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Executives

Gerry Buchanan -- President

Peter Georgiopoulos -- Chairman

John Wobensmith -- CFO and Principal Accounting Officer

Analysts

Doug Mavrinac -- Jefferies & Company

Jon Chappell -- JP Morgan

Urs Dur -- Lazard Capital Markets

Chris Wetherbee -- Merrill Lynch

Gregory Lewis -- Credit Suisse

Natasha Boyden -- Cantor Fitzgerald

Scott Burk – Oppenheimer

Charles Rupinski -- Maxim Group

George Pickral – Stephens

Justin Yagerman -- Deutsche Bank

Genco Shipping & Trading Limited (GNK) Q2 2009 Earnings Call Transcript July 30, 2009 8:30 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited second quarter 2009 earnings conference and presentation.

Before we begin, please note that there will be a slide presentation accompanying today's conference. 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 August 13, 2009, by dialing 888-203-1112 or 719-457-0820 and entering the pass code 9944035.

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

Unidentified Speaker

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 could cause the 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 second quarter 2009 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 second 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 three and six months ended June 30, 2009. Following this I will discuss the industry's current fundamentals. John, Peter and I will then be happy to take your questions.

During the first quarter Genco continued to take advantage of both its sizable contracted revenue streams and profit sharing agreements, which enabled the company to once again post strong results for shareholders. The successful execution of our time charter strategy has continued to serve the company well during a volatile dry bulk market and bodes well for future performance.

Coming to slide 5, for the second quarter net income was $37.6 million or $1.20 basic and diluted earnings per share. While John will discuss the financial results in more detail later in the call, I would like to note that Genco's cash position increased to $228.8 million as of June 30, 2009, due to the strong cash flows generated by our high quality fleet.

And further strengthening our leading industry position, we took delivery last week of Genco Commodus, a Capesize newbuilding. This vessel increased our strategic presence in the Capesize sector, the largest class of drybulk vessels, and commenced the long time charter with Morgan Stanley Capital Inc. for 23 months to 25 months on a gross rate of $36,000 per day. We also reached agreements to lock away six sub-Capesize vessels on fixed, short-term charters, with durations ranging from three to six months.

By maintaining our portfolio approach in signing contracts with (inaudible) durations, we were able to provide shareholders with a sizable contracted revenue stream and maintain the ability to benefit from future rate increases.

Consistent with our goal to take advantage of the freight rate environment, as market conditions improve, we reached an agreement to enter five Handysize vessels chartered to Lauritzen Bulk Carriers A/S in a leading spot pool under the management of Lauritzen Bulkers at the expiration of the current charters in August 2009.

Moving to slide 6, I will now discuss the time charter coverage for the Genco fleet in more detail. Based on our success of locking away a large portion of our vessels on time charters, with diverse group of reputable multinational companies, we currently have approximately 67% of our current fleets estimated available days secured in contracts for the remainder of 2009, and 44% for 2010.

Complementing our significant time charter coverage, three of our Capsize vessels have profit sharing agreements that enabled the company to earn a rate that was higher than the contracts' base rate in the second quarter.

As we have in the past, we will maintain our focus on employing a large portion of our fleet-wide contracts with high credit quality counterparties and providing service that adheres to the highest industry standards as we continue to grow our fleet.

Building on the successful delivery of the Genco Commodus, we expect to take delivery of two remaining Capsize newbuildings, which we will discuss later in the call. This expansion will enable the company to grow its fleet to 35 Drybulk vessels, consisting of, nine Capsize, eight Panamax, four Supramax, six Handymax and eight Handysize vessels, with an average age of approximately 6.8 years, well below the industry average of 15 years.

I will now turn the call over to John.

John Wobensmith

Thank you, Jerry. I will begin my remarks by directing you to slide 9, which presents our financial results for the second quarter and six months ended June 30, 2009. For the three and six months period ended June 30, 2009, we recorded revenues of $93.7 million and $190.4 million respectively. This compares to the revenues for the second quarter of 2008, and six months ended June 30, 2008, of $104.6 million and $196.2 million. Year-over-year decreases were due to lower charter rates for certain vessels due to the challenging (inaudible).

Operating income for the second quarter and six months period ended June 30, 2009, was $53.3 million and a $108.4 million respectively. This compares with operating income for the second quarter and 6 months period ended June 30, 2008, of $70.8 million and a $156.1 million respectively.

The decrease in operating income for the 3 and 6 months period ended June 30, 2009, is attributable to increased vessel operating expenses, management fees, depreciation and amortization associated with the operation of a larger fleet, as well as a $26.2 million gain in connection to the sale of the Genco Trader during the first half of 2008, partially offset by lower G&A expenses.

Interest expense for the second quarter of 2009, was $15.4 million and $29.3 million for the 6-month period ended June 30, 2009. This compares to interest expense of $11.6 million for the second quarter of 2008, and $23.4 million for the 6-month period ended June 30, 2008.

The company recorded net income for the second quarter of 2009, up $37.6 million or a $1.20 basic and diluted earnings per share. Net income for the 6-month, ended June 30, 2009, was $78.9 million or $2.52 basic and $2.51 diluted earnings per share. This compares to net income of $60.9 million or $2.05 basic and $2.03 diluted earnings per share for the second quarter of 2008 and net income of a $134.9 million or $4.61 basic and $4.58 diluted earnings per share for the 6-month period ended June 30, 2008.

Key balance sheet and other items, as presented on slide 10, include the following. Our cash position was $228.8 million as of June 30, 2009, and our debt-to-capital ratio was 58.9%. Our total assets, as of June 30, 2009, were $2.1 billion, consisting primarily of our current fleet, deposits on vessels to be acquired, cash and cash equivalent.

Our EBITDA for the three months ended June 30, 2009 was $73.9 million, which represents an EBITDA margin of 78.9% of revenues.

Moving to slide 11, our utilization rate was 99.3% for the second quarter of 2009, which is the same compared to the year earlier period. Our time charter equivalent rate for the second quarter of 2009 was $32,245 per day versus $40,945 recorded in the second quarter of 2008. The decrease in time charter equivalent rates was due to lower charter rates achieved in the second quarter of 2009, versus the second quarter of 2008, for six of the Panamax vessels, five of the Supramax and Handymax vessels and three of the Handysize vessels in our current fleet.

Further more, lower TCE rates were achieved in the second quarter of 2009, versus the same period last year due to comparatively low revenue from the profit sharing agreements on two of our Capesize vessels. This was slightly offset by higher revenues on two of our Handymax vessels.

For the second quarter of 2009, our daily vessel operating expenses were $4,556 per day, which compares to $4,378 per day for the second quarter of 2008.

Daily vessel operating expenses for the 6 months ended June 30, 2009, were $4,743 per day, versus $4,328 per day for the 6 months ended June 30, 2008. The increase in daily vessel operating expenses is due to higher crew and insurance expenses, as well as costs associated with the operation of six Capesize vessels.

While we are pleased by our ability to maintain an efficient cost structure during the second quarter, and as we continue to grow our fleet, we believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all the expenses that each vessel on our fleet will incur over a full year of operation.

On slide 12, we present a pro-forma balance sheet that reflects the draw down of $96.5 million related to the delivery of the Genco Commodus on July 16, 2009. As you can see, our pro-forma cash position for the quarter is $228.8 million. As of June 30, 2009, our pro-forma liquidity totaled $311 million and our pro-forma net debt to total capital ratio was 61%.

On slide 13, we detail the upcoming capital expenditures associated with payments on remaining vessels to be delivered to Genco. As Gerry mentioned earlier, we expect to take delivery of the two remaining Capesize vessels in the third quarter of 2009, and the fourth quarter of 2009, under our agreement in 2007 to acquire a total of nine Capesize vessels from companies within the Metrostar Management Group.

In further expanding our high quality fleet, we intend to utilize the undrawn portion of our credit facility, as well as cash flow from operations to fund the purchase of the Genco Maximus and the Genco Claudius.

Going forward management remains dedicated to consolidating the drybulk industry and strengthening our industry leadership. In pursuing future growth, we will draw upon our strong liquidity position and seek to capitalize on additional acquisition opportunities that meet our strict return criteria, related to earnings and cash flow accretion, as well as return on capital hurdles as we have done in the past.

On slide 14, we present our anticipated breakeven levels. As we mentioned earlier, we budgeted daily vessel operating expenses at $5,350 per vessel per day for 2009. However, daily vessel operating expenses year-to-date have been below this budget in part due to the timing of the purchases of spare parts and lubricants, as well as lower than anticipated crew cost. We are therefore adjusting our estimate down to $5,150 per vessel per day for the third and fourth quarter of 2009.

We expect our daily free cash flow breakeven to be $12,785 per day per vessel, and our daily net income breakeven rate to be $19,945 on a weighted basis of an average number of 32.76 vessels for the third quarter of 2009.

Before turning the call over to Gerry, I would like to mention that, as previously announced during the first quarter, the company has suspended its cash dividend and share repurchases under an agreement which waived the collateral maintenance requirement under its $1.4 billion credit facility. We will be able to reinstate our cash dividends and share repurchases once we can represent that we are in a position to again satisfy the collateral maintenance covenant. The amendments of the credit facility places no further restrictions on uses of the company's cash.

I will now turn the call back to Gerry.

Gerry Buchanan

Thank you, John. I would like to take this opportunity to spend a few moments discussing the industry's fundamentals. I would start with slide 16, which points to the drybulk indices.

Represented on this slide are the overall Dry index and the Baltic Cape Index. As can be seen when looking at the graphs, the Baltic Dry Index has shown a significant strength since the beginning of the summer, albeit with increased volatility.

As I will explain later in more detail, we believe that the strength in the drybulk market has been almost exclusively driven by China's infrastructure growth and the volatility has been a factor of increased reliance on the spot market for iron ore cargos.

Moving to slide 17, we summarize the current demand side fundamentals, which we believe stand behind the recent strength of the drybulk market. As indicated on the graph at the bottom right, Chinese steel production reached 266 million tons for the first 6 months of 2009, essentially flat over last year's production figures.

However, almost 298 million tons of iron ore were imported into China for the same period, showing a 29.4% increase on a year-over-year basis, a substitution of domestic ore for imported iron ore points clearly to the cost efficiency, higher quality of imported ore from Brazil and Australia versus locally mined ore.

Although China's iron ore restocking can be viewed as spectacular by some, we believe that it's not only a factor of cheaper imported ore as mentioned above, but also the immediate effect on this of the country's stimulus, mainly driven by infrastructure projects and general fixed asset investment.

Furthermore, while we believe that the conclusion of the iron ore price negotiations will not be a significant event as it has been in previous years, we have not seen any significant headway so far this year, and trust that much of the volatility caused by the freight markets is due to the dependence on spot cargos.

As a result of the higher imports, we're also experiencing increased stocking of iron ore at Chinese ports through the first 6 months of the year. On the graph at the bottom left of the page, iron ore inventory should have peaked in May of this year, but has since decreased to levels of approximately 71 million tons as of the weekend in June 24, 2009.

Moreover, along with the higher number of iron ore cargos landing in China came increased port congestion of the Chinese coal ports, which reached a high of 17 days during June of 2009, and currently stands at approximately 14 days. Congestion in Australian coal ports also spiked in the second quarter, and into July of 2009, mainly due to record levels of coal movement from Australia to China.

To illustrate, it is worth while mentioning that China was a net importer of 36.6 million tons of coal in the first six months of 2009, while a net exporter of 3.94 million tons, over the same period last year. While one would expect much higher BDI levels in freight rates as a result of direct iron ore imports into China, the effects of the financial crisis on the rest of the world have thus far been preventing that.

On slide 18, we see the trade industry imbalance through the first 6 months of the year. While iron ore and coal imports into China increased by 29% on 123% respectively, imports in Japan, South Korea and the European Union show decreases for both commodities.

As previously stated, we believe that although this trade imbalance explains the markets' dependence on China currently, it might also prove to be beneficial in the medium to long term as the drybulk industry could receive further support with a potential recovery in the rest of the world.

Indications of a bottom for the rest of the world have already emerged as a pick up in the iron ore and coal imports into Japan and Europe over the last couple of weeks signal the beginning of their inventory restocking due to higher demand from the respective commodities.

On slide 19, we present a review for the supply side of the equation. Looking at the graph at the bottom left of the slide; we could 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 newbuilding orders scheduled to deliver in 2009 and 2010 are contracted at nearly established expansion or Greenfield yards. If one also considers estimation from industry resources that only 40 to 50% of the current book has financing in place, we believe that it is fair to assume that part of the current newbuilding orders will never be completed.

Over 30% of the world's fleet is 20 years or older. And as we've indicated in past calls, bulk carrier scraping is not mandated, it is more of economical equation. To that extent, scraping showed significant strength through the last quarter of 2008, and first quarter of 2009, leveling off into the second quarter of 2009, amid a higher spot rate environment.

As illustrated in the graph, bottom of the page, 160 vessels have already been scrapped year-to-date as compared to approximately 80 vessels scrapped in 2008.

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

Meeting the country's efforts to boost economic growth through the fiscal policy was the Chinese government's $586 billion stimulus plan, which we have always argued will stimulate demand for the commodities our vessels carry. What we had not foreseen was the short term horizon within which this impact has been felt, and that is mainly due to the Chinese government's instruction to local banks to increase lending.

Furthermore $292 billion investment has also been earmarked for railway expansion, aiming to double its existing railway network from approximately 48,000 miles to 75,000 miles by 2010. Indications of the positive effects of this economic stimulus plan come from a variety different metrics, of which I will mention only a few.

Namely, the country's GDP growth on year-over-year basis was 7.9%. As previously mentioned, China's push for increased bank lending resulted in $234 billion of new loans been made for June 2009, representing over two times the loans extended in May and approaching a record of $277 billion in January of the same year.

Lastly, I'd point out that the Purchasing Managers Index was at 63.2 in June, continuing its expansionary territory and fixed asset investment increased to 33.5% on year-over-year basis through June 2000.

This concludes our presentation. And we are now happy to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions). We'll go first to Doug Mavrinac of Jefferies & Company.

Doug Mavrinac -- Jefferies & Company

Good morning, guys.

Peter Georgiopoulos

Good morning, Doug.

Doug Mavrinac -- Jefferies & Company

Hi. I just had a handful of questions. I guess one of the biggest takeaways that I have from your earnings release, as you mentioned in your comments, you guys have accumulated quite a bit of cash during the quarter, I think almost $230 million as of the end of the quarter, any color on the priority on which you are thinking of spending that cash, if you're thinking of spending that cash?

John Wobensmith

Well, the first thing is, we're going to be using part of that cash to take delivery of the last two Capsize vessels towards the end of the year.

Doug Mavrinac -- Jefferies & Company

Yes.

John Wobensmith

And then between paying down debt, looking at acquisitions, so much if there is a priority, but those two things are definitely going to happen.

Doug Mavrinac -- Jefferies & Company

Okay. Great. Thank you. And then the second thing, looking at your fleet, you guys obviously have a number of ships either being delivered that are currently chartered for you or ships that are being redelivered over the next several months with contracts expiring, and based on your preference of maintaining substantial time charter contract coverage, leaving some spot exposure for upside potential. Is there an asset class that you'd prefer to lock up of those vessels that are coming up with time charter contracts by default, providing spot market exposure to another or do market conditions more or less dictate that you continue to be flexible and opportunistic?

Peter Georgiopoulos

I think what you said the market conditions dictate. You know we'll pick our spots when to charter the ships away some of the ships that we fixed this spring if we fixed them last fall; it's going to be $7,000, $8000 a day.

Doug Mavrinac -- Jefferies & Company

Right.

Peter Georgiopoulos

And you also lock yourself into that so we'll play the spot market until we see a spot then we can fix a ship away at a rate that we can live with for a couple of years.

Doug Mavrinac -- Jefferies & Company

Okay. Perfect. Thank you, Peter and then just final question before I turn it over. How you guys describe the current environment in the sale and purchase market? Is there anything of interest yet and are there any takeaways that you guys have based on who the current market participants are in the S&P market and the type of deals being struck?

Peter Georgiopoulos

I think it's very quite.

John Wobensmith

Yes.

Doug Mavrinac -- Jefferies & Company

Yes.

Peter Georgiopoulos

Now I think a couple of deals here and there, but I wouldn't say that there is any trend.

Doug Mavrinac -- Jefferies & Company

Yes. Yes.

Peter Georgiopoulos

It is quite, I mean, I think it's been quite and I think it will be quite through the rest of the summer.

Doug Mavrinac -- Jefferies & Company

Okay. Perfect. That's all I have. Thank you, guys.

Peter Georgiopoulos

Thanks Doug.

Operator

We'll go next to Jon Chappell with JP Morgan.

Jon Chappell -- JP Morgan

Thanks. Good morning, guys.

John Wobensmith

Good morning, Jon.

Jon Chappell -- JP Morgan

If I can just follow-up on that last question about the deal activity and may be ask it another way. There seems like there is a lot of money waiting on the sidelines to buy assets up the trough. Peter, in your opinion, has the trough already passed. I mean, we've seen asset prices start to move up here and are the best opportunities may be behind us?

Peter Georgiopoulos

I mean, yes, the asset price definitely have moved up since say the first quarter, but I mean, I think those were unrealistic prices in a panic and I don't know if anything got done here, I mean they were theoretical prices that people were putting on in a panic state. So have they moved up off a theoretical bottom? They've moved up. Definitely, people are feeling more confident. I keep on hearing about all these money on the sideline. You know I'm not sure I really believe it. You know there is a lot of talk and everybody as guys who've either stolen money from people or never done anything in their lives have money from private equity. I don't believe it. So I'm not really sure. I think when the right deals comes along, you'll see people like us, real players, people who've acted, people who've acted fast and have a great track record, you will see us jump on them.

Jon Chappell -- JP Morgan

Okay. And then on the chartering of the two new Capes as well as the Capes that are rolling off later this year, early next year. The two years, 36,000 deal with Morgan Stanley seems to be a pretty good deal. Are there other deals out there like that and more importantly, is there anything in that 3 to 5-year range that we were seeing may be year or two ago.

Peter Georgiopoulos

Look we hope there is more stuff like that out there. And as we said earlier on the call we are going to just sort of wait and pick our spot to fix that ship away. There hasn't been that much in 3 to 5-year, and we are happy with the 2 years we think that will get us through this difficult period of time.

John Wobensmith

Yes Jon, well one thing to add is that there are definitely charters out there looking for three to five year deals, but there really aren't many owners who are willing to bite on those rates today.

Jon Chappell -- JP Morgan

And last thing, Gerry, one of the things you mentioned was the substitution of ore imports into China, because it was just cost competitive I guess. The iron ore prices have been increasing. Do you think that domestic ore is becoming more cost competitive now and that might have an impact on imports? And also, is there any other differences between the domestic ore versus imports? Is there a quality issue that even if the price is similar mills would still prefer imported ore?

Gerry Buchanan

I think if you look at domestic ore at the moment, I mean more of these ore mines that were sort of closed down are opening up and there is more domestic ore coming into production. But who knew what's going to happen when the price negotiations are over and where the price settles for the imported ore. My feeling is that imported ore is still going to be the choice, the first choice. Yes, there is a quality issue. Domestic ore, the ferrous content is only about 15 to 18% and it is double or more than that for imported ore. So, I think that imported ore is still going to be the first choice.

John Wobensmith

Yes and Jon keep in mind, as far as the price movements, whether the contract prices or the spot market, the prices are just approaching equilibrium with domestic ore and that in itself is not a reason to spend the money and open up these domestic mines. I think it's going to take a lot more before you see a lot of the domestic ore coming into the market.

Jon Chappell -- JP Morgan

Great. Thanks John, Gerry and Peter.

Gerry Buchanan

Thank you.

Operator

Urs Dur with Lazard Capital Markets has our next question.

Urs Dur -- Lazard Capital Markets

Hi, guys.

Gerry Buchanan

Hi, Urs.

Urs Dur -- Lazard Capital Markets

Hi. I guess the vogue call of this week and as you know it changes week to week is that China's pace can't keep up and could very well come unhinged. And so, if China slows are we seeing or are you seeing demand coming from elsewhere picking up in the other parts of the world, the developed world and not such as Europe and Japan. Are you seeing more demand from those regions?

Peter Georgiopoulos

No.

Urs Dur -- Lazard Capital Markets

No.

Peter Georgiopoulos

I mean a meaningful amount, no.

Urs Dur -- Lazard Capital Markets

Do you anticipate a bit of pick up?

Peter Georgiopoulos

Yes. I mean Urs there are a couple of things that came out this morning.

Urs Dur -- Lazard Capital Markets

Right.

John Wobensmith

In that Metao [ph] said they are going to crank up ideal capacity in Europe. I think they were saying their utilization in the second quarter was 45%, but demand was more like 55 to 60%. Nippon Steel is planning to raise outputs in the third quarter U.S. mills are planning real steel prices. So, things are moving in the right direction but we haven't seen the big listings of iron ore yet that's for sure.

Urs Dur -- Lazard Capital Markets

In regards to and I guess it's been touched on already, but can you give us any color on what you are seeing...

Peter Georgiopoulos

Urs just jump in. I didn't the catch the vogue of the week that charters are slowing down, so...

Urs Dur -- Lazard Capital Markets

No I meant in the Wall Street Journal today, for instance, there is a piece in there saying well eventually China is going to come on hinge from this pace and it will slow down and it was...

Peter Georgiopoulos

And eventually U.S. is going to come out of its recession. So...

Urs Dur -- Lazard Capital Markets

Right. Right and I am just wondering it was more a read into the question as to what's happening elsewhere in the world. What else are we seeing other than China. I feel that it does keep up for sometime. But can you give us some color on the order book details that you are seeing are seeing a awful lot of slippage, have you seen any new news from that front as to the pace and are there any hard and fast real say cancellations of orders that you're seeing in 2011 and '12?

Peter Georgiopoulos

There's been a lot of slippage, a lot of delays, but a lot of it's anecdotal. John do you have anything?

John Wobensmith

I mean there have been a few stories, I mean, I think, Urs, you've seen everything that we have. I mean Cosco cancelled a few ships actually in their own yard. And the problem is, as we've said many times, in the private market which represents 95% of the ownership of vessels, you just don't hear about these things, these cancellations until months down the road, because they're kept private.

Gerry Buchanan

Yes. Exactly. I was in a couple of yards in Asia just over the last couple of weeks, and I asked the same questions and I got the same answers. They're very guarded with giving out that kind of information about cancellations, but they did admit to vessels being delayed.

Urs Dur -- Lazard Capital Markets

All right. And I guess a follow on to that, I mean, these vessel values wouldn't make any sense at all for anybody to instead of even buying something, if it were to be available prompt, to order something at these lower levels?

John Wobensmith

Urs, I mean we obviously watch all the asset classes, I mean, if you're talking about ordering something today for a 2011 delivery or 2012.

Urs Dur -- Lazard Capital Markets

Right.

John Wobensmith

...you can't get charters out that far right now, so I'm not sure if it makes sense, but if you're looking at more prompt tonnage, we've obviously talked about values and time charter rates coming into numbers that make sense on return on capital, I think the Capesize are probably the only ones that are near it right now.

Urs Dur -- Lazard Capital Markets

Right. That's extremely helpful. Thank you. Thank you, guys.

Peter Georgiopoulos

Thanks, Urs.

Operator

Moving on from Merrill Lynch, we'll go to Chris Wetherbee.

Chris Wetherbee -- Merrill Lynch

Hi. Great. Thanks guys. Just to follow-up on that iron ore question. John, you mentioned that the price for spot or contracted iron ore is still kind of below the level you need to see for Chinese domestic production to ramp up. What do you think that level is, I mean, I know it's going to be hard to tell, but what do you think as you kind of get above $90 a ton, I mean, we're starting to approach that level, or do we still have ways to go in your opinion?

John Wobensmith

I mean, look, my opinion is, I'm not an expert on domestic iron ore production, but I got to think its least 10% cheaper before they start cranking up those mines and we are just not there yet.

Chris Wetherbee -- Merrill Lynch

I guess just a technical question on the interest expense, just looks like you had a step up from quarter-to-quarter. I know in the third quarter you've made a drawdown there, but it looks like debt levels remain the same. I'm just curious kind of what drove that little uptick in interest expense on a sequential basis?

John Wobensmith

Yes. If you'll recall, last quarter we put our amended credit facility in place in the beginning of January, so our interest cost, our interest spread went from 85 basis points to 200 basis points over LIBOR. So that's the difference.

Chris Wetherbee -- Merrill Lynch

So it's just simply the extra month that you didn't have it in, in the first quarter relative to the second quarter?

John Wobensmith

Yes.

Chris Wetherbee -- Merrill Lynch

And I guess just on the spot vessels that you placed into the pool, I guess just how do you think about exiting that? I mean, obviously, there is going to be on a case-by-case basis, but I mean is this something that tied you over for the medium term or do you think this is something that maybe gets you through the next year or two before you start thinking about the charter market?

John Wobensmith

It will depend on the charter market. As we've said before, it's definitely going to be opportunistic and with these five ships we've hired them on to Lauritzen for a while. We've been happy with the way they've been operating, so we put them into their pool and we'll monitor it and see how it works out.

Chris Wetherbee -- Merrill Lynch

And I missed your discussion on daily OpEx, I saw you brought down the target there, could you just run quickly through what was driving the decreases there.

John Wobensmith

Well, we moved the target down by $200 today because of lower crew expenses specifically. We did have to our advantage some timing issues with purchases of spares and maintenance. So that's why we only moved it down further for the crew cost.

Chris Wetherbee -- Merrill Lynch

And then just last one on the housekeeping side. Can you breakout the profit sharing revenue recorded by the Capes in the period do you have that sense of what that was?

John Wobensmith

I don't have that at my finger tips, but we can get that for you. I mean that's not…

Chris Wetherbee -- Merrill Lynch

Okay. Great.

John Wobensmith

...calculated.

Chris Wetherbee -- Merrill Lynch

Thanks very much for time guys. I appreciate it.

John Wobensmith

Okay

Operator

We go to Gregory Lewis of Credit Suisse.

Gregory Lewis -- Credit Suisse

Good morning.

Peter Georgiopoulos

Good morning.

Gregory Lewis -- Credit Suisse

It looks like the newbuilding Cape Commodus was delivered about the third week in July, when was that vessel originally scheduled to be delivered and really what I am trying to figure out is do you expect the delivery delays in the two Capes in the back half of this year?

Gerry Buchanan

The original date was in April, so yes, there is a late delivery there from the original contracted date. Do you we expect delays in the other two vessels? While they have been delayed already and as John said, first one would be in the third quarter, second one will be in the fourth quarter. But they are slightly delayed already.

Gregory Lewis -- Credit Suisse

Okay, Okay. So I mean when you sort of targeting sort of like, do you think it's safe to sort of say the middle of each quarter or sort of towards the end of each quarter.

Gerry Buchanan

That towards the end of quarter. Towards the end of quarter for the second one, and the middle of the quarter for the second I am sorry. The Maximus, which is the next delivery, will be the end of the quarter and the Claudius, which is the last of the vessels, will be in the middle of the quarter.

Gregory Lewis -- Credit Suisse

Okay. Thank you very much.

Peter Georgiopoulos

Thank you.

Operator

From Cantor Fitzgerald we go to Natasha Boyden.

Natasha Boyden -- Cantor Fitzgerald

Hi. Good morning, guys.

Peter Georgiopoulos

Good morning, Natasha.

John Wobensmith

Hi, Natasha.

Natasha Boyden -- Cantor Fitzgerald

I think most things have been covered. I have a quick question on your amortization of fair value of time charters. Can you just let us know how much if you had any during the quarter and how much it was, but I think you had quoted about 4.7 million in the first quarter?

John Wobensmith

Yes, we can get that exact number one second.

Natasha Boyden -- Cantor Fitzgerald

Thanks.

John Wobensmith

I mean as you know in the appendix of presentation, we give you guys obviously the rate that we book versus the cash rate.

Peter Georgiopoulos

4.7

John Wobensmith

So it's about $4.7 million.

Natasha Boyden -- Cantor Fitzgerald

Okay. So, same as the first quarter.

John Wobensmith

Yes.

Natasha Boyden -- Cantor Fitzgerald

Great. Thank you. And just some kind of macro questions, I mean there has been a lot of discussions recently about China moving about 2 trillion plus reserves of investment dollar into other assets particularly commodities. How do you see this trend affecting the bulker market over the medium term or the long term.

Peter Georgiopoulos

I don't know that's a big question.

Natasha Boyden -- Cantor Fitzgerald

That's a what?

Peter Georgiopoulos

You know that's a very macro question.

Natasha Boyden -- Cantor Fitzgerald

Yes. So I just thought may be you have some thoughts on it, if not fair enough.

Peter Georgiopoulos

No, I mean I don't have thoughts on it. John or Gerry.

John Wobensmith

No, I mean look there is obviously some talk about that Natasha, but I think you got to look at what's going in China on the fundamentals, you got to look at the recovery in the real estate sector, you've got to look at the recovery in their automobile sector. Actually look at what's been happening to Chinese steel prices, they continue to firm. You know those are all very positive things. There may be some of this speculation going on, but I just don't think it's a lot. I think the fundamentals are there to support it.

Gerry Buchanan

Natasha if you look at the production of cement in China I mean it's gone up 21% year-over-year and that's particularly in June [ph]. So I mean there is a big, big move in the infrastructure.

Peter Georgiopoulos

I'd tell you they are not going to move into the ruble. That I'll guarantee.

Natasha Boyden -- Cantor Fitzgerald

So that could make life very interesting, and then lastly...

Peter Georgiopoulos

I guarantee that one.

Natasha Boyden -- Cantor Fitzgerald

We hold to that Peter. You know with the iron ore negotiations I guess still not completed in China with the issue of China arresting Rio Tinto executives, there is a bit of mess up. [ph] What do you think the chances are that the market does move towards a more spot oriented index based system, and if so, what are the implications for the market?

Peter Georgiopoulos

No...

Natasha Boyden -- Cantor Fitzgerald

I'm feeling very macro [ph] to this.

Peter Georgiopoulos

I mean, right now, it is a bit more of a spot market, but I think with these big ore companies and the steel companies, I think about the trend, I mean, it will continue to be a long term charter market.

Natasha Boyden -- Cantor Fitzgerald

I mean, are you seeing at all, I mean, (inaudible) is obviously trying to take control of the steel mills, you think they are going to be able to do that or lot of the smaller mills still going to cause some problems?

John Wobensmith

They've been talking about this for at least 8 years and nothing has really happened so...

Natasha Boyden -- Cantor Fitzgerald

Right. So there is no reason to think it might happen now?

John Wobensmith

No.

Natasha Boyden -- Cantor Fitzgerald

All right. Well thank you very much. That's all.

Peter Georgiopoulos

Thanks.

Operator

We'll move next to Scott Burk of Oppenheimer.

Scott Burk -- Oppenheimer

Hi. Good morning, guys.

Peter Georgiopoulos

Hi.

Scott Burk -- Oppenheimer

Just a couple of follow up questions. First you talked about you are going to be opportunistic with your charting strategy. I was just wondering, you've got about 44% coverage for 2010. At what point do you say, listen, we got to have a certain amount of coverage or we're not comfortable and so you just start putting vessels away for longer terms. And specifically I'm wondering how that might affect the way you look at chartering out the two Capes that are coming online in the third and fourth quarter?

Peter Georgiopoulos

We never say that. I mean, if we didn't say it in the fall of 2008, we are not going to say it now, I mean, that was the worst time that anyone of us has seen in 25, 30 years, so we didn't panic and put stuff away, then we are not going to do it now. So I think we're going to continue. And I've been doing this for 20 years and that's the way we've done things and it's always worked for us.

Scott Burk -- Oppenheimer

So I can see, we could see your, if you rollover to 2011 or whatever, you could see, you'd be comfortable with only 20% coverage?

Peter Georgiopoulos

Sure, if that's what the market bears.

Scott Burk -- Oppenheimer

And then I guess this is kind of macro question as well but we saw BHP yesterday. They agreed...

Peter Georgiopoulos

But we Scott we do believe that there are going to be spots in there as we've shown in this past 6 months, where by been disciplined and waiting for your spot to be able to pick your spot and get a better charter than you would have a month or two months or six months ago. So we believe that over the next several months, years we'll have our spot to pick to put our ships away, so won't be that 20%.

John Wobensmith

Yes, I mean, Scott people focus way too much on what your coverage is. I mean, you can't just look at the coverage, you've got to look at what the rate's there...

Peter Georgiopoulos

I mean, we could have a 100% covered at $800 a day.

Scott Burk -- Oppenheimer

Yes.

John Wobensmith

Exactly, and more importantly, our 45% going into next year, the majority of that are our legacy charters that were done a year more ago and are at significantly higher levels than where we are today.

Scott Burk -- Oppenheimer

Yes, and that shows up in your EBITDA, and obviously very helpful. Kind of moving on to more of an macro question BHP yesterday said they are going to do about 30% of their iron ore exports next year on kid of a spot basis or index basis. And I just wondered what your thoughts are as the iron ore movement goes more towards a soft based movements, do you think that's beneficial or detrimental for kind of the outlook for drybulk shipping in general?

Peter Georgiopoulos

I think it will cause rates to be higher because it'd be more of the spot market and there will be more to speculative market. So, I think you will see rates in general to be higher.

Scott Burk -- Oppenheimer

Just gives it will be speculation on both sides. Okay interesting.

Peter Georgiopoulos

We would see more volatility, let's put it that way.

Scott Burk -- Oppenheimer

Yes. Yes. And then one question about the deliveries for the second half, are you starting to, you kind of discussed the potential for a lot of things to be delayed. First of all I wondered if you have breakdown, you mentioned 300 vessels that have been cancelled. Do you have a breakdown on vessel class for those vessels, is it mostly Capes or mostly handys?

John Wobensmith

I think first of all lots of...

Scott Burk -- Oppenheimer

And in the second half we are supposed to see quite a few more deliveries than we saw in the first half of 2009. Are you starting to see any indication of increased competition from those new vessels entering the fleet in the second half?

John Wobensmith

No.

Peter Georgiopoulos

Not really.

Scott Burk -- Oppenheimer

Thanks very much.

Peter Georgiopoulos

Thanks.

Operator

From Maxim Group, we will go to Charles Rupinski. Mr. Rupinski your line is open, please check your mute.

Charles Rupinski -- Maxim Group

Sorry about that. Hello, everybody. Thank you. Most of my questions have been answered, but just a quick one on the rest of the cycle over the next couple of years on operating costs. Given the downturn in the economy and what we are seeing in general. I mean how will this play into say crewing costs and things like that over the next two to three years. Do you have sort of view of that?

Gerry Buchanan

Well two or three years is a pretty far out, to be honest with you, but we've done a good job of controlling our cost in 2009 and we are pretty confident that we can continue to do that as we move forward.

Charles Rupinski -- Maxim Group

All right. Thank you.

Operator

We will go to George Pickral of Stephens.

George Pickral -- Stephens

Hi, guys. Thanks for taking my call. Kind of have a longer term question here. As you look out in the market and thing about growing your fleet over the next few years, does one class of vessel look more attractive than another either due to market dynamics or types of vessels that need to be scrapped or average ages of fleet. Any color there it will be appreciated?

Peter Georgiopoulos

No. I mean as we've shown in the past it really depends on sometimes you see different classes of ships and for strange reasons a very short periods of time we will have a disconnect in their price versus their rates you can charter them away for a long term charter. So, that's when we've typically gone in to buy something. I mean there was a case a couple years ago where Panamaxs to buy were trading at less than Supramaxs. Meanwhile they are larger ships that make more money. So, we went, we bought a bunch. So I think it really depends on what's happening in the market at the time we are looking. You know, as John mentioned earlier, he said that right now the only ships with charters that meet our return criteria are Capes at this point in the market, that may change in September.

George Pickral -- Stephens

Thank you for that. And real quickly why the increase in legal fees this quarter?

John Wobensmith

Why the increase in legal fees?

George Pickral -- Stephens

I think you said, your legal fees were higher than I guess they were up year-over-year.

John Wobensmith

Yes. I mean that's just this inflation more than anything else.

George Pickral -- Stephens

So, nothing...

John Wobensmith

It's not a large number.

Peter Georgiopoulos

Because we had the bank.

John Wobensmith

Yes. We had our bank amendment that we did, but it's nothing.

George Pickral -- Stephens

Nothing out of the ordinary? Okay.

Peter Georgiopoulos

No.

George Pickral -- Stephens

Okay. Great. That's all I have. Thanks for your time guys.

Peter Georgiopoulos

Thank you.

Operator

Up next, from Deutsche Bank we'll go to Justin Yagerman.

Justin Yagerman -- Deutsche Bank

Hi. Good morning, guys.

Peter Georgiopoulos

Good morning.

Justin Yagerman -- Deutsche Bank

Just quickly, on the balance sheet, curious about, you mentioned that you'd used your cash either opportunistically or to pay down debt, is there a specific leverage ratio that you guys think about and is it influenced by your charter coverage, when you're trying to think of an optimal level of balance sheet leverage?

John Wobensmith

Yes, I mean, look, I'm not sure if we necessarily target a leverage number, but we know where we want to be. I think charter coverage has something to do with it. Obviously, we've cut the dividend out temporarily, so that enters into our decision making as well. But to give a specific number, I wouldn't say that there's a plan for a specific number at this point.

Justin Yagerman -- Deutsche Bank

In the market right now should we be expecting to see you pay down debt if you're not finding opportunities for vessels out there on the water?

John Wobensmith

Yes, if we are finding opportunities, absolutely.

Justin Yagerman -- Deutsche Bank

Okay. And then I guess just bigger picture question. You mentioned that most of the demand is coming from China right now, and that makes sense. But if you look out and your fleet gets bigger over the next several years, is it a priority to diversify where you're getting your demand from? In other words, are you looking at building relationships in places like India and Africa that are up incomers in this market?

Peter Georgiopoulos

I mean you can do it all, I mean, you don't really target a region and get because whether it's Cargill or BHP, you're really, that's who you're really targeting. You know and so we don't sort of target one area anyways. That's what we do. What you do is, you take what the market will give you, and right now what the market is giving us is demand into China and so that's not just us, that's what the market is serving. If demand in Africa picks up, which I've got to tell, I don't, maybe my grandson will do that, but if demand in Africa picks up, we'll be right there. So I think we just take what the market gives us.

Justin Yagerman -- Deutsche Bank

Got it. And when I look at the increase in coal in China how should I be thinking about that? Is that more driven in your opinion in the quarter by the steel production, or is that electricity output from thermal coal that's coming in, what are you guys seeing moving more?

John Wobensmith

Both. Definitely both.

Justin Yagerman -- Deutsche Bank

Definitely both. Thanks. Appreciate the time.

John Wobensmith

Thank you.

Operator

And those are all the questions we have for today. And that does conclude today's conference. We thank you all for joining us.

Gerry Buchanan

Thank you.

John Wobensmith

Thank you.

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Source: Genco Shipping & Trading Limited Q2 2009 Earnings Call Transcript

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