfolio through the acquisition of the five Supramax bulkers and also the new charters on the dry bulk vessels, so all our new-buildings now are fully chartered.

In total, we have added $380 million of charter revenue backlog to our portfolio over these past few months which is equivalent to $4.80 per share.

And with that, I'd like to turn it back to the operator.

(Operator Instructions) John Parker, Jeffries.

You mentioned you have your VLCCs at a book value of $68 million which to me looks pretty close to what the current scrapping value is for those ships.

I'm wondering if you have any color on how they're trading now and what the likelihood is of Frontline breaking the charter so you can scrap them and recognize that cash value out of what is in those ships.

The agreement Frontline has after the anniversary date in 2010, Frontline has the option to redeliver those vessels to us on 30 days notice.

However, Frontline has sub-chartered out these -- essentially all of these single-hull vessels on storage contracts with varying maturity.

And of course Frontline, they have their full optionality to continue to charter these vessels until 2014 and 2015.

So we just have to wait for them.

And of course, as you mentioned, there is good call it equity value in those units that we of course would be happy to take and reinvest in other assets when they are redelivered.

If you look at the $70 million approximate value compared to our enterprise value which is in the region of $5.3 billion to $5.4 billion, of course, it's a very small relative number.

And also from a cash flow perspective, following the anniversary date in 2010, and that cash flow to us is very moderate.

So for all practical purposes from a portfolio perspective, we have extremely low exposure to these assets.

But of course we would like to take the cash and reinvest in other assets when [vessels comes back].

And then in your admin expense look going forward, do you think it looks more like the first and second quarter?

It looks like there was some stock adjustment.

Maybe this is a question for your Board of Directors, but can you give us any guidance on what the admin looks like going forward?

I would say that the average for the three months is probably approximately reflecting where those numbers could come out.

Of course, there could be adjustments to that and there are certain fees and expenses which also depending on our activity level that flows over the G&A.

But I think if you look at the nine months through September 30, I think that's a fair proxy.

And then finally, you did a recent $85 million equivalent bond offering.

Can you give us any guidance?

It seems to me that there would be tons of opportunities to do new projects with all the ships delivering and you obviously picked up a number of dry bulk projects recently.

How much capacity do you have right now for making additional equity investments and if you saw big projects going forward where you didn't have enough equity, how you might find that equity?

First of all, we don't communicate specific investment capacity.

Our main focus is and has always been to ensure that we maintain a very high-quality portfolio and we add projects on a case-by-case basis.

We are looking at the number of project opportunities as we have basically over the last few years.

And we believe that we hopefully over time can add some of these projects to our portfolio.

From a capacity point of view, we believe that we do have access to the capital markets, be it equity or bonds, and also for well-structured deals, we've also seen that there's good access to also to the bank financing market as illustrated by the recent 80% financing we secured relating to some of the dry bulk vessels.

So we hope that we will be able to find good accretive projects that we can add on to our portfolio and hopefully build on both on our charter backlog, but also on our distribution capacity.

Jonathan Chappell, JPMorgan.

This is Darren Hicks in for John Chapelle.

We noticed that the net contribution from slide nine in your presentation was down slightly from the second quarter, but you obviously raised the dividend.

Can you talk about how the Board evaluates both near-term and long-term prospects when determining what the dividend should be?

Yes, of course.

The Board takes a very long-term view when you look at the dividend, the capacity going forward.

And if you look at the net contribution, you will see that even if you exclude the profit share, you have a good buffer from that number to the dividend number.

And whereas of course in the second quarter, the net contribution was slightly higher but also the profit share was higher.

If you look at it going forward, as we mentioned when I went through on an asset class by asset class basis, we have seen in this quarter there was -- both on the VLCC side mainly linked to the single hulls and also to the scheduled reduction on the charter rate for one of the drilling assets, there was a slightly lower EBITDA in the third quarter compared to the second quarter.

But that's also matched by the fact that we have been repaying a lot of debt also in the quarter.

And we have slightly lower interest expense and also the debt amortization has been adjusted somewhat as we have been paying down debt.

So from a Company perspective, we are very comfortable with this level.

And we also have a fairly good liquidity position, so we also think that we will be able to make some further investments going forward which we of course hope will build also the distribution capacity over and above what the Company is paying currently.

Phyllis Camara, Pax World Fund.

Can you talk about -- have you already gotten started talking to the banks for your new-builds to possibly refinance them instead of having all the cash (inaudible) leaving your balance sheet?

Have you already started talking to the banks?

Yes, we have.

Of the $293 million call it remaining investments, we have already sourced $54 million of financing related relating to two vessels.

And then we are in dialogue with banks for all the other new-buildings.

We will of course make the appropriate announcement and disclosure to the market whenever any such agreement has been concluded.

But if you look at the financing we managed to structure on the Supramax bulkers of 80%, we compare that to a gross remaining investment of $293 million where we already have put in $91 million.

If we manage to get the same kind of level financing on the new deals, that we would actually be cash positive from these investments.

But we cannot be more detailed than that.

We have communicated that we believe that we will be able to raise in excess of 70% financing which means that we basically have virtually no net capital expenditure from this new building program.

Now could you just tell me, are the banks -- are they requiring -- you said you've gotten 80% and you possibly could get 70% now.

Are you seeing that the loan-to-value ratios are starting to go down from the banks at all?

Are they giving you any kind of pushback on higher rates or anything like that just in general?

I would not say that.

I think our impression working with the banks -- and we have 30 banks in our portfolio, so we have close contact with many of the leading banks in the market.

My clear impression is that the bank market has changed, but it has changed in a way where we could say the high-quality companies in the market still have very good access to capital, whereas maybe smaller, or maybe one-ship operators, privately-owned companies may have more challenges in sourcing capital.

And I think the fact that we sourced 80% financing on these two dry bulk vessels which is essentially maximum of what we financed also before the financial crisis, and also similar to the financing we did before the financial crisis, we only guaranteed 25% of that loan.

We don't have to provide a full corporate guarantee even.

So I think from the bank's point of view, it is a combination of quality assets -- we are in it.

We have put the equity in, we provide a limited guarantee.

And then of course, we have a very strong charterer, so they have visibility and the cash flow.

So I would say that the banks are definitely still there for the bigger, higher-quality companies, I would say, and while others of course may be more challenged.

Okay, good.

And then the interest expense related party that you show on your income statement, is that cash -- do they pay you on a quarterly basis or a monthly basis?

That's a cash payment to you?

I would just (multiple speakers) that payment is relating to the subsidiaries that are accounted for as investment in associate.

These are 100%-owned subsidiaries where we have basically full control.

So the only reason why these are not fully consolidated based on US GAAP is that when we structured those charters, we structured them in a very -- in a way where we mitigated a lot of the risks for ourselves.

We structured it with higher charter rate in the beginning.

We have structured it where we offload interest rate volatility risk within those projects through an interest compensation clause.

And we also have purchase obligations for the deepwater rigs on Seadrill's hands.

And based on that -- and this is actually more -- you can say that it is the Enron scandal coming back and biting us.

Because after Enron, US GAAP introduced a lot of very rigorous calculation methods to identify who is more closely associated with the asset and particularly, who absorbs more of the downside volatility.

And because we are structured in a very low-risk way for ourselves, our chartering counterpart, Seadrill, who don't own anything in the Company, they have to fully consolidate.

And Ship Finance, we who own 100% of the Company, can only account for them as investment in associate.

And then from our side, what we do, and this is more from a bookkeeping perspective, we can allocate our equity investment in those subsidiaries either as a combination of equity and call it intercompany loan or whichever way we like.

And this -- the intercompany loan method here is just to ease the flow of fund and the administration relating to the flow of fund from our own subsidiary up to the parent company.

(Operator Instructions).

Adam France, 1492 Capital.

Could you repeat what you said about -- I think I misinterpreted your comments -- where the sub-charter rates were going into the fourth quarter?

Were you commenting on that or where the VLCC rates were in general?

I just want to make sure I was clear on what you said there.

My comment was relating to VLCC market in general as reported by Clarksons, an independent broker who sort of follows the market closely.

And they reported average VLCC earnings [for modern] VLCCs of about $25,900 per day in the third quarter on average.

And so far into the fourth quarter, their estimate is $25,200 per day on average so far.

But as I mentioned, it's on a rising trend and last week they reported $35,500 that week.

Justine Fisher, Goldman Sachs.

The first question that I have is actually a clarification of one of your responses to I think to Phyllis' question that the investment in associates, the cash that you received this quarter was down to around I guess almost $5 million from $18 million previously.

So you had mentioned that that's because the rate on one of the rigs took a step down I guess in line with the original charter for the quarter.

But did that account for the bulk of -- for all of the decline from the $18 million to the $4 million?

No.

First of all, I would just note that the jack-up drilling rig, that is fully consolidated in our accounts.

So that is included on the revenues -- on the revenue line on our income statement.

The vessels that are accounted for as investment in associates which are essentially the three deepwater rigs we have with Seadrill, there has been a small modification on the accounting just to ease the flow of funds internally.

And therefore, the cash received from that is a combination of -- if you see on the income statement, you see interest income from associate which in the third quarter was $14.682 million.

That is a cash item.

And then in addition to that, we also transferred $4.268 million and this -- now I look at the cash flow statement, we also sourced that out from that subsidiary.

So the combination of this is $18.9 million or close to $19 million.

And so going forward, we are going to see this divided up?

If we had thought that it was going to be around $18 million to $20 million a quarter going forward, we're going to see essentially a quarter that show up only on the cash flow statement under cash flow from investments and then the remainder actually not show up on the income statement?

I think you should really look for the combination of the two.

And the combination of the two is then, as you say, approximately $18 million to $20 million.

Can you give us a bit more clarity on what this -- the accounting change to ease the flow of funds was, just a little more clarity on exactly what needed to to be eased and what steps were taken?

This is, as I said, these subsidiaries are 100% owned by Ship Finance.

And therefore -- and if this had been the assets that we consolidate fully, you would not have seen anything because everything would have been neutralized out in the accounting.

The only reason why this then appears on the balance sheet, on the statements, is because we have this odd accounting treatment which we have to do based on US GAAP.

But why the change?

When we invest the money in a subsidiary, we can decide whether or not we put it in as a shareholder loan or we put it in as equity.

And if you take it in as equity, you also then -- when you start taking cash flow out, we're generating a lot of cash flow from these subsidiaries.

And therefore to avoid having to go through the exercise of writing down equity when we take money up to the parent company, we have instead transferred most of the capital and reclassified it as call it an intercompany loan and therefore we can take the money out without having to go through that call it administrative exercise of writing it down.

So I guess the money that Ship Finance invested in those three subsidiaries, that was still essentially an equity investment, you're just accounting for it differently and so --

Exactly.

If we had consolidated this as call it on a normal basis, you would not have seen it because it would have been neutralized out in the accounts.

But I think just to be perfectly clear, our investment in these subsidiaries are exactly the same.

There is no change to our investment in these subsidiaries.

And the cash flow generated from these subsidiaries are also exactly the same as it was in the past.

So this is just a bookkeeping change.

And then another question again on the new financing that you had looked for -- that you are currently looking for for the dry bulk vessels, you said that the banks are still willing to only let you guarantee a portion of the debt.

So is that a possibility for the financing, that we'd see that the banks would only leave Ship Finance International responsible for a portion of the debt that you [may get] on these dry bulk vessels?

Yes, we have done that from time to time.

And if you look at our overall portfolio of $3.6 billion of debt, including all our subsidiaries, we only guarantee half of that.

So we have done that in the past and we have seen also that the banks are willing to work on that basis also now.

From our side, it is always -- we try to optimize that, of course, for ourselves when we look at new transactions.

(Operator Instructions) As we have no further questions at this time, I'd like to turn the call back over to you, sir, for any additional or closing remarks.

Thank you very much.

And I would just like to say thank you, everyone, for participating in our third-quarter earnings result and we expect to announce the next quarter results in late February 2011.

Thank you very much.

Thank you, sir.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.