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Executives

Jeffrey Pribor - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Peter Bell - Manager and Commercial Director of General Maritime Management LLC

Peter Georgiopoulos - Founder, Chairman and Chief Executive Officer

John Tavlarios - President and Director

John Georgiopoulos - Executive Vice President, Secretary and Treasurer

Brian Kerr - IR

Analysts

Robert MacKenzie - FBR Capital Markets & Co.

Gregory Lewis - Crédit Suisse AG

Justin Yagerman - Deutsche Bank AG

Michael Schlembach

Justine Fisher - Goldman Sachs Group Inc.

Salvatore Vitale - Sterne Agee & Leach Inc.

General Maritime (GMR) Q1 2011 Earnings Call May 11, 2011 8:30 AM ET

Operator

Good morning, everyone, and welcome to General Maritime Corporation's Conference Call to discuss the company's 2011 first quarter results. Today's call is being recorded. [Operator Instructions] A replay of the call will be accessible anytime during the next 2 weeks by dialing (888) 203-1112 for U.S. callers and (719) 457-0820 for non-U.S. callers. To access the replay, please enter the code 9206809. At this time, I'd like to turn the conference call 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 first quarter results. I would like to remind everyone that this conference call is now being webcast on the company's website, www.generalmaritimecorp.com. There are additional materials related to our earnings announcement, including a slide presentation on our website.

You should be aware that in 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, 2010, and its subsequent reports on Form 10-Q and Form 8-K.

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

John Tavlarios

Good morning, and welcome to General Maritime's First Quarter Earnings Conference Call. With me today are Peter Georgiopoulos, Chairman; Jeff Pribor, Chief Financial Officer; and Peter Bell, Head of Commercial Operations. As outlined on Slide 3 of the presentation, I'll begin today's call by discussing the highlights of the first quarter and the year-to-date events, including the completion of an amended $550 million revolving credit facility and $200 million Oaktree investment. Jeff will then review our financial results and provide further details on the Oaktree investment and bank refinancing. Following this, I'll provide some remarks on our company outlook and an overview of the industry. We'll then be happy to take your questions.

I'll begin on Slide 4. Excluding the non-cash items mentioned, the company recorded a net loss of $26.5 million, or $0.31 basic and $0.31 diluted loss per share, for the 3 months ended March 31, 2011. On Slide 5, we provide an overview of the important steps we have taken during the first quarter and year-to-date to strengthen General Maritime's capital structure and balance sheet.

First, we completed the sale lease-back of 3 MR [medium range] products tankers, enabling the company to generate proceeds of $61.7 million, and we paid the $22.8 million bridge loan with a portion of these proceeds. Importantly, the transaction was structured in a manner to allow the company to retain commercial control of the vessels and the option to repurchase the vessels, positioning General Maritime to take advantage of potential future increases and asset values.

Second, as part of our fleet renewal strategy, we completed the sale of 4 vessels with an average age of approximately 19 years. In addition to improving the age profile of our fleet, we saved approximately $12 million in dry dock costs associated with these vessels and generated proceeds of approximately $33.6 million, which was used to repay debt.

Third, we completed a 26.5 million share offering, generating proceeds of $50 million. A portion of these proceeds and borrowings under our 2010 credit facility were used to fund the purchase of the seventh and final Metrostar vessel.

Finally, we drew upon our strong relationships with the capital markets and our banking syndicate to complete the previously announced refinancing initiatives. Specifically, we completed the syndication of an amended $550 million revolving credit facility and $200 million Oaktree investment. By completing these important and favorable transactions, management has provided shareholders and bondholders with a broad financing package designed to increase the company's liquidity and financial flexibility by reducing its near-term cash requirements.

Specifically, this process enables us to eliminate remaining scheduled amortization payments on the 2005 credit facility, reduce the company's senior bank debt by $188 million and amend and extend the company's existing 2005 revolving credit facility on favorable terms and ahead of the facility's $600 million maturity in October 2012.

Turning to Slide 6. I'll highlight key terms of the amended $500 million revolving credit facility and $200 million Oaktree investment. Based on a thorough valuation of General Maritime's capital structure, industry fundamentals and financing needs, our board determined that the $200 million Oaktree investment provides distinct benefits for the company.

First, the Oaktree financing enables the company to conserve cash for several years, since it doesn't amortize and accrues pay-in-kind interest through maturity at the company's option. Second, the Oaktree financing matures outside the company's current debt, including its senior notes. And third, the Oaktree financing enabled the company to pay down $115.8 million of debt on its 2005 revolving credit facility and $25 million on its 2010 credit facility. Additionally, we are pleased to have completion -- completed the syndication of an amended and extended $550 million revolving credit facility, which was led by Nordea Bank Finland plc, DnB NOR and HSH Nordbank AG.

Importantly, the amended facility provides for an extended maturity until 2016 and has favorable terms such as a cash flow sweep for the first 2 years and a modified covenant package with more flexible terms. We appreciate the support we continue to receive from both our banking group and the capital markets, which we believe underscores General Maritime's leadership in the industry and strong future prospects.

On Slide 7, we provide our current chartering highlights. In an effort to effectively manage the company's assets through tank recycles, we continue to make progress implementing the company's flexible deployment strategy. During the first quarter, we signed time charters for 6 additional vessels with an average duration of 2 years, including optional periods. Including these 6 time charters, 15 of our vessels are currently booked on fixed contracts, representing 44% of the current fleet, 43% of our expected 2011 operating days and over $100 million of contracted revenue for 2011. These values include optional periods associated with certain charters. I'd like to point out as well that Stena has exercised their options on the Concept and Contest. Their 12-month option period begins in July of this year.

Turning to Slide 8, we include a chart that details our time charter coverage. All 15 contracts continue to be backed by leading oil companies and traders such as BP, Trafigura, Shell, Stena and others. We believe that our success in continuing to attract world class charters is a direct result of General Maritime's broad and diversified service offering and our modern fleet that meet stringent operational standards.

Going forward, we intend to continue implementing our flexible fleet deployment strategy with a goal of operating 40% to 50% of our fleet on time charters. This strategy allows us to achieve important objectives, such as maintaining a level of stability in our results, covering a substantial portion of our costs and preserving the ability to take advantage of any future rate increases.

I'd now like to turn the call over to Jeff Pribor.

Jeffrey Pribor

Thank you, John, and good morning, everyone. Turning to Slide 10, I'd like to discuss the financial review. Excluding the $3.3 million non-cash loss relating to the disposal of vessels and vessel equipment, as well as the $1.8 million impairment of goodwill and $100,000 other income, the company recorded a net loss of $26.5 million, or $0.31 basic and $0.31 diluted loss per share, for the 3 months ended March 31, 2011.

The company recorded a net loss of $9.3 million, or $0.17 basic and diluted loss per share, for the prior year period, excluding similar items. This decrease in net income was primarily due to a decrease in our net voyage revenue compared to the prior year period, as well as increased direct vessel operating expenses and net interest expense related to the addition of the 7 vessels acquired from Metrostar.

Our net interest expense increased to $22.9 million during the quarter ended March 31 compared to a net interest expense of $18.9 million for the prior year period. The increase in net interest expense is primarily due to the repricing of our $750 million credit facility from L plus 100 to L plus 350 on December 12, 2010. The increase in net interest expense was also due to the debt from the new $372 million credit facility associated with the Metrostar acquisition.

Excluding the non-cash items mentioned above, as well as non-cash restricted stock compensation expense, EBITDA for the quarter ended March 31, 2011, was $20.8 million compared to a $34.1 million for the prior year period. I would now like to discuss our balance sheet as detailed on Slide 11.

As of March 31, 2011, our company had $62.8 million in cash. Our total debt outstanding, including the current portion, was $1.3 million. The increase in total debt since December 2009 is due to the additional debt associated with -- December 2010 is due to the additional debt associated with the delivery of the Metrostar vessels. To analyze revenue, we look at net voyage revenue per vessel per day, referred to as time charter equivalent, or TCE. TCE is calculated by dividing net voyage revenue by the number of voyage days for the applicable time period. You’ll find the total number of voyage days used in this computation in the appendix to our press release.

On Slide 12, we provide a first quarter 2011 TCE analysis. For the 3 months ended March 31, 2011, full fleet TCE decreased 19% to $19,833 per day from $24,321 in the prior year period.

Turning to Slide 13, we provide a first quarter expense analysis. To analyze expenses, we look to the daily cost per vessel. Per day vessel costs increased 6% from $8,696 to $9,244 per day. VLCC per day expenses were up 26% from $9,122 to $11,465 per day due to the addition of 5 VLCCs acquired for Metrostar, which require higher operating expenses than are existing VLCCs, which were on legacy fixed-rate contracts from the Arlington transaction.

Suezmax daily expenses were slightly up, and Aframax expenses decreased 3.4% due to the sale of older vessels which typically incur higher per day costs. Panamax and Handymax per day expenses were up 14% and 9%, respectively, from the prior year period due to the termination of fixed-fee contracts from the prior year period and those vessels incurring higher market rate management costs.

General and administrative expenses decreased by 10% from $9.7 million to $8.8 million. This decrease is primarily associated with reductions in personnel costs in the New York office, reflecting reduced bonus accruals. This was slightly offset by an increase in professional fees associated with the recently announced transactions.

I'd like now to take a moment and discuss further the terms of the Oaktree investment and the amended and restated revolving credit facility. On Slide 15, we detail the terms of the Oaktree secured notes. As John mentioned, on Monday, May 9, we announced that we have completed the investment with Oaktree Capital Management to make a $200 million payment-in-kind floating rate note -- loan. The proceeds of the investment went to repay debt under our 2005 and 2010 credit facilities. Interest on our notes pay in kind at a rate of 900 basis points with a LIBOR floor of 3%. There will be no amortization.

The maturity date is in 2018, which is outside of all of our current debt instruments. Additionally, Oaktree will have board observer rights and receive a warrant package for up to 19.9% of the outstanding shares, exercisable at a $0.01 per share at the time of closing. I'd also like to note that the company did not pay any arrangement or commitment fees to Oaktree for this investment.

On Slide 16, we outlined the terms of the new bank facility. Also, on Monday, May 9, we announced that we closed the amended and restated revolving credit facility for $550 million. As previously discussed, the facility has a cash flow sweep of excess cash above $100 million, taking into account our undrawn borrowing ability for the first 2 years and then reversed to a scheduled quarterly amortization for years 3 through 5. The loan-to-value on the new facility is approximately 62%. The covenant package includes minimum cash balance and collateral maintenance covenants, which are similar to existing facilities, but has a maximum leverage ratio for the life of the facility and interest coverage covenant that begins in 2013.

The company also successfully amended the 2010 covenant package to reflect the aforementioned covenants of the amended and restated revolving credit facility. Nordea Bank Finland plc, DnB NOR and HSH Nordbank AG acted as lead arrangers of this facility.

I'd like to walk through our projected debt profile as detailed on the next slide. The company has no debt maturing until 2015 and limited scheduled amortization payments for the next 4 years. The cash savings from the PIK interest are approximately $10 million per year. In addition to the interest rates listed, the company has 3 swaps with a notional amount of $250 million swapped at a weighted average rate of 3.316%.

Our outlook for the remaining 3 quarters of 2011 is detailed on Slide 19. We expect approximately $30 million of G&A expenses, including $5.9 million of non-cash restricted stock compensation expense, $83 million in direct vessel operating expenses and just over $5 million in bareboat charter expenses. We expect 3 vessels to undergo drydocking over the next 3 quarters, including totaling 146 offhire days. We expect $14.3 million of drydocking capital improvement costs associated with these drydocks, as well as regular improvements on our vessels.

That concludes my remarks. Now I'd like to turn the call back over to our President, John Tavlarios.

John Tavlarios

Thank you, Jeff. On Slide 20, we provide an industry summary. In the first quarter, despite the continued recovery in global oil demand, other factors including supply and reduced demand for VLCCs due to the Japanese tsunami, fill [ph] tanker rates to modest gains from Q4 2010 levels. Oil demand in 2010 grew approximately 2.8 million barrels per day or 3.3%. Oil demand growth is forecasted to moderate in 2011, increasing 1.2 million barrels or 1.3%. The majority of this incremental oil demand will be sourced by OPEC, increasing the call on OPEC crude by 0.9 million barrels per day in 2011. OECD inventory levels were flat in the first quarter of 2011 from the fourth quarter of 2010, with forward cover averaging 61.42 days in the first quarter.

Looking ahead, inventories are forecast to resume working off from peak levels in the third quarter. Summer effects and increasing fundamental demand continue to reduce OECD days of forward cover to within range of historical averages by year-end 2011.

Such OECD statistics, of course, do not reflect data from developing markets, most notably, China, which continues to show oil demand growth above forecast. China's annual oil demand growth in 2010 was 12.2%, accounted for 1/3 of global demand growth. The demand growth had approximately 9.6% forecasted for 2011.

While gross tanker fleet capacity continues to increase as new tonnage is delivered, fleet rationalization measures continue to offset net fleet growth. 2010's 650 new vessels totaling 41.7 million deadweight tons were delivered. On the vessel removal side, 2010 saw increasing tankers scrappings and conversions with 22.72 million deadweight tons of removals, offsetting over half of tanker additions and resulting in year-end net fleet growth of 4.3%.

Looking forward, we expect current high scrap steel prices and depressed earning levels to continue to support scrap incentives and accelerate removals of the remaining single hull and first-generation double hulled tankers. These factors result in more moderate 2011 fleet growth in the range of 3.6%.

As a summary, following weakness in 2010, rates recovered through the late stages of the year, leading to a modestly better rate environment in the first quarter of 2011. Looking forward to the remainder of 2011, while rates have declined thus far in the seasonally weak second quarter, we expect rates to continue to slowly regain strength in current levels as increasing oil demand increases tanker demand and gradually works down OECD oil inventories. Additionally, we think it's likely that we will see the eventual reversal of OPEC quota cutbacks in late 2011 as inventory days of forward cover fall to the 56-day range. As a result, we believe conditions, as we move through 2011, may be better than those in the second half of 2010, and that a more pronounced recovery in late 2011 is a credible scenario.

Most importantly, to our shareholders, whatever the slope of the curve, General Maritime remains well positioned with approximately 43% coverage for 2011. This enables us to maintain a strong balance sheet while also leaving substantial opportunity to profit from rising rates.

Before opening the call for questions, I'd like to highlight the important financial and operational strategic initiatives we implemented in the first quarter and year-to-date, represent important steps in bolstering General Maritime's future prospects.

First, as we outlined on today's call, we made progress in strengthening our balance sheet and capital structure and, in doing so, increased the company's liquidity and financial flexibility while reducing our near-term cash requirements. Second, with the recent completion of the 7-vessel Metrostar acquisition, we increased our long-term earnings potential while broadening and diversifying our service offering for customers. Third, with the completion of the Metrostar acquisition and our fleet modernization efforts, we have reduced the weighted average age of our fleet by approximately 2 years while growing overall tonnage capacity by 37%. Finally, by continuing to implement our flexible deployment strategy, we have positioned the company to both effectively manage the company's assets through the tanker cycles and capitalize on future rate increases.

I would now like to open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go to Justin Yagerman of Deutsche Bank.

Justin Yagerman - Deutsche Bank AG

I wanted to ask a quick question on mechanics here. How are you guys thinking about where fleet cash breakeven is right now, given the PIK and the refinancing? I wanted to get a sense of, on open days, what you're looking for in the spot market to generate cash flow?

Jeffrey Pribor

We haven't given that number precisely, but we feel comfortable that it's in the low- to mid-20s, Justin.

Justin Yagerman - Deutsche Bank AG

Okay, and then I guess, with markets rates, where they are -- I know you guys have always kind of answered this by saying, "We'll be opportunistic," so I'm assuming that's what you're going to say. But from a chartering strategy standpoint, 40% coverage moving forward, how are you thinking about locking up ships here? Or for now, is there liquidity in the time charter market? And are you just going to be playing spot until things start moving a little bit more?

Peter Georgiopoulos

I think we'll be playing spot ‘til things move a little more. I don't think there's much liquidity right now in the time charter market. Or there is, but at numbers we're not interested in.

Justin Yagerman - Deutsche Bank AG

All right, fair enough. Jeff, can you talk -- you said you had a lot of room under covenants. Can you talk about where you guys are and where your guys' covenants are now post the restructuring?

Jeffrey Pribor

Well, the credit is filed with the Q. So what you'll see there is that, as I said in my remarks, we have the same minimum liquidity and obviously -- which is 50, and obviously we said we've got a good cushion on that $63 million at the end of the quarter. And we gave you the 62% loan-to-value is where we are on the collateral maintenance. And in fact, the other loan is probably better than that, because we paid down that loan, $25 million with some Oaktree proceeds. So a lot of cushion on that. And there is no net debt to EBITDA now. So no cushion required there because there's no net debt to EBITDA debt at all. And then the debt that is -- we do have that’s new is sort of a net debt to total cap debt, and that requirement is 85% or less. And we are in the sort of mid-70s in that. So we have a nice cushion there as well. And the EBITDA interest debt does not kick in until 3 years. At the end of 3 years, it looks back one year. So it's quite a ways out there. So we are starting out with some really good breathing room on covenants.

Justin Yagerman - Deutsche Bank AG

That's great. And maybe, Jeff or Peter, you guys could go into a little detail, you guys just went through this restructuring. I'm sure you're glad to have it behind you. I'd be curious to get your take on the mood out there from the banks and from general participants. I mean, you guys got this done, but there's probably deeper relationships that you guys have than a lot of other companies would, and you have a good relationship with Oaktree over the years. So I mean, can you talk a little bit about the experience and how you see it playing out for maybe other guys who find themselves in similar situations this year?

Jeffrey Pribor

I'll start. I don't know what to say about other guys, but we'll say the same thing that I think we've said before. This experience validated the -- or really gratified with support we got from our bank group. 17 banks in the group, and they all participated and amended and extended the facility. That's really terrific, and we're really pleased. We've had relationships with this group since 2005, and they all recognized it was important, and they all participated. So it really is something that Peter, John and I and the rest of the company are really pleased about. I can only imagine, it's not necessary easy for everybody, but I don't know that we want to speculate with how it’ll go for other companies.

Peter Georgiopoulos

And I don't anyone would get a deal -- and I mean, I know this is not going to sound -- it's going to sound sort of a little egotistical from us, but I don't think there's anyone else out there that could get a deal done with someone like Oaktree the way we did. And I think that just comes from, I don't know, 13 years of doing the right thing with them and making money with them. So I don't think you'll see another deal like that. And again, I think that, that's turned out to be great for the company.

John Georgiopoulos

We hear people, Justin, say this structure may be emulated. But that's just what we hear. We don't know. We know it works for us for all the reasons we discussed in our last conference call and this one, so we're pleased about it. But we'll see if it's model for others. That’s up to them.

Operator

We'll go next to Rob MacKenzie of FBR.

Robert MacKenzie - FBR Capital Markets & Co.

John, I got a little bit of a bigger picture question for you to start. With Libya being off-line and continued economic growth around the world, can you paint a scenario where we could see shortage of oil supplies leading to contango once again in the not-too-distant future?

John Georgiopoulos

We would have thought so. I mean, that's -- when you see all the turmoil in the Middle East, to be honest with you, we would have thought that, that could be a situation. It hasn't happened yet. I don't if Peter or John or anyone else wants to hop in there.

Peter Bell

Peter Bell. I mean, fundamentally, there's plenty of oil around right now. And we were surprised, quite frankly, that we didn’t see a change in trading patterns with Libya off-line. We haven't seen it yet, maybe it's still to come. But at this point, we would say that the effect of Libya has been very little on the tanker market.

John Georgiopoulos

Right.

Robert MacKenzie - FBR Capital Markets & Co.

Okay, when -- just going around the world, in Japan, obviously, that was positive for products just recently here, probably a little negative for crude. When do you see that kind of flipping back?

Jeffrey Pribor

This is Jeff. Let me jump in here. It was more than a little bit negative for crude. The estimates we had, it took 17 VLCCs out of the market. [indiscernible] otherwise, it would've happened in the month of March alone. Now that start -- those refineries, the 2 million barrels that came off-line initially, maybe it all won’t fall all the way back now. But it was definitely a negative for crude. So that, I think, is returning to -- Peter could jump in, but it is returning to normal, but it isn't turning a positive to us yet until later ife see oil and other fuels replacing nuclear. Right now, it's just a negative, gradually going away.

Peter Bell

And don't forget too, those 17 ships essentially came back into the market right around the time that Libya went off-line. So it may have had a negating effect on those Libyan barrels being not there.

Robert MacKenzie - FBR Capital Markets & Co.

Got it, okay. In your industry outlook, John, you talk about the spot market ton-mile demand increasing. What are you calling the deadweight tonnage in the spot market?

John Tavlarios

What did you say [indiscernible]? What do you mean, Rob?

Robert MacKenzie - FBR Capital Markets & Co.

Well, you said in your slide, you said tanker spot market ton-mile demand increased x percent last year and x percent year-to-date this year, the implication being you're excluding ships that are chartered, correct?

Jeffrey Pribor

Well, yes. This is Jeff. What we tried to analyze in that slide is this -- what I find really interesting is -- it just sounds fundamental, but it's easy to lose sight of. It's not about oil demand. It's about transportation. And the factors of that are inventories, right? You have to draw that inventory, that's why we always focused on that, and oil demand doesn't necessarily translate. And then, of course, it's about ton-miles. So one of the things we try to do, and it's not an exact science, we do our best, is just to look and see what's happening on the ton-mile side and sort of focus on spot because a lot of the time charter stuff is kind of static. It doesn't change as much. So just as an indicator of what's going to affect the spot market or could affect the spot market, we try our best to get an estimate of what the spot market ton-miles are. So that's what you see on our slide.

Robert MacKenzie - FBR Capital Markets & Co.

Right, and my question was, how much deadweight tonnage are you saying is locked up versus on spot?

Jeffrey Pribor

Yes, I don't have that exact number with me right now. So sorry, Rob.

Peter Bell

And you have to also consider that a lot of tonnage is tied up under contracts of affreightment as well. And so you don't necessarily see those on the spot market.

Peter Georgiopoulos

And a lot of times, the time charter tonnage gets put back into the spot market.

Peter Bell

Exactly. So it's a very, very dynamic situation. It would be a very difficult number to actually come up with. With anything, it wouldn't have any accuracy at all.

Robert MacKenzie - FBR Capital Markets & Co.

Okay, because I'm just trying to figure out -- because this is really a marginal business. And if on the margin, it's going to be stronger than people think because of one reason or another, that could be an interesting conclusion. Okay, all right.

Peter Bell

We agree. Thanks.

Operator

We'll go to Gregory Lewis of Crédit Suisse.

Gregory Lewis - Crédit Suisse AG

Jeff, could you just touch on, you talked about the 17 VLCCs being out of the market from Japan in March. Now how does that balance with the spike up in VLCC loadings out of the AG in March and April? I mean, I kind of thought that those were pretty high numbers. Are you saying that it could have even been much higher?

Jeffrey Pribor

Yes, I guess. I guess there was a couple of spikes that happened in the first quarter. You had the February 1 that was driven by the Chinese refiners. It picked up a lot. And then overall, I don't know why I called it a spike. It sort of -- what happened in March is just it became the biggest picture month out of the AG, but not really on a spiky basis like that one week in February that I just referred to. It's more just demand is coming back, and the only reason, which we all know, the only reason that's not translating into rates yet is because there's a tremendous amount of supply to be absorbed. So I think what's happening is that demand is there. It would have been even higher, yes, I would assert, but for the Japan tragedy. But supply is ample, obviously, and it absorbs it all. So you don't really see the benefit of it. If we hadn't over -- if the owners hadn't over-ordered in a -- it certainly wasn't us. If owners hadn't over-ordered in 2008 when they misread the market to mean, hey, good times are coming or staying, we would be in a massive tanker recovery right now. But it's delayed because of that supply. So it actually is a fairly -- in my mind, it kind of goes to the last question, too. We're actually fairly tightly balanced in a way compared to -- it's a bad market, but we're not very far off of where it gets good because it's just about the supply. So when we work through the supply -- and the order book is working down every month. And so when we get through this year and we work down that order book, that steadily increasing tide of demand that you saw, for example, in March, is going to lead to a lot higher rates.

Gregory Lewis - Crédit Suisse AG

Okay, great, and then just one quick follow-up. You mentioned that your breakeven rates are in the low mid 20s, and I was actually looking at some sensitivity analyses on sort of what cash flows could look like and sort of -- I mean, it clearly -- if rates move -- if V [ph] rates move more towards like historical average levels, the cash flow really picks up. And just to that regard -- I mean, you mentioned that there's $100 million -- roughly $100 million cash flow sweep. Should we think about -- in a strong tanker market, will we expect anything over that sort of $100 million threshold to continue to go to the banks? Or is that something where that money could be used either to sort of retire the Oaktree facility as well?

John Tavlarios

Well, let me just explain the mechanics. I think it will answer your question. The way the cash flow sweep is, in return for not having any fixed amortization, which is a tremendous benefit for us, we agree that we will sweep away any cash above that obligation. It will go to the amended and restated facility. So during years 1 and 2.

Gregory Lewis - Crédit Suisse AG

And there is no limit on that?

John Tavlarios

No, it's just -- it will sweep it to -- you're right. Let’s say -- and this is a real high quality scenario to think about, but let's say the recovery comes in year 2 of our -- I mean, a mid-cycle recovery comes in year 2, and we all know this is not a forecast. We all know, just mathematically, this fleet generates well over $300 million EBITDA in a mid-cycle rate environment, and most people aren’t saying that would happen in year 2. But if it did, Greg, you'd have a lot of cash flow over that $100 million, and it would pay down the debt. But then, by the way, let's be practical. In that scenario, a really high-quality scenario to think about, you could easily look at refinancing. This is meant to be the runway or the bridge or whatever you want through the bad market. And this is meant to give us the flexibility that if it takes longer than that, we've got much lower cash requirements and amortization and from interest all the way through well into '12 and 2013 to survive the [indiscernible]market. If it gets good like you hypothesized that it theoretically could, I think you're probably looking at refinancing at lower rates.

Operator

We'll go next to Sal Vitale of Sterne Agee.

Salvatore Vitale - Sterne Agee & Leach Inc.

Just a quick question on the cash balance side, just to make sure that I'm looking at the right pro forma cash number here. If your quarter in cash was $63 million, and I think you paid the cash portion of the spart [ph] was about $30 million, is that right?

Jeffrey Pribor

No. The $23 million was the cash used for that CapEx.

Salvatore Vitale - Sterne Agee & Leach Inc.

$23 million. Okay, and then I guess to that, I would add the $60 million left over from the $200 million. Is that right? So the $200 million, $115 million of the $200 million Oaktree capital went to pay the 2005 facility? And then $25 million went to the 2010 facility, which that would leave $60 million from that for working capital purposes?

Jeffrey Pribor

You know what, Sal, this is all stuff that we could talk about at the -- say, off-line, because it's all public, but it's going to be just really difficult to do kind of in the context of talking around a conference table. So delighted to work through it with you and anyone else that has questions on that.

Salvatore Vitale - Sterne Agee & Leach Inc.

Okay, not a problem, Jeff, that's fair enough. And then if I could just -- just to follow up on the comment you made earlier regarding the 17 VLCCs? Just to clarify, is that -- what you're saying is that 17 VLCC loadings that would otherwise have occurred, absent the Japanese refinery shutdown, that did not occur is that -- in the month of March?

Jeffrey Pribor

Yes, Sal. I mean -- although it’s always like us to cite sources, one of the research groups out there is PIRA, and that's their estimate of the delta. How much -- 17 fewer sailings than there otherwise would be, and I think their information is as good as anybody's. So we think it's a good illustration of the effect. It might not be precise. It may be just be their best estimate. But you get the idea.

Salvatore Vitale - Sterne Agee & Leach Inc.

Okay, and then just a last question on the Libyan export front. I guess, to what extent do you believe that the lack of substitution of Libyan exports in the month of March, and I guess into April, was blunted by refinery maintenance in Europe and the United States, as well as drawdowns in European stocks?

Jeffrey Pribor

Yes, I mean, you're saying what -- trying to get a handle on why -- even though we lost that Libyan supply, why it didn't do too much to the market, as Peter Bell was saying before?

Salvatore Vitale - Sterne Agee & Leach Inc.

That's right. That's right.

Peter Bell

I linked up from different sources.

Jeffrey Pribor

The only thing is -- by the way, you probably noticed, I know you look at all the granular stuff, Sal. If you look at the movements of oil -- actually, beside the normal seasonal refinery maintenance in the U.S., you had a lot of that going in Asia too. The eastbound sailings were -- which have been driving the market for the last year, the recovery actually lower in the last couple of months, which many people believe is a combination of normal maintenance and then maybe some additional maintenance based on their pricing. And if you're a refinery out there, you'd rather not refine more at the crack spreads however you want. So you can go to more maintenance then and wait. So stuff like that has happened, and I think what we expect to see now is gradually resumption of more eastbound sailings, which has, of course, been the biggest factor in the market for a while. So I think -- so the answer to your question is not so much the European and U.S. It's also a little bit that -- a little surprisingly to some, we had a little less eastbound sailings than we had than otherwise I would've seen.

Peter Bell

And don't forget too, the AG liftings were up over that period of time, which would have taken up some of that slack as well.

Operator

[Operator Instructions] We'll go next to Justine Fisher of Goldman Sachs.

Justine Fisher - Goldman Sachs Group Inc.

Just a quick clarification on the previous question about what you do with debt in a higher cash flow environment. Jeff, when you mentioned that in that sort of environment you would refinance, did you mean refinance the bank debt? Or did you mean refinance some of the Oaktree loan? And then is the Oaktree loan callable at par? Anything, I mean, can you take that out early or is that just around?

Jeffrey Pribor

Well, Justine, look. We don't have immediate plans for doing that because we're in an environment where what we’re focused on is the fact that we kind of -- we think we've buttoned things up and put the company in a position where we can just stay steady and enjoy the fact that we have almost 40% fleet growth and not have to worry about looming amortizations and all that. So the primary focus is just on keeping the financing where it is because it's very favorable from a cash flow point of view. Now yes, but just to play what if, because it's almost a nice what if, when things turn up, we do some flexibility. The Oaktree can't be paid back immediately. It's got a period of time. I think it's 2 years when you can only repay it at a premium to par. But then once you get to 2 years, it's repayable at par at any time. So there's a mechanism that's built in there to kind of discourage you from immediately repaying it. But once you get to 2 years, it's absolutely repayable at par. Does that help?

Justine Fisher - Goldman Sachs Group Inc.

Yes, that does. That does. And then another question is just on the time charter market. Peter, you had mentioned that you guys are not seeing a lot of liquidity in the time charter market. And from this perspective, it seems that a lot of the bank financing that we've seen get done for vessels is because companies come to the banks with a time charter attached to a vessel so the banks seem more willing to lend against that vessel. And so I'm wondering, I know you guys haven't necessarily been in the market to go and get new bank financing now, but even when you've heard from people in the industry, are you seeing the lack of time charter liquidity translate into any change from the bank's perspective as to how willing they are to lend against time charters? And then as a secondary question to that, it seems as though current vessel values are not necessarily even justified by time charter rates. Are banks willing to lend against lower time charters just because they like to have some cash flow locked in, and then eventually, they just hope rates will go up?

John Tavlarios

Justine, this is John Tavlarios. First of all, in our case, our banks didn't require us to have time charters attached. I mean, we just, as we said prudently, had our 45% of our fleet covered on time charter coverage and continue again to look at opportunities. We don't find liquidity there because what opportunities do exist from oil majors that are out there looking to charter vessels, low rate environment are for extended periods of time that we just don't, at this time, think makes any sense. So what we've decided to do is really continue to play the spot market and opportunistically pick off time charters as it starts to rebound a bit. To lock in vessels for 3, 4, 5 years, which is what some of the oil majors are looking for, at low rates, I think, is going to give away quite a bit of the upside. So that's the strategy we've chosen.

Peter Bell

Let me just add one thing there too. The amount of liquidity in the time charter market right now, and what's being offered by charterers, are approaching rate levels that are in line with our spot earnings. So there'd be no reason at this point to step out even for a shorter period of time and match spot earnings because you just eliminate the potential for upside.

Justine Fisher - Goldman Sachs Group Inc.

But if some owners actually do just hit the bid on some of those time charters in order to -- because their banks have required it from them, I mean, does that lead vessel values to take a leg down? I mean, do you guys see negative consequences from that? Or are there just not enough owners hitting that low bid because most people have your perspective and say, "Well, what's the point?"

Jeffrey Pribor

Yes, I mean, let me just jump in, and the other guys can comment too, but it's Jeff. I think, what you're suggesting is, and as John said, we will have a focus on -- because it's not the future of our relationship with our banks, but you're saying out there, you're seeing banks say, "Well, if you want me to lend, you got to do certain things like create liquidity." To that, we're saying, "We're not going to do that, we're going to drive the price down to create liquidity." You can make a market anytime, that's what John and Peter were saying. And so our people are doing that. Well, then, yes. I think also, the S&P market is smart enough not to say that's a signal that has anything to do with values. That's got everything to do with their bank financing. So what you have seen, and it's there and in the new building market as well, is a remarkable resiliency or firmness in asset prices. So I think that if everyone knows we're at the low point of the market. No one knows exactly when that turns around, but they all know that a turnaround from these rates is coming. And as a result, you don't see that values have been declining from where they've been in the last few months. So I think you're right. It's a bank-driven thing, it's not a fundamental.

Operator

We'll take our final question from Michael Schlembach of JPMorgan.

Michael Schlembach

I appreciate the outlook here on sort of the industry outlook and some of the commentary on demand. And I wanted to see if you guys could provide us with a little color on your view on supply and whether you're seeing some of the new builds on the forward calendar slip a little bit -- or what the rest of the industry is doing from a supply perspective and what your view is there?

Jeffrey Pribor

I study the stats all the time, read everything I can, and I find there's a remarkable divergence of views on slippage and scrappage. Some people say there's going to be 5%, 10% of this, say 20% of these. It's all accepted. You can say, as John mentioned -- certainly, as John mentioned in his comments, that even though there's a big top line number last year, we came down to less than 5% net fleet growth. So again, the situation this year is a big top line number. But so far this year, we're kind of matching last year where the net growth is just about half of that number. Now still, a lot of strike [ph], gets you down to like more like 5% or between 4% or 5%, which is what our sort of analysis suggests. But no one can be certain about those numbers, Mike.

Michael Schlembach

You guys don't have a number you're sort of circling around or anything like that? I also see that wide range, and that's why I was...

Jeffrey Pribor

Well, we said in our comments, I think, that our best guess, distilling all that's out there, is just sort of between 4% and 5% net increase. And so that's kind of what we're focused on. And of course, next year, the top line number gets smaller, then 2013, it's a lot smaller. But the real good news for the market longer-term is that no one's ordering right now. So the order book is steadily working down.

Michael Schlembach

And then, if I may, another one on -- with the completion of the restructuring here, some -- what's your dialogue been with the rating agencies? And is the next focus to sort of target as you improve the business to improve the dialogue with them and as part of your sort of strategic goals here?

Jeffrey Pribor

Mike, everybody on the phone call knows you're a credit guy. Yes, of course we're in dialogue with the rating agencies. I would say those conversations are confidential. But as you would expect, we have been working with them in dialogues all along the way. They're very aware of our whole process. Because we can have confidential conversations with them, we've kept them in the dialogue for the last 6 months. So I would think that they are -- be pleased to see that we completed this deal, and I'd just leave it at that. I think they'll be pleased to see that we've completed this deal, and we'll leave the rest of their analysis and their actions up to them.

Operator

And that does conclude today's conference call. We thank you for your participation.

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