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Executives

Gerry Buchanan - President

Peter Georgiopoulos - Chairman

John Wobensmith - CFO

Analysts

Jon Chappell - JPMorgan

Urs Dur - Lazard Capital Markets

Natasha Boyden - Cantor Fitzgerald

Christ Wetherbee - Merrill Lynch

Gregory Lewis - Credit Suisse

Scott Burk - Oppenheimer

Mike Weber - Wachovia

Tore Fugelsnes - Nordea Markets

Genco Shipping & Trading Limited (GNK) Q1 2009 Earnings Call April 30, 2009 8:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to the Genco Shipping and Trading Limited first quarter 2009 Earnings Call and presentation.

Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's Web site at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being Web cast at the company's Web site, www.gencoshipping.com.

We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible at any time during the next 2 weeks through May 15th 2009 by dialing 888-203-1112 or 719-457-0820 and entering the pass code 9899034.

At this time, I will turn the conference over to the company. Please go ahead.

Male: Good morning. Before we begin our presentation, I'd note that in this conference call we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and uncertainties that could cause actual results to differ from the forward-looking statements.

For discussion of factors that cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's Web site, and the company's filings with the Securities and Exchange Commission, including without limitation, the company's Annual Report on Form 10-K for the year ended December 31, 2008 and the company's subsequent reports filed with the SEC.

At this time I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping and Trading.

Gerry Buchanan

Good morning and welcome to Genco's first quarter 2008 conference call.

With me today is Peter Georgiopoulos, our Chairman and John Wobensmith, our Chief Financial Officer. I will begin today's call by discussing our first quarter and year-to-date highlights, as outlined on slide 3 of the presentation. I will then turn the call over to John to review our financial results for the 3-month period ended March 31, 2009. Following this, I will discuss the industry current fundamentals. John, Peter and I will then be happy to take your questions.

During the first quarter Genco continued to benefit from its past success in executing its time charter strategy by securing a large portion of our modern fleet on long term contracts, with high quality charters, where rates are strong. The company once again posted solid results for shareholders during a volatile market.

Turning to slide 5, for the first quarter net income was $41.2 million or $1.32 basic and diluted earnings per share. John will discuss the quarter results in more detail later in the call.

During the first quarter, we significantly enhanced our financial flexibility by amending our $1.4 billion credit facility under favorable terms. While John will discuss the benefits of the amended facility in more detail, I will like to note that this proactive measure, combined with our past success, solidifying our financial liquidity, positions Genco well to emerge from the current market environment as an industry bell weather.

In maintaining our focus of preserving the company's financial strength, we utilized the considerable cash flows generated by our modern fleet to increase Genco's cash position to $175.8 million as of March 31, 2009.

Moving to slide 6, I will now discuss our time charter coverage in more detail. Consistent with our focus on providing shareholders with sizeable contracted revenue streams, the majority of our vessels are locked away on time charters, with an average remaining duration of approximately 14 months, as of the March 31, 2009.

Currently, we have approximately 60% of our fleet's available days secured in contracts for the remainder of 2009 and 41% 2010.

Of note we have the option to secure the 3 vessels that currently trade in leading spot pools at fixed rates as the freight market improves.

In seeking opportunities to increase our significant time charter coverage, we will maintain our focus on signing contracts with high quality counterparties. Our world-class customer base, which includes reputable multinational companies such as Cargill International, Lauritzen Bulkers A/S, Louis Dreyfus Corporation and others, serves as a core differentiator for our company and bodes well for Genco's future performance.

The considerable support we've garnered from world-class charters is attributable to our strong brand as an operator of modern tonnage. Upon the expected completion of the Metrostar acquisition outlined on the later slide, Genco will own a high quality suite of 35 [drybulk] vessels, consisting of 9 Capesize, 8 Panamax, 4 Supramax, 6 Handymax and 8 Handysize vessels, with an average age of approximately 6.7 years, well below the industry average of approximately 15 years.

I'll now turn the call over to John.

John Wobensmith

Thank you, Gerry. I will begin my remarks by directing you to slide 9, which presents our financial results for the three months ended March 31, 2009.

For the three months period ended March 31, 2009, we recorded revenues of $96.7 million. This compares with revenues for the first quarter of 2008 of $91.7 million.

The year-over-year increase was due to the operation of a larger fleet offset by lower charter rates achieved for some of our vessels, the non-payment of hire for the Genco Cavalier resulting from the bankruptcy of Samsun Logix Corporation, and the lack of revenue from the profit sharing agreements on two of our Capesize vessels.

Operating income for the first quarter ended March 31, 2009 was $55.1 million. This compares with operating income for the 3-month period ended March 31, 2008 of $85.3 million which included $26.2 million resulting from the gain on the sale of the Genco Trader.

The decrease in operating income is attributable to increased vessel operating expenses, management fees, as well as depreciation and amortization associated with the operation of larger fleet.

Of note, general administrative expenses decreased to $3.9 million from $4.4 million during the year earlier period due to lower costs associated with employee non-cash compensation, legal fees, and other administrative expenses.

Interest expense for the first quarter of 2009 was $13.9 million. This compares with the interest expense of $11.8 million for the first quarter of 2008.

The company recorded net income for the first quarter of 2009 of $41.2 million or $1.32 basic and diluted earnings per share. This compares to net income of $74 million or $2.57 basic and $2.56 diluted earnings per share for the first quarter of 2008.

Key balance sheet and other items as presented in slide 10 include the following. Our cash position was $175.8 million as of March 31, 2009, and our debt-to-capital ratio was 61%.

Our total assets as of March 31, 2009 were $2 billion, consisting primarily of our current fleet, deposits of vessels to be acquired, and cash.

Our EBITDA for the three months ended March 31, 2009 was $76.1 million which represents an EBITDA margin of 78.8% of revenues.

Moving to slide 11, our utilization rate was 98.4% for the first quarter of 2009 compared to 99.8% in the year earlier period. Our time charter equivalent rate for the first quarter of 2009 was $33,203. This compares to $35,891 recorded in the first quarter of 2008.

The slight decrease in TCE rates was due to lower charter rates achieved in the first quarter of 2009 versus the first quarter of 2008 for 3 of the Panamax vessels, 4 of the Supramax and Handymax vessels, and 1 of the Handysize vessels in our current fleet.

Furthermore, lower TCE rates were achieved in the first quarter of 2009 versus the same period last year due to the non-payment of hire for the Genco Cavalier resulting from the bankruptcy of Samsun Logix Corporation, as well as the lack of revenue from the profit sharing agreements on 2 of our Capesize vessels. This was partially offset by higher revenues on 2 of our Panamax and 5 of our Handymax vessels.

For the first quarter of 2009, our daily vessel operating expenses were $4,931 per day versus $4,278 per day for the first quarter of 2008. This increase is due to higher crew and insurance expenses, as well as costs associated with the operation of 6 Capesize vessels.

As we have stated in the past, we believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel on our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's expectations, our full year 2009 daily vessel operating expense budget is $5,350 per vessel per day on a weighted average basis.

On slide 12, we detailed our amended credit facility. As Gerry mentioned earlier on the call, we amended our 10-year $1.4 billion credit facility with DnB NOR, Bank ASA, and Bank of Scotland PLC. Management's ability to amend the credit facility under favorable term demonstrates the confidence in our banking group has in Genco's future prospects and underscores the company's leading reputation among global lending institutions.

Under the terms of the amended facility, the facility availability of $1.4 billion reduces at $12.5 million per quarter effective March 31, 2009 and bears interest at LIBOR plus 2%. Based on the recent amendment, the collateral maintenance covenant has been waived which is paramount in today's environment of volatility and asset prices.

While Genco's dividends and share repurchases have been suspended under the recent amendment, the company will be able to reinstate both programs once it is able to satisfy the collateral maintenance covenant.

Also of note, no additional restrictions were imposed on our cash balance and we have retained the ability to use the facility for future acquisitions.

On slide 13, we present our balance sheet and liquidity position. As of March 31, 2009, our liquidity after giving effect to the $12.5 million facility reduction at March, 31, 2009, totaled $367 million and our debt-to-capital ratio was 61%.

On slide 14, we detailed the upcoming capital expenditures associated with payments on remaining vessels to be delivered to Genco. We expect to take delivery of the 3 remaining Capesize vessels between the second quarter of 2009 and the third quarter of 2009 under our agreement in 2007, so acquire a total of 9 Capesize vessels from companies within the Metrostar Management Corporation Group.

We plan to utilize the undrawn portion of our credit facility as well as our strong cash flow from operations to fund the Genco Commodus, the Genco Maximus, and the Genco Claudius.

As a reminder, we made the prudent decision to cancel the acquisition of 6 Drybulk vessels during the fourth quarter of 2008 due to the drop in asset prices following the credit crisis in September.

Management remains committed to further expanding Genco's leadership position in the Drybulk industry by utilizing the company's liquidity to take advantage of current market weakness, and pursuing future growth opportunities, we will remain disciplined in our approach of adhering to a strict set of return criteria related to earnings and cash flow accretion as well as return on capital hurdles.

On slide 15, we present our anticipated breakeven levels for the second quarter. We expect our Q2, 2009 daily vessel operating expense budget to be $5,350 per vessel per day on a weighted average basis of an average number of 32 vessels. We expect our daily free cash flow breakeven to be $13,580 per day per vessel and our daily net income breakeven rate to be $19,945 per vessel.

I will now turn the call back to Gerry.

Gerry Buchanan

Thank you, John. I'll now take this opportunity to spend a few moments discussing the industry fundamentals. I'll start with slide 17, which points to the Drybulk indices.

Represented on this slide are the overall Baltic Dry index, the Baltic Capesize, Baltic Panamax, and the Baltic Supramax index. As can be seen by looking at the graphs, after reaching a low around 600 point level at the end of 2008, the Baltic Dry index rebounded significantly in the beginning of this year and has been trading in a fairly stable range between 1,500 and 2,000 for the first three months of 2009.

Moving on to slide 18, we summarized the current demand side of fundamentals which we believe have recently showed some positive signs. As indicated on the graph at the bottom right, Chinese steel production reached 127 million tons for the first 3 months of 2009, showing a 2.1% year-over-year increase, while a 132 million tons of ore were imported into China for the same period. Iron ore imports represented new records both for the months of February and March and grew at approximately 20% year-over-year basis.

In connection with increased steel production for the first 3 months of 2009, as well as record iron ore imports, increased Capesize vessel activity from Brazil and Australia into China was a result of lower prices for imported iron ore over domestic.

It is also important to note that, while one would expect much higher DDI levels and basal rates as a result of the record iron ore imports into China, the effects of the financial crises on the rest of the world have thus far been preventing that.

To illustrate the above, we note the iron ore imports into Japan for the first 2 months of the year totaled 16.8 million dead weight tons representing a 28% decrease on a year-over-year basis, with a similar picture apparent for iron ore imports into Europe.

As a result of the higher imports, we also experienced increased stocking or iron ore at Chinese ports through the first 3 months of the year. On the graph at the bottom left of the page, iron ore inventory showed a trough in February of this year, but have since increased to levels of approximately 69 million tons, as of the week, ending April 24, 2009.

Although the increasing of iron ore stockpiles is a standalone data point, might seem a bearish mark for the market, we believe that when combined with the significant cutbacks in domestic iron ore production it points to the increased demand for the commodity from Brazil and Australia, which results in longer trade routes and therefore high number of vessels deployed over longer period of time.

Lastly, the grain and coal trades, which normally display seasonal strength in the beginning of the year, boosted the Panamax trade for the first quarter of 2009.

On slide 19, we present our view for the supply side of the equation. Looking at the graph at the bottom left of the slide we can see the drybulk order boOk through 2013. Although, the projected drybulk order boOk remains at approximately 70% of the existing fleet, it is questionable whether it will be delivered in its entirety.

As presented below, approximately 40% of the new building orders scheduled to deliver in 2009 and 2010 are contracted at newly established expansion or Greenfiled Yards.

If one also considers estimations from industry sources that only 40 to 50% of the current order boOk has financing in place, we believe it is fair assume that part of the current new building orders will ever be completed.

For the first quarter of 2009, only 7 million dead weight tons of a planned 70 million dead weight tons, scheduled for 2009, were delivered according to Simpson Spence & Young, who predicts that an estimated 30% of the vessels scheduled to enter the market in 2009, will slip into 2010. And at the same time an estimate of 260 new-building vessels were cancelled during the same period.

It's also important to note that at BDI in respect of vessel class rates have shown signs of stabilization. The increased number of vessels reported, as laid-up during the end of 2008, has now retreated to more normalized levels. Namely, by the end of March 2009, 33 vessels where in short-term lay-up or idle as tracked by Lloyd's MIU in Active Vessel Report.

Lastly, over 30% of the world's fleet is 20 years or older. As we have indicated on past calls, bulk carrier scrapping is not mandated, it is more of an economical equation. It points at weak spot freight environment that charters become more selective towards hiring younger vessels, while at the same time owners used to scrap their vessels instead of incurring the cost of repair to comply requirements of a sixth special survey.

The above has been evident through the last quarter of 2008, as well as the first 3 months of 2009. As illustrated on the graph at the bottom right of page, 129 vessels have already scrapped year-to-date as compared to approximately 80 vessels scrapped in 2008. A number heavily weighted towards the end of the year.

Turning to slide 20, we note that as visually illustrated on the graph at the bottom of the page, the main engine of growth for the Chinese economy has been fixed asset investment as opposed to consumer spending.

Outlining the country's efforts to boost economic growth through the fiscal policy of the Chinese government announced during 2008 a stimulus plan totaling $586 billion in long-term projects, which concentrate on housing and transportation infrastructure.

$292 billion investment has been earmarked for railway expansion, aiming to double existing railway network from approximately 48,000 miles to 75,000 miles by 2010.

Initial indications of the anticipated positive affects of this economic stimulus plan come not only from the new PMI numbers, which illustrate expansionary territory for the first time since September 2008, but also a record of $277 billion of new loans that were made in China through the first month of the year, is an encouraging measurement, especially when compared to the same number in December of last year.

At last, I'd point out that the Chinese fixed asset investments increased to $411 billion or 28.8% on year-over-year basis. To summarize the above, on page 21, we illustrate some of what we believe to be turnaround catalysts for the drybulk industry and the latest developments concerning each of them.

Pointing out a few of the most important ones in this page, we believe that after a recent proposal by the G-20 Summit, normalized trade credit, which should help worldwide trade, is becoming available.

Moreover, the fact that $477 billion of the $585 billion, Chinese stimulus package is planned for the years 2009 and 2010, along with the concentration towards infrastructure projects bodes well for the drybulk industry.

On the supply side, we see the reduction of vessel lay-ups from 33 to a high – from a high of over 100, as well as the net fleet growth of only 3.6 million deadweight tons as positive factors for the medium term, since they point to a reduced rate of new supply entering the market.

This concludes our presentation and we will now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We'll take our first question from Jon Chappell with JPMorgan.

Jon Chappell - JPMorgan

I want to ask about asset values. I mean you've been pretty consistent in your comments and the press releases and what not about; I'm still being able to fund maybe fleet expansion at the right prices.

There's been a real dearth of transactions taking place. Are the prices that we're seeing in brOkerage reports different from what you're seeing out there? And really the core of the question is, are the things that are being done more distress sales or what do you think real asset prices are vis-à-vis say 6, 9 months ago?

Peter Georgiopoulos

Nine months ago, they are obviously lower, but there really haven't been any transactions in the (inaudible) we haven't even seen many ships put up for sale.

The only sales you do end up seeing over the past few months have been, if someone's got a ship chartered in with a purchase option and the purchase options is very low and they can make some profit, go through a quick flip.

And so those – they are not distressed sales, but they are sales where, there's one try make whatever they can on it, and those were really only kind of sales we've seen recently. We haven't seen much else.

Jon Chappell - JPMorgan

Do you think there's a wide kind of chasm between buyers ideas and sellers ideas right now or are sellers still trying to hold on with the expectation that there might be a recovery sooner rather than later?

Peter Georgiopoulos

I think that's what it is.

Jon Chappell - JPMorgan

Okay. As far as the time charter potential for your ships that are rolling over soon, can you talk about what's out there for the three small vessels that are on the spot pools right now, and then also are you seeing anything of long-term nature for the Capes as they come out of the yards?

John Wobensmith

Yes. I mean, Jon, as far as the ships are trading in the spot market or in the pools, they'll continue to trade. We certainly have the option. If the market does pick up, the lot goes in under long-term and we'll do that at that time.

As far as the Capes, what we're actually seeing, and its not just the Capes, it's all the way down to the vessel classes, we are seeing a lot of inquiry for longer-term charters from charters, but including ourselves, we don't have much of a willingness right now to think long-term in the current rate environment. So, we have been [seeing] short. Now you've seen us being doing 3 to 5-month charters on the ships that are being rolling off.

Jon Chappell - JPMorgan

Right.

Peter Georgiopoulos

But there's been more inquiry...

John Wobensmith

Yes.

Peter Georgiopoulos

Which there wasn't (six months ago).

Jon Chappell - JPMorgan

Which is not the rate that you find attractive yet?

Peter Georgiopoulos

Not yet, but you know, we're hopeful.

Jon Chappell - JPMorgan

Okay. One last one on the industry, I was just hoping you can maybe clarify something that I've been kind of questioning. Yesterday one of the Chinese ministers was out saying that iron ore imports in China would be down 21% fiscal year '09, year-over-year, yet the imports were up significantly record highs in February and March.

Is this a function of them just trying to improve the negotiating stance with the suppliers and that 21% decline might be extremely exaggerated? Or was there significant stockpile build in the first quarter and it'd be safe to assume some decline in import levels going forward?

Peter Georgiopoulos

I don't think so. I think that the import levels were very high in the first quarter and I don't, and when we think about it, importing a lot in first quarter and then try and negotiate it down by saying it's going down, I mean they really wanted to get the price down as just one of the imports in the first quarter.

I mean you can't take all of this. The problem with these markets, people take what one guy says and take it as gospel and then markets react to it. And I don't know who said I didn't hear the quote, so I can't really comment, but we think that based on what we've seen, we think it will continue through the year.

John Wobensmith

Yes. The other thing to keep in mind Jon is, if you look at the steel production numbers for March, they are actually flat which I view is very optimistic, and you also keep in mind that the major iron ore producers in Brazil and Australia are now selling at 20% to 25% below the contract prices.

Jon Chappell - JPMorgan

Right.

John Wobensmith

That ore that's being imported is actually cheaper than domestic ore in China and you've seen almost half of the Chinese mines, iron ore mines, actually shutdown because it's too expensive to run them. So, I would actually argue that you could have a higher level of imports in this environment just because of the lack of domestic ore.

Jon Chappell - JPMorgan

Ok, great. Thanks a lot Peter and John.

Operator

We'll take our next question from Urs Dur with Lazard Capital Markets.

Urs Dur - Lazard Capital Markets

Hi, guys. Thank you very much. I have no further questions at this time.

Peter Georgiopoulos

Thanks, Urs.

Operator

We'll move on to Natasha Boyden with Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

Yes. I think Jon pretty much covered everything, but I did want to sort of ask you about in terms of asset values and if things do become attractive, how would you look to just to fund any kind of transaction that you did find attractive?

And would you at this point, would you stop being where it is, obviously it's at a great run. Would you be open to issue equity at the current strength in your stock price or would you look to try and finance it via debt?

Peter Georgiopoulos

We would try and finance it via debt. We wouldn't sell stock at these levels.

Natasha Boyden - Cantor Fitzgerald

You wouldn't, Okay. All right, sorry, Pete, I didn't mean to interrupt you.

Peter Georgiopoulos

No, you didn't. We just wouldn't sell them at these levels.

Natasha Boyden - Cantor Fitzgerald

Okay. And as you said, you're just not seeing anything out there at all be a distressed or otherwise?

Peter Georgiopoulos

No. No, we've not any distress and we really haven't seen even anything interesting, a couple of ships, maybe we've seen a couple of things here and there but nothing really interesting.

Natasha Boyden - Cantor Fitzgerald

In terms of the yards, you've talked about the yards obviously people are looking to delay or even try and cancel that. Have the yards been approaching you in terms of trying to get you to look at anything there?

Peter Georgiopoulos

No.

Natasha Boyden - Cantor Fitzgerald

They haven't either.

Peter Georgiopoulos

What's interesting, I saw interesting statistic and, correct me if I'm wrong guys. In the first quarter there were supposed to be 255 ships delivered; that was the schedule for the first quarter of '09, and there are only 77 delivered, and in that same period 70 ships were scrapped.

Natasha Boyden - Cantor Fitzgerald

Right.

Peter Georgiopoulos

So basically, in the first quarter of '09 when we saw we're going to have 255 additional ships in the market, we really had basically zero.

Natasha Boyden - Cantor Fitzgerald

So, if the yards aren't approaching you, where are the yards trying to make up their shortfall you think?

Peter Georgiopoulos

I think they are still negotiating with the people who have the deliveries. I think it hasn't gone in that point yet. What we've heard from the Korean yards is they are saying, "listen, pay for the ship, there is no negotiation" that's what they are telling people. And I think there philosophy is the strong people will pay, the weak people will not and then they will try and come to someone to make a deal. And I think in a way that philosophy works because at the end of the day the strong ones are going to pay, the weak ones aren't going to pay, so why make a deal with the weak ones.

Natasha Boyden - Cantor Fitzgerald

Okay. But it hasn't gone to the point yet whether yards still like to have to move out and try and reach out to somebody else?

Peter Georgiopoulos

Not yet.

Natasha Boyden - Cantor Fitzgerald

No, Okay.

John Wobensmith

Natasha, you know, it's probably going to mean towards the end of the year that you see those types of transactions when those owners can't come up with bank funding, and they have 30% to 40% of the purchase price already down, and then it's very easy for the yard to go to a high quality owner to make up the difference.

Natasha Boyden - Cantor Fitzgerald

That's helpful. Just one last question; can you just give us a rough idea of what way you'll spot in Handymax ships achieved during the quarter? That would be helpful if you have it on hand?

Gerry Buchanan

One second. So you're referring to the Genco Predator?

Natasha Boyden - Cantor Fitzgerald

Yes, basically. I'm just curious given where the market was. I'll look into this offline if you don't have it on hand.

Gerry Buchanan

Yes. I don't actually have the pool result in front of me...

Natasha Boyden - Cantor Fitzgerald

Okay.

Gerry Buchanan: ...but we'll try to put that out.

Natasha Boyden - Cantor Fitzgerald

Okay. That's not a problem. All right. Thank you very much. That was very helpful.

Operator

Once again, if you would like to ask a question, you may press star 1. And we'll take our next question from Christ Wetherbee with Merrill Lynch.

Christ Wetherbee - Merrill Lynch

Great, good morning guys.

Gerry Buchanan

Morning.

Christ Wetherbee - Merrill Lynch

I wanted to just for our modeling perspective the Cape that's expected for delivery in the second quarter, do you have a sense of when during the second quarter do you expect that delivery, I mean, should we modeling kind of at the end of quarter, pushing it back or what do you think in there?

Gerry Buchanan

June 30.

Christ Wetherbee - Merrill Lynch

June 30. Okay. Very helpful and I guess a similar approach for the two and the third quarter?

Gerry Buchanan

We don't have exactly dates for those ships yet.

John Wobensmith

But the contract dates are still the same.

Christ Wetherbee - Merrill Lynch

Okay. All right. John you mentioned the spread between import and domestic iron ore prices in China, just trying got get a sense, I mean what is that spread right now? How's that been and how is it been trending over the last couple of weeks, is it still pretty wide?

John Wobensmith

Yes. I mean including shipping it's probably $15 to $20 per ton. Depending on the freight differential between Brazil and Australia.

Christ Wetherbee - Merrill Lynch

Yes and I know that's fair enough. And I guess the only other question I had I guess was just on the laid-up fleet that you talked about, the 33 vessels, any sense of kind of what the make up of those vessels are, I am assuming its kind of skewed to the older tonnage, but I'm just curious, do you guys have any details on that.

Gerry Buchanan

Yes, I would imagine that it is the older tonnage, but actual details we don't have any.

Christ Wetherbee - Merrill Lynch

Okay. And then I guess there's one other modeling question, the Cavalier, when did it come back into service and I know post the accident it was out for about 16 days, just kind of curious when it came back in?

Gerry Buchanan

Yes. It was somewhere around the 7, or 8, I believe.

Christ Wetherbee - Merrill Lynch

March 7th or 8th?

Gerry Buchanan

Yes.

Operator

We'll take our next question from Gregory Lewis with Credit Suisse.

Gregory Lewis - Credit Suisse

John, a quick question on the debt, the 12.5 million amortization in Q1 is that reflected on slide 10?

John Wobensmith

Yes. It should be on the balance sheet...

Gregory Lewis - Credit Suisse

Yes. That slide. Okay.

John Wobensmith

No, not slide 10. So it's actually on slide 13 where we present the 331 balance sheet.

Gregory Lewis - Credit Suisse

Okay. Great. And then and then...

John Wobensmith

Greg just keep in mind that, it's not real amortization and the fact that we made a payment, it's a step down on the availability from the 1377 starting January 1, it steps down 12.5 on March 31 and each quarter after that.

Gregory Lewis - Credit Suisse

Okay. Great. And then just a quick follow-up on – I mean, clearly when you're talking about looking at making future transaction, given the fact that you had to have covenant waivers for the revolver, does that at all hinder you from using what's remaining on the revolver to go out at and purchase additional ships?

Peter Georgiopoulos

No. I think that was John's point earlier, where we said we're not going to buyback shares and pay dividends, but we can go buy ships with it.

Operator

We'll take our next question from Scott Burk with Oppenheimer.

Scott Burk - Oppenheimer

Hey, just a few follow-up questions here. Wanted to ask about your spot arrangements in the pools. Would those rates end up being pretty close to the indexes or do you have the other opportunity to make slightly higher rates?

John Wobensmith

I'm sorry Scott. Can you give that to me again?

Scott Burk - Oppenheimer

Yes. Basically, just wondering if the pooling arrangements will allow you to beat index spot rates or should we just expect it to be in line with the index on the spot vessels?

John Wobensmith

Well, theoretically, we obviously like to beat it but on a month-to-month basis it can vary. So, I would just go with the index at this point. And as I said before, it's the market. When the market picks up, we clearly have the option to lock it in.

Scott Burk - Oppenheimer

And we still have the option to lock it in. You're just saying you would have the option to go out and lock it in with a different charter or that'd be part of the pooling arrangement as well?

John Wobensmith

Its part of the pooling arrangement

Scott Burk - Oppenheimer

Ok, and then one final thing on the – just on interest expense. Interest expense guidance for the first quarter obviously quite little lower than for the full year; I assume that's just the – just because you have to step up with delivery of the vessels, new buildings in the third and the fourth quarter.

John Wobensmith

No. It actually has to do with the fact that we're in a much lower interest rate environment than what we had anticipated. And so we've actually, if you look at the breakeven side, we've moved our target LIBOR rate down to 2%.

Scott Burk - Oppenheimer

Okay.

John Wobensmith

Which is probably still conservative, but we obviously don't know what the rest of the year is going to look like. So, we're trying to estimate it for the floating rate debt.

Scott Burk - Oppenheimer

Ok, so what kind of step up based on those new LIBOR assumptions, what kind of step up could we expect once the new vessels are delivered for the third – impacting the third and fourth quarter?

John Wobensmith

Well, that's what I said, I mean, that's why we give, on a quarter-by-quarter basis our estimated breakeven levels and we'll continue to do that. So, for the second quarter, the interest, the daily interest number is there. And then we also as you know, we put out guidance for the full year a couple of months ago.

Scott Burk - Oppenheimer

Right, yes, that's kind of what I'm asking about the – that was higher than the guidance for the second quarter. So that step up is – Okay. So, I guess it gets back to my original assumption that step up is the additional interest expense for the new vessels.

John Wobensmith

Yes. I mean the previous year guidance was based on a 3.5% LIBOR rate.

Scott Burk - Oppenheimer

Okay.

John Wobensmith

The second quarter guidance, we have lowered the LIBOR rate to 2%.

Scott Burk - Oppenheimer

Okay.

John Wobensmith

But the floating rate debt, keep in mind we have swaps in place which we've outlined before.

Scott Burk - Oppenheimer

All right, very good. That's all I've got. Thanks.

John Wobensmith

Thanks.

Operator

We'll take our next question from Justin Yagerman with Wachovia.

Mike Weber - Wachovia

Hey, good morning guys. This is Mike Weber filling in for Justin. How are you?

Peter Georgiopoulos

Hi, Mike.

Mike Weber - Wachovia

Hey, just a couple of follow-up questions. First I guess getting back to asset values, and maybe getting into I guess second derivative change here. Are you guys starting to see buyers and sellers getting any closer together and I guess maybe seeing increased inspections, is there any indication I guess that they were starting to increase efforts (inaudible) see what the asset, any asset market and then we saw [if all of them] come in and buy some larger tonnage and we see a handful of larger producers come in. Is that a positive sign? How are you guys thinking about it right now?

Peter Georgiopoulos

I don't know, you know, I don't think there is any common sign, there is really nothing going on and I think, I mean, I think the best thing that we see is that, if you were – as of sort of October, November, December, it was you know, vessel values were gong down everyday. Now for several months now, they've just sort of stabilized, and I think for us that's a positive sign that we've seen stabilization in the asset values.

I think the fact that some of these big producers have come in to my ships; it's opportunistic, I think it's a good sign. They figure why not – why not take advantage of cheaper prices. We need these ships. We're going to use them to move iron ore for the next 20 years or 30 years. So, let's take advantage of it.

Mike Weber - Wachovia

Great. I think getting to the pure interest you guys are noting, how far forward are people looking to charter vessels, I guess and this hasn't really been your ammo, but would you consider chartering in this environment?

Peter Georgiopoulos

No. You know, it's interesting. We see deals like that from time-to-time and I don't know, I think the risk you take of taking any ship and then putting it out for in this kind of market a couple of thousand dollars a day is just too bigger risk.

Mike Weber - Wachovia

Yes.

Peter Georgiopoulos

If you get your time think about buying a ship and owning it. If you get your timing wrong and you buy a modern ship eventually you'll hit it right. You charter ship in for three years and you get your timing wrong, you have bad luck, the day the ship expires, the market takes off.

Mike Weber - Wachovia

Got you. Is that a game you guys just wouldn't want to play or do you just need more visibility before you are going to [entertain] doing that.

Peter Georgiopoulos

It's just – never – I've been doing this for 20 years as ever been some of them we've like to do. We'd rather just own the asset and if things get bad, hunker down ride off the storm and then, you buy a good quality modern ship and you get deliver another day. But you're going to have a gun to your head to make the money in a year, or two years or three years.

Mike Weber - Wachovia

Fair enough. I guess, finally, looking at, I guess, the domestic prices for Chinese iron ore and you guys talked about the 15 to 20% spread between imports and the domestic production. Their domestic production tends to be kind of black box and getting a gauge on the – I guess the U.S. (inaudible) China – Chinese oil price is pretty difficult. Any color you guys can provide on and I guess when you guys are looking at the industry and what you see there and I guess, how much downside there could be to Chinese domestic ore prices and where that could impact volumes?

Gerry Buchanan

I attend a conference last week in Singapore and some of this was discussed, and the feeling from the conference was that the imports of iron ore would increase through this year going to 2010, and China would be mining less and less domestic ore.

Mike Weber - Wachovia

Yes. I mean, is there any indication of all where I guess where the hot stop is or are we are already seen the hot stop? I guess as far as on a per ton basis for domestic Chinese ore.

Gerry Buchanan

I think, it's difficult to tell. I mean, look, anecdotally look at the numbers you've had up to half of the Chinese iron ore mines closing, obviously, a pretty good sign that they are not crazy about domestic iron ore.

Mike Weber - Wachovia

Sure.

Gerry Buchanan

But, getting hard numbers as you said is the black box.

Operator

We'll take our final question from Tore Fugelsnes with Nordea Markets.

Tore Fugelsnes - Nordea Markets

Good morning, gentlemen. I have a question regarding the capital expense on the 3 Capesize vessels that are to be delivered this year. I see you have an expense of about 290 million and the remaining credit facility of about 190. So, my question is, how much – can you say anything about how much you will finance this expense by debt and existing cash?

John Wobensmith

Yes. I think at this point, we'll use the credit facility to its maximum to finance those three ships and the remainder will be cash which even as of 3/31, if we want to even earn another dollar of cash flows this year which is obviously not the case, we still have plenty to take delivery of those three ships.

Operator

There are no further questions. So that does conclude today's conference call. Thank you for your participation and have a great day.

John Wobensmith

Thank you.

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Source: Genco Shipping & Trading Limited Q1 2009 Earnings Call Transcript
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