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Executives

Ian Webber - Chief Executive Officer

Susan Cook - Chief Financial Officer

Analysts

Mark Suarez – Euro Pacific Capital

Chris Snyder - Sidoti & Company

Zach Pancratz – DRZ

Michael Demaray – Elevated Capital

Nathan Laffoon – Harper Capital

Global Ship Lease, Inc. (GSL) Q2 2012 Earnings Conference Call August 13, 2012 10:30 AM ET

Operator

Good afternoon ladies and gentlemen. Thank you for standing by and welcome to the Global Ship Lease Q2 Earnings Conference Call. Joining us on the call today are Ian Webber, Chief Executive Officer and Susan Cook, Chief Financial Officer of the company. I must advise that the conference is being recorded today, Monday 13, August 2012 and after the presentation, there will be a question and answer session and instructions given at that time. I would now like to hand the conference over to your speaker today, Ian Webber, please go ahead sir.

Ian Webber

Thank you. Good morning everybody and thank you for joining us today. I hope you had a chance to look at the earnings release that we issued earlier today and have been able to access via our website the slides that accompany this call. As normal, slides 1 and 2 reminds you about the call may include forward looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the Company’s control. Actual results may differ materially from these forward looking statements due to many factors including those described in the safe harbor section of the slide presentation. We also draw your attention to the risk factors section of our annual report on Form 20-F, which we filed in April this year. You can access this via our website or via the SECs. All of our statements are qualified by these and other disclosures in our reports filed with the SEC.

We do not undertake any duty to update forward looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP you should refer to the earnings release that we issued this morning. And this is also available on our website at www.globalshiplease.com.

I would like to start by reviewing the second quarter highlights and then discuss our charter portfolio, including the two vessels that we’ve recently signed to new charters. After some comments on the industry overall, I’ll turn the call over to Susan for comments on our financials. But finally, after brief concluding remarks we’ll open the call out for questions.

Slide 3, shows the company’s second quarter highlights. During the quarter, our entire fleet of 17 vessels which continued to be secured on the fixed rate charters mostly long term operated as planned enabling the company to once again achieve sizeable stable cash flows and the high utilization in what has been a challenging economic environment. With only one dry-docking in the quarter, our utilization was 98.6%. We generated revenue of $39.2 million and EBITDA of 26.8 million. After 2012, in which we have a total of 7 dry-dockings, our dry-docking schedule is relatively light with only 2 dockings in both 2013 and 2014 and none in 2015. This has significant implications on that cash flow as each dry-docking costs on average around $1.3 million and there is some $300,000 of lost revenue from off-hire.

The reduced number of dry-dockings will have a positive impact on our cash flow and utilization rates in coming years. We’ll come back to the implications of this later. In addition to our financial performance, we continue to pay down our debts further deleveraging the balance sheet. We repaid $12.1 million of outstanding borrowings under our credit facility in the second quarter and have repaid a total of $139.3 million since the fourth quarter of 2009.

On Slide 4, you can see our financial results on a historical basis. We began our operations in 2008, at a time in which the financial crisis and ensuing global recession created tremendous headwinds for the shipping industry. In fact with the exception of March 2010 and early 2011, the container shipping industry has been in a cyclical down turn for most of the global ship leases life. Despite these challenges our business model of operating vessels on long term fixed rate contracts has provided us with consistent and predictable results. Aside from the quarters in which our fleet was expanding and our EBITDA and operating income before impairment charges have been steady. The only significant fluctuations we typically experienced on a quarter-to-quarter basis are due to off-hire days from mandatory dry-dockings. But as I stated previously after 2012, we expect the impact from dry-dockings to be much reduced over the next 3 years.

On Slide 5, we show our fleet overview in charter profile. As you will see, we’ve got very attractive charter coverage for the fleet. The average remaining contract term for our 17 ships is 7.9 years on a weighted basis taking into account the new charters are on the two ships at the top of the page and this represents the total contracted revenue stream of about $1.1 billion. In addition, our fleet is relatively young with an average age of 8.3 years on weighted basis out of the total economic life of 30 years. Of note, and as we announced in July we have recently signed new charter agreements with CMA CGM for our two 4100 TEU vessels whose contracts expire on September 20 and 21 respectively. These new charters offer a period of approximately 8 months from those dates in September at a rate of $9962 per vessel per day.

Once we are pleased to have continuing employment for these vessels with no down time, the new charter rate which was set by reference to the stock market is approximately $18500 a day less than the original rates $28500 a day. Revenue and hence EBITDA and free cash flow will be increased by about $3.8 million in 2012 for over 3 months of lower hire during the balance of this year. The annual effect of the charter hire reduction would be approximately $13.5 million assuming that we renew the charters at the same rate $9962 when they expire in May 2013.

Of note, the index used to fix the new charter rates has fallen some $400 since we agreed the new charters only 3 weeks ago. These contracts, the new contracts are significant for several reasons. Firstly, they keep our fleet fully chartered into the second quarter of 2013. Second, we were able to sign these agreements for the leading global liner operator during a very challenging market environment. Third, with the seamless transition to the new charters we have no off-hire and no repositioning costs which could have been substantial.

Finally, the new charters are scheduled to expire during what is normally a high season of the charter activity Q2, enhancing the subsequent marketing prospects for these vessels in what we hope will be a firmer market. For the remainder of our fleet, we have no chance for explorations until the end of 2016.

Now, a few words on the market. Slide 6, shows the significant improvement in freight rates out of China especially on the freight into Europe as successive general rate increases, GRIs have been successfully implemented by the carriers from around March time. Note, however, that the Asia-Europe index has slipped back in the last couple of months most likely due to the relative weakness of the peak season and slowing exports after China. Nevertheless, these rate increases have undoubtedly benefitted the liner companies. Those operators who have published results for Q2 so far have shown some more better financial performance offsetting the poor performance in Q1.

However, that continues to be an oversupply of very large container ships typically deployed in the Asia Europe trade. Oversupplied ships and weakening macro-economic indicators have left carriers and analysts to be cautious about future prospects. Bearing this in mind pricing discipline will be key, and carriers will need to do all they can to retain and even improve on current freight rates.

The chart also shows there is a disconnect between freight rates and charter rates which normally move in a similar manner. The GRIs have been imposed by the liner companies despite the oversupply of vessels, however, the oversupply of vessels continues to have a negative impact on the stock charter market. As you can see, the stock market has nudged down recently and perhaps a little earlier in the year that what normally be the case. However, to remind you, we are in large measure insulated from short term weakness in the spot charter market by virtue of having 15 of our 17 vessels on charters that run at least until the end of 2016.

CMA CGM as always, we can’t speculate on CMA CGM’s financial position or current strength. However, in June they reported quarter one of 2012 results showing a 13.4% volume improvements over Q1 2011, but due to the weaker freight rate environment revenue increased by only 2.6% to $3.6 billion. EBITDA of -31 million and a net loss of $248 million represents one of the best financial performances in the industry for the period. With the combination of improved freight rates from Q2 and lower bunker prices CMA CGM said in the Q1 2012 press release that they expect to “return to the black” in 2012. We can confirm that they continue to pay charter hire in full and have never sought to renegotiate the terms of the charters. Right now only one period off-hire, which was due on August 1 is outstanding and this represents an improvement on the position we’ve reported in recent course.

At Slides 7, 8 and 9, you’ve seen before these provide a look at the overall supply and demand dynamic sub-analyzing into the main trade lanes, investor size categories. And the message that we’ve given before remains intact, but Slide 7 shows supply and demand fundamental since together with low GDP growth and an index of the time charter market. Analysts have been marking down their forecast of demand growth for 2012 and now supply growth is expected to slightly exceed demand growth in 2012, which is a reversal of the position that we reported in the May call on Q1 earnings. Indeed, we said on that call of the gap between supply and demand growth was narrowing. That said, these forecasts for 2013 have suggested demand would grow a little more strongly than the supply. Although, as we all know this will much depend on how the macro-economic environment develops over the next 6 to 12 months.

Our high level of charter coverage which continues to sport the generation of strong cash flows despite the challenging market environments once again demonstrates the robustness of the Global Ship Lease Business Model which is largely insulated from the short term volatility at the industry as a whole.

Slide 8, which sub-analyzes between the trade lane shows as before that the fastest growing trades continue to be the north-south non-mainline east-western intraregional trades such as Intra-Asia, with growth rates of around 8% revised slightly down on the 9% we discussed in our last call. To remind you, how these trades represent around 70% of global containerized trade and tend to use small and medium sized ships such as our two 4100 TEU vessels which are the only vessels after our 17, that will be exposed to the charter market in the next 4 years.

Slide 9 shows the existing fleets and order book by vessel size. We’ve very few new orders being placed at 23% of the existing fleet capacity. The order book is at its lowest level relatively since May 2003. And as we said before, the basis suggest that the mid five segments is proportionately under built with a relatively small order book. Two to 5000 TEU vessels represent only 19% of the order book, lost accounting for some 38% of capacity on the water today. With the relatively small order book and forecasts of decent growth in the trades that typically use small-to-medium size vessels. We remain hopeful for improved charter rates and asset values to this vessel class in due course. Before turning the call over to Susan, I would like to briefly discuss loan to value covenant in our credit facility. As you know, this covenant states that the ratio of our outstanding borrowings to the aggregate charter free market value of the secured vessels, fleets cannot exceed 75%.

In November 2011, we reached an agreement with our lenders to have this covenant waived until the test is scheduled for November 30, 2012. On our previous call, we indicated that there would need to be an improvement in asset values in order for us to pass November 2012 test. Given the continued weakness in the global economy we have only seen a slight increase in values in the last 3 months and although we continue with our aggressive debt repayment we will need our fleet value to increase significantly in the next three months to satisfy the loans of value tests. This will be challenging given the current softness in the charter market and in the sales and purchase market. Note, that we have a strong and positive record of working with our banks and we will continue to. monitor asset values as we approach the test date and we will act appropriately.

Now, I would like to turn the call over to Susan.

Susan Cook

Thank you, Ian. Please turn to Slide 11 for a summary of our financial results for the 3 months ended June 30, 2012.

With all of our vessels operating on fixed rate contracts, we generated revenue of $39.2 million in the second quarter of 2012. This result is up slightly on revenue associate $0.8 million for the comparative period in 2011, due mainly to 11 less offhire days in the 2012 period from fewer drydockings. Utilization for the second quarter of 2012 was 98.6% versus 97.9% in 2011.

During the second quarter, we completed our fourth drydockings for the year and have three more scheduled to be completed in 2012. However, we only have two in each of 2013 and 2014 and none in 2015. With the lighter drydocking schedule, our results over the next 3 years will be less affected by planned offhire days.

Our vessel operating expenses were $11.2 million for the second quarter of 2012. The average cost per ownership day was $7,253, down $161 or 2.2% on $7,414 for the rolling four quarters ended March 31, 2012. Increased spend on repairs, maintenance, and supplies were offset by a benefit during the quarter from exchange rate movements on costs denominated in euros.

Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended June 30, 2012 was $5.3 million. During the second quarter, the company’s borrowings under its credit facility averaged $471.8 million and with $48 million of preferred shares throughout the period, total average borrowings were $519.8 million.

The company’s derivatives hedging instruments resulted in a realized loss of $4.6 million in the three months ended June 30, 2012, the settlements of swaps in the period, as current LIBOR rates are lower than the average fixed rates. Further, there was a $0.9 million unrealized gain for revaluation of the balance sheet position given current LIBOR and movements in the forward curve for interest rates.

At the quarter end, interest rate derivatives totaled $580 million against floating rate debt of $507.8 million, including preferred shares. As a consequence, the company is over hedged which arises from accelerated amortization of the credit facility debt, as well as not incurring additional floating rate debt which had been anticipated to be drawn in connection with the originally intended purchases of the two 4,250 TEU vessels at the end of 2011. $253 million of the interest rate derivatives all as a fixed rate of 3.4% will expire mid-March 2013, meaning that we will be paying a floating rate based on LIBOR on the unhedged portion of our debt, enabling us to take advantage of what we expect to be a low interest rate environment. The expiry of these swaps, assuming LIBOR of 0.5% will mean that our interest expense will decrease or things be equal by approximately $5.9 million in 2013 starting mid-March. In addition, there will be interest savings from lower overall debt as amortization continues.

Net income for the second quarter was $7.5 million, which includes a $0.9 million non-cash interest rate derivative mark-to-market gain. For the three months ended June 30, 2011, we reported a net loss of $11.7 million, after a $13.6 million non-cash impairment charge and a $3.8 million non-cash interest rate derivative mark-to-market loss. The normalized net income adjusted for the non-cash items was $6.6 million for the three months ended June 30, 2012 and $5.8 million for the comparable period.

Slide 12 shows the balance sheet. Key items as of June 30, 2012 include cash at $32.5 million, total assets of $929.3 million of which $874.5 million are vessels. Total debt of $507.8 million, including the preferred and shareholder’s equity of $349.9 million. In addition, the balance sheet position of our interest rate swaps was a liability of $41.7 million.

Slide 13 shows our cash flows. Main items to mention here are cash provided by operating activities of $7.5 million in the second quarter. The capitalized expenditure on drydockings in the quarter was $2.4 million. And finally, as Ian mentioned earlier, we have repaid $12.1 million of our credit facility in the quarter, giving us a $139.3 million reduction in debt since commencing amortization of our credit facility balance in Q4 2009.

I would now like to turn the call back to Ian for closing remarks.

Ian Webber

Thanks, Susan. I would like to conclude our prepared remarks with Slide 14. This provides a summary of why we believe Global Ship Lease is well positioned to create value for shareholders over the long term.

First, during the second quarter, general freight rate increases were implemented by most of the liner companies in the major trade lines and still mainly in place today. This should improve the profitability and the credit phases of the liner operators, including CMA CGM. Second, as we continue to emphasize, our business model is focused on chartering ships on long term fixed rate contracts. This provides us with significant contracted revenue and predictable cash flows, despite the volatile industry environment. Third, we continue to strengthen our balance sheet by paying down debt on a quarterly basis. We have got no purchase obligations and we have no debt maturities until the end of 2016 by eliminating our near-term exposure to financing or refinancing risk. Fourth, the cash flow effect of the revenue reductions from the new charters will be largely offset from reduced drydocking and the expiry of interest rate swaps.

In the next 3 years, as we have said before, we have got a total of 4 scheduled drydockings which compares to 13 in the 2011 and 2012 two-year period. As I mentioned, five fewer drydockings in 2013 compared to 2012 based on average cost to date will save significant amounts of cash flow, a total of approximately $8.2 million.

Turning to interest rates swaps, the benefit in 2013 from the expiry of $253 million of interest rate swaps in the middle of March next year the cash flow benefit is approximately $5.9 million. So between the two a lot number of drydockings and expiry of swaps there is a total cash flow benefit in 2013 of $14.1 million. So reverse engineering no worse than cash flow neutral on 2012, but charter rates on the two 4100-TEU vessels could be as low as $8,700 per vessel per day for the balance of 2013 after the expiry of the new charters in May. There is a few numbers in there, so we show more detail of these calculations on Slide 15 for the record.

Finally, back to Slide 14, by continuing to delever our balance sheet, by maintaining a focus on generating strong cash flow, we are positioning ourselves to provide shareholders with a sustainable dividend once we are in full compliance with our loan-to-value covenant.

That concludes our prepared remarks and now I would like to hand back to the operator who will explain the Q&A process.

Question-and-Answer Session

Operator

Thank you very much sir. (Operator Instructions) And from Euro Pacific Capital, your first question comes from Mark Suarez, please go ahead sir.

Mark Suarez – Euro Pacific Capital

Good morning everyone. Ian, I know you reported and you mentioned the recently re-chartered vessels for approximately a month here. Is the idea to continue to re-charter the two vessels a short term as long as those rates continue to only gradually improve going forward?

Ian Webber

Hello, Mark. Yes, generally. As we have said before on previous calls, when the charter market is soft, fixings tend to be for a relatively short periods of time, 3, 6, maybe 9 months and conversely when the charter market is firm then fixings tend to be for longer periods, 2 or 3 years. So, if the current rate environment continues then I would expect a relatively short fixings after these ones expire.

Mark Suarez – Euro Pacific Capital

Got it. I know you mentioned the S&P market has been sort of sticky, sort of moving sideways, we haven’t really seen a dramatic improvement. I know, there was a disruption by the Malaysian carrier that sort of led to sale prices. Since Q1 have you seen sort of the same story, no significant improvement – basically what have you seen from an asset value perspective when you guys do demarking?

Ian Webber

Yes. There isn’t a huge amount of activity in the S&P market. On often times transactions that are being done have a sort of artificial element to them. You mentioned the Malaysian carrier and it’s (inaudible) as it decided to get out of the business and there have been some silent lease back transactions, as well, involving major carriers and some including some Greeks, but those to a degree are a bit artificial as well because the buyer is prepared to buy at higher price if he gets a higher charter rate. So, it’s really quite difficult to tell what’s going on underlying all of this. But we do say close to brokers, we look at all of the industries, we read brokers’ reports and we have seen that there has been (inaudible) asset values over the last 2 to 3 months since our last call. But it really hasn’t changed the picture dramatically. Hence in our prepared remarks we said that we are going to need to see some really improvements in asset values over the next 2 to 3 months if we are going to pass the loan-to-value test at the end of November.

Mark Suarez – Euro Pacific Capital

Got it. Okay. Sort of turning to margins, I think yes looking on my numbers it came a bit higher than I expected during the quarter. I know, average cost per ownership day was essentially flat, I know you had some currency tailwinds. But going forward, if the annual rate of 2% to 3% for 0.4% expenses is that still a reasonable assumption here, or should we see some upside from then?

Ian Webber

I don’t think you should look at it from a margin perspective because then you – if we have lower charter rates we will have lower cost and it doesn’t work like that. You should look at the operating cost line as a single line and what I can say is that we are not immune from inflation rate pressures, as an industry this isn’t just global ship lease. On the long term increase in operating cost is 2% to 3% per year. It oscillates a little bit from a quarter to quarter, but on average we would expect to see 2% or 3% increase year-on-year.

Mark Suarez – Euro Pacific Capital

Got it, okay. That’s all I got for now, thank you.

Ian Webber

Thanks, Mark.

Operator

Thank you. And from Sidoti & Company, you have a question from Chris Snyder, please ask your question sir.

Chris Snyder - Sidoti & Company

Good morning, gentlemen, congratulations on the quarter.

Ian Webber

Thank you. Hello, Chris.

Chris Snyder - Sidoti & Company

My first question is about G&A expenses, I guess they really came down on a quarter-on-quarter basis, like six quarters, but this year so far they have kind of pretty decrease each quarter. What’s kind of causing that?

Ian Webber

Well, just a couple of things going on here really. Firstly, we are spending less money on legal and professional and sort of consultancy fees at the moment. And secondly, we closed the day-to-day bookkeeping in-house, previously we had a third party doing it. And we are saving couple of hundred thousand dollars per month of costs from that – not for month, I am sorry, per quarter.

Chris Snyder – Sidoti & Company

Okay. My next question is, I know you guys said and everyone knows, the liner companies have been increasing rates, but it seems like the past couple of months hasn’t really passed through the ship owners. I was wondering if you guys have any idea on, if you think it will pass through and then up in higher charter rates, or I guess timeframe, and maybe when that would happen?

Ian Webber

That’s a really good question. My crystal ball is not sufficiently clear, I am afraid. Normally, as we said on the call, normally, the same supply demand pressures drive freight rates and charter rates. However, there’s been a disconnect in the last six months, a little bit longer actually. And the liner companies have sort of unilaterally increased freight rates despite there being an oversupply of tonnage and they are just safe to their customers. If you want just to ship cargo from China into Northern Europe, you are going to have to pay $2,000 more, and providing pricing discipline is retained, then the shippers have got nowhere else to go.

Unfortunately, that has not been replicated in the ship charter market, which is very much more diversified and there are many, many more owners than operators of significance anyway. And the market is much more sort of transparent in that sense. And it has been negatively impacted by the oversupply of tonnage, principally big ships, but that has rippled down through the\ cascade effect through most vessel sizes.

Chris Snyder – Sidoti & Company

Yes, thank you. And my last question is, I don’t know if there is any comparable transactions that you guys are kind of looking at as a value that you think will be placed on Panamax containers that you guys have --?

Ian Webber

On the fleet as a whole?

Chris Snyder – Sidoti & Company

Yes, or just individually. Has there been any like transactions that you guys think are really good match for the Panamax containers that you guys have?

Ian Webber

Unfortunately not. As we said, many of the transactions that are being reported have got unusual features, tariff, and we have not had formal valuations for a long time. We haven’t made in, say, what’s in cycle 2011 when we passed loan to value. So, I am afraid I can’t help you with that.

Chris Snyder – Sidoti & Company

Okay. Thanks a lot. It really helps with your inputs.

Operator

Thank you. Your next question from DRZ, comes from Zach Pancratz. Please ask your question.

Zach Pancratz – DRZ

Good morning.

Ian Webber

Hello, hi Zach.

Zach Pancratz – DRZ

Just a quick question on the LTV. Obviously, it’s probably fair to assume this November test is going to be pretty tough to get into compliance. Assuming that, I mean, is it fair to assume that maybe the next test would come in April of 2013 or similar to when you guys got the waiver a couple of years ago?

Ian Webber

I understand why you are asking the question. It’s actually very difficult to answer. We will continue to monitor asset values. If we need to talk to our bank group, then we will for the November test. We have got a strong record of reaching an agreement with them. It’s very difficult to speculate on the detail of any agreement should one be necessary on how many periods of test it would cover. Well, I think we would just have to wait and see.

Zach Pancratz – DRZ

Okay. I mean, just looking at the way you guys are paying off debt, I would think by the end of April time period, even with that said, price is going nowhere I would think, the LTV would probably look a lot better in that timeframe?

Ian Webber

It will obviously, even if that’s a value stayed flat, then value will increase as debt is being paid down. Will it be enough to part LTV hypothetically in April? I don’t know, I think crystal ball -- my crystal ball can’t see as far November, let alone April next year. April typically is a stronger month, the charter rates and asset values, as operators live to fix their fleet for the upcoming busy season, but our fleet will be a year older in April as well, which has an effect on theoretical values as well. So, there are a lot of factors that work, and it’s really difficult to speculate on where we will be in nine months time.

Zach Pancratz – DRZ

Yes, that’s understandable. And just looking at charter rates, I know you guys in your presentation, you guys show the contract index, which is basically made up of vessels that are 4,000 TEU and below. Looking at charter rates for vessels that are 5,000 and above, I mean, those have been pretty strong. So, I am trying to get a sense of what the elasticity is there, the strength in larger assets. How does that, you know, and you are billing few kind of the smaller asset growth, so how long does that take? Obviously it depends on the demand environment. So, just kind of wondering your take on that.

Ian Webber

Yes, it’s Clarksons rather than contracts that we show on page 4, but they show and broadly the similar thing, and you are right, most charter indices aggregate ones anyway are for smaller vessels up to 4,000, maybe 5,000 TEU. Simply because that’s the most anxious five segment in the charter market. And the number of fixings for 5,000s and above, and certainly sort of 7,000 to 7,500 and above TEU ships is minimal. And you are right, there has been more of an interest in the larger ships right now in the charter market, there earnings have been slightly better protected. I don’t think there is a huge difference between the 4,000 TEU ship and a 5,000 or 5,500 or 6,000 TEU ship in the charter market, just carriers, they offer a bigger ship, but it may be more efficient, maybe more fuel efficient on an individual slot basis. So, that may be driving operators to be prepared to pay a little bit more on charter hires.

Zach Pancratz – DRZ

And then just lastly, I know this is pretty forward-looking, and I know you don’t look too far into the future, but looking at the 2014 order book, granted there is a lot of assumptions there with slippage, scrappage rates, whatnot, but with the kind of softness we have seen in ordering from the liners and from the charters over the last year-and-a-half, I got to think, come 2014 when those assets that would have been purchased over the past few years would come on water, that order book looks pretty slim for those out years.

Ian Webber

Great, I agree with you, and we haven’t said it recently, but we have said on calls before that perversely the lack of finance for the maritime sector generally and obviously for us specifically containerships, is part of the answer to low charter rates and low freight rates. And the order books is going to be controlled. And there have been very few orders recently and as you said in the prepared remarks, the current order books is at almost 10-year low proportionate to the current fleet, and unless the purse strings are loosened, it seems as if it will continue that way.

Zach Pancratz – DRZ

Right. So, I mean, looking at you guys, it would obviously be very beneficial for you to when the time comes to initiate a dividend, to get your equity value higher, which gives you a lever to call in the press market to be able to take advantage of that type market that’s probably coming in the out years.

Ian Webber

Absolutely. And there are lots of arguments to say that, that the purchase environment today is very strong. If you have got capital, then it’s a great time to deploy it, but very few people have it.

Zach Pancratz – DRZ

All right. Well, congrats on a good quarter and keep up the cash flows and all that you guys have been doing. Thank you.

Ian Webber

Thanks Zach.

Operator

Thank you. Now, from Elevated Capital, you have question from Michael Demaray. Please ask your question.

Michael Demaray – Elevated Capital

I think I know the answer to this, but I will try anyhow. What sort of valuation cushion are you, do you guys think will be necessary to restart the dividend? I mean, are we talking about 5% or 10% cushion on the LTV test or would you need greater than that?

Ian Webber

Michael, I can’t remember exactly when you asked this last time, but it’s the same answer. We have not discussed it, and it’s mute at the moment. We want to be sure that we have passed loan-to-value clearly and the prospects are that we will continue to pass loan-to-value before we reinstate the dividend. We don’t want to turn it on and turn it off and turn it on again. I would suggest that, that’s just not in the interest of all of our shareholders. It’s just not something that the Board has discussed because they haven’t had to.

Michael Demaray – Elevated Capital

Okay. Sure. Thank you very much.

Operator

Thank you sir. (Operator Instructions) Now, from Harbor Capital [ph], you have a question from Nathan Laffoon [ph]. Please ask your question.

Nathan Laffoon – Harbor Capital

Good morning, Ian.

Ian Webber

Hello, Nathan. How are you?

Nathan Laffoon – Harbor Capital

I am fine. Thank you. Actually, you just touched on what my question was, which was about the trend in the financial market, and maybe you have said what needs to be said. I was mostly interested in how you find the trend of the banking climb, number one, and your specifically in general, the ability to finance whether it’s banking or some kind of to market exercise.

Ian Webber

Yes, I am happy to comment. It’s tough, it’s really very tough.

Nathan Laffoon – Harbor Capital

You mean, the banks really have closed the door on almost everybody?

Ian Webber

No, not all of them. There are some that continues to lend on new business that many are focused on looking after what they have got rather than expanding their book, and there are a couple of banks that are on the phase of, that seems to want to exit their shipping portfolio. Debt finance is available. It’s a bit more expensive than it used to be, and it’s for shorter tenures, the amortization is more aggressive and the lending ratio is lower, but it is there against specific projects.

The capital markets, well, how many know as well as I do that they are not really terribly active at the moment, it’s the wrong time of the year and the macroeconomic headwinds are against many industries including shipping. But for those guys who are sitting on cash that they raised through public offerings or their private companies that have got a cash mountain who can bolt on a little bit of debt as well, but there as I have indicated some we think quite good buying opportunities. We continue to monitor to that. We always look at for alternative sources of capital.

Nathan Laffoon – Harbor Capital

That’s a kind of – that segues neatly into the second part of the question, which is if we’re talking dry bulk right now, apparently there are assets that are available under duress or highly motivated sellers, let’s say, do we see any correlation to that in the container market where there in fact distressed assets from various players who are not playing so well anymore?

Ian Webber

Not obviously, which is bit of a slightly odd way of answering it, but I am sure there are some owners under pressure, particularly in the KG environment where they are very heavily exposed to the spot charter market, which as I have said, is very soft at the moment and is softening. But providing they can get some revenue for the ships, then they will be able to keep their lenders happy. But there hasn’t been the wholesale slew of distressed sales out of Germany, the various doom and gloom mongers have been forecasting for a while. Yes, that may come, but we haven’t seen anything so far, but –

Nathan Laffoon – Harbor Capital

Well, all things being equal then, container assets are relatively more stable than drydock or some of the other.

Ian Webber

I don’t know enough about dry-dock or tankers to comment.

Nathan Laffoon – Harbor Capital

Well, I will draw my own conclusion. I think that’s all for me. Thanks, nice job. Keep it up.

Ian Webber

Thanks.

Nathan Laffoon – Harbor Capital

Good talking to you.

Ian Webber

Thank you.

Operator

Thank you very much. As there are no further questions we now press the flow back to Ian Webber for closing remarks.

Ian Webber

Thank you very much. Thanks for listening, thank you for questions. We look forward to talking to you in November on our third quarter call. Thank you.

Operator

Thank you very much indeed. That does conclude our conference for today. Thank you for participating, you may now disconnect.

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