SFL Corporation Ltd (SFL) 2015 Q2 法說會逐字稿

(technical difficulty) 2015 Ship Finance International Limited earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ole Hjertaker, CEO. Please go ahead.

Thank you, everyone, and welcome to Ship Finance International and our second-quarter conference call. With me here today I also have our CFO, Harald Gurvin.

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 in our current plans and expectations and involve risks 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 has again increased the dividend by $0.01 to $0.44 per share. This dividend represents $1.76 per share on an annualized basis or nearly 12% dividend yield based on closing price of $14.90 yesterday. This is the 46th consecutive dividend, and we have now paid nearly $20 in aggregate dividends per share since 2004.

Reported net income for the quarter was $68 million or $0.73 per share. This is more than double the result in the previous quarter after a gain relating to the sale of Horizon Lines notes and warrants, but also after writing down nearly $30 million on some feeder-size container vessels.

Aggregate charter revenues recorded in the quarter, including 100%-owned subsidiaries accounted for as investment in associate, was $148 million. With the delivery of the Capesize bulkers to Golden Ocean in the third quarter, we expect charter revenues to increase going forward.

The EBITDA equivalent cash flow in the second quarter was approximately $125 million. And last 12 months, the EBITDA equivalent was $547 million. Profit share contribution was $11 million in the quarter, effectively maxing out the cash free base on the old agreement with Frontline. Going forward, this could be higher with the new profit split arrangement, depending on the tanker market. And the distribution of charter revenues per segment is changing with a shift from offshore to container and dry bulk vessels.

In the first quarter, 40% of revenues was from the offshore segment, down from more than 50% one year ago. And with the delivery of the new bulkers and container vessels, we expect the relative share from these two segments to increase in the third and fourth quarter.

In the second quarter, we announced the acquisition of 8 Capesize bulkers in a (inaudible) section with Golden Ocean. The vessels are built between 2009 and 2013, and 7 of the vessels have been delivered to us so far, with full cash flow effect in the fourth quarter. The deal includes a profit split feature and the transaction added $480 million to our fixed-rate charter backlog.

In June, we announced the acquisition of 3 newbuilding container vessels between 9,300 and 9,500 TEU capacity. The vessels are under construction at 2 shipyards and expected delivery is between late 2015 to mid-2016. The vessels are charted out for a period of 5 years fixed, plus two-year options, and the transaction adds more than $200 million to our fixed-rate backlog.

And in May, we announced an amended charter structure with Frontline, including revised base rates in operating expenses and new profit split arrangements starting from a lower level and a 28% ownership stake in Frontline. The charter and profit share adjustment took effect on July 1.

In addition to the Frontline vessels, we also have exposure to the crude oil tanker market through two modern Suezmax tankers. For these vessels, the average charter rate was approximately $34,300 per trading day in the quarter. One of the vessels went out of service at the beginning of the quarter in connection with a scheduled special survey.

In June, we announced the sale of our notes and warrants in Horizon Lines and we received cash proceeds of approximately $272 million. In April 2012, Ship Finance received $40 million of Horizon Lines second-lien notes and 9.25 million warrants in Horizon Lines in connection with a termination of the charters for 5 container vessels.

These vessels are subsequently being transferred out of our portfolio to unrelated third parties. We had conservatively recorded the notes on our balance sheet at 40% of par value, giving us a book gain of $45 million when the securities were sold.

And in July, Frontline 2012 announced their agreement to merge. The combined company expects to become one of the world's leading tanker companies with a total fleet of approximately 90 vessels plus 22 vessels under construction. The merger is subject to shareholder approval in each of the companies, expected to be completed in the fourth quarter, and our shareholding after the merger will be approximately 7%. We have signed a standstill and voting agreement in connection with the merger, but we'll have full flexibility with respect to both our shares and notes in Frontline thereafter.

Divesting of older vessel is a part of the Company's strategy to renew and diversify the fleet. And in July, we agreed the sale of the 20-year-old Suezmax tanker Front Glory to an unrelated third party. Delivery to the new owner is expected in early September and gross sales price is approximately $16 million.

Net proceeds to Ship Finance is estimated to approximately $13.8 million after a $2.2 million compensation to Frontline for the termination of the charter. Following this sale, we will have 12 VLCCs and 4 Suezmax crude oil tankers remaining on charter to Frontline.

The Golden Ocean transaction is a combination of a fixed rate, base rate, and a profit split calculated on a quarterly basis. We have a fixed-rate operating expense agreement with a subsidiary of Golden Ocean, essentially similar to the agreement we have with Frontline. And we also have an interest adjustment feature where the charter rate will be adjusted up and down, depending on movements in underlying interest rates. This will effectively eliminate interest rate risk relating to the financing.

While the charter rates in the dry bulk segment has been relatively weak lately, our deal runs over 10 years. And as we have seen in the past, there have been significant volatility in the Capesize rates over time, as illustrated by the graph on the slide.

Our profit share is on a quarterly basis, and even a short-term spike will give a good contribution. And as an example, a $30,000 per-day market would give a profit split contribution of approximately $3 million per quarter. The profit share agreement could therefore provide us with very interesting optionality over time.

The 3 newbuilding container vessels we recently agreed to acquire are similar to the 4 8,700 TEU container vessels we recently took delivery of. And these have also the latest in eco-designed features, giving them a very competitive operational performance.

A deposit was paid in June and the remaining CapEx of $246 million will be payable on delivery. We expect to finance the majority of the remaining CapEx with bank financing before delivery and have already received indications on competitive terms.

The aggregate EBITDA contribution is estimated to approximately $32 million per year for the 3 vessels and the charter has 2 extension options of 1 year each at the higher-rate level thereafter. We are currently not at liberty to disclose the purchase price, name of the charterer, or the detailed charter terms, but at least the charterer should be apparent when the prefix to the vessel names is revealed before delivery.

Frontline has always performed on the charter arrangement with us, but we have seen that the original base charter rate set in 2004 and 2005 have been on the high side in periods with soft tanker market. And Frontline has then, in reality, been required to subsidize these charters. We therefore agreed to amend the base charter rates to a level where we believe is more sustainable over time and also adjust the operating expenses to a level closer to current run rate.

The charter period will remain as before, with approximately 8 years remaining charters on average. And in exchange, we agreed a higher profit split of 50% kicking in from the new base rates and to be calculated on a quarterly basis instead of the annual calculation as we have seen up until now. This new charter arrangement we also believe was a catalyst to get to the merger between Frontline and Frontline 2012 and thus creating a bigger Company with, hopefully, also more interesting prospects going forward.

We have recently refinanced the vessels to Frontline with a $250 million non-amortizing revolving credit facility, and at quarter end, nothing was drawn on that facility. Even with this loan fully drawn, there will be significant free cash flow from the vessels before profit split, as illustrated by the graph on the slide. The forward market, as illustrated by the TD3 forward rates currently quoted at $44,300 per day for the calendar year 2016, indicates expectations for a firm market at least the next 18 months.

And at this level, the net contribution per share from the Frontline vessels and notes could be between $0.35 and $0.40 per share per quarter. As part of the transaction, the corporate guarantee from Frontline for the charters were released, but the $2 million cash buffer that will be built up in the chartering company will be sufficient buffer to withstand 12 months of the lowest average 12-month charter rates we have seen for these vessels over the last 15 years.

Most of our vessels are chartered out on a long-term basis, and we still have nearly nine years weighted average charter coverage. Full details on a vessel-by-vessel basis and including the new Frontline lease structure is available by contacting us on email at ir@shipfinance.no.

We have more than $4.2 billion of fixed-rate order backlog and the estimated EBITDA equivalent backlog is more than $3.3 billion or around $35 per share. These numbers include the new and reduced base rates from the Frontline vessels and do not include any contribution from the various profit split arrangement, nor does it include cash flows from the two Suezmax vessels operated in the spot market.

As the backlog is based on fixed-rate charters only, we have not included revenues from any vessel after the end of the current charter period. And we keep expanding our customer base and have now 17 charter and counterparties in total.

If you then switch to our performance last 12 months, the normalized contribution from our projects, including vessels accounted for as investment in associates, the EBITDA, defined as charter hire plus profit share less OpEx and G&A, was nearly $550 million in the period. Net interest was $111 million or approximately $1.20 per share, and our normalized ordinary debt installments relating to the Company's projects was around $190 million or approximately $2 per share. This is excluding prepayments relating to sale of order assets and without net amortization on Frontline vessels, which were debt free at quarter end.

Net contribution after this is $246 million or $2.60 per share. And in the last 12 months, for the same period, we have declared dividends of $1.70 per share or $159 million in aggregate, which is well below our historic average payout ratio of approximately 75% since 2004.

And with that, I will leave the word over to our CFO, Harald Gurvin, who will take us through the numbers for the second quarter.

Thank you, Ole. On this slide, we have shown a pro forma illustration of cash flows for the second quarter compared to the first quarter. Please note that this is only a guideline to assess the Company's performance and is not in accordance with US GAAP.

For the second quarter, as total charter revenues before profit split and cash sweep were $134 million or $1.34 per share, down from $139 million in the previous quarter. The main reason for the reduction is the decline in offshore revenues due to a scheduled reduction in the charter rate for [Vestorres] in February 2015, which had accrual effects in the second quarter. It is important to note that the scheduled [re-raise] reduction is balanced by reduced interest in debt repayment on the related financing, so the net effect on the distribution capacity is neutral.

Revenues from VLCCs were in line with the previous quarter, while revenues from Suezmaxes were up due to a stronger earnings on the 2 Suezmaxes trading in the spot market, 1 of which was out of service for 10 days in the second quarter and 33 days in the first quarter in connection with a special survey and major upgrade to improve earnings efficiency. Following the revised agreement with Frontline effective from July 1, these charter revenues from the tankers are expected to increase by approximately $1.6 million on average in the third and fourth quarter of 2015.

Revenues from liners were up in the quarter due to accrued quarter earnings on the 2 remaining 8,700 TEU container vessels delivered in January 2015, with 78 charters to Hamburg-Sued. Revenues from dry bulk carriers were slightly down, but will increase going forward following delivery of the eight Capesize dry bulk carriers on charter to Golden Ocean in the third quarter, giving full cash flow effects on the fourth quarter.

Vessel operating expenses and G&A were $26 million, slightly down from the previous quarter. Under the revised agreement with Frontline, operating expense on these vessels will increase by approximately $3.6 million in total per quarter, as from the third quarter 2015.

We reported a cash sweep of $10 million from Frontline in the first quarter, representing a full cash sweep on all vessels as for the previous quarter. Following the revised agreement with Frontline, the accumulated cash sweep of $20 million was paid in the third quarter.

Going forward, we will receive a profit share of 50% above the new base rate, which will now be calculated and paid on a quarter basis. We also recorded a profit share of approximately $900,000 related to 5 of the Handysize dry bulk carriers. So overall, this summarizes to an EBITDA of $125 million for the quarter or $1.34 per share, slightly down from $127 million in the previous quarter.

We then move on to the profit and loss statement as reported under US GAAP. As we have described in previous earnings call, our accounting statements are slightly different than those of a traditional shipping company. As our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing.

As a result, a significant portion of our charter revenues are excluded from our book operating revenues and instead booked as revenues classified as a repayment of investment in financed leases, results in associates and long-term investments, and interest income from associates. If you wish to gain more understanding of our accounts, we will also this quarter publish a separate webcast which explains the financed lease accounting and investments in associates in more detail. This webcast can be viewed on our website, shipfinance.org.

Overall for the quarter, we report total operating revenues according to US GAAP of $92 million, which includes $9.9 million in cash sweep from Frontline. Based on the new agreement with Frontline effective July 1, 2015, the net effect on our operating income from the amended Frontline leases is a reduction of approximately $1.8 million on average per quarter over the next years.

As mentioned, we will receive a profit share of 50% for all revenues above the new base rates going forward. And as an illustration, the required rate level for a VLCC to be neutral from a P&L perspective is around $23,000 per day.

Total operating expenses were $75.3 million, which includes a non-cash impairment of $29.2 million relating to 2 smaller container vessels trading in the spot market. These were impaired according to US GAAP and therefore written down to their fair values. We test all our vessels for impairment on a quarterly basis, and based on current expectations, we do not believe any other vessels will be impaired over the next quarters.

Net operating income was $16.7 million or $45.9 million adjusted for the impairment. Results in associates includes $1.3 million relating to our 28% ownership in Frontline, which has been equity accounted from June 5, when the shares were issued. Other financial item includes the $44.6 million gain on the sale of notes and warrants in Horizon Lines. So overall and according to US GAAP, the Company reported net income of $67.9 million or $0.73 per share for the quarter.

Moving on to the balance sheet, we showed $62 million of consolidated cash at the end of the quarter. In addition, we had approximately $329 million freely available for drawdown under revolving facilities. Available-for-sale securities of $48 million relates to investments in secured tradable securities as a short-term [security payment].

In addition, we have $116 million in amortizing Frontline notes, which are included in amount due from related parties under current and long-term assets. The notes are conservatively recorded in our balance sheet at 74% of par value on average at the quarter end.

Following the amended agreement with Frontline, the balance of investment in financed leases relating to the Frontline vessels has been adjusted to reflect the reduced base charter rates and the increased operating costs. These amendments, together with the $150 million fair value of the Frontline shares received as compensation, are reflected in the carrying value of the leases at quarter end, which now also are more in line with the fair market value of the vessels.

Further, the remaining deferred equity balance, which arose when the vessels were transferred from Frontline in 2004, has been incorporated in the leases. Investment in associates includes our 55 million shares in Frontline with a book value of approximately $150 million.

On the debt side, we had approximately $1.5 billion of consolidated interest-bearing debt outstanding at quarter end, which includes approximately $800 million in bank loans and $650 million in senior unsecured notes. In addition, our 100%-owned subsidiaries accounted for as investment in associates had approximately $1 billion in bank loans at quarter end. The debt in these subsidiaries is not included in the consolidated accounts. Stockholders' equity was approximately $1.2 billion, giving a book equity ratio of 43% at the end of the quarter.

Then looking at our liquidity and remaining CapEx. As mentioned, the Company had total available liquidity of approximately $390 million at the end of the quarter, which includes $62 million in cash and approximately $329 million freely available under revolving credit lines. We also had a total of $164 million in available-for-sale security and notes at quarter end, including the $116 million Frontline notes as previously described.

On the CapEx side, we had a remaining CapEx of $262 million at quarter end relating to the 8 Capesize dry bulk carriers. 7 of the vessels have been delivered so far in the third quarter, with the remaining vessel expected to delivered within the next week. The vessels are financed under a $166 million long-term bank financing with an equity portion of $106 million funded from our available liquidity.

In addition, we had total remaining CapEx of $246 million relating to the 3 newbuilding container vessels, which is payable on delivery of the relevant vessels from the shipyard. We expect to arrange a bank financing of $200 million to $210 million for the vessels, and the remaining balance of approximately $36 million to $46 million will be funded from our available liquidity.

We are comfortably in compliance with all financial covenants under our loan agreements at quarter end, and we have very limited refinancing requirements over the next years. It is worth noting that Ship Finance has been in full compliance with all financial covenants for each of the 46 quarters since the Company was established, which gives us a very strong standing in the banking market.

Then to summarize, the Board has declared an increased quarterly cash dividend of $0.44 per share for the quarter. This represents a dividend yield of 11.8% based on the closing share price as of August 25. Net income for the quarter was $68 million or $0.73 per share. And the aggregate EBITDA was $135 million or $1.34 per share.

We have taken delivery of 7 of the 8 Capesize dry bulk carriers, which immediately commence their 10-year charters to Golden Ocean. We have agreed to acquire 3 newbuilding container vessels with long-term charters to leading European-based container line.

We have entered into a long-term solution with Frontline with significant upside potential and a new profit-sharing agreement. And we have significant divestment capacity available for new [increasing] investments.

And with that, I give the word back to the operator, who will open the line for any questions.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

Congratulations for the good results. This is a very tough market for many of the high-yielding companies and some of the MLPs. And there's a lot of concern about their ability to grow further the dividends and fund the growth.

You just announced a dividend increase, which is not very intuitive into the action into the current environment. I want to ask you how much capacity do you have to do more deals, based on your existing balance sheet. And how much cash do you expect that you will be generating in excess of your dividend payment?

It's an interesting question. And as you point out, we see some of the other, call it, yield vehicles struggle a bit on pricing. I think history speaks for itself. 46 quarters -- we have been profitable every single quarter and we have declared dividends every single quarter. I don't think any other shipping companies or offshore companies, for that matter -- correct me if I'm wrong -- has had that kind of track record.

And I think what is really important here is our approach to our business model. We have a multiple segment approach. We don't focus on one single segment only because we know that all these segments are volatile by nature and they have been volatile historically and we have to expect them to be also, call it, volatile going forward.

And our ability to balance our MS spend and also to focus at different deals in different segments means that we can benchmark deals in a different way than the players who are locked into one segment only can. And hopefully, that will help us -- what can we say -- do better investment over time that will also support the dividend capacity.

In the numbers we reported, as Harald pointed out, we had nearly $400 million of available liquidity at quarter end. And then in addition, we had $160 million of available-for-sale securities, including $160 million of Frontline notes. On top of that, we also have 55 million Frontline shares that we received as compensation earlier this year. So I would say that we have a fairly good robust balance sheet and good investment capacity.

I will not specify exact numbers, but the investments we have agreed to will, we estimate, we'll, call it, use around $150 million, say, plus-minus of our total of our liquidity, maybe less. And based on that, there should be significant additional investment opportunity.

And then for the free cash flow, maybe if you take a look at slide number 10 in our presentation, we illustrated that the net contribution last 12 months was $246 million after loan interest and amortization, which compares to around $160 million of dividends declared in the period, which clearly illustrates the difference and the cash flow aggregation that we generate in the Company.

Thank you very much. And do you forecast that out of this difference how much do you think it is the replacement of the assets when they get older? And how much is a potential growth? Can we assume that half and half of that?

Yes; I will not specify a number as such. We take a conservative approach. And as you, of course, correctly point out, everyone who owns maritime assets knows that -- or any assets, for that matter -- knows that over time, you have to renew your assets. Otherwise, the cash flow will stop. So yes, part of this is the renewal and reinvestment.

And as we just announced also earlier, a couple weeks ago, we sold a 20-year-old Suezmax tanker basically debt free. Of course, that capital we intend to reinvest in other assets and then continue building the Company.

But I think -- basically, I think we have a model where we have seen -- as we have seen over the 11 years, we have been able to increase the Company, increase the asset base. And we have a much higher charter backlog now than we had 11 years ago. So I think we are building a company and not using it up.

Thank you, Ole. If we exclude the cash flow, the excess free cash flow that you have available for growth, and we focus on the liquidity that you have and the securities that you hold in the other affiliated companies, what is -- you said that about $150 million is already committed; the rest of it is going for growth.

What is your view about deploying this remaining capital? And how would you think about your holdings in these affiliates? Is the intention first to exhaust -- to use the cash flow that you have on hand and then sell these investments? Or are there thoughts of holding these investments in the long term?

Well, I think with respect to the affiliate investments, we have not made up our mind. We have not decided exactly what we want to do with that. We have a lockup relating to the shares until the general assemblies for voting for the merger is completed.

But after that, we have full flexibility with respect to what we do; there are no other restrictions relating to those nor the notes we have. So we of course hope to be opportunistic. And we will try to maximize value for our investors.

And with respect to other investments, we are constantly of course screening different projects. I think if you look at our different segments, I think right now, we have been quite careful on the offshore side because we feel that there is a lot of noise particularly in that segment. We have just invested in container ships. We have invested in bulkers and we are also looking at other opportunities also in those segments and we are looking at opportunities also on the tanker side.

That said, it's all about grabbing the right opportunity at the right moment. So I wouldn't rule out any offshore-related investments. But as I said, we are cautious and careful and we try not to catch the proverbial falling knife.

And I want to ask the usual question about the segments, that they look more attractive right now. You obviously did some container ship acquisitions. Are there any sectors that they look more attractive at this point of the cycle?

And the collapse of the MLP market, how it has changed these potential opportunities in the competitive landscape, given the fact that you are not an MLP and you do not have to pay any cash flow to any sponsor? So I would assume that there might be even opportunities in the LNG sector, where a lot of the MLPs are active. Is this something that you might be looking at?

Absolutely. We would be very interested in the LNG segment. But of course, in that specific segment, there have been a significant technology change. So you have to be a little bit careful on the asset type you invest in.

And also fair to say it's been relatively overbanked, if that's a word you can use, where a lot of players have focused and been billing to offer extremely low yields. What we like is nice modern assets, call it latest technology, and also nice cash flows coming out of that.

So if we can combine that, yes, definitely. But as I said, we are looking at screening several segments at any given time. And hopefully we pick the right investment opportunities when we see them.

Are you able to give your feeling of which sectors look more attractive for this type of long-term deals?

Well, we just did the latest acquisition was three container ships. In the container ship segment, of course, there you can see -- for the bigger vessels, you can see longer-term charters, which is something we like, which gives us visibility in cash flows.

We have also done a bulker deal. Generally, on the bulker side, it's more relative, more volatile. But if we can structure it right, like we did with Golden Ocean, we have the right profit split optionality in it. It could still be very interested if you buy in at the right time.

You mentioned LNG. Could be interesting as well. And so could both product tankers and crude oil tankers. So we're looking at a relatively wide specter of assets. But we try to stick to our core segments and not venture out the on that. So we are not really looking into aircraft leasing or container box leasing or railcar leasing at the moment.

Thank you very much, Ole.

[Martillo Brezac], Amore Investments.

Just a very quick question. At the end of the quarter, you had not paid anything related to Golden Ocean transaction. Right? So when you say your total remaining CapEx was $518 million, that was both for the Golden Ocean plus the container ships. Correct?

That is correct.

Okay, thank you.

(Operator Instructions) Ceki Aluf Medina, Southpaw Asset Management.

Congratulations on the good numbers. Three questions -- first on the impairment, can you please let us know which of the four 1,700 container ships took this write-down? And is there any guide as to what level you have written these down to? It's a large number, the $25 million write-down.

Second, [OpEx] Sino or Soehanah -- now, that came off contract, I think, this month, August. I was wondering if you could let us know what is going on there, if the contract has been extended or what is going to happen to the jack-up.

And third, with respect to the stock price, it has come down recently. The world is a dangerous place these days. I'm wondering -- and the yield on the equity is pretty high. I'm wondering if there is a price -- and you probably wouldn't let us know what price it is. But regardless, if there is a price at which you would start buying back your shares. Because it is -- the yield is in the double digits now, significantly in the double digits.

We can start off with the impairment we took on the two smaller container vessels. These are two container vessels trading in the spot markets. It's the SFL Europa and the SFL Avon. The Europa 2003 build and the Avon 2010 builds.

The total impairment there was $29 million, which was to bring them in line with the fair values, which is around $8 million for the SFL Europa and around $14 for the SFL Avon. But as I said in the speaking notes, we do impairment testing every quarter on our vessels, and these were the only two that were impaired. And we do not, based on current expectations, see any impairments on other vessels over the next quarters.

Very good. Thank you.

Of course, adding to that, of course, going forward as we bring down the book value, that will also reduce depreciation on these vessels going forward. So over time, you would have the same accounting effect over time; it's just that we take it down now and then we have lower depreciation thereafter.

If we then switch to Soehanah, and this is -- for those who are not so familiar with all our assets, we have a jack-up drilling rig to an Indonesian-listed company called Apexindo. This rig is called Soehanah, built 2007, and has been on a subcharter to Total since delivery in 2007.

And the subcharter to Total is expiring in a couple of weeks, we understand. We have not been advised of any new subcharter for that rate. Apexindo is the charterer, and of course they are liable to -- they have to pay the full charter rate, irrespective of whether the rig is working on a subcharter or not working on a subcharter.

So from that perspective, we have no news really to report relating to that rig, other than that they are fully in compliance with the charter and up to date with charter payment.

Okay. And with respect to share buyback?

We cannot comment on whether or not the Board will initiate a share buyback program. I think it's something that has been evaluated from time to time, but whether or not such a program will be initiated, we will have to get back to you. And they would also be notified in the market if there would be such buybacks.

Okay, thank you.

Hardin Bethea from HSB Capital.

One question regarding the Frontline vessels. Is there still existing leverage or debt facilities related to the VLCCs and Suezmaxes chartered to Frontline? If so, can you provide that balance relative to market value or scrap value to the vessels?

Yes, I can give that. At quarter end, we had a $250 million credit facility, a fully revolving credit facility, relating to those vessels. That was not utilized at quarter end, so there was nothing drawn on that facility at the time.

I would say that the loan facility there is very conservative. It's just, I would say, a little bit over scrap value, but not that much, and way below a charter-free market values, if you can call that, that's quoted by the brokers. So it's a conservative financing and we intend to keep it relatively conservative, simply because these vessels are getting older and we just -- we don't want to be in a situation where leverage is too high on the vessels.

Got it. So unutilized, that $250 million is included in the available liquidity of $400 million?

That is correct.

Exactly. Yes, yes, yes. And on the slide we have relating to the Frontline agreement, that slide number 8 in the presentation, we also see a sensitivity there relating to market earnings for VLCCs. And that illustration is assuming that loan being fully drawn. So when it's not drawn, of course, you have less interest.

All right, thank you.

As there are no further questions in the queue, that will conclude today's question-and-answer session. I will now turn it back to the host for any additional or closing remarks.

Yes, thank you very much. Then I would like to thank everyone for participating in our second-quarter conference call. And if you have any follow-up questions, there are contact details in the press release. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.