Diamond S Shipping Inc. (NYSE:DSSI) Q1 2020 Earnings Conference Call May 8, 2020 8:00 AM ET
Company Participants
Craig Stevenson - Chief Executive Officer
Kevin Kilcullen - Chief Financial Officer
Conference Call Participants
Ben Nolan - Stifel
Omar Nokta - Clarksons Platou Securities
Randy Giveans - Jefferies
Liam Burke - B. Riley FBR
J Mintzmyer - Value Investor's Edge
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Diamond S Shipping First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Mr. Craig Stevenson, CEO of Diamond S. Thank you. Please go ahead.
Craig Stevenson
Good morning, and welcome to Diamond S' first quarter 2020 earnings call. Thanks for dialing in this morning.
Before we begin, we'd like to draw your attention to our forward-looking statements disclaimer. We will be making certain statements about future events that may or may not happen in the way in which we describe. Please read Page 2 in its entirety for our disclaimer about forward-looking statements.
Please turn to Slide 4 to review our operating performance. In the first quarter of 2020, we earned approximately $46,725 per day in our crude fleet on the spot market, and about $16,425 a day in the products spot market, which includes our MR tankers at $16,600 per day. All-in TCE was $42,900 per day and $16,000 a day in both the crude, fleet and the product fleet, respectively.
At Diamond S, we look at operating earnings in our fleet, which we calculate TCE less OpEx less G&A, because we think it's important to highlight given the various ways these expenses get classified in our industry. The Crude Fleet generated $34,000 a day in operating earnings, while the Product Fleet, which includes our Handysize vessel, generated about $8,200 per day.
Our reported net income was $45 million or EPS of $1.13 per share. EBITDA was approximately $85 million and we purchased $1.4 million worth of our shares, which approximately equates to 137,000 shares before our blackout period ended in the quarter. Below, you can see the spot earnings volatility during the year and corresponding periods in 2019, as well as the 10-year range.
So far in the second quarter we booked approximately 54% of the spot revenue days at an average rate of $48,700 a day in the Crude Fleet and approximately 50% of the Product Fleet spot revenue days at approximately $20,400 a day, which includes spot MRs at $20,700 per day.
So far in the second quarter, including our long-term charters, total revenue days of the Crude Fleet are approximately 63% fixed at an average rate of approximately $41,800 per day. And in the Product Fleet, approximately 60% is fixed at an average rate of approximately $18,500 per day.
On Slide 5, we all know oil is facing a significant demand destruction as a result of the impacts of the spread of COVID-19. 6 months ago, oil demand was predicted to be slightly over 100 million barrels a day. And today, the latest estimate displayed on the left hand chart by OPEC is roughly 10% decline from there.
Coupled with the demand destruction, days forward demand of inventory has spiked to nearly 73 days, which is about 13 days over the 10-year average. OPEC+ is officially cutting production to manage these levels and the U.S. is expected to file a suit, though, declining economics.
As a result, we are seeing refinery throughput processing levels at well below capacity. In the United States, throughput levels are at the lowest they've been since 2008, roughly 65% of utilization. On the graph on the right hand side, we can see onshore storage is at or near its limits. Excess oil is being stored in Brussels since the contango spread is large enough to support the trade. It's a key driver in absorbing tanker supply and increasing tanker rates in the near-term.
Decline in oil prices has also caused a drop in bunker prices, which is the largest cost to spot vessels in the fleet. While certainly positive for the industry, we expect the factors to be short-term in nature as demand recovers. The trade will unwind, which will have a negative impact on rates. We are managing against this possibility and remain focused on maintaining a healthy balance sheet.
Turning to Slide 6, our positive long-term outlook is intact, despite the high level of uncertainty in global economic landscape. Tanker demand is likely to come under pressure in 2020 as inventories begin to draw, the supply side of the tanker space continues to be supported by low order book and an aging fleet.
On the top half of the page, you can see the tanker supply remains tighter than historical averages, since the number of vessel on order is about the same as the number of vessels that had the potential to be scrapped. We believe supply remains constrained not only due to the growing age of the fleet, but also due to the near-term oil demand and underlying uncertainty of regulations and technology on new building tonnage.
On the bottom half of the slide, we can see that tanker demand growth has been further modified to account for the demand destruction in the oil markets and we look forward to when those oil markets recover. We still expect that the tanker markets will improve from 2020 as regional imbalances of crude oil and product inventories are corrected to normalized levels.
Slide 7, we show the graph of asset values relative to 10-year average, both for Suezmax and the MR fleet. We believe that there continues to be disparity in values of older tonnage, particularly on the crude oil side, which provides upside potential for Diamond S and our shareholders.
We expect that a large fleet of older vessels can generate better cash flows than a smaller, younger fleet, especially when considering the amount of capital having to be employed to purchase assets at today's prices. This effect is amplified by the lower bunker prices as well.
At this point, I'd like to turn over the presentation to Kevin, our CFO, to go through the financials.
Kevin Kilcullen
Thanks, Craig. First quarter of 2020 represented the second consecutive quarter of record financial results for Diamond S. Large fleet of spot market orientation we're well positioned to deliver significant cash flow in robust tanker markets. Unit leverage of our 66 vessel fleet is substantial. First quarter saw adjusted net income of approximately $45 million, which equates to $1.13 per share.
Our Crude Fleet earned $46,700 per day and the spot Product Fleet produced TCE of approximately $16,400. Stronger rates on both fleets than we saw in the fourth quarter of 2019 and significantly stronger rates than the comparable period last year.
Time charters booked in prior periods at lower rates, brought the quarterly TCEs down on both fleets. Craig mentioned the overall numbers booked for the second quarter, but I'd like to provide a little more detail on the pure spot figures.
For our Product Fleet, our MR Fleet is approximately 51% booked at $21,000 a day and our spot Handy Fleet is 46% booked at $18,000 a day for the second quarter. On our Crude Fleet, our Suezmax are 54% booked and approximately $49,000 a day for the second quarter. That number on the Crude Spot Fleet is been dramatically impacted by the fact that about 25% of the spot fleet is on so-called stranded voyages.
Due to spot features that were signed in the weaker environment of February and March, the vessels were supposed to discharge in March and April, but have been unable to do so because of logistical constraints, including refinery closures and lack of on store storage.
Some of these vessels are still laden today. Certainly they are earning the demurrage rates agreed in the initial voyage, which unfortunately for us, were at significantly lower rates than have prevailed for most of the quarter. We have been unable to fix these vessels to take advantage of the strong market conditions.
Company produced $85 million of adjusted EBITDA in Q1, up from $70 million last quarter. Cash flow generation overall was strong and there was very little CapEx in the quarter. There's a small amount of activity on our share buyback program with $1.4 million used to purchase shares at an average price, just above $10 per share.
Moving on to Slide 10, an overview of the balance sheet shows that DSSI continues to delever at a good pace as scheduled debt repayments and a small pay down on our revolving loans were the largest use of cash in the quarter. Net leverage on the fleet is now approximately 43% based on broker valuations.
Liquidity situation at quarter end was healthy, with approximately $81 million in free liquidity available to the company after restricted cash and bank required minimum cash. I will mention again that we are entirely debt financed with low cost senior secured ship loans from major international shipping banks. After quarter end, we entered into interest rate swaps for approximately 25% of our future floating LIBOR exposure at a fixed rate of 54 basis points, effectively locking in the cost of debt of just above 3% on that portion of the debt.
Despite the turmoil, cash breakevens on the fleet have remained steady as an increase in OpEx, that I'll discuss in a moment, has been offset by a decline in estimated future interest expenses. We're able to maintain some of the industry leading breakevens on our vessels.
Continuing to Slide 11. On CapEx, the forward CapEx outlook is fairly similar to what we presented in the last call. No dry docks were completed in the first quarter. For the rest of 2020, we have five products planned with two ballast water treatment installations and three scrubber installations. The timing in 2020 has shifted a bit as some of the work we have scheduled for the second and third quarters has bled into the fourth.
The long-term CapEx outlook remains consistent and timing and amounts with a modest here in 2021, followed by heavier outlays in 2022 and 2023. Despite the fluid environment, we are maintaining our guidance on estimated costs for yard work as we believe we can continue to execute these projects at our prior projections.
Finally on the next slide, touching a little bit on the pure financial impacts of the pandemic. The biggest concern for us in the intermediate term, as Craig discussed, is the demand destruction created by the drastically reduced global consumption of petroleum products. First, for floating storage, given the sharp contango is in both the oil and petroleum products markets have insulated tankers from this demand destruction in the short-term.
When the inventory cycle reverses, the billion dollar question for our industry is how fast does demand recover to burn through the elevated global inventories. In addition to revenue uncertainty, the pandemic is also increasing our costs. The entire industry is struggling with crew changes and getting adequate stores and supplies delivered to vessels.
How does this translate to guidance change? We've increased annual OpEx expenses due to these difficulties, but we believe we will be able to maintain most of the other cost items at similar levels to the previous guidance provided last November. One final note for me on Scrubbers, we are proceeding with our Scrubber installations on three vessels. We expect to complete one install in each of the second, third and fourth quarters of 2020.
With that, I would like to turn it back over to Craig for the summary.
Craig Stevenson
Thanks, Kevin. Before we open it up to Q&A, we clearly expect some challenges in 2020 as the tanker market begins to feel the impacts of the overall macroeconomic environment. However, we do believe that the company is positioned well with moderate leverage and industry leading breakeven levels to support the downturn and prepare for when the market does return.
The natural limitations on fleet supply and a need for tankers due to the regional imbalances of oil, we expect the tanker market to return to fundamental supply and demands once we work off the excess inventory build. Diamond S remains exposed to the volatility in the spot market and will continue to utilize our disciplined capital allocation in order to maximize our return to shareholders, while maintaining a healthy balance sheet.
With that, I'd like to open the call up for questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Ben Nolan with Stifel. Please go ahead. Your line is open.
Ben Nolan
Thanks and good quarter, guys.
Craig Stevenson
Good morning.
Ben Nolan
I have a couple of questions. The first sort of it relates to a little bit about what you're talking about at the end there, Craig. You at least stand a little bit more apprehensive about 2020 in the near-term than maybe some of your peers have been. I am curious -- so, first of all, how does that impact your capital allocation? You had the buyback program, you did a little bit still -- well, close to -- still almost the whole thing is available. Do you -- so if you are a little bit more cautious in the near-term, you maybe pull back on that, or is this you feel like there's ample liquidity. And then more broadly, how are you -- if you do think that this could be a little bit more challenging for a little while, would proactively are you doing to sort of prepare for that.
Craig Stevenson
That's the question of the day. What is near-term? I think if near-term, if you just focus on the rest of the second quarter, that's right around the corner. And I think everyone feels good about that. I think in our mind, it's -- tell me what the third and fourth quarter really looked like and quite frankly, in the first quarter, right when we were starting to do our buyback, it got increasingly more opaque as to what we saw in the third and fourth quarter. And so, as you have all these ships going into floating storage, not understanding or not having a strong point of view about how that unwinds. So it could be not so bad or it could be much worse. And so until we feel that we have a better idea as to how that sort of plays out, I think we are cautious. So we stopped purchasing shares back. It's still an incredibly attractive price, but you just need to be sure that you can weather the storm.
Ben Nolan
Right. And anything else that you can do proactively, if you are sort of battening down the hatches a little bit.
Craig Stevenson
Look, we're trying to do exactly what everybody else is. To the extent that you can lock up good rates on short-term time charters, I mean, the vast majority of time charters are probably 6 months. The customer sees the same thing, what we're just talking about. And so I would say to that, we're trying to maximize what the market gives you today. And to the extent that somebody can give you a decent rate on a short-term time charter or a long-term time charter, you certainly would look at that.
Ben Nolan
Okay.
Kevin Kilcullen
We're still very much believers in the long-term tanker story. And I think, if anything, this uncertainty will help keep a damper on the supply side, maybe even longer and more than we had hoped 6 months ago. So I think in the long-term, we're still very excited about where it's going. But we can see a trough coming with record inventories and demand destruction. We will be in a trough earnings position sometime in the future. And how long it lasts and how bad it gets, is probably a billion dollar question for our industry.
Ben Nolan
Sure. Understood. My next question relates to, again, something that which you are talking about the fact that you have ships that are scheduled to finish their voyages, but they can't discharge, you're being paid to demurrage. But even that demurrage has a fine eye contracted duration from what I understand. Do you have any leverage to maybe get market level rates or something like that if the demurrage here, if you're still unable to discharge at the end of the demurrage there?
Craig Stevenson
I know …
Kevin Kilcullen
It's a very gray legal situation and I don't think we're the only owner impacted by this. I think we're somewhat disproportionately impacted. Just the percentage of our crude vessels that ended up stranded is pretty high relative to our spot fleet. We are trying. And I think after a certain length of time, our position gets better. But just to give you a sense of what the impact is on that part of the fleet, that is so-called stranded. We've been earning about $33,000 a day average demurrage on those ships. Obviously an environment for much of the quarter, which was much, much higher. So that's -- it continues to be an issue. We have a couple of them that look like they are going to discharge soon, but there is still uncertainty around several vessels.
Craig Stevenson
But I mean, I'll give you a great example. And so you fix a ship in March and they give you spot ship, mind you, spot ship and they tell you have discharge orders in July. And so you know what they're doing. I mean, the reality is, you look at it legally, but you know what they're doing. They're comparing that against the storage rate. And the storage rate is a lot higher than your demurrage rate. And no, it's a tough call. We've looked at it very, very closely. Not sure there's a lot we can do is our answer to that.
Ben Nolan
Okay. All right. Well, I appreciate. And again, pretty impressive results.
Craig Stevenson
Thank you so much.
Kevin Kilcullen
Thanks, Ben.
Operator
Your next question is with Omar Nokta with Clarksons Platou Securities. Please go ahead. Your line is open.
Omar Nokta
Hi, Craig and Kevin. Nice quarterly update. Yes. Hi, guys. Yes, I was just going to say nice quarterly update. Always good to see big cash bills and sizeable debt repayment and looks like we're set for a repeat of that here in the second quarter. I did want to -- just have a couple of follow ups, obviously on the last points regarding the Suezmax. Is there -- when we think about those, were those vessels books basically just a normal spot voyage to go from A to B, and then they've just been stranded, or were they the type where we've heard about increasingly where it's a charter requests a spot vessel and then once options for storage, call it, thereafter. Is that what this is, or really these ships are just really stranded?
Craig Stevenson
Stranded, just normal voyage.
Kevin Kilcullen
I mean, in fact, we had a Suezmax on the West Coast that was booked on what was supposed to be a 5-day lightering voyage, just lightering the VLCC off the U.S. West Coast. And then because of the refinery shut down, a 5-day voyage turned into so far half months and counting.
Craig Stevenson
I mean, you got all kinds of things that -- depending on where you are, you're going to file your bottom, you're going to you're going to do all sorts of things that you would normally calculate as part of a storage option. And you did right, and so it -- it's -- it doesn't make you feel too good.
Omar Nokta
And just another example, the West Coast were supposed to be 5 days, but here we are. Is that vessel just sitting or is the charter moving at somewhere else?
Kevin Kilcullen
That particular vessel is one of the -- that we have finally gotten discharge. I think it's supposed to discharge next week. So there is some light at the tunnel -- end of the tunnel on that one.
Omar Nokta
Okay. And don't want to kind of belabor the topic more, but you did mentioned a sizable piece of the spot fleet. They have the perspective on what number of ships that is? Is it maybe 5, 6 ships along those lines?
Craig Stevenson
It was -- in terms of stranded voyages, it was about 5 ships in terms of day count of that 33,000 a day number that those vessels were earning, that was about 25% of the spot days in our estimate.
Omar Nokta
All right. And then you mentioned Craig, the TCE demand, as there's been a lot of -- 6 months activity and when we think about what Diamond S has been doing, you’ve obviously got a lot of spot exposure and you do have a lot of TCEs from prior quarter.
Craig Stevenson
Yes, I mean, we -- I mean -- so we did a couple of the short-term deals, we put a number of ships on subs to do longer term deals, they all failed. Quite frankly, I think there's a tremendous amount of voyages that were put on subs in the industry that -- you're put on subs and they see if they can put another ship on subs cheaper and they will fail you and declare the other guy. And so having said that, I think most of the short-term time charters are all about that first voyage. If they can make a big number on the first voyage, you got lifted. If they can't and they can't close that out, lock that up, there's a good chance you failed. And so, there's a lot of interest in those short-term time charters. I think most people would probably prefer going longer today, if they could. I know, for instance, a lot of the VO -- a number of people had VOs that they could get longer term deals with. I think largely on the Suezmax side, vast majority were about 6 months.
Omar Nokta
Okay. That's interesting. Craig, because some of your VLCC peers earlier in the week discussed that very thing about fixing and sailing, and thus exaggerating what the index averages are for TCE rates. And so is -- what you're talking about -- obviously, most people view it as a VLCC thing with maybe some impacting the other asset classes. Is this something that's prevalent basically in the Suezmax as well as in the product market as well?
Craig Stevenson
I think that's the sort of the hidden story. I mean, normally you see a contango market and it's largely crude oil and -- but the contango market is alive and well in products in a giant way. And so, we've seen a lot of interest -- we've seen some interest on short-term time charters on products as well, even on smaller ships, even on 50,000 tonner MRs. And we've basically done some of those. And so all of those things, both the Crude and the Products both are tightened as a result of floating storage.
Kevin Kilcullen
Omar, another -- a short answer to your question is, yes, I absolutely love the abuse of putting a vessel on subjects, which has turned into essentially a free 24 to 48 hour option at a fixed rate is absolutely happening in every asset class.
Omar Nokta
That’s interesting. And maybe and I've been carrying on here. Just have one more and maybe kind of a bigger picture view on the product. Obviously, the Product Fleet looks to be in the driver seat today with where rates are. The rates are really broken out and there's a number of logistical challenges, as you guys have mentioned, that are keeping supply generally tight for the Product Fleet really globally, kind of what you think about where Diamond S is with the Product Fleet? You had sold some ships back in the summer fall of last year, and it really just kind of held on to the fleet as it is now. Any changes in how you're viewing your product positioning? Do you look to want to maintain your current footprint, which is a fairly sizable at 50?
Craig Stevenson
So we've got -- I didn't quite hear all that, Omar.
Omar Nokta
I'm sorry. I don't know if I cut out, but I was just simply asking if -- when you think of the -- your positioning in the Product Fleet, do you like to just …
Craig Stevenson
Yes.
Omar Nokta
… [multiple speakers] where you are?
Craig Stevenson
Yes, look, and so our Product Fleet, we had 50 ships. 44 MRs and 6 are Handys. Now the Handys are absolutely cash cows today. So they're generating a tremendous amount of cash relative to their real value today. And so we think value should edge up. At the same time, those Handys are 2006 built. And so -- and they are relatively high on that, that’s a 10-year average.
Kevin Kilcullen
Yes. If you turn to that page where Craig went through the asset value is on Page 7, and just the right side of this page being more relevant to our existing fleet, you can pretty clearly see that the second hand product tonnage is really toppy in terms of historical values. So I think would we look to sell vessels? It's pretty obvious that it's more likely going to be in the Product Fleet than the Crude Fleet.
Omar Nokta
Yes. Thank you. I appreciate that. All right. Thanks a lot, guys. Looking forward to next quarter.
Craig Stevenson
Yes.
Kevin Kilcullen
Thanks, Omar.
Craig Stevenson
Thank you.
Operator
Your next question is with Randy Giveans from Jefferies. Please go ahead. Your line is open.
Randy Giveans
How are you gentlemen [indiscernible]?
Craig Stevenson
Hey, Randy, really good.
Randy Giveans
Very good. I too have ten questions, so get ready. No, I was kidding. Yes, a little zing there for Omar. Congrats, yes, obviously, on a record quarter. Looking ahead to the second quarter, your forward guidance is a little below your peers, but it sounds like much of that is due to that demurrage and the vessels being tied up on prior voyages. But with that, what kind of rate are you booking this week, right, for Suezmaxes, for MRs? Just trying to get a sense for kind of rest of the quarter guidance.
Craig Stevenson
Yes, I mean, right now, I would say the Suezmax market is about 40 a day on a round trip voyage. Products are sort of broken down into east and west. I think the east market is still very, very strong. I think the U.S. Gulf is much, much weaker, but strengthening. And so, there's a lot of interest all over the place. But I would say it's around low 20s on the Product side of the business.
Kevin Kilcullen
I mean, just in general, looking at our estimates and the positions of vessels right now, the rest of the unfixed portion on the Suezmax fleet is probably a little weaker than what's in the book and the MR Fleet probably a little stronger. I will give the extreme caveat that it changes so rapidly that if I had given this answer a couple of weeks ago, it might have been completely different.
Randy Giveans
Yes, and we're seeing the same in some reports here. All right. And then with that kind of more tone down per se, outlook for later this year, have you recently signed or looking to sign some time charters to cover 6, 9, 12 months?
Kevin Kilcullen
Yes, in general, I think we seriously have the spot operator in that 80-20 spot time charter balance is kind of where we want to be in the long-term. I think we would overweight time charters, given the rate environment. As Craig said, we would have liked to have done a couple more on the Crude Fleet and that by a couple more we actually have done, as he said, a fair amount of six month deals. We include those in the spot fleet because really for us, Suezmax that's two to three voyages. And it's really a spot decision based on the position. But we're talking about time charters of a year or longer. If we could source a few at numbers, that makes sense for us, we would take advantage of that opportunity.
Randy Giveans
So I won't ask 10, but I will ask a third. For the scrubber installations, how flexible are you in the timing of these going forward? I know you said right now it's one per quarter.
Kevin Kilcullen
Yes, so we've got one being installed right now, so that one is going on. We've got another one that's highly likely to go on in the near-term. The third one, which is now looking to be a fourth quarter event, is one that the vessels currently on one of these short-term time charters. We have more flexibility around it. And are that if there was a decision point on the remaining three, it would be on that one as we get closer to year-end.
Randy Giveans
Okay. That's it for me. Thanks again.
Craig Stevenson
Thank you.
Operator
Your next question is from Liam Burke with B. Riley. Please go ahead. Your line is open.
Liam Burke
Good morning, Craig. Good morning, Kevin.
Craig Stevenson
Hi, Liam.
Liam Burke
Craig, when I'm looking at the storage cycle, with crude probably being shorter, how do you look at the duration of the demand for storage on the Product side?
Craig Stevenson
On the Product side, I mean, that's a -- I mean, we're pretty well in unusual territory on that one, is what I would say. How many times do you see MRs in floating storage? You just don't see it.
Kevin Kilcullen
Yes. Liam, I've seen, we're obviously keenly interested in this, and I think I've seen four presentations from oil market experts, analysts and researchers. And each one of them has a different projection and many of them give multiple projections from very, very rapid decline of inventories to a more prolonged cycle that doesn't have demand reaching pre-pandemic equilibrium for over a year. So it's really incredibly uncertain.
Craig Stevenson
Yes. I'll take the other point, Liam, that that's an interesting point. And so when you talk to customer side of the business, they'll tell you that you basically are at rock bottom on utilization. And so you get down to, I think we're at 67% or 65% today in the United States. When you go beyond that, you basically go from that to shut down the refinery. And so it's probably not going to decline any more. And so the real question -- the real question is, are -- is that 65% utilization throwing off more than you can store, more than you can use? And it looks like the answer is yes. And so you could actually make an argument that on the Product side, compared to the Crude, there actually might be more relative floating storage on the Products than on the Crude.
Liam Burke
Okay. So when I'm looking at your -- you mentioned your target of 80-20 split on spot versus time charter. With the different markets for both Crude and on the Products side, is there any thought to weighting more heavily time versus spot as you look at the run off of inventory on floating storage?
Craig Stevenson
Yes, I mean -- and so we've edged it up beyond the 80-20. I think we're closer to 30 today and that's in light of the world that we're living with today. And so third, fourth quarter is going to be exciting times. I don't think -- everyone wants to have that answered and no one has the answer to that. And so we'll just have to see how the world recovers.
Liam Burke
Thank you, Craig. Thanks, Kevin.
Kevin Kilcullen
Thanks, Liam.
Craig Stevenson
Thank you.
Operator
[Operator Instructions] Your next question comes from the line of J Mintzmyer with Seeking Alpha. Please go ahead. Your line is open.
J Mintzmyer
Good morning, Craig and Kevin. Congrats on a good quarter.
Craig Stevenson
Hi.
J Mintzmyer
I think we had a pretty good discussion across the board there with some of the storage and the merge issues. Definitely striking in more, I guess, conservative tone than some of your peers be interesting to see how these things fold out. I would like to review your repurchase program, because I know you just launched a $50 million one. I know you said you're being a little more conservative today. Can you speak to us about how -- what the constraints of that are? I think it's 50% of net income, is that correct? Is that just for the next quarter, or is there ability to kind of extend that ability to repurchase further on in the year?
Kevin Kilcullen
Yes. So, J, it is current -- so when we talk about this restriction, it is in our two main senior credit agreements. So it is a bank imposed covenant. It's 50% of the net income of the previous quarter is available for share buybacks in the current quarter. So the bucket for this quarter is based on the earnings that we've delivered to the market this morning and the bucket does reset every quarter. So it is a use it or lose it calculation.
J Mintzmyer
Hey, that makes sense because I'm tracking roughly it would be about $22 million is the bucket that you would have available to utilize in the coming quarter. I guess so and I know that it would end in July or how -- exactly the day or whatever. But -- so can you speak to us, I guess, what is your target leverage and sort of cash balance? Because I know you said you're conservative on the market, but at the same time your NAV right now is about $21 a share and by the end of the quarter it's probably $23 to $25 a share. So an enormous discount. So could you please kind of discuss what sort of leverage and what sort of cash you would want before you want to repurchase?
Kevin Kilcullen
Yes, it's not in general leverage target. I think we'd like to see, if we are roughly 50% LTV today, we would like to see that trending towards 40% by the end of the year and hopefully fleet values hang in there. We get there relatively organically through our debt repayments, our scheduled debt repayments, which are rather large. To us, it's not about -- it's not really about the target or cash balances today. It's about the uncertainty. And shipping usually gets into trouble, tankers usually get into trouble because cycles are unpredictable. And the industry does not really see it turning into a prolonged downturn or a sharp downturn until we're already in the midst of it. We feel that this next trough, well, hopefully short and an isolated impact from the pandemic, we feel it's very, very visible. So I think we're being more conservative today than we certainly would have been and we certainly had hoped to be when we put the share buyback program in place in March. So it's a little hard to give you precise targets until we see a little more visibility as to what the sort of intermediate term holds.
J Mintzmyer
Very, very interesting there. And then final question. I think you mentioned this a little bit on your previous questions with floating storage and product, but if you had to pick a sector for sort of the near-term, call it 6 to 12 months and then the long-term, call it 3 years. What do you think is more favorable? Are you more favorable on the MR product side or are you more favorable on these Suezmax side, both, I guess, short-term and then longer term?
Craig Stevenson
Tough call. It changes pretty damn fast. I mean, if you ask me 6 months ago, I would have said the Crude side of the business probably feels better. I think certainly -- I think in the near-term, the Product side of the business is going to do really well. So, I know that's not much of an answer, I really.
Kevin Kilcullen
We do think they're pretty closely linked in the long-term. And given the interplay and switching at the margin, the whole tanker chain is pretty interconnected. And you won't see one side of it disconnected for long from the other side.
Craig Stevenson
Correct.
Kevin Kilcullen
One of the reasons why we like having the mix fleet.
J Mintzmyer
Yes. Thanks, Craig. Thanks, Kevin. Congrats on a good quarter, and hopefully you'll find it in your pockets to buy some of these shares if they stay at 50% NAV. Thanks.
Craig Stevenson
Yes, we hope so, too.
Kevin Kilcullen
Thanks, J.
Operator
We have no further audio questions at this time. I will now turn it back over to the presenters for any closing remarks.
Craig Stevenson
That's very interesting times, like a lot of companies, your -- first and foremost, we're interested in the safety of our crews, of our shore side personnel, and trying to deal with the things, quite frankly, no one has ever dealt with before. And so we're doing our best to manage the business through this time. So we appreciate your support and fingers crossed on the next quarter's earnings. Thank you.
Kevin Kilcullen
Thanks.
Operator
Thank you. This concludes today's conference call. You may now disconnect.
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