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Executives

Brian Kerr – IR

John Tavlarios – President and CEO

Jeff Pribor – CFO

Peter Bell – Head of Commercial Operations

Analysts

Doug Mavrinac – Jefferies & Company

John Chappell – J.P. Morgan

Rob MacKenzie – FBR Capital Market

Justin Yagerman – Deutsche Bank

Scott Burk – Oppenheimer

Justine Fisher – Goldman Sachs

General Maritime Corporation (GMR) Q4 2009 Earnings Call Transcript February 25, 2010 10:00 AM ET

Operator

Good morning, everyone and welcome to the General Maritime Corporation Conference Call to discuss the Company’s 2009 fourth quarter and full year earnings. Today's call is being recorded (Operator instructions) A replay of the call will be accessible any time during the next two weeks by dialing 1888-203-1112 for U.S. callers and 1719-457-0820 for non-U.S. callers. To access the replay, please enter the passcode 6534270.At this time, I would like to turn the conference over to Mr. Brian Kerr. Please go ahead, sir.

Brian Kerr

Welcome, ladies and gentlemen, to the General Maritime Corporation conference call to discuss the company's fourth quarter and full year 2009 results. I would like to remind everyone that this conference call is now being webcast at the company's website www.generalmaritimecorp.com. There are additional materials relating to our earnings announcement including a slide presentation on our website.

You should be aware that today's conference call, we will be making certain forward looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.

For a discussion of factors that could cause results to differ, please see the company's earnings press release that was issued yesterday 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 in subsequent reports on Form 10-Q and Form 8-K.

All share and per share amounts discussed in this conference call, unless otherwise noted, have been adjusted to reflect the exchange of 1.34 shares of our common stock for each share of common stock held by shareholders of General Maritime subsidiary, our predecessor company, in connection with the Arlington acquisition.

Now, I’d like to introduce Mr. John Tavlarios, President of General Maritime Corporation.

John Tavlarios

Good morning. Welcome to General Maritime’s earnings conference call for the fourth quarter of full year 2009. With me today are Jeff Pribor, Chief Financial Officer, John Georgiopoulos, Executive Vice President, and Peter Bell, Head of Commercial Operations.

As outlined on slide three of the presentation, I’ll begin today’s call by discussing the highlights of the quarter and year followed by Jeff’s review of our financial results for the three months year ended December 31, 2009. Following this, I’ll provide some remarks on our company outlook, an overview of the industry. We’ll then be happy to take your questions.

I’ll begin on slide four. During 2009, General Maritime remaining true to its proven approach of effectively managing the company assets through the tanker cycle. With significant contract coverage, we achieve solid cash flow despite challenging industry and economic conditions. During the year, we also maintain intense focus on preserving General Maritime financial strength and flexibility, enhancing the company position to enter into future value creating transaction for our shareholders.

I’ll now highlight our financial performance for the quarter and the year. Fourth quarter results include other income and certain one off items that Jeff will discuss later on the call when we reduce our financial results. Excluding these items, we required adjusted net loss for the fourth quarter of $12 million or $0.22 basic and $0.22 diluted loss per share.

In the fourth quarter, we declared a $12.5 per share dividend including the fourth quarter dividend. General Maritime has now declared cumulative dividends in 2009 of $1.25 per share. Since initiating its dividend policy in January 2005, General Maritime has declared cumulative dividends of $21.74 per share. This equates almost a $1 billion in dividend distributed to shareholders in a five-year period.

On slide five, we detailed the company's dividend policy. Beginning in third quarter of 2009, General Maritime adjusted its dividend target to $0.50 annually per share or $0.125 per quarter. Importantly, the voluntary adoption of $0.50 per share annual dividend target enables General Maritime to continue its tradition of distributing cash to shareholders while further positioning the company for future growth and industry leadership. Specifically, by implementing more conservative payout ratio, we believe we have strengthened our financial flexibility and take advantage of strategic growth opportunities, a top priority for our company.

Given the current market, the company's Board gave particular consideration to continue payment of our company's $12.5 per share target dividend for the fourth quarter of 2009. The Board determined to pay the target dividend based on the company's cash flow for the quarter. To make a future dividend decisions, the Board will review such factors as market conditions to company's upcoming cash needs and potential opportunities which may arise given the current market.

On slide six, we highlight our current contract coverage. Currently, we have 16 vessels under fixed contracts representing 52% of our fleet. During the fourth quarter and year to date 2010, we continue to take decisive steps to opportunistically into long-term charters, signing a total of additional time charters.

Including these five new charters, the General Maritime is 43% of its estimated operating days on fixed contracts representing approximately $108 million of contract revenue in 2010. Importantly, our contracted coverage for 2010 provide shareholders with a sizeable revenue stream and cover 65% of the company’s estimated core fixed cost.

Turning to slide seven, we include a chart that details our time charter coverage. All 16 contracts continue to be back by leading oil companies and traders such as BP, shell, LUKOIL, Stena and others. We believe that our success in continuing to attract world-class charters is a direct result of General Maritime's reputation for providing customers with a modern fleet that meets stringent operational standards.

Going forward, we intend to remain diligent in acting opportunistically for shareholders and implementing our flexible fleet deployment strategy, with a focus on operating a sizable portion of our fleet on contracts with high quality counterparts. We believe our deployment strategy positions of the company to maximize cash flow by achieving a level of stability in its results in a diverse rate environment as well as preserving the ability to benefit from improving tanker rates in the future.

I would like now to turn this call over to Jeff Pribor.

Jeff Pribor

Thank you, John. And good morning, everyone. Beginning on slide nine, I would like to review our fourth quarter financial results. Excluding a $40.9 million non-cash charge related to an impairment charge to goodwill and to non-cash portion of other income, the Company recorded net loss of $12 million or $0.20 basic and $0.20 diluted loss per share, for the three months ended December 31, 2009.

The comparable figure for a year ago when we exclude the non-cash portion of other income at certain one-time item was $17.6 million or $0.43 basic and diluted earnings per share for the three months ended December 31, 2008. The one-time item in 2008 were $4.5 million of other gain and the additional G&A of $33.7 million, I think competition accruals in connection with the company’s executive transition plan as well as litigation costs in connection with the Genmar Defiance.

Depreciation and amortization for the quarter ended December 31, 2009, was $22 million compared to $16.7 million for the quarter ended December 31, 2008. The increase is primarily attributable to the delivery of the Arlington fleet of vessels since the prior year period.

Our net interest expense increased to $13.8 million during the quarter ended December 31, 2009, compared to a net interest expense of $8.4 million in the prior year period. The increase in net interest expense is primarily due to our increased debt position from the Arlington transaction, the $300 million to senior note issuance in November 2009 and repricing of our credit facility from LIBOR points plus 100 to LIBOR plus 250.

To annualize revenue, we look at net voyage revenue per vessel day referred to as Time Charter Equivalent or TCE. TCE is calculated by dividing net voyage revenue by voyage days for the applicable time period. You will find the total number of voyage days used in this competition in the appendix to our press release.

On slide 10, we provide a fourth quarter TCE analysis. Full fleet TCE including time charters fell 23% to $22,683 for the quarter ended December 31, 2009 compared to $33,909 for the prior year period.

The average spot charter rate earned our fleet fell 52% to $11,850 for the quarter ended December 31, 2009 compare to $31,132 for the prior year period. Excluding the goodwill impairment and non-cash income mentioned above, EBITDA for the quarter ended December 31, 2009 was $23.8 million. EBITDA for the prior year period excluding the items mentioned above was $42.7 million. It should be noted that Suezmax vessel, TCE in the fourth quarter were impacted by the fact that we account per voyages on a low-to-discharge basis rather than a discharge-to-discharge basis.

I would like discuss our balance sheet which is detailed on slide 11. As of December 31, 2009, our cash position was $52.7 million and our debt was $1.02 million.

Turning to slide 12, we provide a fourth quarter 2009 operating expense analysis. To annualized expenses we look at the cost per vessel day which is just for changes in the size of our fleet, per vessel a day cost are calculated by dividing total expense by the aggregate number of calendar days that we owned each vessel during the period. Daily direct vessel operating expense is increased by 18% to $9,261 per vessel a day for the quarter ended June 30, 2009 compared to $7871 for the prior year period. This increase was primarily due to higher repair cost associated with certain Aframax vessels as well as an increase in insurance costs during the year and finally the transition from fixed rate management agreement to market rate contracts on four of our vessels.

General and administrative expenses excluding one-time items in the fourth quarter of 2008 decreased 20% to $9.5 million for the quarter ended December 31, 2009 compared to an $11.9 million in a prior year period.

Our outlook for 2010 is detailed on slide 13. Our guidance for direct vessel expenses for 2010 is $12,128 per day for a 2 VLCC, 8,278 per day for 11 Suezmax, $8419 per day for a 12 Aframax, $6819 per day for a two pattern axis and $6522 per day for Handymax. These amounts are modernly above 2009 budget amounts based on 2009 actual result adjusted for non-recurring events in certain cases the expiration of six cost management contracts.

We expect our G&A for 2010 to be $37.6 million, $8.3 million of which is non-cash restricted stock amortization which overall is a slight reduction for the 2009 budget. We estimate $91.0 of depreciation, amortization for 2010 approximately the same as of 2009 budget.

For the full year 2010, we anticipate $24.7 million of dry-docking and capital improvement expenses and we estimated approximately 300 off-hire days associated with these dry-docks. Most of those are being Q2 and Q4 although ship modeling – you should not have 15 days in Q1.

Continuing on slide 14, we outlined our current debt profile. Our recently amend $750 million credit facility to get drawn down $726 million. We have about $580 million of debt swap and a weighted average rate of 4.2%.

Start on this slide also provides the duration of interest rate swap agreements. In addition to our credit facility, of course, we also have a $300 million senior unsecured notes outstanding which we issued in November at a 12% coupon.

On slide 15, we provide a description of our dividend history. The company has a dividend policy with an annual target of $0.50 per year or $12.5 quarterly. We have been pleased that – the total dividend approximately $1 billion since we first start to think it was in May 2005 including our recently declared dividend of 12.5% per share relating to the fourth quarter of 2009. This dividend is payable on or about March 26, 2010 to shareholder record as of March 12, 2010.

On slide 16, we summarize our credit facility amendment and senior notes offering from the fourth quarter. The following are the highlights for the amendment. We reduce commitment to $750 million, as noted; we currently have drawn $726 million. We amended the net debt EBITDA maintenance covenant to increase the permitted ratio to 6.5 to 1, 2, including September 30, 2010, 6.01 from December 31, 2010 to September 30, 2011 and 5.5 to 1 thereafter to maturity.

We amended to accelerate the committee. The company has permitted to have dividends such that the amount up to and including $12.5 per quarter and we increased the applicable interest rate to LIBOR plus 250 from LIBOR plus 100 basis points. And lastly, it permitted the issuance of the unsecured notes.

Last November, we issued $300 million of senior unsecured notes had a coupon of 12%. The notes are non-amortizing and maturity in 2017. With the proceeds of the issuance, we pay down the $229 million of bank facility, we had assumed in the Arlington transactions and which otherwise would have been scheduled to mature in January 2011.

That concludes my remark. Now, I would like to turn the call back to our President, John Tavlarios.

John Tavlarios

Thank you, Jeff. Turning to slide 18, we will now discuss outlook during 2009. Our focus on operating modern fleet maintaining significant contract coverage enabled General Maritime to effectively manage the company during the one most challenging rate environment in recent years.

In addition, the company had success in completing a $300 million senior unsecured notes offering, amending its credit facility and fully repaying a $229 million to our credit facility of Arlington Tankers enabled the company to strengthen its capital structure and financial flexibility without diluting shareholders to extend our next mandatory debt amortization to October 2011.

As we progressed through 2010, we will concentrate our meeting two primary objectives. First, in an effort to maximize cash flow, we will seek to maintain an appropriate balance of charter coverage and spot exposure, reimplementation of our flexible fleet deployment strategy.

Second, we will continue to seek generate strong results for shareholders by implementing our long-term growth strategy and opportunistically redeploying General Maritime's cash flow. Both remains a core component of our long-term strategy and we intend to continue to actively seek digital acquisition opportunity that meets our strict return criteria as we done in the past.

Specifically, we intend to pursue transaction that have the potential to further expand the earning power of our modern high quality fleet, enhance our industry leadership and create enduring value for the company and its shareholders.

Turning to slide 19, I'd like to briefly discuss current market conditions. With 56% of our available spot days booked for the fourth quarter, our Aframax fleet is averaging 27,325 per day. With 75% of our available spot days booked for the fourth quarter, our Suezmax fleet is averaging 35, excuse me, first quarter, Suezmax fleet is averaging $35,422 per day.

Current Aframax TCE rates worldwide are around $8,000 per day range, while TCE rates for Suezmax tankers are $40,000 per day, and VLCC tankers are around $43,000 per day.

Getting on slide 20, we give a brief industry outlook. The effects of the global recession, continued implementation of OPEC quota cutbacks and the significant tanker order bookings continue to make themselves, so a 2009 came to a close. However, while tanker rates entered the fourth quarter near year lows, it was significant seasonal upper rate movement in the late stages of the quarter.

Although, while slipping OPEC compliance continue to be beneficial, most of the mandated or production cuts to right-size inventory levels remain in place to continue to exert downward pressure on tanker demand.

On the supply side, while 2009 was expected to be unprecedent year for tankers deliveries. During the fourth quarter became apparent year-end slip growth will be well below our expectations and significant portion of vessel deliveries has slipped into 2010.

Looking at oil demand for the entire 2009 year, the IEA and other forecasters indicated that global oil demand declined 1.45 million barrels per day or 1.7% to significantly less than an initially estimated 1.6 to 2.5 million barrels per day decline.

Looking forward to 2010 oil demand is expected to grow at range 1 to 2 million barrels per day, depending upon the forecast source was an average forecast rise of 1.8 million barrels per day or about 2%.

OPEC production costs – production cuts officially remain at 4.2 million barrels per day as set in September 2008. Much of the production cuts have been in shallow crude range having effective narrowing tanker margin by increasing both the fuel cost.

However, OPEC compliance continues to rose from an estimated 66% in July to 68% in January, making effective cuts around 2.4 million barrels per day. More importantly however, despite lower OPEC compliance and lower ref run – refinery utilization inventories have continue to work well from peak level seen in Q2 and Q3 2009, as a result of gradually increasing fundamental demand combined with seasonal effects.

OECD inventories in terms of forward cover were estimated to be 58.1 days at year end 2009, down from 62 days in July. This level represents only 0.1 day higher than beginning 2009 levels and more recent data suggest current levels have declined well below at this point.

On the supply side, 2009 was expected to be an unprecedented year for net tanker deliveries moderating any upward shifts in fundamental energy demand. Roughly 578 crude and product tankers were delivered in 2009, representing 6.6% of year end 2008 fleet capacity. This amount is significantly less than initial expectations for 2009 fleet growth, which were as high as 14.2%, indicating greater than expected deliveries slippage, vessel scrapings, as well as, the number of cancellations.

On the vessel removal side, while 2009 started slowly for tanker scrapping and George would fuel the ships from other sectors, activity gradually picked up. Additionally, while steel prices suffered in late 2008 and early 2009, the recovery has driven up both scrap values and incentives. These factors led to increase tankers demolition, which closed 2009 at 19 million that we touched. In addition, conversions supply dry-dock return as an exit strategy for single-hull tankers in Q3 and Q3 – Q3 and Q4 2009.

Looking forward, the arrival of the IMO deadline for single-hull tankers is expected to further accelerate tanker demolitions and conversations in 2010. We expect this and the subdued rate environments to continue create conditions at beginning in 2009, which owners of single-hull and first generation double-hull tankers schedule for dry-docking 2010 has strong reason to consider removing vessels from service.

Looking forward, despite initially strong tanker earnings in January due to seasonal factors, we believe after seasonal effect anticipate it would be reasonable to expect rates for tankers to sell at modest levels through mid 2010 as fundamental oil demand, while recovering has always way to go to finish the process of working down below the oil inventories.

Eventually factors such as gradually recovering energy demand and supply reduction will have their effect on the market. But I do not think it is likely, it’s possible that the upcoming March OPEC Summit meet lead to a reversal some OPEC cutbacks. We think it is more problem scenario that OPEC member stake compliance will continue to deteriorate.

As a result, we believe conditions as we move through 2010 will be moderately better than those in 2009, and more pronounced recovery in the late Q3 and Q4 lead to a significantly better rate environment is a very incredible scenario.

Most importantly to our shareholders, whatever the slope of the curve, General Maritime remains well positioned, having entered 2010 with approximately 43% time charter coverage for the year, having more approximately 65% of estimated core fixed cost. This enables us to maintain a strong balance sheet, pay down debt and take advantage of acquisition opportunities, which we expect will come with the trough of the market.

At this point, we'd like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator instructions) And we’ll go first to Doug Mavrinac with Jefferies & Company.

Doug Mavrinac – Jefferies & Company

Okay. Good morning, guys.

John Tavlarios

Good morning.

Doug Mavrinac – Jefferies & Company

Good morning. Just have handful questions for you all this morning. First John in you commentary, you had mentioned that that General Maritime has entered a number of time charter contract for recent month, I believe the number is 5. But looking at your fleet going forward, you guys also have a number time charter contract expiring in the coming months.

My question is, I guess, do you guys have a feel yet for whether you would like to lock away X percent of your fleet operating days going forward. I mean, do you have a target in mind or are you deploying a decisions going forward, just kind of depend on how the market develops from here?

John Tavlarios

Doug. It’s really, kind of market develops, I think, we constantly looking at some sort of balance. We range as you know in the past during good market, we’ve had anywhere from none of our vessel chartered 30% and then we’ve been as high as 75% to 80%.

Doug Mavrinac – Jefferies & Company

Right.

John Tavlarios

So we’re always looking at some sort of a balance, but one of the key things we’re looking is that we cover most of our fixed cost and going forward. So, if looking at our balance are being optimistic, I think, that’s key thing, but keeping our fixed cost normal.

Doug Mavrinac – Jefferies & Company

Yeah. Because that was my focus, now, you guys have about good track record as anybody in the backend of '02, '03 or '04, I mean, as you mentioned any of your stock market, whenever market was just roaring and then over last year, slot time, sort of contract coverage, and let's hope that it increases production later this year as you – and according to me, it is incredible situation or even 2011, when you guys are positioned as well as anybody out there, so that, sort kind of get that, if we can maybe expect that to change or just to kind of let it play out see what happens?

John Tavlarios

I think we are going to kind of lay it. So, at this point we got our coverage.

Doug Mavrinac – Jefferies & Company

Yeah.

John Tavlarios

When they start to come available, we have waited till the last month and we constantly looking at opportunities and where we efficient our fleet, but again it's going to be opportunistic, so.

Doug Mavrinac – Jefferies & Company

Right. Got it.

Jeff Pribor

This is Jeff. Looking against dramatically, what sort of my goal is. Good thing, we didn't jump around, the first thing you might have seen for SuezMax Time Charters in Q1 because as reported as far as how we look in a Q1, significantly better because we didn’t just take first thing that came along.

Doug Mavrinac – Jefferies & Company

Right.

Jeff Pribor

That's indicative of our strategy when it's open. That being said we still are looking, probably more, probably going to be choosy.

Doug Mavrinac – Jefferies & Company

Got it, got it. Okay, perfect. Thanks, thanks guys and then just kind of staying with the broader market here. John, you also mentioned the IMO face out there, might go just like this year. We know we’ve seen 30 plus ships already scrap to-date and we think that we were searching more that. But in the market, have you guys seen any evidence of increased discrimination against single hulls this year or was the discrimination already there and these things are just too kind of finally making their way to the scrap yards?

John Tavlarios

Well, the discrimination I think it was already there, so I think they will continue to go to scrap, to be scrap and with fleet prices have picked up quite a bit, I think you could get more incentive, especially if they got a dry-docking coming up.

Doug Mavrinac – Jefferies & Company

Got it, got it. Perfect, and then just one final question before I turned it over. It has to do with the sale and purchase market, is there anything moving yet I mean, are the sellers being realistic and what are you guys seeing as far as potential opportunities there, is the bid ask like a mile wider or people are being realistic within the market?

John Tavlarios

Yeah. I just don’t think there's a lot out there, yet. I mean, we expected, by know there seems some more opportunities. I mean, there is charter and we continue to look at the charter, that is our job but I can't say there is something specifically that out there is that we believe is reasonable enough to move on, yet, but I mean that could change and we're doing is position ourselves to take advantage of that.

Doug Mavrinac – Jefferies & Company

Got it. Perfect. That’s all I have, thank you very much.

John Tavlarios

Thank you, Doug.

Operator

And we will take our next question from John Chappell with J.P. Morgan.

John Chappell J.P. Morgan

Good morning.

John Tavlarios

Hi, John.

John Chappell – J.P. Morgan

Jeff and John, I think one of the biggest question out there, regarding General Maritime right now is this sustainability, the dividend including from your comments, it seems you want to keep the dividend but as the debt covenants change on September 30, what is your confidence level that you will be able to meet the new covenants that goes up to 6.0 to 1 that the EBITDA and how do you feel regarding your time charter coverage, your ability to meet that.

Jeff Pribor

Well, clearly, the company that we have worked with were cut off and declared the dividend. We certainly said that we will keep an eye on things quarter-to-quarter. I think that's a proven comment on the way you should manage through the cycle. That as we said again trying to talking about numbers as we look at the year going forward and we don’t give specific guidance, so we don’t have a General Maritime EBITDA, cash flow EPS projection.

But if we look at that without their consensus, we look at the first quarter for example, it's hard not to see that we will be right on track, full consensus EBITDA which is 135 and 160, and if you look at that and look at cash requirements of, that would you give guidance on today for the first time of CapEx and interest expense, you are still looking at a good cushion as long as you stay on track to be able to have cash flow well excess of that dividend.

And in the same, second half that would be to say on that basis, John, we would be very much okay on our debt EBITDA which is between 5.5 and 6 for this quarter but the kind of guidance for the Q1, you would expect it to say stable at that range and if you keep going along at that way of rest year, I’m very confident that will stay in that range and that would allow us to be in full compliance and have the adequate cushion to keep paying the dividend. All that said, you know market conditions can change and the company will keep close eye on that.

John Chappell – J.P. Morgan

And just wanted to be clear that looks like 6 times goes into a fact on December 31, so we finally get that move up from 5.5% to 6%, would the fourth quarter 2010 EBITDA be included in that run rate or would it cut off at September 30th?

John Tavlarios

The first test of 6.0 to 6.5 would be in December 30 that’s – essentially Connecticut, if we get there, that will only be a scenario that we are not showing right now but we would get above 6.0. We’ve – that will be fine all the way through in September 30 quarter and the new task would be 31, 2010.

John Chappell – J.P. Morgan

Okay. And an two other quick follow ups, under dry-docking at 300 offhire days is there any way to put that around the asset classes, just because the rate forecast differs so widely, it could have an impact on the EBITDA fits like the Handymax versus the VLCCs?

John Tavlarios

John, we are – its three Aframaxes, two Suezmax and we had product carrier two product carriers, two of Genmars but those keep in mind those Genmars are under the fixed, a Green Management agreement that we have with Northern Marine with the Stellar agreement from….

John Chappell – J.P. Morgan

Right. So once you open the operating costs?

John Tavlarios

Correct.

Jeff Pribor

Yeah. We'll see if we can't get out in a public form soon in a little bit more details if possible.

John Chappell – J.P. Morgan

Okay. And then, the last thing from your commentary, earlier Jeff, on the TCE impact in the fourth quarter, can you just explain a little bit more what that impact was it alluded discharge as opposed to discharge to discharge in the Suezmaxes and also did that have any impact on any of other asset class TCEs?

Jeff Pribor

Happy to, all that job accounting. It's a bit hurricane, but where most of the – virtually all the industry always competitors, obviously, public, have been on discharge-to-discharge basis when they record that’s the revenue expenses. We made change not too long because we were advised that this is the direction that SEC was looking at going forward.

We change to accounting on low-to-discharge basis. It doesn't make any difference in long-haul because revenues, revenue expenses is expected to go over some period of time, it will all get recorded. It happened this quarter, when we had a number of Suezmaxes coming off time charter as discharging in December and then not loading again until after the period is over in January that those days and a low-to-discharge basis as opposed to discharge to discharge, those remaining days of December do not get counted in time charter firm calculation.

So therefore, while I can't give you an exact number because the accounts were different and I would – help state to give an exact number, it will be fair to say that that’s close to $2 million Aframaxes, Suezmaxes are between $5 and $10,000 a day, so those the TCE would have been much, much, much closer to a market rate. In the end, it all comes out to watch, but is little confusing because we look different than some of our competitors and therefore we’re viewing, will that make sense to stay on this phase or to change it, but it was a factor in our Q4 and we have, so I want to make sure we out there.

John Chappell – J.P. Morgan

Okay. And then, just one follow up on that explanation, since it is all kind of washes out in the end, is it –- would it be fair to say that there some makeup from that hit in the fourth quarter, that will benefit you in the first quarter?

Jeff Pribor

Maybe. But we don’t know until we know end of the first quarter, we may go into the second quarter.

John Chappell – J.P. Morgan

Okay.

Jeff Pribor

We have to comment on later but right now, I don’t know yet

John Chappell – J.P. Morgan

Okay. Thanks a lot Jeff and John.

Jeff Pribor

Thank you.

John Tavlarios

Thank you.

Operator

We'll take our next question from Rob MacKenzie with FBR Capital Market.

Rob MacKenzie – FBR Capital Market

Good morning, guys. I guess follow-up on the earlier questions to you John, how are you thinking about right now shifting your mix apart from fixed costs, one inch of your fixed cost and be opportunistic, what you’re leaning, are you leaning more bullish now in terms of going more spot or you still fairly cautious and preserving term?

John Tavlarios

Listen, we’re always more cautious and especially in volatile rate environment but when there is volatility sometimes that does create opportunity for sometime shorter coverage that comes available. So what we try to look at is blips upward in the market, where we try to sort to buy into it and what we do is that’s something that we’re willing do.

In a downward market, we keep our fixed costs in mind but again it’s all trying to be opportunistic going forward by keeping costs in mind. So the other thing is if you know that the last time we put a large number of charges on. Suezmax, we did three years and as we said a number of times as we’re looking at things now, we’re generally looking for shorter like one to two year targets because we clearly feel like while we are watching that coverage to be cautious as John said, we see a recovery and it’s not just in the future.

Rob MacKenzie – FBR Capital Market

Right. Right. Okay. Great. And I guess following up on that in terms of your own internal views, when do you guys think we return to a or – if you will, when do you think in the tanker market we soak up the excess capacity, we start seeing rates meaningfully rise with less volatility?

Jeff Pribor

Well, we gave – of course no one knows right, I mean, distant future because no one knows future by definition but we – it’s good to have a view, as John clearly expressed our view when we talked about the industry which we said the seasonal demand was just that seasonal in January, fell back off again, look at the inventories and there’s a chart in that slide to shows inventory working down.

So what we see is that – when those work down more, it’ll be likely that OPEC will be shipping more initially from less compliance but at some point from production rises as corner OPEC goes up, that looks like it’s clear to us, we’re beginning next year. The variable maybe U.S. demand. If U.S. demand comes back sooner, it comes back soon; it can have sooner flow to be a little late.

Rob MacKenzie – FBR Capital Market

How much do you emphasis or importance do you place on folks like China and India thirsting more their oil from areas apart from AG such as West Africa and ultimately Brazil, your returning balance in the market?

Peter Bell

Peter Bell. These are all good factors for us. This is longer hull Maritime miles, its longer hull demand, so it’s all positive for the tanker market aggregate.

Rob MacKenzie – FBR Capital Market

Thank you. I’ll turn it back.

Jeff Pribor

Thank you.

Operator

We’ll take our next question from Justin Yagerman with Deutsche Bank.

Justin Yagerman – Deutsche Bank

Hey, guys. How are you doing?

Jeff Pribor

All right. Good morning.

Justin Yagerman – Deutsche Bank

Jeff, you talked about – you mentioned that your first debt amortization here in 2011, when do that start in 2011 and how much is it on a quarterly basis?

Jeff Pribor

Well, the next thing that happens is that we have a step down from 750 to 700 in October of 2011. No – sorry, April 2011. So that’s been the first step down occurs and then of course the whole thing bullets in 2012.

Justin Yagerman – Deutsche Bank

Okay. And then we’ve seen this amended governance, I know you guys have talked about growth but what kind of provisions would you have to seek or are there any in terms of getting approvals to make a purchase and start deploying capital again.

Jeff Pribor

No. I don’t think there are requirement as to stay in compliance with their governance which the name on it that is as you discussed is net debt to EBITDA. So that we would have to issue or just to take compliance with that, the main way that I usually answer the question about how do we handle having the internal firepower’s of gunpowder for growth – drives that, I'm trying to stay. Is that those unsecured ships have result of having – unencumbered ships as a result having done on secured notes and provides an ability to – is essentially equity and it provides the ability to borrow against them to buy some vessels.

I think that it would be very sensible that we did small acquisitions that way, temporarily levering the company a little bit more, we would look to the equity markets to right size the balance sheet afterwards. The ships that we have consistently said, we did not want to and have not gone to the equity market before we stand – a reason to use the equity for growth. So I think you would see us be able to use internal resources or vessel acquisitions supplemented by outside capital market is necessary.

Justin Yagerman – Deutsche Bank

Okay. So the unencumbered vessels effectively act as bridge financing and then you can go to the equity market and try to re-buy that way.

Jeff Pribor

That’s exactly, right.

Justin Yagerman – Deutsche Bank

All right. And then I guess looking at that would you guys be more after them to be looking at buying vessels that already have charters attached to it if they are coming on with EBITDA and effectively I mean improving the outlook on that debt EBITDA coverage or you do not really have a preference and I guess a follow-up on that would be to some commentary generally if you were to buy unchartered vessel with the current time charter market feels like from a liquidity stand point in terms of people coming in and so two part question but if you are going to answer that differentially.

Jeff Pribor

Well, I mean – the answer is yes to look at everything and sometimes you get time charter attached but sometimes you end up paying for that because you are underpaying the higher price because you got a time for it. It actually it might be a better deal to buy something without a time charter attached working to allow and then attach something later on so that's part of kind of the art of the deal. I mean, there is one answer to you.

Justin Yagerman – Deutsche Bank

Right. And then just generally commentary around the time charter market currently, are you guys seeing interest from charter or is this may be people are looking out and seeing a potential breakup and longer hull demand in the back half of the year or is that not really something that’s been talked about in terms of locking up today’s rate right now.

Jeff Pribor

There is constantly charter out. We are constantly looking at opportunities but I mean, one of the things that just mentioned also is that the fact that we’ve had a solid time charter base and sort of give us the luxury to be able to sort of pick up opportunities and I think that s the way we are looking at the market. There are of requirements they come out there that just don’t need our interest levels so when we do see them we have fixed them and we try to keep that balance so should these market start to turn around and pick up end of 2010, 2011. We’ve got a nice balance to be able to take advantage of that opportunity.

Justin Yagerman – Deutsche Bank

Got it. Okay. And I guess lastly just when you think about the debt deal that you guys did in paying the 12% coupon that you are right now obviously that’s expensive paper how do you think about that strategically going forward. Does that become a top priority in a healthy credit markets to refinance or is that something that you guys are just going to sit and wait for a while?

Jeff Pribor

Well, it is something – look, we are happy with it because we said many, many times, it is cheaper than equity. What we could have done instead of that is – I refer to the TV commercial, we could have pushed the big, red Easy button and issued a bunch of equity last year. That would have been easy. But this way we preserve more upside for our current base of shareholders without diluting them. As far as taking care of it, well last time we ended up buying it back, when the market improved and we were cash flowing like crazy. That's a reasonable prospect for this time. We'll see how it goes.

Justin Yagerman – Deutsche Bank

All right, guys. Appreciate the time. Thank you very much.

John Tavlarios

Thank you.

Operator

(Operator instructions) We'll take our next question from Scott Burk with Oppenheimer.

Scott Burk – Oppenheimer

Good morning, guys.

John Tavlarios

Morning

Scott Burk – Oppenheimer

Just a couple of follow-up questions. I wanted to ask about offshore storage. We have seen contain go in oil prices narrow dramatically to 0 and negative in the past couple weeks. Just wondering what kind of impact you are seeing on offshore crude oil storage from that narrowing.

Peter Bell

Scott, it's Peter Bell, good morning. Obviously, that narrowing has caused a lot of the tonnage that was in offshore storage to be redelivered. We have figures here somewhere, but there has been a significant drop as much as half as what was in storage has come off now.

Scott Burk – Oppenheimer

Okay. And is there a similar dynamic going on in the product tanker storage as well or is that just in the crude storage?

Peter Bell

It has come down, but not as much. The numbers aren't as significant. There is still quite a lot of distillate in storage although there has been some – I think the number is somewhere between 15% and 20% of those ships have been redelivered to the market.

Jeff Pribor

Our slide 23 gives you a view on that. So it is, just as Peter said, crude storage is down a lot to a low of 30 to 35 million barrels a day at the end of January.

Scott Burk – Oppenheimer

This is at the end of January, I am seeing that. Okay.

Jeff Pribor

Tonnage down to about 60 to 65 million barrels is about a third drop from the peak.

Scott Burk – Oppenheimer

Yeah. Okay. And then one question on expenses, it looks like your OpEx and G&A guidance for 2010 are lower than the 2009 levels. What are some of the drivers for those savings?

Jeff Pribor

Let me repeat kind of what I said when I went over the guidance. In the case of DVOE – yes the 2010 budget is a little lower than the 2009 actual, but it is a little higher than 2009 budget, so what the company did was look at the factors they had in 2009, remove the one-off factors and come up with what they felt was a very credible forecast for this year. That's what we are giving you guidance on and it's pretty much same on G&A. We looked at last year's budget or actually a little lower than that, but we looked at the actuals, looked at what were simply very small one-off items and took them out and we are comfortable with this budget.

Scott Burk – Oppenheimer

Okay, all right. That's all I have. Thanks.

Jeff Pribor

Thank you.

Operator

And we'll go next to Justine Fisher with Goldman Sachs.

Justine Fisher – Goldman Sachs

Good morning.

Jeff Pribor

Good morning.

Justine Fisher – Goldman Sachs

I just have one question related to what Justin asked about time chartering vessels that you may purchase. Can you talk about the difference in the leverage the banks may be willing to give to acquire vessels that have time charters versus if they don't and what kind of loan-to-values are you guys seeing banks willing to finance? Let's say it is a reasonably new double hull tanker as opposed to a really old single hull. What kind of LTV's are you seeing from the bank?

Jeff Pribor

We're kind of, as we look at things hypothetically and as John said before, we have seen a number of things, but nothing that has really rung a bell yet or we would have done a deal. We are being conservative whether it is time charter or not we are looking at 50% advance ratio to see if a deal works on that basis. We don't feel we like we need to push the envelope beyond that. Would you be able to get more if there were a time charter attached, hypothetically? Sure. I think that you kind of go up from 50% if you can add some attraction to the bank like, hey, it comes with time charter coverage. But John said, or as we said, you may pay for that and that may not be what you want. But that's kind of still – we are working on that basis, Justine.

Justine Fisher – Goldman Sachs

Okay. And can you remind us what the – I guess, with the – just to try and get a sense of what the borrowing capacity would be against those unencumbered vessels. What was the most recent appraised value for the ships that you guys unencumbered with the refinancing?

Jeff Pribor

We don't publish that number, Justine. So I don't know if we can help you with that, but we have generally said that there is a couple hundred dollars, $1 million broadly speaking worth of unencumbered vessels as of year-end after we had attached a few vessels from that group to the main credit facility. So I have used that term a lot. But that's about as specific as I care to be.

Justine Fisher – Goldman Sachs

Now that was pro forma for the refinancing as of year-end?

Jeff Pribor

Yes.

Justine Fisher – Goldman Sachs

And then I apologize, I had to hop on the call late, and forgive me if you've already explained it we can do it off line, but can you explain why the Panamax Spot line was negative for the quarter?

Jeff Pribor

Yeah. I mean, I let in (inaudible) there really wasn't a charter. It was repositioning in between time charters. So the offtime charter had to be charged as if it were spot, but zero revenue leaves a negative TCE. That's just the way the math works. It was repositioning between time charters.

Justine Fisher – Goldman Sachs

Super. Thanks so much, I appreciate it.

Jeff Pribor

Welcome.

Operator

And with no further questions in the queue, I would like to turn the conference back over to the company for any additional or closing remarks.

John Tavlarios

General Maritime enters 2010 with $108 million in contracted cash flows, positioning the company to meet important objectives. First we are poised to continue to achieve a high level of stability and our results in diverse rate environments.

Second, we have once again retained the ability to benefit from improving tanker rates in the future. We are pleased to have maintained significant financial flexibility to take advantage of strategic growth opportunities. In accomplishing this critical long-term goal, we will not waiver from our successful approach of ensuring that acquisitions continue to meet strict return requirements. I would like to thank everyone for participating in today's call and we look forward to providing you an update in the future.

Operator

This concludes today's conference call. We thank you for your participation.

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Source: General Maritime Corporation Q4 2009 Earnings Call Transcript

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