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Euroseas Ltd. (NASDAQ:ESEA)

Q3 2012 Earnings Call

November 8, 2012 10:00 AM ET

Executives

Aristides Pittas – Chairman

Tasos Aslidis – CFO and Treasurer

Analysts

Michael Webber – Wells Fargo

Josh [ph] – Deutsche Bank

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Euroseas conference call on the third quarter and nine months ended September 30, 2012 financial results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Tasos Aslidis, Chief Financial Officer of the company.

At this time all participations are in a listen-only mode. 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 Thursday, November 08, 2012.

Please be reminded that the company announced their results after the market closed yesterday with a press release that has been publicly distributed. Before passing the floor to Mr. Pettas, I would like to remind everyone that in today’s presentation and conference call, Euroseas will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized.

I kindly draw your attention to slide number two of the webcast presentation, which has the full forward-looking statements and the same statement was also included in the press release. I kindly suggest that you take a minute to go through the whole statement and read it.

Without taking any more of your time, I would now like to pass the floor to Mr. Aristides Pittas, Chairman and Chief Executive Officer of Euroseas. Please go ahead Mr. Pittas.

Aristides Pittas

Good morning and thank you for joining Euroseas for our conference call today. Together with me is Tasos Aslidis, our CFO. The purpose of today’s call is to discuss the results for the three and nine month periods ended September 30, 2012.

Let us turn to slide three for our 2012, three and nine month overview. For the third quarter of 2012, we reported total net revenues of $13.4 million. Net loss for the period was $0.8 million or $0.02 per share, net loss, basic and diluted. The results for the third quarter include a $0.2 million net unrealized gain on derivatives and a $0.4 million realized loss on derivatives.

Excluding the effect on the loss for quarter of the unrealized gain on derivatives and the realized loss on derivatives, the adjusted net loss was $0.6 million or $0.01 per share, basic and diluted for the quarter ended September 30, 2012.

Adjusted EBITDA for the third quarter of 2012 was $4 million. We declared a quarterly dividend of $0.015 per share for the third quarter of 2012, payable on or about December 11, 2012 to shareholders’ of record on December 4, 2012. This is the 29th consecutive quarterly dividend declared. For the first nine months of 2012, we reported total net revenues of $40.1 million. Net loss for the period was $11.2 million or $0.30 net loss of share, basic and diluted.

Excluding the effect on the loss for the first nine months of 2012 of the unrealized gain on our derivatives, the realized gain on trading securities and realized loss on derivatives and the loss of sale of a vessel, the adjusted net loss for the period was $2 million or $0.05 per share, basic and diluted, for the nine months period ended September 30, 2012.

Adjusted EBITDA for the first nine months was $12.3 million. We declared three quarterly dividends for a total of $0.075 per share during the first nine months of 2012.

Please turn to slide four. For the last seven years we have been aiming to declare a dividend which represents a yield of between 5% to 12%. In view of the challenging market conditions and our desire to preserve cash and take advantage of new investment opportunities, our Board decided to reduce our quarterly dividend to $0.015 per share, which still represents an annual yield of about 5.4% from the basis of our stock price on November 7, 2012.

Please turn to slide five to review our company developments. In regards to recent fleet developments, we renewed the charters for all six of our containership vessels which opened up in the third quarter on short period employments. Our strategy of employing our vessels on short periods during which market downturn will allow us to capture the upside in the freight markets as it occurs and thus positively impact our revenues.

During the first nine months of 2012, the containership market remained depressed for the size of vessels we operate and stayed really close to the low levels last seen in the beginning of 2010. On the other hand the dry bulk market, although also depressed and falling further did not affect our revenues during the third quarter of 2012 as our vessels are chartered well into 2013.

During Q3, we completed the drydocking of the Panamax vessel, Pantelis P and postponed the drydock of the containership Aggeliki P till December upon the completion of the current charter contract. In Q4, we will have one further drydocking that of Ninos [ph].

Our current fleet is shown on slide six and remains unchanged with 15 ships, five dry bulk vessels, nine containerships and a multipurpose ship.

On slide seven you will find an overview of Euromar, our joint venture with Eton Park Capital and the Rhône Capital. On this slide we list the Euromar fleet of 10 mostly geared intermediate and handy sized containerships with an average age of approximately 9 years and the total carrying capacity of 24,000 TEU. We are very pleased with our asset purchases this year as we are able to purchase two containership vessels in 2012 at very competitive prices.

Today Euroseas has contributed close to $19 million of the $25 million of its commitments. In total, about $131 million has been invested by the partnership, leaving about $44 million for further acquisitions and other corporate methods. The investment horizon has been extended till March 2013 and we expect that during this time the investment phase of Euromar will have been concluded.

Let us move to slide nine for a brief overview of the market. Despite some positive developments in the economies of the U.S. and Europe, there are still significant downside risks and political and economic uncertainties facing the world economy today. Some positives are the European Stability Mechanism or ESM which was established in September of this year to provide financial assistance to members of the Eurozone in financial difficulty.

The European Central Bank, which will act as a lender of last resort buying up to three years bonds with countries which supply for assistance. The loosening of monetary policy in emerging markets which can assist to keep growth in those countries steady. On the flip side, there are a number of challenges to the growth outlook in the world economy. The ability for Spain to gain approval for more stimulus. The fiscal cliff at the end of 2012 in the U.S. when the terms of the Budget Control Act of 2011 are scheduled to go into effect. If unchanged, it will result in tax increases and spending cuts that will revise downward the U.S. GDP.

The German elections are next year and the effect that it will have on the EU. The Israeli-Iranian tension that is keeping oil prices high and the potential for further increases. The negative atmosphere in the developed economies has dragged the whole world economy downwards resulting in the slowing GDP growth in developing economies including China and India.

As you can see in slide 10, the IMF recently revised downwards its growth predictions for almost all countries for both 2012 and 2013. Still though, 2013 is expected to be better than 2012, whilst further out in 2014 and 2015 the global economy is projected to be growing at a healthy rate in excess of 4%. The IMF predicts that in 2013, the Eurozone will revert to positive growth albeit marginally and then there is another developing areas will grow at a much faster pace than this year.

Overall, a 3.6% global GDP growth is projected for 2013 against 3.3% for this year. GDP projections are strongly correlated with dry bulk and container trades. On the bottom of slide 10, you will find that current Clarksons’ projections points dry bulk growth to be at 4.8% in 2012, increase from previous estimates of 4%. On the other hand, Clarksons containerized trade growth forecast in 2012 were lowered to 4.8% from the previous estimates of 5.9%, the weakness in the Eurozone economies clearly impacting this container trade growth.

Other analysts estimate their container trade growth this year will be even lower with too. As for 2013, Clarksons predicts lower demand for dry bulk at 3.7%, we find this odd and think it will be closer to 5%, 5.5% based on the recent GDP so. Container growth rates are expected around 6.6%, lower than previously estimated but significantly higher than this year.

Against this demand background, we have to also look at ship supplies, so let’s turn to slide 11. The delivery schedule for dry bulk vessels at the beginning of the year stood at 22.7% of the fleet for 2012. This does not take of course into account cancellations, slippage and scrapping. It is generally difficult to quantify how much of the order book finally gets delivered. So far though down this year one can extrapolate that it’s going to be around 75% due to the poor market and the lack of financing.

For 2013, the current order book is at 9.3%, which is not too high, but we do expect some ships are for scheduled to be delivered within 2012 to be rescheduled for 2013, thus keeping extra deliveries in 2013 high too. Please note though, on the left hand side, that the percentage of the fleet that is older than 20 years is still very high at over 11%. With scrapping at record levels, the age profile for vessels above 25 years is down to 6.5% today from 10% at the beginning of the year. Scrapping should help the fleet rebalance relatively quickly if rates remained low for the next 12 months.

Let’s turn to slide 12. The containership order book for 2012 deliveries was more than half that of dry bulk in percentage terms and much lower than what has been historically. It seems that this order book will actually be nearly all delivered as the marketed downturn was really felt during the last two, three quarters and there was no real way for postponing deliveries.

The 2013 order book stands at slightly higher numbers but we do expect that it will be at least 20% slippage and cancellations, thus finally brining 2013 deliveries to slightly less than in 2012. This order book is heavily skewed towards the largest ships. If they order in currency, we saw during the first half of 2011 was to revive, it would put the break on the market in 2014 onwards, however the current slowdown of the contents of the market will probably result in the continuation of the significant decrease in new orders for at least ensuing six to nine months, thus assisting the long-term prospects of the market.

So let’s turn to slide 13 to summarize our views on the markets. While the fourth quarter has historically been strong for dry bulk, we have to-date only seen the capesize market really albeit from dismal levels. This rally appears to be running out of steam. Supply pressures should continue to press out the rates as fleet growth continues with a higher pace than trade with record deliveries for the reminder of the year in 2013 even after assuming healthy scrapping and delivery cancellation rates.

We expect that we will see a turning point in the market in 2014 unless we see a significant spike in new building orders and all the global economy grows substantially lower rates than currently predicted by the IMF. On the container markets, we have seen that the economic uncertainty and poor demand growth from Europe, we have negative growth rate in the key Far East to Europe today has negatively affected container growth today that has kept trading volumes very low.

We expect that this and the next quarter will continue on the pressure due to the general economic climate but also due to seasonality. Fleet growth and demand growth in the container markets should be fairly balanced in 2013 overall, implying that the market would never – would hover around today’s level. Small changes in this balance will determine the actual direction of the market. The low levels of new vessel ordering is sustained, bode well for a recovery as of late 2013.

As mentioned, supply growth is mainly in large sizes. The cascading effect has demonstrated itself for the time being, squeezing the large feeder sector of 1,500 to 3,500 TEU, the dynamics have not completely planned out yet and we would expect that that as things normalize especially the geared ships of this size would find the better values.

Please turn to slide 15 to discuss our dry bulk employments in detail. Our dry bulk fleet is fully covered for the entire 2012. We therefore expect to see no influence in our earnings from the developments in this market this year. For 2013, our coverage is 43%, with six opening up gradually over time. We believe we will lead to accept lower charter rates for the two ships that will open up in Q1.

Let’s turn to slide 16. As far as our containerships are concerned, following the recent charter renewals for six of our containerships, we currently have about 98% coverage for the remainder of 2012. As I mentioned previously, we are employing our vessels in short term charters because of the weakened conditions in the market, so we can be able to take advantage of future optioning. We believe that the remainder of this year will continue to be quite tough and we at least to have our containership vessels locked up.

Please turn to slide 17. Through Eurobulk, our manager we have been able to continue to keep our costs very low. The graph on this page compares our daily costs, excluding drydocking expenses since 2008. Overall our costs are amongst the lowest of the public shipping companies. We are very proud of this performance, especially it is in conjunction within operational fleet utilization in excess of 98.5% over the last five years, a level similar to that of our peers, despite the fact that the average age of our fleet is higher than most of the other listed companies.

Our daily cost per vessel for the third quarter of 2012 is in line with the previous two quarters of the fiscal year of 2011 and also 2012 budget.

Let’s now turn to slide 18. The left side of the slide shows the correlation of time charter rates for Panamax dry bulk ships and containerships of 1,700 TEUs over the last decade. Earnings for containerships were moving in parallel with earnings for Panamax ships with the exception of the peak in 2004, which was a prelude of the super cycle that was following dry bulk from 2006 to 2008.

From 2006 to 2010, dry bulk significantly underperformed the containership market due to the Chinese demand boom, but the two markets finally conversed again. After the small spike we saw in dry bulk rates during the end of 2011, the market seemed to be converging again.

The right hand side on slide 20 shows current values in the relations to historical prices. Dry bulk second hand asset prices have corrected quickly to match what’s happening on charter rates. We are at historical low average values, but we think they may have just a bit further south to go. Containership values have been weakening over the last few months and they are also back at historical lows.

As explained on numerous occasions, we are generally comfortable investing at levels around historical average or lower. Indeed our modeling shows us that we can reach significant medium-term returns by investing in either of the two sectors today. The issue however in our mind is no different [ph] investment today will prove profitable but if by waiting a bit further, even more lucrative opportunities may appear. We are continuously evaluating all opportunities, both directly and via our Euromar joint-venture, with the aim of pulling the trigger at the right time and for the right projects.

With that, I will pass the floor over to our CFO, Tasos Aslidis, to take you through our key financials in a bit more detail.

Tasos Aslidis

Thank you very much, Aristides. Good morning ladies and gentlemen from me as well. I will now provide you with a brief overview of our financial results for the three and nine month periods ended September 30, 2012 in a similar format as we did in previous presentations.

Let’s move to slide 20, which shows our third quarter and first nine months of 2012 results in comparison to the same periods of 2011. I’ll go over here, some of the same fugues that Aristides gave you at the begging of the presentation. For the third quarter of 2012, we reported total net revenues of $13.4 million, representing an 17.5% decrease over total net revenues of $16.2 million during the third quarter of 2011. Lower revenues during the third quarter of 2012 partly offset by lower dry bulking expenses and lower derivative losses as compared to the third quarter of 2011, resulting in a $0.8 million loss during the current quarter of this year compared to $600,000 net income during the third quarter of 2011.

The results of the third quarter of 2012 includes a $0.2 million net unrealized gain on derivatives and a $0.4 million realized loss on derivatives as compared to $1 million net unrealized loss on derivatives and trading securities and $0.1 million realized loss on derivatives for the same period of last year.

Excluding the effect on the loss for this quarter of the unrealized gain and the realized loss on derivatives, the adjusted loss per share for this quarter, for the quarter ended September 30, 2012 would have been $0.01 per share, basic and diluted, compared to earnings of $0.05 per share for the same quarter third quarter of 2011. Our adjusted EBITDA for the third quarter of 2012 was $4 million, an almost 40% decrease from the $6.7 million achieved during the third quarter of 2011.

As Aristides mentioned earlier, we declared a quarterly dividend of $0.015 per share for the third quarter of 2012, payable on or above December 11 to our shareholders of record on December 4, 2012. This is the 29th consecutive quarterly dividend declared.

Let’s now move to the right side of this slide, to review the figures for the first nine months of 2012. For the first nine months, we reported total net revenues of $40.1 million, representing a 12.9% decrease over total net revenues of $46 million during the same period of last year. We reported a net loss for the period of $11.2 million or $0.30 per share, basic and diluted, as compared to net income of $0.00 million or $0.00 basic and diluted for the first nine months of last year.

The results for the first nine months of 2012 includes a $0.7 million unrealized gain and $1.3 million realized loss on derivatives and trading securities as well as an $8.6 million loss on sale of a vessel as compared to a $1.1 million unrealized and $0.6 million net realized loss on derivatives and trading securities and $1.3 million amortization of time charters acquired for the same period of last year.

Excluding the effect on the loss for the first nine months of this year of the unrealized gain and realized losses from securities – from trading securities and derivatives and the loss on the sale of vessel, the adjusted loss per share for the nine months would have been $0.05 per share basic and diluted, compared to earnings of $0.01 per share basic and diluted for the same period of first nine months of 2011.

Adjusted EBITDA for the first nine months of 2012 was $12.3 million, a 20% decrease from the $15.4 million achieved during the first nine months of last year

Let’s now move to slide 21. This slide shows our fleet performance for the three and nine-month periods and compares it with the same numbers from last year. We have broken down our fleet utilization rate into commercial and operational. The third quarter of this year, we reported a 99% commercial utilization rate and the 99.5% operational utilization rate as compared to 100% commercial and 99.7% operational for the same period of third quarter of last year. The utilization rate does not include vessels in drydock or in scheduled repairs during the reported periods.

In the third quarter of 2012, we operated 15 ships on average, earning a time charter equivalent rate of $10,246 per vessel per day, which represents a decrease of about 11% compared to the time charter equivalent rate of $11,633 per vessel per day that we achieved during the same period of last year, during which we operated 16 ships on average.

In the third quarter of this year, our total vessel operating expenses, including general and administration expenses averaged about $6,144 per vessel per day, compared to $6,234 per vessel per day for the same period of 2011, a 1.4% decrease.

Our drydocking expenses in the third quarter of this year were low as only one vessel was drydock during the period. We believe that we continue to maintain one of the lowest operating cost structures amongst the public shipping companies and we think this is one of the our main competitive advantages.

I would like now to turn your attention to the bottom of this table, to our daily cash flow breakeven level for the quarter, expressed again on $1 per vessel per day basis. We reported in the third quarter of 2012 an operating breakeven level, which includes loan repayments of approximate $8,262 per vessel per day, as compared to approximately $8,584 per vessel per day in the third quarter of last year.

Moving now to the right part of this slide, for the first nine months of this year, we reported 95.1% commercial utilization rate and 99.5% operational utilization rate as compared to 98.9% commercial and 99.7% operational for the same period to the first nine months of last year. Again, the utilization rates quoted do not include vessels in drydock or in scheduled repairs.

In the first nine months of 2012, we operated 15.28 vessels on average earning a time charter equivalent rate of $10,373 per vessel per day, which represents a decrease of about 8.7% to the $11,356 per vessel per day we added during the same period of last year. For the first nine months of this year, our total vessel operating expenses, including general and administrative expenses averaged about $6,066 per vessel per day, compared to $6,080 per vessel per day for the same nine – for the same period of 2011, a very small decrease.

Our drydocking expenses for the first nine months were significantly lower as compared to the drydock expenses of last year because we had only one ship undergoing drydock this year as compared to five that went to drydock in the first nine months of 2011.

Our operating breakeven level which again includes loan repayments was approximately $8,961 per vessel per day compared to approximate $9,393 per vessel per day for the first nine months of 2011.

Let’s now move to slide 22. This slides shows the expectation of our customer breakeven over the next 12 months on the right side of it, and on the left side we show our scheduled debt repayments, including balloon payments. As you can see from the chart on the left side of the slide, in 2012 we have to share that about $13.4 million of debt repayments including balloon payments. In 2013, we are scheduled to make about $11 million of loan repayments and about $10 million of balloon repayments.

We have been working towards refinance some of our balloon payments due next year as we have already done so with one of our balloon payments originally due in early 2014 which is now moved to 2016. For the next 12 months that is up until the end of September of next year, we are scheduled to make about $11 million of debt repayments plus balloon payments of another $4.9 million for a total of about $16 million. This figure produces the $2,900 per vessel per day contribution to our daily cash flow breakeven level shown on the right part of the slide.

After making appropriate assumptions for the other elements of our cash flow breakeven, the operating expenses, G&A, drydocking, we come with an estimated cash flow breakeven level for the next 12 months of around $11,200 per vessel per day that is before any balloon rescheduling takes place on a fully operationally basis. This figure also does not include any credit or any gains from (inaudible) which of course will reduce our breakeven level further.

Let’s now move to slide 23 and as usual let me give you some highlights from our balance sheet. As of September 30, 2012, we had unrestricted cash of about $35.9 million and restricted cash of about $9.5 million for total of about $45.4 million. This cash balance translates to about $1 per share, a figure which I would like to compare to the closing price of our stock as of yesterday which was $1.11 per share.

Our debt, including the current portion of it is about $65 million resulting in a debt to capitalization ratio of about 24%. The ratio of our debt to the market value of our fleet we estimate that around 65% to 70% and our net debt, that is debt and less the cash we have, as a ratio to our market value for our fleet is in the range of 20% to 25%. We are in compliance with our loan covenants as of September 30.

Looking forward, we estimate that we can allocate $20 million to $25 million of our cash for further expansion of our fleet and the renewal of it and that includes bonds that we may invest as Aristides mentioned earlier, directly on our own or through our Euromar joint-venture.

And with that, let me pass the floor back to Aristides.

Aristides Pittas

Thank you, Tasos. I would like to open up the floor for any questions we may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question for today comes from the line of Michael Webber from Wells Fargo. Please go ahead.

Michael Webber – Wells Fargo

Hi good morning guys, how are you?

Tasos Aslidis

Hi Mike.

Aristides Pittas

Hi, how are you?

Michael Webber – Wells Fargo

Good, just a couple of questions for you. I wanted to start on the dry bulk space is – you had referred little more on as the Sea Corp [ph] level. Are you guys finding a little bit more crowded right now in terms of people buying in and looking for incremental acquisitions kind of around your average range. And maybe just a little bit of color about what you guys are seeing, I know you guys have some incremental equities apparently you can spend and clearly you are not getting a lot of credit for the liquidity but you can certainly get it in the SMB market we can find a willing seller but just curious as the level of competition right now out there for those assets?

Aristides Pittas

I think that the market is very active on the dry bulk sector. There are a lot of ships that come into the market and quite a few buyers looking. So when we board and look and inspect ships we find out the people there. There is still I would say a significant divergence often of ask and bid prices but it’s much more active than the container market, yes.

Michael Webber – Wells Fargo

Have you noticed a difference in terms of the players that are looking at these assets? Are you seeing more distressed players out there looking for these dry bulk assets or these basically the usual suspects that you see when you go to expect deal their assets?

Aristides Pittas

I mean we haven’t been looking at the younger assets, ships up to five years old were usually this type of people are more interested. We’ve being concentrating to 10 year old ships and there we haven’t really seen a lot of these players being active, no.

Michael Webber – Wells Fargo

Got you and that’s helpful. On the containership side, it’s obviously pretty weak and removing towards kind of into the seasonally ship period and (inaudible) can you talk a little about vessel lay-ups and where you think we can move to, do we kind of move fast to 6% to 7% we saw in kind of the winter timeframe last year, just kind of put that in terms of an historical context for us?

Aristides Pittas

Yes, difficult to say Mike, exactly what will happen, Euroseas has been able to charter its containerships as they come up, as they become open 90% renewing with existing charters at slightly lower rates. I think the next three four months are important because it’s a quiet season and I think that we may see that number – the number of laid up ships increase during this period.

Michael Webber – Wells Fargo

Got you. That’s helpful. I guess one more and I’ll turn it over. What was that?

Aristides Pittas

No. And not for container on, this is not helpful but I think.

Michael Webber – Wells Fargo

It’s helpful for me but not for you all. Just one more on I guess Euromar, I mean you guys you mentioned the 75% of the equities has been called, so the capital has been called rather. Any thoughts on extending that on a refresh basis [ph] as in previous quarters and maybe relate this up with there?

Tasos Aslidis

In extending the investment period or in extending the joint-venture?

Michael Webber – Wells Fargo

Both.

Tasos Aslidis

Both. I think that probably by the end of March when the current investment period expires we will have completed the investments that we will like to do in Euromar. So I think the current Euromar will probably have completed its investments till that time. If it doesn’t, I think we can extend it, but we haven’t had any discussions, we think that we will do it during this period.

Regarding Euromar-2 this is something that we have discussed more as a Euromar-2 idea rather than as an extension of Euromar because the percentages and everything might change.

Michael Webber – Wells Fargo

Okay. All right, that’s – and then that would be post conclusion of Euromar-1, but that would be kind of Q1, Q3 next year?

Tasos Aslidis

I think it would – yes, anything within would probably start been active after we conclude Euromar-1 yes.

Michael Webber – Wells Fargo

Got you, great. That’s helpful guys. Thanks for the time.

Tasos Aslidis

Okay.

Operator

Thank you. And your next question today comes from the line of Justin Yagerman from Deutsche Bank. Please go ahead.

Josh [ph] – Deutsche Bank

Hi good afternoon, this is Josh on for Justin.

Tasos Aslidis

Hi Joshua.

Aristides Pittas

Hi Josh.

Josh – Deutsche Bank

I just want to piggyback on one of Mike’s questions with Euromar, I guess you just mentioned, I guess growing it up in March 2013 and I just wanted to clarify one of your comments. Are you planning on fully investing that capital prior to March ‘013 or if you don’t buy any more ships you’ll still close it up at that point and you’ll just kind of get that on full capital back?

Aristides Pittas

Well I think that we will have – by that time we will have fully invested in the capital that we have. If we have not, I think that the bigger – from abilities that we will extend the period. But we have not yet discussed that in detail because we think that we will find the opportunities in the next four or five months.

Josh – Deutsche Bank

Okay. I guess maybe just switching gears to the chartering market, I guess we haven’t really seen too many long-term deals done and by long-term I mean maybe a year or more in the small containership classes. Can you talk about maybe what it takes to get a rate over six months and maybe is there a geographic differences between where your vessels are located and how that affects rates?

Aristides Pittas

Well I think to get a longer term charter – charterers would like you to commit to today’s rate – to today’s shorter term rates, so there is a reluctance from owners to do that. As there is reluctance from charterers to pay more than today’s market for a longer duration and as everybody things that we are at the low point in the cycle I think the divergence between the bid and the ask is so great that you’re not seeing any deals done.

Liner companies are also quite skeptical because of their own slightly increasing problems because of the dropping freight rates so they are more skeptical in planning longer term. So I think they are not very willing to take the possible opportunities of chartering ships that what still is low levels, right, even if they do it that it will be bit about current spot rates. So there is a difference between the bid and the ask.

Josh – Deutsche Bank

And is there a difference in rates between ships in the Pacific and the Atlantic or is it a pretty – is the market in the equilibrium?

Aristides Pittas

There are difficulties in both areas but since that I – the Caribbean are a little bit easier to fix, ships that are in Northern Europe are more difficult. The Far East is a bigger market with more players. So for smaller ships it’s a little bit easier to get employments there but the rate levels are pretty similar I would say.

Josh – Deutsche Bank

I guess on the balance sheet, there is the $9.5 million of restricted cash. Is that related to the 2013 balloon or is that just part of other debts or reserves?

Tasos Aslidis

It is partly is the meaning with liquidity covenants that we have to hold certain amount of liquidity per vessel. And part of it has to do with restrictions regarding the loan.

Josh – Deutsche Bank

Okay. So if you were to push out the 2013 balloon would that free up any restricted cash?

Tasos Aslidis

No, because there is a different loan where this restricted cash relates to.

Josh – Deutsche Bank

Okay. That’s all I had. I appreciate the time.

Aristides Pittas

Thanks Josh.

Tasos Aslidis

Thank you, Josh.

Operator

Thank you. (Operator Instructions) We have no further questions at this time. Please continue.

Aristides Pittas

Okay, so we would like to thank all participants of this call for listening in to us and we look forward to talking to you again in the beginning of next year and hopefully little bit better markets. Thank you.

Tasos Aslidis

Thanks everybody.

Operator

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.

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