Genco Shipping & Trading's (GNK) Management on Q4 2016 Results - Earnings Call Transcript

| About: Genco Shipping (GNK)

Genco Shipping & Trading Limited (NYSE:GNK)

Q4 2016 Earnings Conference Call

March 2, 2017 8:30 AM ET

Executives

Peter Georgiopoulos – Chairman

John Wobensmith – President

Apostolos Zafolias – Chief Financial Officer

Analysts

Douglas Mavrinac – Jefferies

Magnus Fyhr – Seaport Global

Espen Landmark – Fearnley

Operator

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2016 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today’s conference call. That presentation can be obtained from Genco’s website at www.gencoshipping.com.

To inform everyone, today’s conference is being recorded and is now being webcast at the Company’s website www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing 888-203-1112 or 719-457-0820 and entering the passcode 9740251.

At this time, I’ll turn the conference over to the Company. Please go ahead.

Peter Georgiopoulos

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expects, projects, intend, plan, believe and other words in terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance.

These forward-looking statements are based on management’s current expectations and observations. For a discussion of factors that could cause results to differ, please see the Company’s press release that was issued yesterday, the materials relating to this call posted on the Company’s website 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, 2015, and the Company’s reports subsequently filed with the SEC.

At this time, I’d like to introduce John Wobensmith, President of Genco Shipping & Trading Limited.

John Wobensmith

Good morning, and welcome to Genco’s fourth quarter 2016 conference call. As outlined on Slide 3 of the presentation, I will begin today’s call by reviewing our fourth quarter 2016 and year-to-date 2017 highlights. We will then discuss our financial results for the quarter and the industry’s current fundamentals, and then finally open-up the call for questions.

Turning to Slide 5, we review Genco’s fourth quarter highlights. During the fourth quarter, we recorded a net loss of $24.5 million or $3.35 basic and diluted loss per share for the period ended December 31, 2016. While our fourth quarter results continue to reflect a challenging rate environment relative to historical averages, it is important to note that during the quarter the Baltic Dry Index increase from all-time lows registered earlier in the year and that during the quarter we have undertaken strategic initiatives on both the commercial and technical side of our business in order to improve the Company’s ability to take advantage of a potentially rebounding market.

During the fourth quarter, Genco took important steps to strengthen its balance sheet increasing the Company’s liquidity position to $169.1 million as of December 31, 2016. As part of our success in strengthening our balance sheet during the fourth quarter, we closed on a $400 million credit facility, which refinanced a majority of the Company’s credit facilities. The new facility provides Genco with a more favorable amortization schedule through 2020, a reduction in minimum liquidity requirements and significant relief under the collateral maintenance covenants.

With the goal of further improving Genco’s liquidity and balance sheet, we completed the sale of an aggregate of $125 million of Series A Preferred Stock during the fourth quarter. On January 4, 2017, all 27.1 million shares of Series A Preferred Stock were converted into common stock. In addition we also made significant progress in advancing our plan to sell 10 of our older vessels. As detailed on Slide 5, we have sold or agreed to sell the remaining nine vessels identified to be sold for total net proceeds of approximately $27 million.

On Slide 6, we’ve outlined Genco significantly strengthened market position. The important steps we have taken in 2016 and into 2017 have served to reposition Genco to capitalize on a potential market recovery. Notably we have significantly enhanced the Company’s leading and sizable operating platform. First, we have transformed our balance sheet and capital structure through the completion of the $400 million credit facility on the $125 million capital raise, which I discussed earlier. Second, we have optimized the profile and strategic deployment of our diversified fleet, strengthening our ability to take advantage of improving drybulk fundamentals. In addition to improving the age profile of our fleet, our chartering strategy continues to focus on deploying vessel primarily on short-term charters with staggered contract expiration.

To this point, we have had a significant portion of our Capesize fleet on contracts that will be expiring within the next several months, which we believe we’ll put Genco in a strong position to capture the upsize potential from this vessel class throughout the course of the year.

We have also been opportunistically repositioning select vessel to the Atlantic basin to balance the Company’s Atlantic and Pacific exposure as well as to better position the fleet to take advantage of a potential improving drybulk market. We believe this strategy combined with the fleet that transports both minor and major drybulk commodities positions Genco well to capitalize on the strengthening freight rate environment.

Third Genco continues to be a leading low cost operator having achieved considerable vessel operating saving since 2014. Since 2014, we have consistently reduced our operating expenses. Our 2017 estimated budget is estimated to be $4,440 per day per ship as compared to our daily vessel operating expense figure of $5,035 that we had in 2014. On an annualized basis, this equates to savings of $13 million. These cost savings have been realized also without sacrificing our high safety and maintenance standards. Our ongoing commitment to cost management further solidifies our strong financial foundation and together with the favorable terms of our $400 million facility has contributed towards significantly reducing our cash breakeven levels to $7,189 per vessel per day making it among the lowest in the industry.

Finally Genco as the financial flexibility to capitalize on compelling growth opportunities as we seek to further enhance our leadership in the industry. In pursuing this important objective, our focus will be on maintaining a disciplined approach ensuring a commitment to best-in-class transparent operations and creating long-term shareholder value.

Moving to Slide 7, we provide an overview of our fleet. Having delivered eight of the 10 vessels identified to sale to buyers today entered into agreements to sell the two additional vessels in 2017. Genco’s fleet now consists of 62 drybulk vessel made up of 13 Capesize, 6 Panamax, 4 Ultramax, 21 Supramax, 3 Handymax and 15 Handysize vessels with a total carrying capacity of approximately 4.8 million deadweight tons. We intend to continue to utilize our modern diversified fleet to achieve the highest operational safety and environmental standards for leading multinational charters.

Before turning the call over to Apostolos, I would like to thank our dedicated team of professionals for their tireless efforts over the past year. The hard work of this experienced and committed team has enabled the success we have had further strengthening Genco’s leading drybulk platform.

Apostolos Zafolias, our Chief Financial Officer will now discuss our financials.

Apostolos Zafolias

Thank you, John. Turning to Slide 9, our financial results are presented. For the three months ended December 31, 2016, the Company generated revenues of $43.9 million, compared to $35 million for the same period in 2015. The increase in revenues is mainly attributable to higher spot market rates achieved by the majority of the vessels in our fleet during the fourth quarter of 2016 versus the same period last year. For the year ended December 31, 2016, revenues declined to $135.6 million, compared to $154 million for the year ended December 31, 2015. The decrease in revenues is primarily due to lower spot market rate achieved by the majority of the vessel in our fleet during the first half of 2016 versus the same period of the previous year.

For the fourth quarter of 2016, the Company recorded a net loss of $24.5 million, or $3.35 basic and diluted loss per share. This compares to a net loss of $49.5 million or $6.86 basic and diluted loss per share for the fourth quarter of 2015. The net loss for the year ended December 31, 2016, was $217.2 million or $29.95 basic and diluted loss per share, compared to net loss of $194.9 million or $29.61 basic and diluted loss per share for the year ended December 31, 2015. Basic and diluted net loss per share for both the three and 12-month period have been adjusted for the one-for-ten reverse stock split of Genco’s common stock, which was effected on July 7, 2016.

Turning to Slide 10, we present key balance sheet items as of December 31, 2016. Our cash position including restricted cash was $169.1 million. Our total assets were $1.6 billion, which consist primarily of the vessels in our fleet and cash. Our total debt outstanding excluding $11.4 million of unamortized debt issuance costs was $524.4 million as of December 31, 2016.

As John mentioned earlier, during 2016 we took step to improve our liquidity position. In November, the company successfully closed on a new $400 million credit facility. Proceeds of the new facility we’re used to refinance all of Genco’s existing credit facilities into one facility, with the exception of the $98 million credit facility in the 2014 term loan facilities.

The new credit facility includes an improved repayment schedule with no significant fixed amortization payments until 2019. It also provides more favorable financial covenants, including the elimination of collateral maintenance tests for the first half of 2018, the elimination of the maximum leverage covenant, and a reduction of the minimum liquidity requirements.

Moving to Slide 11, our utilization rate was 98.2% for the fourth quarter of 2016. Our TCE for the fourth quarter was $6,659 per vessel per day. This compares to $4,711 per vessel per day recorded in the fourth quarter of 2015. The increase in TCE was primarily due to higher spot rates achieved by the vessels in our fleet during the fourth quarter of this year versus the fourth quarter of 2015.

For the fourth quarter of 2016, our daily vessel operating expenses decreased to $4,486 per vessel per day, as compared to $4,954 per vessel per day for the fourth quarter of last year. Daily vessel operating expenses for the 12 months ended December 31, 2016 were $4,514 per vessel per day versus $4,870 per vessel per day for the prior year. The decrease was primarily due to lower expenses related to maintenance, as well as crewing and insurance.

Based on estimates provided by our technical managers and management’s views, our daily vessel operating expense budget for 2017 is $4,440 per vessel per day on a weighted average basis for the entire year for our core fleet of 60 vessels.

Turning to Slide 12, we have presented a detailed G&A line item analysis. Genco’s general and administrative expense line item has historically included non-cash non-vested stock amortization, third party technical management fees and expenses related to financing and refinancing activities for 2016. Excluding these items, our 2016 cash G&A was $16.8 million.

Going forward we will be presenting non-cash non-vested stock amortization, as well as technical management fees have separate line items in our financial statements. We believe providing this additional detail will enhance investors’ understanding of our expenses and cash flows.

Turning now to Slide 13, as John mentioned earlier on the call, Genco has undertaken a number vessel optimization initiatives over the last several years, substantially reducing our operating costs without sacrificing the company’s high safety and maintenance standards. Our daily vessel operating expenses have decrease by 10% from $5,035 in 2014 to $4,514 in 2016 with further savings expected this year.

While Genco is already among the lowest cost operators among its peer group, we intend to continue to focus on maintaining cost effective operations. In addition to the savings we have achieved in operating expenses, we have also significantly reduced our fixed debt repayment schedule through 2019. That can be seen on Slide 14 of the presentation. Our fixed debt amortization for 2017 is $4.6 million and for 2018 $13.2 million.

On Slide 15, we have outlined our cash break even rates before and after the refinancing. As you can see our success entering into credit facility was favorable terms combined with our cost saving initiatives to date has allowed us to significantly reduced Genco’s cash breakeven levels.

We estimate Genco’s cash breakeven level will decline from nearly $10,000 per vessel per day to $7,189 per vessel per day for the full year of 2017. This represents an estimated 27% reduction post refinancing and following the vessel sales. Further detail on our full year 2017 and first quarter 2017 break even rates has also been provided in the appendix of this presentation for your reference.

I will now turn the call back over to John to discuss the industry fundamentals.

John Wobensmith

Thank you, Apostolos. I’ll begin with Slide 17, which represents the Baltic Dry Index. During the fourth quarter, the BDI continued on an upward trajectory with periods of volatility, while rebounding from all-time low to witnessed earlier in the year. Specifically, in November, the BDI was able to find support pass the 1,250 point threshold for the first time since 2014, before concluding the year at 961.

Turning to Slide 18, we outlined some of the market developments influencing freight rate volatility at the end of 2016, as well as the start of this year. We believe that the relative rate improvement experienced during the fourth quarter of 2016 was due to the following factors. First, the pickup in China steel production, particularly since last March, stack in the stabilization and partial return of the Chinese coal trade, after large declines witnessed during 2014 and 2015. And third, fleet growth of only 2.2% during 2016.

To date in 2017, freight rates have been influenced by several seasonal factors including increased newbuilding vessel deliveries, weather related disruptions, as well as the Chinese New Year. What has separated the start of 2017 from what was experienced early last year is the start difference between in both Chinese iron ore and the coal trade.

The rise of Chinese steel output has resulted in augmented demand for both iron ore and coal cargoes. China’s iron ore imports rose by 7.5% year-on-year in 2016, a trend that is so far continued in 2017 as January imports grew by 12% year-on-year to 92 million tons. This represents the third highest monthly import total on record and only the four time the Chinese iron ore imports have exceeded the 90 million ton threshold. This concluded a three month stretch in which China imported 273 million tons of iron ore, the most ever for any three month period.

The rising import totals have also helped propel China’s iron ore port inventory, which currently stands at a record 130.8 million tons, 36% higher year-on-year. Iron ore demand in China has been satisfied by augmented volumes out of Australia and Brazil. Australian’s iron ore exports in 2016 increased by 5% year-on-year, while Brazilian iron ore exports grew by 2% year-on-year.

Furthermore in January, ore shipments from Brazil rose by 15% year-on-year supported by additional output from Vale’s S11D mine that came online during the month. Miners have seen the price of iron ore rise to a 30 month high of over $90 per ton as it remains firm demand for high grade iron ore in the seaborne market.

Turning the Slide 19, we highlight global steel production. After contracting in 2015, China steel output grew by 1.2% in 2016 to reach 808 million tons, which still remains below the record of 823 million tons reached in 2014. However, year-on-year increases have occurred in every month since March of 2016. That continued to be the case in January of 2017, as China steel output rose by 7.4% year-on-year.

Production has been incentivized by improving margins and the sustained strength of steel prices, which are currently just below the three year high registered last December However, increased production is also helped build China’s steel stockpiles, which have increased significantly over the last several months and currently stand at 16.4 million tons or nearly 40% greater on a year-on-year basis.

Moving to Slide 20, in addition to rising steel production in China, another key factor impacting the drybulk market has been the relative strength of the Chinese coal trade. After increasing by 25% in 2016 year-on-year that strength continued into January as imports total 24.9 million tons or a year-on-year rise of 64%. Since June of 2016, China’s coal imports have exceeded 20 million tons during each month, which is something that only occurred once in all of 2015, during peak winter demand season imports of risen to the highest level since 2014.

Reduced coal availability domestically through lower production, as well as declining stockpile has helped lead to the rising imports. The NDRC may also look to reinstate domestic coal production restrictions, which would cap operating days at mines to 276 from 330 days. Another potential positive for seaborne coal shipments has been recently reported ban by China coal imports from North Korea, which totaled approximately 22 million tons in 2016. Most of this was carried inland, but it remains to be seen whether this will lead to more seaborne import or whether domestic output will make up for the loss tons.

Looking ahead catalyst of the drybulk market could potentially be the onset of this spring construction season in China as well as the ramp up of the South American grain season. To that point the USDA has again revised its forecast for global grain trade upward and now expects an increase of 8% from last year’s level.

Additionally the Indonesian government has lacks its mineral or export ban, which could lead to increase minor bulk cargoes, while additional iron ore shipments from India could reemerge after a significant slowdown in recent years.

On Slide 21 and 22, we outline current supply side fundamentals. The drybulk fleet grew by 2.2% in 2016 after taking into account scrapping of older tonnage, which was the lowest space of fleet growth since 1999. As the seasonally the case new building vessel delivery searched at the start of 2017 as January recorded the highest amount of tonnage delivered since the first month of 2013. Scrapping has slowed as well when compared to the record pace set during the first half of 2016. Although the full year of 2016 was the third highest demolish in year on record.

With the lack of ordering the order book as the percentage of the fleet has fallen to 9%, the lowest point since 2002. The order book remains heavily front loaded towards 2017 as $45 million deadweight ton or 61% as currently scheduled to deliver by the end of this year. Of this amount it still remains to be seen how much we actually deliver considering that the 2016 slippage rate was approximately 50%.

In conclusion, with regard to the industry’s current supply side fundamentals, we believe scrapping, slippage, and cancellations are all essential components of reducing supply growth, which could lead to a more balanced supply and demand equation going forward.

This concludes our presentation and we’d now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will take our first question from Mr. Douglas Mavrinac from Jefferies.

Douglas Mavrinac

Great. Thank you, operator. Good morning, guys. John I just had a few follow-up questions for you after your prepared remarks. The first one being it is a real big picture question. Late last year you guys are very busy. I mean you close out on that $400 million credit facility into the capital raise. So you guys are in good shape assumingly into 2019. So you’ve got good couple years worth of runway.

So as you kind of go down that run way, how do you balance kind of – or what it’s just the – may be the strategic focus of Genco in terms of taking advantage of your strength in balance sheet versus may be deleveraging. So how do you kind of balance those two may be competing priorities.

John Wobensmith

Yes. I mean look Doug, at this point we think this is one of the strongest balance sheets in the industry now considering you’ve got a breakeven rate at $7,200 a day.

Douglas Mavrinac

Right.

John Wobensmith

One of our main focus is right now is where do we go from here in terms of growing the company. We still think from a historical asset value standpoint. These are very attractive prices on vessels and we also think the industry is a need of consolidation going forward and we want to play a major role in that.

Douglas Mavrinac

Got you. Yes, so you touched on two things John, that I was going to get to and so I’m glad you brought them up. So first, you mentioned your low run rate. And obviously on that front you guys have done a lot of work both in terms of cost cutting on OpEx as well as G&A, especially G&A. So when we look at those reduced run rate is that about what we should expect going forward in terms of kind of implementation some of the cost cutting efforts that you all have done.

John Wobensmith

Yes. I mean I think on the G&A side, we’ve cut cost from the G&A, but we’ve also hopefully made very clear what our true cash G&A is by breaking that out is the separate among the income statement. I think there was confusion, so what that number was because there was inclusion of the restricted stock amort. So hopefully that’s very clear, it’s a folks going forward.

Douglas Mavrinac

Yes.

John Wobensmith

On the operating expense side as we pointed out we have a budget now $4,440 today for 2017. There are additional items that we are implementing for during 2017, so we believe there is room for further reduction on that in 2018 as well.

Douglas Mavrinac

All right. Got you. That’s all, very helpful. And then the second – follow-up to my first question was when you talk about the opportunities that exist. And my question is coming out may be from a different perspective, but probably getting to that same conclusion as that – we are in this world. We have this backdrop where commodity prices whether they be iron ore, coal or whatever they’ve been strengthening and economic expectations seem to have improved finally.

So when you look at kind of that backdrop against say drybulk market. Have we seen similar or even any improvements in drybulk asset values? And if the answer is no, is that the opportunity that where you see this disconnect between things getting better on, yes, dry cargo asset values for one reason, another haven’t improved yet.

John Wobensmith

No. I actually think we definitely have seen an improvement in asset values. If you look at what’s happened in the smaller vessels the Ultramaxes and the Supramaxes, you’ve probably seen at 20% to 25% improvement of asset prices also the low probably going back to the first quarter of 2016, the Capesize numbers have also improved so not as much probably and maybe the 9% to 10% area.

Douglas Mavrinac

Right.

John Wobensmith

And that we actually think that’s a pretty attractive segment because it has of yet had a large movements in asset prices and we do expect recovery or greater recovery on freight rates in the Cape sector enhance values were most likely continue to move up.

Douglas Mavrinac

Right. I guess I was kind of the tricky part is that it hasn’t been as even I guess the increases, but then also it’s half of a very low base. And so its have the increase enough to where there may be reflective of kind of how good maybe the environment could be. And it sounds like the answer is there’s probably still some upside in certain segments from your opinion.

John Wobensmith

I believe so. I mean look we have been saying that this is still the early stages of this recovery and its clearly going to still be bumpy and volatile, but I think its fair to say that we look at this year is going to be a better year than last year, but more important, we continuously improving as we get into in the fourth quarter of 2017. And then you start to look into 2018 and the very, very low projected supply growth. And I think things get interesting at that time.

Douglas Mavrinac

Right. And actually that’s a transition to my final question that is the order book in the outlook and in your prepared remarks you mentioned how your 2017 was basically that the year where you’re seeing the majority of the deliveries are reflected in the order book. And so when you look at how this year could unfold? I would imagine that bulk of those deliveries in 2017 are probably going to be in the front end of the year, so you don’t just wake up on January 1, 2018 and see nothing common.

That you’re going to kind of just lower towards that in the second half of this year. So is that about how we should expect the delivery profile to evolve? And then as a consequence forgetting hardly any fleet growth is it fair to kind of say any of the demand catalyst that you described should result in better utilization for the existing fleet if the fleets not getting any bigger.

John Wobensmith

Yes. I mean look taking your first part, yes, we expect the fleet growth to be heavily weighted towards the first half of this year. We actually still expect to see cancellations come to the table, cancellations that are probably already happened, but haven’t actually been removed from the order book.

Douglas Mavrinac

Right.

John Wobensmith

But that’s a pretty high slippage rate. You’re still seeing delays and people push some of these orders out. So yes, I mean I think in general and we saw this, we did see this last year, but I think it’ll be more pronounced this year, deliveries more heavily weighted towards the first half. And yet, again as you get into next year with low projected fleet growth, any of these improvements on the demand side will have incremental gains. And I think – but one, the really interesting thing I find here right now is on the iron ore side and you look at a lot of the growth on the iron ore volumes have come out of Australia over the last couple of years and Australia actually taken away market share from the Brazilian miners, but starting this year and going into next year, a lot of the growth is now coming out of Brazil.

Douglas Mavrinac

Right.

John Wobensmith

We had Vale. And so Vale is attempting to take market share back and obviously from a ton-mile demand standpoint, there is real leverage on that trade because it’s double the amount of days to get to China.

Douglas Mavrinac

Yes, yes, yes. That’s actually very helpful John and that’s all from me. Thank you.

John Wobensmith

Thank you, Doug.

Operator

Thank you. [Operator Instruction] We’ll take our next question from Mr. Magnus Fyhr from Seaport Global.

Magnus Fyhr

Hey, good morning, guys.

John Wobensmith

Hey, Magnus.

Magnus Fyhr

Just a follow-up here on may be ask a little bit differently, you have a pretty well diversified fleet, you’ve sold, I guess you have agreements to sell the last two ships that you had mentioned. And you still have a couple in 1999 builds Panamaxes left in the fleet and a couple of Handysizes. I mean you have plenty of operating leverage in your fleet, but maybe you can walk us through how you think about these ships as they get close to 20 years of age and also with water ballast treatments regulations coming up.

John Wobensmith

Yes. Look it’s definitely an active analysis. I mean you look at the ten ships that we had identified last year to sell there was a strategic decision on those ships, because the drydockings were coming up. And we felt that we did want to pare down some of the older ships now. From an opportunistic standpoint, we wanted to wait to sell the majority of those in the fourth quarter, because we did think it would be a stronger time period. I will say we’re possibly surprised on how positive that for the quarter was and the values that we were able to achieve in those sales.

So that was good and I – and we will definitely continue to assess the older Panamaxes and some of the older Handysize with knowing that ballast water treatment systems will eventually have be installed. Having said that, right now I don’t see us having a need to actually put a ballast water treatment system in place, probably until 2019 on the earlier ship right now based on our fleet. But it is a very much of financial analysis, looking at what we believe that ship can earn how much CapEx needs to go into that ship versus what you can sell the ship for today.

Magnus Fyhr

Okay. And just, as far as the fleet composition currently, I mean, well diversified. Is there any areas where you think looks more interesting than others Capesizes versus smaller ships.

John Wobensmith

Look, I mean, I think again from the value standpoint, we haven’t seen the run on capes, there’s probably more upside in the Capesize sector based on current values than maybe some of the smaller classes. But as you know, these things are highly correlated. So as the market recovers we expect all asset values to move up, probably a little bit more on the cape switch we have seen historically as well.

But if you look at what Genco is trying to do from a strategic standpoint, we’re very much focused on the major bulks, which is predominately the Capesize sector and then the minor bulks, the Ultramax is on down. So I think, within that grouping that’s what you’ll see us concentrate on both from a – whether it’s in M&A standpoint or a commercial strategy.

Magnus Fyhr

Okay. And just a last question on, there’s been a lot of activity in the time charter market here recently, some pretty decent rates. I know you’re primarily a spot player, but maybe you can just talk a little bit about your strategy going forward as far as spot versus time charter.

John Wobensmith

Yes, absolutely. I mean, if you look at what we’ve been doing the capes, we really didn’t have too much coming open until recently. We now have several capes coming open we have been – I would say less maybe, where our index spot focused and more focused on five to seven month time charters in the Capesize sector, we just did want for five to seven at $10,500 a day, which would then allow that shift to be open sometime in October, which again we think is should be an advantageous time to – from a seasonal standpoint to hopefully get a higher rate.

So I would say on the capes has been more focusing on shorter term fixtures, and sort of that maybe four to seven month range. But also making sure those ships are not coming open in the first quarter, but rather coming open in the second quarter and later in the years going forward.

On the smaller sizes in the minor bulks, we have taken a very active approach splitting the fleet. So we have a more balanced fleet in the Atlantic basin, which historically has been a stronger area to be. And then, but also keeping a decent presence in the Pacific. And again that has already paid off some of the fixtures that we’ve been doing in the Supramax and the Handysize sector have been above the index, because they’ve been repositioned to the Atlantic.

Magnus Fyhr

Okay, just one last one. I mean the – looking at current market rates are little bit above – around cash break even. Going forward stocks have moved up quite a bit in the last few months, discounting a recovery in the market. Average rates historically, the last five years has been barely around cash break even and the years prior to that was the peak China year. So my question is what is really mid-cycle earnings for an Ultramax vessel or Panamax vessel. What your thoughts about that.

John Wobensmith

Magnus, I think it’s tough to make rate projections in absolute terms. I agree with you, the events that we saw 2006, 2007, and 2008 in terms of the China boom. We don’t expect to see anything like that anytime soon. Having said that, with where break even rates are particularly for Genco and looking at where things may go. I’m not sure what it mid-cycle rate is. But $7,100 a day or $7,200 a day in a cash flow break even anything for an Ultramax for example, anything above 10 or 11, which we think you should be getting there, starts to really produce cash flow.

And then you look at the capes, and we have 13 capes, and obviously the operating leverage on those is pretty big. And you can do the math on that. But it’s – we like the fact that the company has a diversified fleet has capes, where you really can have nice upside volatility, but then also having the Ultramax is on down which provides a little more stable cash flow to reduce debt.

Magnus Fyhr

Right. Well, thank you.

John Wobensmith

Thank you, Magnus.

Operator

[Operator Instructions] Thank you we’ll take our next question from Espen Landmark from Fearnley.

Espen Landmark

Hey, good morning guys. I wanted to touch on the Page 22 that you have on the supply side. I mean there’s 9 million deliveries and two of demolitions and then February I think the numbers three in oneso current net you had more than $9 million on delivered, which equates to around 1.2% fleet growth for February. I mean, do you think that is a scary number. What’s kind of your expectation for 2017 overall?

Apostolos Zafolias

No. Look again I think there was – as we typically see – you see more deliveries in the January and February time period, just because deliveries that we’re scheduled maybe for fourth quarter of the year before. People want to get the newer build date. So I think that’s a natural thing from a seasonal standpoint to see more deliveries in the first quarter versus the rest of the year, where our fleet growth that we’re projecting is somewhere between 1% and 2% on a net basis this year. And I certainly have seen numbers from analysts that are lower than that. But the 1% to 2% is what we’re focused on.

Espen Landmark

All right. And turning to the asset values, I mean, as you say there’s been some quite nice increases and especially I guess the Supras. So it’s kind of the five-year to new Vale it’s actually hoovering around 75% now. So for another jump you would actually need to see newbuild prices moving up, do you, I mean how far are we from that scenario.

John Wobensmith

Look, it’s tough to tell. We haven’t actually fortunately and I hope we don’t see it anytime soon. But we haven’t seen any actual large scale newbuilding orders. I think it’s tough to tell whether the newbuilding prices that are published right now are real or not. My view is at those prices, yards are probably still losing money. So I’m not even sure if they would include a deal with that. We have fortunately seen the prices steel holding firm and as you know there’s a very high correlation of that price of steel versus newbuilding prices. I agree with you particularly in the Ultramax sector, you’re starting to get the parity, with the resale versus the new building.

But it’ll be interesting to see if anybody would actually or yard would actually take that newbuilding price. But I do think – well, I’m hopeful that as we continue to see recovery in the steel industry, which is – by the way not just happening in China. We are seeing recovery of the steel side more global now over the last six months than what we’ve seen in quite a while. But I’m hopeful that we continue to see the price of steel firm, which will obviously pushes newbuilding prices up.

Espen Landmark

Right, and final one on the balance sheet $169 million of kind of cash, the collateral maintenance covenants is waived. What’s kind of the minimum liquidity for you guys and what’s kind of buffer that you have to work with.

Apostolos Zafolias

So the actual minimum liquidity covenant would be $21.75 million for the fleet. So it’s whole study through 2018.

Espen Landmark

All right. That’s very helpful guys. Thank you.

Apostolos Zafolias

Thank you.

Operator

Thank you. That concludes today’s question-and-answer session and also concludes today’s conference. We thank you for your participation. You may now disconnect.

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