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Diana Shipping Inc. (NYSE:DSX)

Q1 2009 Earnings Call Transcript

May 6, 2009 9:00 am ET

Executives

Edward Nebb – Investor and Media Relations, Comm-Counselors, LLC

Simeon Palios – Chairman and CEO

Anastassis Margaronis – President

Andreas Michalopoulos – CFO and Treasurer

Ioannis Zafirakis – EVP and Secretary

Analysts

Jon Chappell – JP Morgan

Justin Yagerman – Wachovia Capital Markets

Greg Lewis – Credit Suisse

Natasha Boyden – Cantor Fitzgerald & Co.

Urs Dur – Lazard Capital Markets

Operator

Ladies and gentlemen welcome to the Diana Shipping first quarter 2009 earnings conference call. For today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator instructions).

I will now hand the conference over to Edward Nebb. You may begin.

Edward Nebb

Greetings, everyone. This is Ed Nebb, Investor Relations Advisor for Diana Shipping. I want to welcome you to the Company's 2009 first quarter conference call.

The members of the Diana Shipping Management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice-President and Secretary, and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice which you can see in its entirety in the news release we issued earlier today. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements that are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs as to future events that may not prove to be accurate. For description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is expressed or forecast in the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

And now without further redo let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Simeon Palios

Thank you, Ed. Good morning and thank you for joining us today. I am pleased to report that Diana Shipping once again delivered a profitable performance despite the challenges and uncertainties of adversely impacted several sectors of the global economy.

Throughout the current period we have continued to strive to execute on our cost strategies, managing our fleet for maximum revenue visibility, pursuing relationships with high quality charterers and maintaining our strong balance sheet. Especially in the present phase of the business cycle when worldwide economic conditions remain precarious we believe that at this time the strategies will enable us to produce solid results for shareholders during the months ahead.

Now I would like to point out some of the highlights of the 2009 first quarter.

Then the members of our senior management team will review our market outlook and discuss the financial results in greater detail.

Net income was $34.8 million U.S. with Voyage and time charter revenues of $62.7 million U.S. for the first quarter of 2009. This compare to net income of 53.2 million U.S. and voyage and time charterer revenues of $17.9 million U.S. for the same period a year ago.

While prevailing times charterers have declined as compare with the 2008 period we are pleased that Diana has continued to obtain profitable charterers from top quality charterers. Since the start of this year we have chartered (inaudible) Coronis, Calipso and Clio. With respect to the charterers we have extended our relationship with Cargill, and further diversified with Augustea Atlantica and TPC Korea.

Our revenue visibilities were strong only two of our vessels have charterers expiring in late 2009 while the rest are charter through 2010 and beyond. By following the strategy of balancing long year and shorter term charterers we have achieved an average daily time charter rate of $34898 U.S. for the first quarter which covers daily vessels operating expenses by a factor of more than six times.

Diana's balance sheet continues to be one of the strongest in our industry and improved further during first quarter. Our cost position at March 31, 2009 was $104 million U.S., up significantly from yearend. Last month we announced our agreement to acquire Gala Properties, Inc. from a related party. Gala is the earlier of a new building Capesize drive of carrier with in a Dutchtine [ph] charter. In exchange, we will provide the onus of Gala with our interest in an identical vessel that was not yet chartered and has a later delivery date.

These transactions should generate approximately $97 million U.S. of gross revenues for the minimum scheduled period of the charter and at an incremental cost to us of approximately $15 million U.S. The closing of this transaction took place earlier to-date.

Looking ahead to the balance of 2009 we do not underestimate the challenges of the current economic environment. Nevertheless, we have confidence in our strong balance sheet, prudent fleet management and chartering strategies as well as excellent relationship with the world's leading charterers.

In the recent quarters, I have not had experienced of great challenge also bring great opportunities. We continue to have confidence in Diana's ability to deliver solid performance in the near-term as well as capitalizing upon these opportunities to create value for the long-term.

With that I will now turn the call over to our President, Anastassis Margaronis. Thank you.

Anastassis Margaronis

Thank you, Simeon, and warm welcome to all who have joined us in this conference call. During the first quarter of this year, the turbulence of the world economy has continued to exert a profound influence on the dry bulk shipping trade market. However, during the first three months of 2009, the dry bulk market manage to rebound more than anticipated by more shipping analysts with average spot rate more than doubling for some types of ships.

The Baltic dry index has started the first quarter of 2009 at 773 and yesterday closed at 1897. The equivalent figures for the Baltic Cape Index were 1361 and 2528 respectively, while for the Baltic Panamax Index were 514 and 1702. There is no doubt that the future course of the trade market will be closely linked to the worldwide economic growth and corresponding demand for steel.

According to the IMS, (inaudible) was expected to contract by 1.3% this year and expand by an anemic 1.9% during 2010. This latest forecast comes as Japan reported its first quarterly trade deficit in nearly three decades with the year to March 2009, highlighting the global downturn effect that on the world's second largest economy which remains heavily reliant on exports.

As regards the steel production, it came to just 92 million tons in March, a 24% drop year-on-year. In the first quarter of 2009, world’s steel production was 246 million tons, a 23% fall compared to the first quarter of 2008. Only China showed a slight increase in steel production during the first quarter of 2009 of 1.4% year-on-year at 127 million tons.

Contrary to a number of reports, some raw materials for the production of steel are not actually costing much less these days than say, a year ago. For instance, thanks to 40% export tax imposed by China on metallurgical coal. The price of this commodity today stands at around $430 U.S. per metric ton which is roughly the price of the hot rolled coil itself for the production of which it is used. It should be kept in mind however that the ratio of coking coal to HRC production is about 0.6 ton of coal for 1 ton of steel.

As regards iron ore prices, even though the spot price of iron ore exported by India to China has come down by about 65% to 70% from its peak price of $1,150 per ton. In recent months long-term price of iron ore charged by the National Mineral Development Corporation to its domestic customers has declined a mere 25%. In short, steel companies can hope for operational viability only if long-term prices of iron ore, coking coal, et cetera brought down by an average of more than 70% from their peak levels of last year.

Chinese and Japanese steel mills which generally lead the negotiations for long-term pricing of the raw material used in the production of steel the mining majors in Brazil and Australia have no option, but to push hard for getting the miners to accept reality and agree to steep cuts in prices. After all, if the steel mill go down, that would spell doom for mining companies as well.

According to Bloomberg, the Rio Tinto Group offered a temporary 20% discount to Asian steel makers after the annual contract negotiations stall. However, according to Citi Group, this offer fall short of the 40% to 50% cut the Chinese steel makers are demanding because of falling steel prices.

However, it is not all gloom and doom. China record bank lending in March, narrowing decline in power generation and improving industrial production growth which was 8.3% in March year-on-year from 3.8% in January and February, demonstrate the government spending is stimulating industrial activity.

Iron ore imports reached a record high in March for the second consecutive month. However, soaring imports which have underpinned that a Capesize freight market during the first quarter have not been matched by corresponding increases in steel production. The latter was up only 2.4% in the first two months of the year.

This has in turn led to a sharp increase in the iron ore stock price to China's ports which reached 67 million tons by mid-April 2009. To make matters worse, according to Emalex [ph] more iron ore is expected to land at Chinese ports over the next two weeks as an extremely large amount of iron ore was purchased in February at relatively cheap prices. It remains to be seen if this iron ore will quickly make its way to Chinese steel mills or end up staying at ports for an extended period of time.

Turning now to the most credible forecast of seaborne demand for the major commodity shipping bulk, we wish to summarize these as follows

On iron ore, Clarksons are forecasting that overall transportation of iron ore during 2009 will reach 792 million metric tons, a drop of 6% from 2008. Howe Robinson are more optimistic and are forecasting a drop of only 2.5% in iron ore shipping.

On coking coal, according to the latest report from the Iron Ore and Steel Association, world steel production was certainly shrink during 2009. This decline comes a reduced demand for coking coal using the steel making process. Clarksons are forecasting the transportation of about 197 million metric tons of coking coal during 2009, a drop of 10% compared to 2008.

BHP Billiton is also forecasting weak demand in 2009 for metallurgical coal. The company expects shipments from coal ports on the east coast of Australia to mills in Asia to be effected later this year.

On steam coal, the Clarksons estimate for transportation of steam coal during 2009 is at a steady $572 million metric tons, a drop of just 1% compared to last year. Again on a more optimistic note, Howe Robinson expect overall seaborne coal trade to shrink during 2009 by only 2.5% compared to 2008, reaching 867 million metric tons significantly more than the aggregate forecast by Clarksons of 769 million metric tons.

On grains, here Clarksons expect world shipments to reach 227 million metric tons during 2009, a reduction of 5%, compared to 2008. The overall expectation of Howe Robinson for the grain trade in 2009 is that volumes will remain flat compared to the earlier year. However, it should be kept in mind that as in previous years, the grain trade will play a side role in the future scenario affecting demand for the transportation of bulk commodities.

Turning to the future supply of dry bulk tonnage, there are two main themes worth looking at. The first is the huge increase in scrapping and the other is the cancellation of new building orders. Starting with the simpler of the two, scrapping. According to Simpson, Spence & Young, during March alone, about 3.7 million tons dead weight of ships were scrapped. Most of these were non-tankers and no such number has been scrapped since May 2003.

Nearly, 5 millions tons of dead weight dry bulk vessels have been scrapped so far this year. According to Clarksons, 13 Panamaxs and two combination carriers of the size range have been scrapped as of 1st April 2009. During the same period, a further five Capesize bulkers went to the scrap yards together with 81 Handysize and Handymax ships.

The scrapping continues at this rate through the year. It is estimated that the above 23 million tons dead weight of dry bulk vessel would have been scrapped which is over four times the tonnage scrap during 2008.

According to Howe Robinson assumption nearly 25% of the existing dry bulk fleet will be scrapped over the coming three years. The effects among the different sectors would be uneven due mainly to the dividend page profiles of each sector.

During the next three years, around 21% of the Capesize fleet should have been scrapped, with 17% of the post-Panamax fleet and 20% of Panamaxs going to the scrap yard over the same period. Not surprisingly, 27% of Handymaxs and 39% of Handysize vessels would have been scrapped as well.

Turning to new building orders. Here the picture is much less clear. By dead weight tonnage about 70% of the world dry bulk fleet is in order, of this total about 105% of the Capesize vessels are in order and 52% of Panamax bulkers.

According to Howe Robinson and Maritime Strategies International, the total bulk carrier rode the book will suffer slippage of 11.4% during 2009, 15.7% during 2010 and above 23.5% during 2011.

As regards cancellations, they estimate these at around 6.7% for 2009 and around 22% per annum for each of 2010 and 2011 respectively. When these numbers are applied to new building orders they reduced the following forecast for actual deliveries during 2009.

For Capesize bulkers 30.41 million tons dead weight, representing 21.27% growth. For post-Panamax vessels 4.63 million tons dead weight with growth of 29.25%. And for Panamaxs 6.14 million tons dead weight, showing a 6% growth. The combined Panamax and post-Panamax fleet will grow by about 9% this year.

Based on these assumptions overall, gross dry bulk fleet growth during2009 will be in the region of 15%. According to Clarksons, during the first quarter of this year, the net growth of the dry bulk fleet was only 6,839,000 tons dead weight, which was just 1.6% of the existing fleet at the end of 2008.

Unfortunately, however, the estimate is that the dry bulk trading fleet will grow to 466 million tons dead weight by the end of 2009. If this number materializes the net growth would stand at about 10.5% year on year. With the anticipated weakness in dry bulk demand this does not bode well for the medium term developments in the trade market.

It is important to realize however that we have canceled orders it is impossible to establish the precise number of vessels that will never actually be built. The reason is that some well-established yards in China and South Korea, most of which are also financially supported by banks. Of announced plans to build a number of ships with contracts have been canceled by buyers and then try and trade them for their own account within tension of selling them later at more profitable price levels. This means that these ships will not disappear, but will compete for business with the other new building tonnage thus delaying the recovery of trade markets.

As regards to the short and medium term, we agree with the views expressed by Howe Robinson that during the first quarter of 2009, the markets recovered as trade recovered from particularly depressed levels. From March onwards, the start of the south American grain season has given the Panamax market further seasonal support. However, eventually, demand will adjust to lower levels unless we witness a spectacular and unexpected growth in world economies.

Therefore, beyond the short-term optimism, it is difficult to envisage a scenario not centered on a short trade market recession. The length and depth of this recession will depend on the evolution of the global economy. Even though we agree with Howe Robinsons that the growth in China and India have a brighter outlook in the developed world. Ultimately, the shipping world cannot influence such developments.

However, the same cannot be said about the older book. Many ship owners and shipping analysts have not come to grips with the fact. As a notebook on the current scale we not only spell disaster for the shipping markets in the years ahead, but could also produce a waive of destruction for banks to arrival the subprime crisis.

According to Arrow Shipbrokers, in May 2008, the top ten ship lending institutions have the portfolio of $240 billion U.S. The next 15 largest banks have the combined portfolio of $105 billion. The outstanding value of today's older book exceed the combined shipping portfolio of the top 25 shipping banks. These banks will have great difficulty in financing these acquisitions even in a novel credit environment. Now, apart from the credit crunch the rapid decline in values has led to a large number of covenant defaults in existing shipping loans.

With the market capitalization of most shipping banks shrinking by between 40% and 70% since last May, one wonders how banks will manage to double the size of the loan portfolios within the next three years to finance the new building orders. Either owners will have to come up with the additional liquidity required in order to fill the void left by the banks. Many orders have to be capped as the deposit forfeited by the ship yards.

Ironically, this perhaps may also spell disaster for ship yards in the years to come. There is an urgent need in the interest of all shipping market participants, to responsibly reassess future commitments in a manner which will permit the orderly development of ship yard capacity in the decade ahead. Unless this happens soon, the road to recovery will become little with many more bankruptcies and they will not just be the ship owners.

As mentioned in our previous conference call, the challenge for more shipping companies will be to survive over the next two years or so and then optimism will hopefully return to the industry. In the meantime opportunities will present themselves to acquire an expensive assets with significant capital appreciation potential.

We firmly believe our company is certainly well-positioned to take advantage of this period of trade market and asset value weakness. Our generally strong balance sheet with the strong cash position and secure cash flow from high quality time charterers will provide us with the ammunition to purchase assets as contrarians when pessimism reaches its peak. At the majority of players convince themselves that the dry bulk shipping things will be at least as bad as we were back in the 1980.

I will now pass you to our Chief Financial Officer, Andreas Michalopoulos, who will provide you with our company's financial highlights for the first quarter of 2009.

Andreas Michalopoulos

Thank you. Thank you, Stassis, and good morning. I think we'll be discussing the growth of the Diana's operational results for the first quarter ended March 31st 2009.

Net income for the first quarter amounted to $34.8 million and the EPS of Diana Shipping amounted to $0.47. Voyage and time charter revenues decreased by $52.7 million, compared to $78.9 million in 2008. The decrease is attributable to reduced average hire rate which was partially offset by the increase in the number of available days after the acquisition in Norfolk in February 2008.

Ownership days were 1,710 for the first quarter of 2009, compared to 1688 in the same period of 2008. Fleet utilization was 98% in the first quarter of 2009 and 99.8% in 2008. The daily time charter equivalent rate for the first quarter of 2009 was $34,898, compared to $45,191 for 2008.

Voyage expenses were $3.2 million for the quarter. Operating expenses amounted to $9.4 million, an increase by 2%. The increase is attributable to the 1% increase in ownership days resulting from the delivery of the Norfolk, an increase in crew costs and repairs, which was partially offset by decrease insurance and other costs.

Daily operating expenses were $5,521 for the first quarter of 2009, compared to $5,458 in 2008, representing an increase of 1%. Depreciation and amortization of deferred charges amounted to $10.8 million for the first quarter of 2009.

General and administrative expenses increased by $0.5 million or 14% for the first quarter of 2009 to $4.1 million, compared to $3.6 million in 2008. The increase was mainly attributable to compensation costs on restricted stocks and legal fee.

Interest and finance costs decreased to $0.8 million for the quarter, compared to $1.5 million in 2008. The decrease was attributable to reduced average interest rates during the first quarter of 2009 compared to 2008.

Thank you for your attention. We would be pleased to respond to your questions. And I will turn the call to the operator, who will instruct you as to the procedure for asking questions.

Question-and-Answer Session

Operator

Thank you sir. (Operator instructions). Your first question comes from Jon Chappell with JP Morgan.

Jon Chappell – JP Morgan

Thank you. Good afternoon, everybody. Stassis, you made some comments at the end of your remarks about distressed asset opportunities and Diana's position to take advantage of that. Simeon or Stassi, could you maybe talk about where you are seeing asset values right now and then the returns that you are seeing based on the current charter market. Really when is Diana expecting to be willing to find some good opportunities, are we talking in the next month or maybe through the summer or the fall?

Simeon Palios

Well, Jon, you realized that the three months ago when we talk again we were three months behind of course we're today. We are closely watching the mass market I think that the prices are somehow come down as we are expecting and we are watching possible yards that they are going to (inaudible) a number of ships to sell very, very closely. I think we are three months later than what we were three months ago.

Jon Chappell – JP Morgan

Do you think the pessimism has reached its peak yet? It seems like a lot of the macroeconomic numbers have shown some stabilization and obviously the equities have started to move, but do you think there is more pain as far as ship owners perspective that allow those opportunities to come later this year?

Simeon Palios

I think that the yards will be more willing to discuss now than they were before, because their all their book comes to an end. And I think that you have to understand that since last September, there is no orders in the books. So September is eight months ago, and they are coming to an end, the orders.

Anastassis Margaronis

Jonathan, as far as pessimism goes, we try to monitor that closely and our feeling is that we are not clear just yet. There is first it has to be a realization which we think will be coming over the next few weeks or months. That the fortunes of the tri-bulk shipping market have become decoupled from the fortunes of the equity markets and also of the future growth. In shipping, we have Aronis [ph] used to cope with which I try to summarize earlier on from the supply side and they are not completely dependent but they won't go away purely because the equity markets might recover and world economies might start showing some sort of growth. And that is what we are monitoring closely, this decoupling. When it comes then we might have to renew the pessimism in the shipping industry which will not be matched by pessimism in the equity markets.

Jon Chappell – JP Morgan

Right. I agree with that. And then you have a little over $100 million in cash on your balance sheet, that get probably at today's prices if we knew today's prices were help you buy a couple of assets. But if the rate opportunity came along to really make a transformational acquisition, have you been in discussions with your banks, Stassis, laid out a scenario where the banks really are lending right now. But Diana's capabilities to add leverage for the rate acquisition?

Simeon Palios

Well, I see we're in a fantastic position to get further leverage from the banks. And although there are very few banks lending money I think that we can manage to get some loans from existing banks. There is no problem there.

Jon Chappell – JP Morgan

What type of leverage would you go to? Considering this might be the trough of the market would you go up to 50%, 60% or would you be more comfortable on maybe 30% to 40% range?

Simeon Palios

Well, 50-50 I think is okay, because (inaudible) much, much less now.

Anastassis Margaronis

Jon, if I may add, don't forget that we have said that our intention is to stagger our outpurchases and therefore slowly leverage our company. We don't intend to have at least at the moment this kind of transformational type deal that you were mentioning earlier. But more to sort of stagger our purchases because we know that (inaudible) into bottom the same way you can have it. Now, the ideal for us would be to arrive to 70% or even 80% leverage at the time where the cycle really shows clear signs of recovery. That would be the ideal. And the last thing I want to mention is that as we said before few banks are lending and those banks are already selectively and we are fortunately not because of the strategies that we have had in our balance sheet and the management of the company to have the banks coming to try to lend to us versus probably other players.

Jon Chappell – JP Morgan

Okay. That's very helpful, Simeon, Stassi and the rest.

Operator

Your next question comes from Justin Yagerman with Wachovia Capital Markets.

Justin Yagerman – Wachovia Capital Markets

Hey, gentlemen, good morning. Wanted to follow-up on a couple of the questions that Jon asked. I mean Stassi, the scrapping and slippage numbers that you went through in your prepared remarks were fairly low I guess relative to maybe some of the expectations that are out there in the market. Is that what colors you guys where you right now, I mean we have seen Panamax transactions at about $30 million level that's 60% plus of a fee. I guess two parts to the question. Do you believe those numbers are what are actually going to take place and if so, I mean, how much more asset downside would that imply in your opinion?

Anastassis Margaronis

Well, to be honestly, Justin, I think it would be further out we go in time, the less reliable the numbers and the forecast. For 2009, which for us is the pivotal year, by the end of which we will have received very clear signs as to where we are going on the supply of new building ships. We are going to see numbers which is very close to what I just tried to summarize. And therefore, what we're going to see is something like 10% increase, net increase in the dry bulk trading fleet. Now, if that increase does not negatively affect the freight market then we have to look again at our assumptions not only on the supply, but also on demand. And to reassess the whole situation as regards to the balance when it will come.

So all I can say is that we put quite a lot of confidence on the numbers I described for 2009. For 2010, 2011, of course, less confident. But don't forget that as the world economy improves and the credit markets loosen up, the problems I described above the financing of the new buildings are going to be affected as well. Therefore, the 2010 and the 2011 deliveries become even more uncertain because we don't know how credit will affect the rate of cancellations of these vessels. So all I can say is that 2009 we stand by these numbers, 2010, we put a small question mark and 2011, slightly larger one.

Justin Yagerman – Wachovia Capital Markets

That makes sense. So I guess by the end of this year that's when you would be looking and trying to reassess and reevaluate do you think will have better order book data at that point?

Anastassis Margaronis

Yes, I think so.

Simeon Palios

Well, I think you have a lot of buttons to press here. First of all, you have the appreciation which is a key issue. And you can do that for certain ships when the time comes. But in the interim, you have the possibility and you have the luxury to have charterers who are demanding from us certain types of ships. So, that is not going to be 100% appreciation, but it could be an intermediary between the appreciation of 100% and a banking deal. So we can play in different scenarios here. The key thing is to have a strong balance sheet to do your eventual purchases. And we are in a fantastic position to be in such a good position to do our program in a very, very efficient manner.

Justin Yagerman – Wachovia Capital Markets

That's helpful. Thanks. Andreas, on the utilization, not a big drop-off obviously, but would that just the dry docking of the Clio and then putting that on to a spot charterer. What was going on with utilization in the quarter?

Andreas Michalopoulos

The utilization of 98% basically, the difference is 34 days in total and the big difference comes from 34 in total, 24 days are due to the Calipso and to the Atlas charterer, that what money pay so that was our pie and that's the main difference there.

Justin Yagerman – Wachovia Capital Markets

Got it. And can you remind us of what dry docking you guys have going forward?

Simeon Palios

Yes, of course. We have the dry docks to perform, the one who is the Protefs and the other is the Erato. The Protefs is in queue for dry dock in August 2009 and the Erato the same month in the same year. Those are the two for 2009. The two ships for 2009.

Justin Yagerman – Wachovia Capital Markets

Can you update us on the approximate cost for us?

Simeon Palios

Well, the cost, because the vessels are new, we have no changes of plates therefore; they are going to be straightforward banking and clearing the bottom. That's the main thing which is not going to be more than $200,000.

Andreas Michalopoulos

Together with that I must say that we have also two intermediate surveys that are two are due, one is Sideris GS at the end of the year and the other one is Semirio at the end of the year. That's going to be intermediate surveys.

Justin Yagerman – Wachovia Capital Markets

Okay. That's all I got right now. Thanks.

Simeon Palios

Thank you, Justin.

Operator

Next question comes from Greg Lewis with Credit Suisse.

Greg Lewis – Credit Suisse

Thank you, and good afternoon.

Simeon Palios

Good afternoon, Greg.

Andreas Michalopoulos

Hi.

Greg Lewis – Credit Suisse

My first question is regarding the order book. Clearly, there have been any orders, but from a historical perspective that we would have sort of look back by 7 years, 8 years ago, what was the typical turnaround time for order in a ship taking delivery of a ship?

Simeon Palios

How many years ago?

Greg Lewis – Credit Suisse

Say, like in 2002, 2003.

Simeon Palios

Well, in 2003, for a Panamax, you will consider two years. Today, it’s approximately depending from the yard about maximum of eight months for a Panamax.

Greg Lewis – Credit Suisse

I'm sorry; still I could order Panamax today and received it in May month. Really what I'm trying to get at is the order book sort of ballooned up to three year waiting time and we haven't seen any orders in a while, but the shipped owners actually have anywhere from say, six months to 10 months, 12 months just the sort of put the order book back in the sale historical type of delivery time. Do you sort of agree with that statement?

Simeon Palios

Well, assuming that there is space in the yard today, you can order a vessel today and get it in eight months. But if there is no space in the yard then you have to add it when the yard will have space.

Greg Lewis – Credit Suisse

Okay, great. And then just one follow-up. It looks like SG&A spiked up a little bit in Q1 versus Q4. When we look at SG&A going out to the rest of the year where should we sort of expect that number to be?

Andreas Michalopoulos

I think you should expect at a same level of the first quarter. It’s more realistic and it's due to the compensation costs on restricted stocks which should be the same throughout the quarters from now on.

Greg Lewis – Credit Suisse

Okay, thank you very much. Congratulations on a good quarter.

Andreas Michalopoulos

Thank you.

Simeon Palios

Thank you.

Operator

Your next question comes from Natasha Boyden with Cantor Fitzgerald

Natasha Boyden – Cantor Fitzgerald

Hi, thanks, everybody. Good morning, gentlemen.

Andreas Michalopoulos

Hi, Natasha.

Natasha Boyden – Cantor Fitzgerald

I think you said during your remarks you had several ships up for recharter this year, is that correct?

Simeon Palios

The three vessels, even we get to the early as possible or the delivery date.

Natasha Boyden – Cantor Fitzgerald

Okay. So given what the current market is right now, are you going to continue to focus on the one-year charters that you have been doing this year up to the stage?

Ioannis Zafirakis

This is Ioannis Zafirakis. Our chartering strategy has always been to have a portfolio of 12/6 [ph] meaning that we want to play there is delivery dates from the charter as such a manner that we do not have a lot of vessels to pick up the same time but at the same time to have a vessel to fix every now and then. So basically what you should expect from us is to position rather than anything else, that delivery date of the next charter that we're going to do in such a manner that it is well-positioned in our portfolio. When we charter a vessel for a year or two years or six months for that matter, it doesn't mean necessarily that we have taken a view about the market.

Natasha Boyden – Cantor Fitzgerald

Okay. So the last year that you have done that I think have been about a year is not necessarily your view?

Ioannis Zafirakis

Yes. We have done two years as well.

Natasha Boyden – Cantor Fitzgerald

That's fair. So are you sort of willing to say given your outlook on the time charter rates for this year and next?

Simeon Palios

Well, today, Panamax could be chartered at $22,000 if the vessel is free in continent, for four months to six months which is a good rate and perhaps it takes you away from the bulk of ships we have coming free next year. So this is the consideration. But I would say, Ioannnis said, you have to watch when the vessels are coming free, because we want to be always there to have free ships at any time.

Natasha Boyden – Cantor Fitzgerald

Right. Fair enough. Okay. That's helpful. Thank you. And then just looking at I think your best of operating expense line, it actually came down I think about $500,000 this quarter versus the last three quarters. Can you just give us a reasoning behind that and then what we can expect going forward?

Anastassis Margaronis

I think you can expect around the same level of operating expenses again going forward. The main reasons it came down where crew costs this quarter came down a little bit. And also lubricants that came down a little bit, but crew costs will be probably offset next quarter and more specifically the third quarter. As you know the third quarter they are in negotiations and therefore these are retroactive throughout the year. So usually you get a small spike on the third quarter. So but you should expect we have this quarter $5,521 per day per vessel, you can expect next quarter we have budgeted around $5,850 per day per vessel on average, so I think if you take that as a ballpark-ish you shouldn't see any major changes there.

Natasha Boyden – Cantor Fitzgerald

And then just lastly, in terms of trade credit with the bank, obviously, that was the huge issue last quarter, and everybody was talking about sort of top line issue. What are you seeing now in terms of where the banks are and what they are willing to do in terms of trade credit? Have they loosened up a bit or are they still very much unwilling to help or open up?

Anastassis Margaronis

As pointed out earlier by Andreas in a related question, there are certain banks that are there to do business, with the clients which they have kind of an hate list of theirs, and they consider good credits, the price of course has gone up. There is no doubt that we are not going to be able to convince any bank to offer us the terms that we have for example, on our revolving credit facility. And therefore, we have to adjust to new pricing of loans for the ships that we will be acquiring and financing with the net roughly 50% as we indicated earlier. But we have a number of banks that are there to finance acquisitions and we have got of course the remainder and the balance of our revolving credit facility to utilize. So in other words, yes, there are banks, they are there, not as many as they used to be. And the cost has gone up, but the credit is there.

Natasha Boyden – Cantor Fitzgerald

Okay. Great. Thank you.

Operator

Your next question comes from Urs Dur with Lazard Capital Markets.

Urs Dur – Lazard Capital Markets

Good afternoon, everybody. My questions have been thoroughly answered. Thank you.

Simeon Palios

Thank you.

Operator

(Operator instructions). There are no further questions at this time.

Simeon Palios

Thank you again for your interest in and support of Diana Shipping. We believe that our profitable results and formidable balance sheet are distinguishing qualities of our company at the time of economic uncertainty and that we will continue to be well-positioned to take advantage of opportunities that they may arise in this volatile market. We look forward to speaking with you next quarter. Thank you.

Operator

Thank you for participating in this morning's call. You may now disconnect.

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Source: Diana Shipping Inc. Q1 2009 Earnings Call Transcript
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