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DryShips, Inc. (NASDAQ:DRYS)

Q1 2014 Results Earnings Conference Call

May 23, 2014 9:00 AM ET

Executives

George Economou - Chairman and CEO

Ziad Nakhleh - Chief Financial Officer

Analysts

Michael Webber - Wells Fargo Securities

Taylor Mulherin - Deutsche Bank

Oliver Corlett - R.W. Pressprich & Co.

Operator

Thank you for standing by, ladies and gentlemen. And welcome to the DryShips Conference Call on the First Quarter 2014 Financial Results. We have with us George Economou, Chairman and Chief Executive Officer; and Mr. Ziad Nakhleh, Chief Financial Officer of the company. At this time, all participants are in a listen mode only. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today on, Friday, the 23 May, 2014.

Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

Please take a moment to read the Safe Harbor statement on page two of the slide presentation. Risks and uncertainties are further described in the report filed by DryShips, Inc. with the U.S. Securities and Exchange Commission.

I’ll now pass the floor to Mr. Nakhleh. Please go ahead, sir.

Ziad Nakhleh

Thank you, Operator. Good morning, ladies and gentleman. I am starting on slide four. For the first quarter 2014, DryShips posted a U.S. GAAP net loss of $34.6 million, or $0.08 per share. Included in these results are one-time items associated with the tender and refinancing of Ocean Rig’s 9.5% senior unsecured notes due 2016, totaling $32.6 million. Excluding these one-time items our adjusted net loss is $15.2 million or $0.04 per share. Our results were mainly positively impacted by Ocean Rig.

For the first quarter of 2014, our Group reported revenues of $0.5 billion, adjusted EBITDA of $200 million and generated cash from operations of approximately $35 million.

For the remainder of this presentation, we will be primarily focusing on our shipping segment’s operations. For additional information on our drilling segment, please refer to Ocean Rig’s first quarter presentation available on www.ocean-rig.com.

Slide five, during the first quarter of 2014, our shipping operations posted higher EBITDA mainly due to the average TCE levels excluding our tanker fleet of approximately 25,000 per day. During the early part of the quarter Aframax and Suezmax charter rates experienced a dramatic uplifts which have somewhat subsided by the end of the quarter.

On the drybulk front, our average daily TCE levels were unchanged from previous quarters, mainly due to the time charter coverage on a majority of our Capesize fleet and the sport rates on our Panamax fleet, which remained more or less at historical lows.

During the fourth quarter we made principal repayments of $22 million under our long-term credit facility. Furthermore, we made no payments to Rongsheng Heavy Industries for our ships under construction, as these vessels are experiencing delays and we still expect to cancel the ship building contract at the appropriate time.

On to the company updates on slide seven. On May 2014, Ocean Rig declared a quarterly cash dividend with respect to the quarter ended March 31, 2014 of $0.19 per share. On April 8, 2014, Ocean Rig entered into two contracts to construct two seventh-generation new integrated design drillships at Samsung Heavy Industries for delivery in February 2017 and June 2017, respectively.

On April 8, 2014, Ocean Rig deferred the delivery of the Ocean Rig Santorini from late 2015 to mid 2016. In connection with the previously announced LOA, Ocean Rig was awarded from Total E&P Angola a six-year contract for drilling operations offshore Angola for the Ocean rig Skyros.

On March 26, 2014, Ocean Rig closed an offering of 7.25% senior notes due 2019 in the amount of $500 million in order to repurchase and redeem the old bonds due 2016. On March 24, 2014, Ocean Rig took delivery of the Ocean Rig Athena and drew under -- drew $450 million under our senior secured loan facility.

On March 18, 2014, DryShips concluded an MOA with unaffiliated third-party to acquire the second hand Capesize vessel ex. Conches which called Raiatea for purchase price of $53 million, which was delivered on April 24, 2014.

And at the end of the year 2013, we resumed sales under our previously announced ATM program and during the first quarter 2014, we had sold approximately 22.2 million common shares, which were sold at an average share price of $4.14 per share, resulting in net proceeds of $90 million.

On to slide eight, for the remaining part of 2014, we have a 36% fixed rate coverage at an average daily TCE rate of [25.005] (ph) per day. Our fixed coverage goes to 21% for 2015 and then to 15% for 2016, but both these years have locked in average daily TCE of between $30,000 and $34,000 per day.

In 2008 DryShips locked in all its drybulk fleet at above market rate in anticipation of an expected slowdown in trade and the shipping markets. This time our vessel positioning reflects our belief that the bull market is just around the corner. We believe that with our predominate spot exposure we are well-positioned to take advantage of the positive rate output in 2014 and 2015.

On slide nine, we highlight the earnings power of our shipping fleet. We have significant leverage in the drybulk and tanker spot markets and positive developments in these sectors will result in substantial cash flow to our bottom line.

We remained committed to our strategy which is to operate all our vessels both dry and wet on the spot market in order to take advantages of a sustainable recovery in these markets in 2014 and beyond.

During 2014 and 2015, we have 9,746 and 15,821 spot fleet capacity days, respectively. Our Panamax fleet represents approximately 60% of the spot days. What we are saying is a 20,000 per day increase in average daily charter rates will add another $195 million and $216 million of additional EBITDA for our shipping segment in 2014 and ’15, respectively.

On to slide 10, for banking update. On April 30, 2014, we reached agreement with Piraeus Bank which is the lender under both our $90.0 million and our $130 million Senior Secured Credit Facilities.

Under the terms of the agreement, Piraeus agreed to waive the VMC closes and to relax various financial covenants until the end of 2014. In addition, we have among other things agreed to provide the pledge over a portion of our Ocean Rig shares, which will automatically be released on December 31, 2014. We estimate that the number of shares subject to this pledge will be $3.8 million shares of Ocean Rig.

As of today, other than the above $3.8 million shares, no other shares of Ocean Rig have been pledged to any lender under our Secured Facilities. At the current time we are also in discussions with a certain lending syndicate to refinance an existing facility.

On to slide 11, a major financial covenant in shipping loans is the value maintenance clause also known as a minimum required value to loan ratio. The market standard today is anywhere between 125% and 140% or the value of the finance asset can not be lower than 125% of the outstanding loan at all points in time.

While, we had some challenges in the past maintaining the required ratio, our value to loan compliance situation has improved significantly. On the slide, we chart our shipping vessel values against Secured Shipping Loan Outstanding. The fair market value of our mortgage shipping fleet has increased 63% since December 2012, while our ship finance debt has amortized.

As a result, our fleet-wide value to loan ratio has jumped from 105% from the end of 2012 to 176% at the end of March 2014. These statistics are even more remarkable when considering that the March 2014 vessel values do not include two unencumbered vessels worth $76 million.

On to slide 12, this slide outlines the secured debt profile of the drybulk and tanker segments at the end of March 2014. On the drybulk side, we have 12 secured loan facilities totaling $625 million, which matures at different times between 2015 and 2025.

On the tanker side, we have four secured credit facilities, which mature between 2016 and 2019. The debt agreements on the tanker side allow us upon site instruction of certain conditions, including the IPO of the tanker segment to fully separate the credits between DryShips and the resulting tanker segment.

The mandatory debt amortization for our shipping segment excluding balloons at loan maturities is $72 million, $138 million and $68 million for ’14. ’15 and ’16. As we mentioned in previous slides, we are taking proactive measures to potentially refinance certain facilities ahead of maturity.

On to slide 13, our consolidated capital structure end of March is robust, evidenced by 53% net debt to capitalization ratio. This ratio was recently impacted negatively i.e. higher by a $425 million net drawdown on the $1.35 billion senior secured credit facility in February 2014.

On the other hand, we raised $84 million under our ATM program during January 2014, which mitigated the increase somewhat. On the right table, we highlight our share count, as there seems to be some confusion of what number people should use in the EPS calculation.

Our share capital today, which reflects the issuance of shares under ATM program in January 2014, is approximately 455 million shares. However, in this amount, there are two categories that are not usually included in the EPS calculation for various reasons.

First, the approximately 50 million shares have been lend under our borrow facility for our convertible bond and which must be returned back to the company by maturity end of ’14. Second, approximate 21 million shares are held by the company of treasury stock. This marks the end of the company update and let’s move into the industry overview.

On to slide 15 under drybulk industry section, during the first quarter of 2014, demand for seaborne transportation of commodities continued at satisfactory levels. This was supported by the significant year-over-year increase of the combined Brazilian and Australian exports of iron ore, which were 20% higher as compared to the first quarter of ‘13, as well as the increase of the combined Big 3 iron ore or imports’. We imported approximately 17% more or compared to the first quarter of ’13.

Furthermore, we know that despite less than optimal steel margins witnessed in the first quarter of ’14, the global steel production increased by about 4%, with China accounting for half of that reduction.

With the drybulk freight rates enjoying a healthy increase going into 2014, we have since experienced a stagnation in the market mostly due to seasonal factors such as weather disruptions, weaker Chinese steel demand due to construction slowing down due to winter months as well as the Drummond developments, coal exports from its Colombian and the delay of South American rain season.

In spite of that, freight rates increased by 169% and 48% in the Capesize and Panamax segments respectively, with Capes averaging, [16.3] (ph) thousand per day and Panamax approximately [10.5] (ph) thousand per day.

Moving forward, there are number of factors that need to be monitored in order to identify the direction of the fleet market, amongst which are overall chartering activities which we expect to increase going forward then is essentially understanding the overall markets sentiment.

Expected iron ore production to come on line within the next three years, which will increase transportation demand and put further pressure on iron ore prices affectively, displacing some of the expensive and lower quality domestic Chinese production. And finally, the development of the Transatlantic coal trade as well as the delayed South American grain season, which should positively affect the Panamax market.

On to slide 16, the graph on the left, industry as a development of the global seaborne drybulk trade versus the year-on-year growth of the drybulk fleet. From this graph, it is evident that the supply-demand balance in the drybulk market has been steadily normalizing. And for 2014, demand growth of approximately 7.4% is expected to exceed supply growth of approximately 5%.

The rate of new vessels hitting the waters has also slowed down, a trend we see is likely to persist and assuming the fourth -- full month 2014 run rate, newbuilding deliveries for this year should end up 8% lower than 2013, as shown in the middle graph.

Nevertheless, the order book has been expanding recently on the back of an improved market outlook, but we believe still remains at comfortable levels as we expect demand growth to pick up some of the excess supply.

Finally, we’d like to point out that there is still considerable scrapping potential as more than 8% of both Cape and Panamax fleets are over 20 years old and an additional 10% and 12% respectively are between 15 to 19 years old.

We will now switch to the industry section of the crude tanker markets on slide 17. During the fourth quarter of ’14 -- first quarter ’14, average spot rates for large tankers namely Suezmax and Aframax has recorded substantial gains, with rates increasing by 113% and 119% respectively year-over-year.

The rise in freight rates was primarily driven by the increased Chinese and U.S. demand would be [some fiscal 2014] (ph), in conjunction with the winter heating season requirements in the Northern Hemisphere. The global economic recovery is expected to continue and we believe it will be the main driver behind oil demand growth. The majority of the demand increase will most likely again stem from non-OECD countries as urbanization, income gains and overall higher energy needs should push energy consumption higher.

Furthermore, China’s effort to reduce such reliance on Arabian Oil has greatly assisted in development of new longer haul trade routes such as Atlantic-Asia, will support ton-mile growth and act as a catalyst on tightening the supply-demand balance.

In light of the above and taking into consideration, the very small existing order book, we believe that any type of increasing crude oil tanker demand should translate into increased fleet utilization which in turn resulted in overall more profitable freight environment.

On to slide 18. The graph on the left illustrates the development of the global crude tanker demand versus the year-on-year growth of the crude tanker fleet. For 2014, demand growth was approximately 2% will likely exceed supply growth since the combination of a bleak outlook and weak freight rates during the past year has kept the order book in check and the crude tanker fleet during 2014 is forecasted to increase by just 0.4% year-over-year.

As such, we believe freight rates for the year will end up high as compared to 2013 and the trends of demand growth exceeding supply growth is likely to continue during the 2015 to ‘16 period when we believe the market should record further gains. However, the given the improved market conditions and outlook, it would not surprise us to see the order book rising again. This however will not impact the market as the new orders start hitting the water.

We reiterate our view that fears over severe oversupply have been overstated and the depressed freight environment we experienced in the past several years was more result of stagnant demand rather than a pure oversupply issue. A situation we see normalizing as the global economy outlook improves.

This marks the end of the industry section. I will now turn the call over to Mr. Economou for closing remarks.

George Economou

Thank you Ziad. slide 20. In closing, I would like to clarify for everyone once again that Dryships is a pure shipping company with predominantly spot charter market exposure in 2014 and beyond and a majority stake in Ocean Rig which operates under deepwater drilling ships.

We continue to be proactively managing our liquidity. We expect to achieve our first Ocean Rig dividend of $15 million at the end of May. We are in discussions with a lending syndicate to proactively refinance the large facility which we hope will release more free cash. We believe we are still on course to cancel our delayed Chinese newbuildings.

Finally, our ATM program remains active to raise equity if we have to but we remain disciplined sellers. Our top priority in 2014 is to refinance our convertible bonds maturing end of the year.

We are examining all our financing options, including new convertible debt, trade debt, OR equity or a combination of these sources. At the end of the day, we want to execute it successfully by announcing, so we can eradicate the so called overhand once and for all.

As far as the broader drybulk and tanker markets are concerned, we are optimistic, expect a sustainable recovery in 2014 and beyond and believe Dryships is well positioned to take advantage of the ensuring recovery in charter rates both in the drybulk and the tanker sector.

This marks the end of the first quarter earnings presentation and we now open the floor for questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Michael Webber. Please ask your question.

Michael Webber - Wells Fargo Securities

Hey good morning guys. How are you?

George Economou

Hi. Thank you.

Ziad Nakhleh

Hi.

Michael Webber - Wells Fargo Securities

Just a couple of quick questions. First around the ATM, obviously there was a lot of moving parts here but you pulled back on making any additional payments to the shipyard. This has been going on for a while. You got the Ocean Rig dividend now and you’ve been pretty aggressive in terms of executing that ATM so far in the first quarter. Do you think it will be as aggressive as they move through the course of the year? Do you need to and is that -- is part of that related to the ongoing discussions to refi your debt and to get that right away so you could essentially spin the tanker curve?

George Economou

We are looking at options that will not necessitate for us to do more ATM shares. We will not know until maybe a month or maybe a couple of months from now. So this is the last resort. So we are -- as I said before, we are in process of refinancing in discussions or refinancing part of the fleet which will give us additional cash. And we’re also in talks in getting a loan to refinance the convert other than the convert holders themselves.

So we have a few options. We’ll deliver as we always have. So one should not be concerned and we’ll try not to give few shares if it’s not necessary to bridge that maybe short -- small short pull on the cash required to repay the debt on December 1st. But we are very positive.

Michael Webber - Wells Fargo Securities

Okay. No, I was just checking to see whether that was -- the execution of the ATM was someway tied to those negotiations and it doesn’t seem like it is?

George Economou

No, it is not, it is not.

Michael Webber - Wells Fargo Securities

That’s helpful. I know you guys touched on this a bit earlier with ORIG but the MLP spent timeframe seems like it’s obviously pushed back a bit. I can see there are some of the weakness we’re seeing in the EDW market and kind of the shortening contract tender associated with cash flow profile with that fleet. How realistic an option is an MLP spend for OR rig at this point and in terms of your long-term planning? As you think about two to three to four year future for Dryships, isn’t MLP spend a certainty at this point or close to it or are you guys out of the way for bid around that, especially considering the weakness in the market?

George Economou

Yes, we covered that in our previous calls. And it has been -- pushback, it’s only by maybe a couple of months. We had originally said we’ll do it in ‘14…

Michael Webber - Wells Fargo Securities

Yes.

George Economou

…which is on process. It takes about six months from the start to the finish and we have started as I mentioned before. So we think we should be able to do the MLP before the end of the year. Definitely we’re shooting for September maybe this is going to be delayed, it’s not up to us.

We are not pushing back. We are not going to pull it. We’re continuing. We know as we -- as I said we’ll be dropping partial interest probably one third of three rigs. We have good contract coverage on the ones that we’re going to be -- going for the MLP. So we don’t think that anything has changed in that respect. The improvement (indiscernible) when we come to the market and see what valuation for our rigs we will get, but we are hoping to get in excess of $1 billion to $1.5 billion.

Michael Webber - Wells Fargo Securities

Got you. Okay. That’s helpful. And forgive me if you mentioned this in your prepared remarks, they were pretty quick, and I might have missed it. But you mentioned spinning off Tanker Co. and kind of separating that entity. Can you maybe give the rough timeframe there? And then, maybe just a degree of, I guess, how you guys think about just justification for spinning that off? I mean, obviously there has historically been a preference for pure-play entities, but it’s tough, especially considering the ongoing pressure from the ATM to say that you’re not getting appropriate credit for that crude exposure. So maybe a timeline and then your thought process around rationale for actually spinning that off?

George Economou

On the Tankers, we don’t have a timeline. When the market conditions are good for us to get a good valuation, that’s the time to spin off, so there is no timeline to talk off per se for that.

Michael Webber - Wells Fargo Securities

Okay. All right. Well, I’ll stop there and turn there. I appreciate it. Thank you, guys.

George Economou

Thank you.

Operator

Our next question comes from the line of Taylor Mulherin. Please ask your question.

Taylor Mulherin - Deutsche Bank

Good afternoon, guys. I wanted to start off with, which is that agreement to amend some of those covenants on your senior secured facilities by pledging the shares. So just try to get a little bit more technical. I was curious sort of what the math is like to come up with the amount of shares that you need to play. And then with the VMC requirement, how do you come up with the value of the ships to use in that equation, just basically sort of what source or is it just the negotiation that you have with the lenders?

George Economou

The value of ships, the numerous brokers that probably sit on a deal basis, so we use one of them or bunch of them and we average it out, these are all within $0.5 million or $1 million is a difference and we used that. Now with regard to pledging shares, we pledged enough to cover the VMC clause as agreed in the initial loan recommendation. And if you go back to the history of DryShips, we had breached a lot of loan-to-value covenants in the past. We only breached one now which is the one that we have negotiated with the pledging of shares and directors gives ample of headroom valuation-wise to the tune of probably $800 million plus of ship values over our loans.

Taylor Mulherin - Deutsche Bank

Okay. That makes sense. And then I just wanted to quickly touch on that Tanker snap that Mike was talking about with you guys. So I understand there is no timeline and I guess what I just wanted to ask about was, is there any sort of hurdle that you might see with lenders that would prevent if the market did improve over the next, again I know there is no timeline, but 12 to 18 months? Is there something that you need to get through with lenders that would prevent if you saw an opportunity in the market you from going forward?

George Economou

Okay. That was the whole point of my prepared remarks. And the whole thing started and maybe slightly, because all things start by saying in my prepared remarks that we already carved this out. So the lenders have already approved the split of the credit, should we do, should we go down the IPO rules. So it’s all been pre-approved. And I think people have misunderstood and saying that we’re close to an IPO and we never said we are close to an IPO. What we said, if we have to do it, we are…

Ziad Nakhleh

We already got. We don’t need to go to bankrupt.

George Economou

Exactly.

Taylor Mulherin - Deutsche Bank

Okay, got it. Okay, that makes sense. And then my last one, just kind of more generally about the market. Just kind of curious obviously it’s been a lot weaker than people had probably expected and I know a lot of that seasonal. But as you continue to negotiate especially with the convert, are the negotiations sort of cognizant of the fact that the market right now is seasonal and people are remaining optimistic about the longer-term sort of prospects for the market? Or have you seen a bit of a change in tone from those negotiations?

George Economou

I think you know the people don’t think you’re talking about the convert. So we have talked to them numerous times, probably all of them. They share our view of the market. They feel comfortable with the company, if we don’t expect any issues, we don’t. So there is no worry, but their view on the market is the same thing that is lost. And I think this is a belief in the drybulk community they hold that the market will start picking up. I mean the produce’14, ’15 and part of ’15 if not the entirety, the demand is going to be exceedingly supply coming in the world. So that should by change. Right now we are at a point where the market is very little oversupply, I mean it takes 20 ships and 18 cargoes to put the market down. So are at a marginal oversupply which would soon change into the other way around.

Taylor Mulherin - Deutsche Bank

Thanks for your time.

George Economou

Thanks.

Operator

(Operator Instructions) Our next question comes from the line of [Keith Morris] (ph). Please ask your question.

Unidentified Analyst

Hi, good morning, gentlemen.

George Economou

We can’t hear you.

Unidentified Analyst

Hell, can you hear me now?

George Economou

Yes.

Unidentified Analyst

Yes. Good morning. I wanted to kind of switch tone here. We talked a lot about the debt side and liabilities. I know that you purchased a new Capesize, a secondhand Capesize ship is kind of one of the first traditional fleet acquisition you made in quite some time. Are you starting to be opportunistic in the drybulk sector and why kind of putting incremental capital towards the drybulk relative to the Tanker segment right now? Maybe you could speak on that and some of the opportunities you see in the market?

George Economou

Yes. If you ask -- if we were to invest based on day which we did then we believe strongly that the drybulk space represents a better prospect of high returns on every dollar spend in acquiring modern tonnage, especially when compared to the Capesize where we think the rates are going to right much more than the other sectors of the drybulk market or any potential uplift in rate in the Tankers. So if we start to scratch, that’s where we bet our money, Capesize better and that’s what we did.

Unidentified Analyst

Okay. And then, I was looking at just supply outlook for the Capesize and Panamax fleets since we had touched on. I mean there has been a lot of ordering activity in the past two years, are you anticipating some of the order book to maybe flip out to the later years to kind of keep the supply down balanced to kind of meet those rate forecast? Is that your outlook? Or how do you see, I guess, the net fleet growth over the next two years, specifically in the Panamax where you have a lot of ships coming off charter?

George Economou

I think the markets don’t react in anticipation of newbuilding order book increasing. So even if you were to say that in 2017 the order book will be 30%, the market only react in -- at any given time, point in time where there is ships in the water and because the ships in the water that are coming the admissions to the existing fleet are less than the anticipated demand overall in the drybulk sector. And I will not differentiate for the time being between Panamax and Cape. That’s where you see the market rising.

It’s not -- it doesn’t -- the market doesn’t react in anticipation, the newbuilding order will be high in 2017 with ships in the water. You have so many cargoes everyday. If you have 20 cargoes in drillships than market goes high and if the balance is 20 cargoes with 10 ships then goes sky high. That’s what will happen in the next two years.

If the supplier keeps newbuilding up that means that in 2017 and ‘18 the market will go down. But we are not talking about ’17, ‘18, we have to go through ’14, ’15 and ’16, before we reach a potential, again, oversupply situation with or without slippage in the year ‘17 and ’18.

Unidentified Analyst

Okay. That’s helpful. And I guess I’ll pass it on. Thanks for your time.

George Economou

Thank you.

Operator

Thank you. (Operator Instructions) Our final question comes from the line of Oliver Corlett. Please ask your question.

Oliver Corlett - R.W. Pressprich & Co.

Hi. Good morning. The Capesize that you bought or you are just talking about was that -- is that on a time charter right now or is that a spot ship?

George Economou

Okay. It’s on time charter, the Suezmax have $25,000 per day.

Oliver Corlett - R.W. Pressprich & Co.

And how long is the charter.

George Economou

The latest charter delivery is January ‘15.

Oliver Corlett - R.W. Pressprich & Co.

Okay. And you paid cash for the ship, I presume with any -- did you put on any debt or is that?

George Economou

No. There is no debt. It’s all cash paid.

Oliver Corlett - R.W. Pressprich & Co.

Okay. And when you mentioned that you thought Capesize was sort of the most attractive class to be looking at right now and as those rates are going to go up so high. I mean, what’s behind that exactly? Why Capesize rather than Panamax?

George Economou

Because the Capesize is in the hands of fewer people, there is not a lot of tonnage of this trading in the spot market. Usually when you have a very fragmented market that tends to react slower to any demand exceeding supply in the Capesize and we’ve seen in the past during the 2005 and ‘07 and ‘08 big times.

Normally you would say that the -- as the rate differential between the Cape and Panamax should be 2 to 1, so if the Cape market is 40, the Panamax will be 20, and that’s because the Capesize is more or less double the capacity of the -- current time capacity of Panamax. So you have that moving totally out of lag, so it goes 3 to 1, 4 to 1 then the split card goes into that enough Panamaxes and they bring the results.

But if you watch back in 2004 and ‘05 and ‘07 and ‘08 then that ratio was moving over and above 3 to 1. It was at times they are all going to 4 and 5, 5 to 1. And we think that will be continued to be repeat again. So if Panamax is very fragmented, Cape is not and the differential when the market is hot moves about 2 to 1.

Oliver Corlett - R.W. Pressprich & Co.

Interesting. Thank you. Now on the newbuilds, the Ice Class Panamax that you had, that you said you’re intending to cancel, when is the -- when can you actually cancel those newbuilds?

George Economou

I think, if I remember correctly, towards the end -- first one is towards the end of this year because you have the contract date and then usually you have six to seven months of permissible delay days, which is usually 210. So we’ll be able to cancel those -- starting to cancel those at the end of the year.

Oliver Corlett - R.W. Pressprich & Co.

Okay. And how much equity do you have in those?

George Economou

$14 million.

Oliver Corlett - R.W. Pressprich & Co.

Okay. And that presumably comes back.

George Economou

Yes.

Oliver Corlett - R.W. Pressprich & Co.

Okay.

George Economou

No, it comes back but normally you have -- there isn’t guaranty but anybody can delay the process if they -- if they easily operating about -- let’s say we hope not.

Oliver Corlett - R.W. Pressprich & Co.

Right. And as far as Dryships as a standalone, what’s the situation right now between cash -- unrestricted and restricted cash, can you say?

Ziad Nakhleh

Yeah. I mean, we going to file financials tonight after market close. And you can get a better view on the restricted and unrestricted files of both Dryships and Ocean Rig tonight, in the couple hours.

Oliver Corlett - R.W. Pressprich & Co.

Okay. Good. Thanks. So you’re looking at EBITDA on a standalone basis for the last quarter of about $25 million, which is roughly the level of interest expense. You’ve got $72 million of debt coming to you before the end of 2014 and you’ve just paid $53 million for a tanker. I’m kind of wondering how you handle? Looks like some cash deficit for this year and maybe with the big amortization in 2015 also. Are you counting on EBITDA going up or what’s the strategy there exactly?

Ziad Nakhleh

But mostly, we expect EBITDA to go up because obviously we expect -- just as remind to you, the Capesize rigs, they are $42,000 in Q4 of last year. We expect the market to be higher this year. So for the most part if not all, we expect increase in EBITDA coverage to be able to service our future interest and principle repayments.

George Economou

We had some Drybulk in base above normal in the first quarter, which took out some of our time. But all in all, the site is up, we expect EBITDA to increase with the rates as well.

Oliver Corlett - R.W. Pressprich & Co.

Right. And is there a plan B?

George Economou

Plan B, there is always a plan B and you know, it’s the ATM but we don’t want to give up that way.

Oliver Corlett - R.W. Pressprich & Co.

Okay. And although you would think that the stock price might not react well if the EBITDA doesn’t go up so maybe that’s debatable and you do have some …

George Economou

We have time to wait and see how the market reacts. I mean, we’re quite positive about it but that remains to be seen.

Oliver Corlett - R.W. Pressprich & Co.

Right. Okay. Well, thank you very much. That’s all I have.

George Economou

Thank you.

Ziad Nakhleh

Thank you.

Operator

Thank you (Operator Instructions)

George Economou

I think -- is there no more questions?

Operator

There are no more questions, sir. Please continue.

George Economou

Then let us well end the call. Thank you everybody for attending and we’ll talk to you again next quarter. Thank you.

Ziad Nakhleh

Thank you.

Operator

That does conclude today’s conference call. Thank you very much for participating. You may now all disconnect. Presenters please hold the line.

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