Q2 2020 International Seaways Inc Earnings Call
[music].
Good morning.
Okay.
Yes, well see what.
2020, <unk> earnings conference call.
All participants will be in listen only mode. So do you need assistance leasing comforts chrysalis by pressing the star Keith followed by zero.
Today's presentation, there will be an application that take to ask questions. Please note. This event is being recorded I would now like to turn the conference over to James Small General Counsel. Please go ahead.
Thank you good morning, everyone and welcome to International Seaways earnings releases conference call for the second quarter Twentytwenty.
Before we begin I would like to start off by rising everyone on the call with us today of the following.
During this call management may make forward looking statements regarding international seaways or the take or industry, which may address without limitation. The following topics.
Outlooks for the crude and product tanker markets.
Oil trading patterns.
Forecast of World and regional economic activity.
Four and production well another petroleum products.
So the ongoing cobot 19 pandemic.
The company strategy.
Purchases and sales of vessels other investments.
Dissipated financing transactions.
Expectations regarding revenues and expenses, including vessel charter hire GNS expenses.
Estimated bookings and Tc rates in the third quarter of 2020 or other periods.
That's committed capital expenditures in 2020 or other periods.
Projected scheduled dry docking off hire days.
The company's consideration of strategic alternatives.
The company's ability to achieve its financing and other objectives.
The other economic political and regulatory developments around the world.
Any such forward looking statements second to account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends current conditions expected a future developments and other factors that management believes are appropriate to considering the circumstances.
Forward looking statements are subject to risks uncertainties assumptions.
What should be on the company's control, which could cause actual results to differ materially from those implied or expressed for those statements.
Factors risks and uncertainties that could cause international Seaways actual results to differ from expectations include those described to the company's annual report on form 10-K for 29 team.
And its quarterly reports on form 10-Q for the first and second quarter of 2020.
<unk> other filings the company has made or may make it a future what the U.S. Securities Exchange Commission.
With that of the way I'd like to try to call over to our President and Chief Executive Officer. The flows the Rocky lost.
Thank you very much James.
Turning everyone. Thank you for joining international Seaways earnings call to discuss our second quarter 2020 results.
Before we discuss our strongest quarterly results since our inception.
Please turn to slide four for an update on our Cobas night for spot.
We're continuously working.
So I keep saying our onshore and out she professionals.
First onshore we maintained full staffing capabilities with our employees all working remotely since March 16th.
We will continue to evaluate our return to our New York and Houston offices.
Based upon our highest priority the safety yourself.
Our commercial and technical operations financing administrative departments continue to run smoothly.
We completed the quarterly close on time, all FCC reporting requirements have been done without the leg.
He ways ability to operate smoothly. During this challenging time is a testament to the team's dedication.
And we thank everyone for their continued hard work and committed seaway.
Regarding our crew we implemented strict measures on all of our ships to ensure the safety of RC pairs.
And we have had no cobot cases to date onboard.
We are implementing these procedures not only whether onboard put off the why we all are traveling to and from the Buffalo.
As we discussed last quarter.
Global travel restrictions have made exceptionally difficult to rotate occurs.
We continue to support industry efforts to designate see pairs or its key workers.
And to allow them to return home to the families. After many months at sea.
To meet this important objectives, we have didn't need itself, where possible to help facilitate safe and effective crew changes.
Given that many of our dedicated crew members have been onboard duffel for longer than the original contract.
The situation remains incredibly dynamic.
As an example, one of our be LTC crew was disappointed I have a full white relievers from an old to Singapore canceled by the airlines at the last minute.
We're working now I'm finding the next best opportunity to get these seafarers Hall.
Another example, with an enormous amount of effort in coordination across three continents.
We were successful relieving 20 seafarers out reunion island in the Indian Ocean.
We thank all of our seafarers for their professionalism and their commitment throughout this extremely challenging circumstances.
From an operational standpoint.
We have not yet seen material cost increases due to colder 19th.
Well, we have come front at certain challenges, including difficulty arranging fire inspections from oil major customers and other inspections as well delays transporting spare parts our operations are running smoothly.
Going forward and especially as we continue to operate amidst the global pandemic, our priorities remain the safety onshore NFC professionals and providing best in class service to our leading energy customers.
If you'll turn to slide five.
We review, our second quarter Twentytwenty highlights and our recent accomplishments.
Our quarterly performance with very strong.
We're pleased to have posted our second consecutive quarter of record earnings.
While continuing to implement our discipline and accretive capital allocation strategy.
Unlocking value for shareholders.
Turning to the first bullet, we highlight our significant operating leverage.
And success capitalizing on the robots rate environment.
The second quarter.
We once again generator highest quarterly net income as a public company.
For the quarter, we aren't a net income.
$68.5 million, excluding items related to an impairment and a gain on the sale about.
Or $2.39 per share.
Our second quarter, adjusted EBITDA was $96 million, representing a year over year increase of $75 million and quarter over quarter increase of 22.
With our strong result during a time when we continue to return capital to shareholders. We ended the quarter with $184 million in total liquidity, including cash.
$40 million Undrawn revolver.
Moving to the next bullet are strong Q2 results have extended into the third quarter.
Notably with significant exposure to the VLCC market and to the mid price takers sectors, we have already booked over half of our third quarter revenue days at profitable rate.
Additionally, we capitalized on the elevated markets in the second quarter.
And we entered into a favorable time charters, which strengthened our earnings prospects moving forward.
Specifically, we secured or DLC time charters for periods ranging from seven to 36 month at an average of $73000 per day.
We have positioned international seaways to optimize revenue during a time where rates have come off their high.
Lastly, we further executed on a disciplined and balanced capital allocation strategy with an intense focus on providing returned to shareholders.
We maintained our balance sheet strength and enhanced our capital structure.
Typically in addition to the repurchase of $10 million of our shares in the first quarter. We completed the repurchase of an additional $20 million of our shares during the second quarter.
This brings our total purchases to just under 5% of our outstanding shares.
We believe this wasn't attractive opportunity for t. ways to unlock value given our stock valuation relative turned out.
We took further step to de lever the company and we are in the process of repaying.
$40 million outstanding under our transition term loan facility in August.
This will reduce already low cash breakeven by an additional $1800 per day to under $15000 per day.
Once the repayment is me, we will have 14 unencumbered vessels worth more than $200 million.
We continue to have one of the lowest leverage profiles in the public shipping sector.
Net loan to value further improving to 30%.
Oh liquidity has allowed us the flexibility to continue to deploy capital the best for shareholders.
In June we paid our regular quarterly dividend of success.
And our board has approved another regular quarterly six that dividends to be paid in September.
Our priority is to continue optimizing how we allocate the capital throughout the cycle.
In addition to repurchasing close to 5% of our outstanding shares.
Which we discussed a moment ago. This has included capitalizing on attractive asset values at the bottom of the cycle.
Pre paying 40 million of that and providing shareholders with dividends totaling 12 cents since implementing our policy this year.
In order to ensure that we remain well positioned to act opportunistically.
Subsequent to the ended the quarter the company's board of directors authorized a new 30 million dollar share repurchase program first anyways.
Turning to slide six.
We provide an update on oil supply demand.
The economic impacts a cold 19 have reduced the demand for oil.
Recently the idea he has taken a more positive view on demand restoration, increasing their demand forecast to 92 million barrels per day for all of Twentytwenty.
97 million barrels per day for 2021.
This is largely driven by the strength of Chinese demand and delays a discharge ports in China, which are due to the logistical issues dealing with record imports.
And this has reduced the affected be LTC fleet Todd.
While [noise].
Down from 100 million barrels per day achieved in 2019 Dai Ichi a forecast represents a significant increase from previous estimates on reflects demand for oil and the second half of 20 to 20.
Given that large segments of the global economy were broadly halted earlier in the year in response to cope and 19.
On the supply side.
After extending agreements to curb production in June.
OPEC has agreed to easy cuts and is expected to produce an additional 2 million barrels per day in August.
Regarding U.S. shale production.
He asked me a 2 million barrels per day reduction in August from its peak in March due to pressures from low oil prices.
During the second quarter, we saw strong demand for floating storage due to a steep oil price contango.
However, as can be seen in the chart on the why he end of the flights as global oil demand recovered and production decrease the price contango flattened and this de emphasized the need for new floating storage well inventory de stocking begins.
Although we remain positive on the long term outlook for the tanker market the combination of June OPEC.
Production costs reduced demand.
For floating storage and inventory de stocking we have all have push rates down from the high is that we saw earlier this year.
On slide seven.
An update on ship supply.
Overall, the tanker order book remains historically low you can see this on the chart at the top right handed to fly.
Only 10 needs have been ordered in 2020 to date.
At 31 were ordered in the full year 2019.
Uncertainty regarding the current market.
As well as de carbonization.
And a lack of suitable propulsion systems to meet de carbonization goals continue to temper new ordering.
Moving to the bottom half the slides.
The VLCC fleet is eating.
With nearly a quarter of existing fleet now over 15 years old as depicted in the chart the bottom right.
Chips 20 years or older have grown by nearly 3 million deadweight from last quarter and increase a 19%.
As we have noted consistently in previously once vessels reached 15 years of age they are more expensive to operate with significant investors that's required to continue to tree.
I ships reach ballast water treatment deadline.
Even greater capital expenditures necessary.
Scrapping has been limited during the last 18 months.
Due to the market recovery.
But the potential for scrapping has been building based on the aging fleet.
There's been no vlccs scrap thus far and 2020.
As rates lottery scrapping is likely to increase.
I'll now turn the call over to John to provide additional details on our second quarter results Jeff.
Oh, Thanks, Louis and good morning, everyone.
Let's move directly to review into second quarter results in more detail.
Before turning to the slide deck, let me just summarize your consolidated results.
In the second quarter, we achieved adjusted EBITDA of $96.3 million and it's always mentioned this was our second consecutive record quarter.
Net income in second quarter was 64.4 billion or $2.24 per diluted share, which compares to net loss of 16.5 billion or 57, that's for sure in second quarter. It looks about 90.
However, excluding the impact of a 4.1 thing charge for impairment and gain on sale vessels net income was 68.5 billion or $2.39 per diluted share now, let's go to the deck starting with slide nine.
I'll first discuss the results of our business segments, beginning with the crude tanker segment.
PC east for the crude tanker segment were $106 million for the quarter compared to $45 million in the second quarter of last year.
This increase primarily resulted from the impact of higher average blended rates.
Oh, the VLCC, Suezmax, aframax and Panamax sectors.
Now looking at the part of carrier segment, TC revenues were $29 million for the quarter compared to 17 by it and second quarter last year. It's a great again results rather be back higher average daily rates earned it all the l. or one or two anymore fleets.
Overall as reflected in the chart top left consolidated PC revenues for the second quarter 2020 were 100 at $35 billion compared to 62 million in the second quarter 2020.
The increase was principally driven by substantially higher average daily rates earned across the crude and product carry fleets this quarter compared to last year second quarter.
Looking at the chart at the top right in the page.
Adjusted EBITDA was $96 million for the quarter compared to 21 day in the same period. Okay. That's my cheat and again the increase was principally driven by higher Gilead rigs.
On the bottom happy to page, we look at the results sequentially.
Quarter to quarter.
Consolidated GE revenues and adjusted EBITDA from second quarter were up from the very high first quarter, but increasing by $50 million is at $20 respectively.
Now turning to slide 10.
We provide.
Hey, your view of Q2 rate in Q3 to date.
Let me discuss bookings in Q3, thus far which are very healthy, particularly in a larger vessels.
Looking at the far right column.
We booked.
67% of our total available VLCC days at $64500.
Per day on our modern vessels and $59200 per day overall.
At the 6% available Suezmax days and approximately 30900 hours per day.
45% Danival Aframax all our two days at an average of approximately $40200 per day, and 43% available Panamaxes days at an average of approximately $19000 per day.
On the MSR side, we booked 48% of our third quarter days at an average of approximately 13200 hours per day.
As well, it's not shouldnt these rates like reflect the fact that we opportunistically locked in for Bobby Lccs.
On time charters at an average that 30 $73300 per day for the entire court.
[noise] can bounce in the quarter of of course, you should keep in mind that spot rates today are lower than we have book, thus far in the quarter, but overall, you're looking at healthy core.
Now if we could move on to slide 11.
Oh, the cash cost PC Breakevens for 12 months ended June 32020, as well as our estimates for going forward are illustrated on this slide.
International Seaways overall breakeven rate with $19700 day for the 12 month ended June 32020.
He's ready true or the all in daily rates are owned vessels mustard to cover that'll operating cost drydocking costs cash DNA expense.
That service costs, which includes scheduled principal amortization as well as interest.
As long as mentioned earlier on the call we entered into four how do you track to time charters, specifically, we've executed three VLCC time charter is.
Three or be able to see time chartered and $45000 today and another time charter for 18 year old plc see for one year for $53000 per day, we also executed to seven like the FCC time charters at an average rate of $100000 per day.
With the vessels delivered and Meg.
Combined rate of those four time charters taken together as I, just mentioned that $73300 today.
Average.
So taking into consideration distributions for ethane show and the fixed time charter revenue. The overall, rather breakeven rate to last 12 months drops to $17400, but if you go all the way that far righted the page.
Included all in daily breakeven rates to the forward 12 Bucks ended June 32021.
Taking into consideration to contributions from our episode JB before time charter just mentioned and also the full prepayment of the $40 million outstanding or the transition term loan facility. That's always mentioned earlier, which lowered the interest expense like $1.2 billion. The overall breakeven rate dropped further to $14600 per day.
At this time and also take let's take the opportunity to reaffirm our cost guidance for the year for modeling purposes.
For the remainder of 2020, we expect regular daily Opex, which includes all running costs the charts management fees and other similar related expenses for various classes as always to be as follows for Vlccs 8400 per day, Suezmax Netscout $700 Aframax 8100 at about 7900 and anymore.
<unk> $7500.
Per day, excluding any potential impact attributable to cope with Nike.
For details on projected dry dock capex in off hire days by quarter. Please turn to slide 16, or you can refer to slide 16 appendix for an update there.
Continuing with cost cost for your modeling 2024 year interest expense is expected to be $37 million after taking into account the payoff or the transition loan in mid August which is composed of $33 million a cash interest expense and the balance that a non cash.
Oh component of $3 million of amortization.
Amortize discounts it.
And also deferred fees of $1.3 million related to a mark to market charge for interest rate car.
Those are non cash charges so.
It would also give you guidance. It. Additionally, after the pay off of the transition while our debt will call for $15 million. Its scheduled quarterly principal payments beginning in Q3, which is down from $20 million per quarter previously.
For 2020, we expect cash DNA cash you need to be in reaching $23 million plus there's about $500 noncash items, which is relatively in line with last year.
Finally, we expect about $500, an equity income from Mercedes and about $20 million for depreciation and amortization per quarter.
Now if we could go to slide 12 for our cash bridge.
Moving from left to right.
We began to second quarter, what total cash and liquidity of $150 million.
During the quarter, we generated $96 million of adjusted EBITDA.
This amount includes $500 an equity income for the Jvs, which is noncash. Some therefore deduct it to reach a cash bigger but that add back the cash distributions for the JV, which this quarter were $2 million.
We expect expected $17 million in dry docking capex cash interest and principal paydowns that was $30 million.
Taking into account for $22 million.
That was cash returned to shareholders and the positive impact of working capital other non cash charges of $11. The net result was that we ended quarter with 140 million $44 million cash at $40 million of Undrawn revolver.
Yielding total liquidity of $184 million.
Now if we could go to slide 13, like the briefly talk about our balance sheet.
As of June 32020, we had $1.8 billion that that's compared to $523 million of long term debt and $81 million short term tradition that mentioned, we had a $40 million revolving credit facility.
Hi drawn as of June Thirtyth.
As you can see on the right side of the slide our net debt to total cap stands at 30% or net loan to value of our conventional fleet stands at 38%.
As you put no. One tells you take that that's it's not taking account the value of or at the show. If you include that at book value would be that that number drops to 34%.
I'd also call your attention to footnote to.
That's what Q2 and the books, our LTM EBITDA of $266 million me the debt EBITDA, just 2.3 times and therefore, it's but not to indicate.
But the metrics that kind of metric means <unk> margin will drop from 260 basis points to 240 basis points on the court for sure.
Finally, before turning the call back over the lowest I'd like to briefly discuss our share repurchase program.
During the first six months of the year, we repurchased $30 million of shares specifically during the first quarter 2020, we repurchased 490.
Thousand 592 shares at an average price of $20.41 per share or total cost of $10 million. During the second quarter, we repurchased 926007 her shares at an average price of $21.37 per share for a total cost of $20 million for you here today total of $30 million.
Which represented nearly repurchasing nearly 5% over outstanding shares.
August our board authorized a renewal of the share repurchase program in the amount of $30 million.
That concludes my financial remarks, I'd now like to turn the call back to Lois for closing comments.
Thanks, a lot Jeff.
We're excited with our second quarter earnings we generated our second consecutive quarter record.
Taking advantage of the robust market and we further implemented our discipline and accretive capital allocation strategy.
Our substantial operating leverage was evident in the second quarter.
Enabled us to generate our highest earnings per share since going public ending the quarter with $184 million in total liquidity.
Which includes $144 million in cash.
The strong second quarter results have extended into the third quarter.
We used to have booked over half of our revenue days at healthy rate.
In addition to attractive spot bookings, we capitalized on the elevator market and we entered into a number of highly profitable charters ranging from seven to 36 months and averaging $73000 per day.
The third quarter.
During a time when rates have come off their high this success positions us to optimize our revenues.
Finally, our success executing on our disciplined and balanced capital allocation strategy has allowed us to provide a return to shareholders, while ensuring our balance sheet and our capital structure positions us well for the long term.
Complementing our repurchase of $20 million dollars' worth of shares and this quarter, our payment of our regular six that dividend during the quarter as well as the approval by the board of another regular according quarterly dividend of six cents to be paid in September we are preparing all $40 million outstanding under our transition.
In term loan facility this month.
This will reduce already low breakeven find additional $1800 per day to under $15000 per day.
[noise], we entered the third quarter with a net loan to value a 38%.
Ample liquidity.
Flexibility to continue to further implement our capital allocation.
Consistent with our focus on the acting Opportunistically a board authorized a new 30 million dollar share repurchase program, which will provide us with additional opportunities to unlock value for shareholders.
We've also booked almost 70% of our Q3 D. LTC days at a fixed rate of $58000 per day.
Going forward, we remain positive on the long term outlook for the tanker market and our priority is to provide safe reliable service.
You are leading energy customers and to assure the safety of our onshore and ASCII professionals as we continue to operate in a challenging coal that Nike environment.
Thank you very much and we'd now like to open it up for questions.
Hello.
Operator.
I think aren't we.
Our operator must not have electricity.
David do you consider not worry about that sorry about that just my computer froze. Okay. We will now begin the question and answer session to ask a question you met press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before passing the key to withdraw your question. Please proceed.
Todd then to at this time, we will pause momentarily to assemble our roster.
Our first question is from Greg Lewis from beat key I agree.
Good morning, Greg.
Right.
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Oh, there's great New York.
I can't hear Greg can you one moment I am having technical difficulties, let me get somehow.
[noise] the appreciate everyone's patience.
Yeah absolutely.
Yeah, we well it looks like there's technical difficulties with the Q and a Q, let's hang on for a minute or to at least wallets and see if the Yep Yep conference call.
Organizer could can we assemble the queue.
Okay.
So for all of you listening I appreciate your patience and see if we could get get back up or questions here in a minute.
[laughter].
Uh huh.
Well, it's all being transcribed loads I'm wondering what we should we should be discussing in order to fill up the dead air while we're waiting for their system to work again, yes, I'm wondering if we should be questioning whether or not.
Well that at some point will.
Oh hi.
Yes.
Question coming in on the email.
Yes, you know.
Well I know that's okay. Go ahead. That's the question I had some problems with the question. So please get back on the Q. The person I have is Omar nokta.
I'm proud of them. Please go ahead and the others, we sign back I'm so sorry.
Hey, guys can you hear me.
Yes, Okay. Okay. Now this has been exciting I have been without power since Tuesday, so I completely understand whats [laughter].
Yeah.
Hanging there okay. Yeah, yeah, yeah, so listen you guys, you've given a good amount of detail in the call.
I did have a couple of questions on the fleet, but just maybe before that I didn't want to ask about the.
The $40 million, an upfront payment on the transition facility and just so I understand that the pay 40 million. This month, and then that reduces quarterly payments to 15 million how long how long does that.
Does that Fourq 15 million average go on for.
Jeff wanting to go ahead on that.
Thanks, well understood that's our [noise].
Hi, Good protocol I, yeah. It will go on the for the principal amortization will go on our the cynosure facility and on the Corpus All he says he go to that chart that it has the balance sheet.
We continue with those levels until they mature so that's pretty much gonna be the run rate or worse that didn't like the.
But the main ocwen okay.
Okay, and then that 15 also it's inclusive you'll also have that came in the third quarter. So it's 40 plus 15 ish.
Oh, that's right.
Okay.
Alright, and then but yeah, yeah, yeah exactly.
Yeah Okay.
And then just okay, maybe just a bit more broader and just kind of thinking about.
How things are set up and I understand clearly that we're in this uncertain environment with a pandemic and we're in the soft a part of the oil tanker market, where oil market in General news clearly you guys have generated a lot of cash over the past three quarters refinancing de levered.
Built up a sizable cash balance you started the dividend and you've been very active buying back stock and on top of that you've got the $200 million of unencumbered assets. So really plenty of flexibility and I. Just wanted to ask you know what are your updated thoughts on you know the be Ltcs you know the older ones built in auteur Threeq, you've got three of them.
You know that we've noticed that one of them is obviously, earning a nice contract this quarter over the next like I think as 12 months, but generally we've seen the other two really the real separation between the earnings of those versus the modern vessels and so just thinking you know you keep.
Thinking about the longer term story at international Seaways, and keeping just existing market footprint. What's your thought of just selling those two or three vlccs.
And then taking the proceeds replacing them with three modern vehicles and so you're not putting in the strain on the balance sheet, you're just simply rejuvenating the existing footprint.
Well, that's that's a a great a great line up for heat, obviously, you know the when we talk about being savvy or 60, 69% booked in third quarter at 50, a day that includes a that includes those three older vessel as you know a in this quarter absolutely.
There there spot earnings had been about 24 day only.
Three older vessels. The one that's on time charters almost 52 and then if you if you go back and look at Q1.
They were actually the older vessels earn justice as much as the modern ships. So I would say that you know we have done well with these ladies and we're generating a lot of cash on them that having been said, we indeed, we'll opportunistically look at a marketing these are older.
Two ships as appropriate.
And look to be able to take advantage of the best opportunities we can.
And you know when you recap quite beautifully there you know the things that we've been doing you know you see we've been buying back shares you know I love this $15000 per day below that for cash breakeven in this environment. All those things are really strong and as we go through this part in the.
Cycle them, we know we will turn our eyes towards right you know regenerating the fleet.
It it might be a little bit early at the moment, but that's something that we will definitely look out when we think that's the right way the best way to deploy our capital.
Okay. Thanks, Louis that that does that make sense and you're just a follow up and maybe just final question.
About the about the fleet and clearly you guys have upfront in the bodies and you've got in the Panamaxes. Demarse. However, you know you've got four of them and they seem a bit noncore, especially the earnings power seems to be very range bound in that particular segment. So it's either have a bunch of I'm ours or your charter a bunch and.
What do you thinking about that that piece of the business, we monetize those ships in the near term or you still just want to hold onto them I know that there's probably not that all them.
Do you think about those those vessels.
You know I would see that youve seen us with our actions prioritized and we'll continue to see as prioritize B B you know, we like the larger crude sector and we also find a home in the mid crude sector. As you know that you know on on the beach.
And on the Panamaxes Sosh Aframaxes, so that's where we remain committed definitely more opportunistic on olmos, m. ours, where a steadily over the last few years, we have declined our.
Core own ships and in even our time charters in that sector.
Yes, so I.
Well, there's more to come presumably.
Yes, yes.
Just to be said I think you actually they are they are a part of that some of our part of the core fleet once girl.
So there is a little better.
Okay. Thank you thanks to all right. Thanks, Lois that that's it for me.
Thank you.
Operator.
[laughter].
Well, if we if we don't.
We don't have another question there definitely one came in on on my email.
From Randy Givens, asking about Lightering and John you know, our second quarter on Lightering, which was quite strong they had something like a two and a half million dollar EBITDA lightering and we really saw a very high volume a lot of not only.
Crude lightering, but also product Lightering, which was a result of the contango situation and crude and product being stored on ships in the U.S. golf as.
As well as.
Heavy volume in Panama, and the West Coast.
Let's see did do we have our operator or no. Yes, I have stepped in well we had a connection do you want me to take the next question yes.
Okay. Thank you. Our next question comes from Greg Lewis of P.T.I.E.G. Please go ahead.
Yeah, Hey, Thanks, and good morning, everybody and Hey, Jack Wallace you in a lowest <unk> I guess I'd. Just my first question is around Hum Hey, congratulations on the Q3 bookings.
Yeah. It seems you know as we look at where you know reported spot rates are just kind of curious how we should think about that it seems like it seems like it up cycles.
You know vessels and the never actually earn those kind a high levels that are being reported kind of curious like how we should be thinking about it now where you know we're kind of in a trough levels. How we should think about the performance of ships versus kind of those reported rapes.
Well, absolutely and personal thank you for your position I really appreciate getting back here we have.
Oh thanks.
Yes.
Indeed, when the market is running when you're seeing a VLCC rates being poured it reported out over $100000 per day, you know what happens is that you know the market is Ronnie you know running up and it's the vessels that are in that window that are able to fix those rates I mean overall it's.
Very strong and you'll see that you know in order for us to secure 30% of arby's or four out of 13 on these time charters that we've got you know we pulled plum positions right. So those were a lot of may lifting dates in order to lock in on those two seven month charters on the B 100 Grand.
Today. So you know that was something you know, it's really almost a spot decision when you're doing something six or seven months and I'll be LTC, because that's really only a couple of voyages, but you know likewise I would say with whats booked in Q to date.
For the third quarter you know you you also see.
You don't see the market on these today is you know 20 to $25000 per day, you don't see Q3 booked at that because you know we've had vessels that have been delayed. It discharging you know we've been able to secure higher rates going into the quarter. The open days on on the Buffalo Ari.
The Oh well we're at present for Q3 is always your lowest demand quarter. So I think that the market, particularly on the visa has held up remarkably for that type of demand destruction that that we have seen.
You know as long as can I can I just been up because I think Greg I.
I think when they also need and you can tell its Greg.
That is that some crazy volatile up quarters at with what the rates really six figure rates like always just mentioned Q1 in Q2, you get the reports from the services of Oh rate and none of the peer group you know reports that top taking rate for the whole quarter. You know so you wonder what people are really catch.
Upstream when you read those headline rates.
And but when it where rates are like where lowest not mentioned now in the mid twentys, it's probably that we and the peer group are probably getting rates that pretty much reflect what you're reading from whatever benchmark you're picking up right. So you guys as far as looking at where things are today, if you're looking at the spot rates, that's probably where things are a trade.
Okay, great Yeah, Yeah, Jeff. Thanks, Thanks for that and then I guess lowest Jane just because it is going to drive could you know that your capital allocation decisions. It's going to drive you know how you think about deploying in renewing the fleet.
I think you met you know you kinda like alluded to it and just kind of curious if you could share your thoughts in terms of where you think we are in the cycle. Its not you know on realizing that there's a lot of many side, there's become a lot of many cycles within Baker cycles over the last few years, just kind of curious how you're saying.
Talking about that.
You know it it is very interesting because Ah you know when you look at de stocking previously it took 18 months I'm.
Thinking that the de stocking on this one maybe.
A shorter period because.
No truly the demand destruction was not did not arise from <unk> you know from anything other than coal that it you know and our you know we bounce back fairly quickly and you know the markets will stay down well as we go through the de stocking, but that could that could be six months could be 12 months something like that.
And you know what's important for us to to be ready and just you know to make sure. We take our actions you know during that part of the cycle. So we're watching very closely and I am.
Thinking that it may be shorter rather than longer.
Okay, everybody Hey, Thank you all you have got Jeff.
No I guess I think what we talked about it and currently about loads as and when that.
There are many cycles, but he's talking caused by the restocking of which has caused by cold. They were not as we're back to a fundamentally really well balanced tanker market without even lower order book that we saw at the beginning of this year when things start out so well you know so.
After like <unk>.
Okay, Yeah, not perfect. Thank you very much guys and I hope everybody has a gradually getting powerback I got my back Gabi yesterday.
Yeah, no, where we're powering through it without power [laughter] good to hear Greg.
Operator do you have the next question Yes. Our next question comes from Randy Givins of Jefferies. Please go ahead.
Oh, the lowest Jeff and David how are you all.
Good how are you doing red dead doing all right Oh, Yeah, obviously, congrats again on another record quarter accretive uses of cash to the share repurchases prepayment of the $40 million transition terminal facility, so well down on that now with that why did you choose to repay the transition facility instead of maybe the more expensive.
The half senior notes was it solely gone and cover the ships or just the larger principal balance and then what are your plans for those kind of enhancing or no.
Go for Jeff.
Okay, well well sure. Thanks. Thanks.
Randy we looked at the both you know the 8.5% notes, which are just $25 million in a total amount of became callable at anytime. So it's a little or is it I guess in June in June. So that's definitely an option that option is still out there we can call it.
Effectively at the called <unk> in whole, either because that's where the minimum listening requirements in the New York stock exchange. So yeah, we thought about it but we decided along with our board that we would prioritize the transition while it's the first thing that we would take out because while it's the second most expensive or a price loan it is secured.
It was low loan to value a chat really trend is the name and probably the temporary loan that we did as part of facilitating the refinancing our old terminal B, Yes. We had this much cash in January as we do today, we wouldn't have needed transitional at all so it just seem logical to us to remove that.
As you mentioned you get 12 more on uncovered shifts to go to we already had such 14 uncover chips worth $200 million. It in todays mark any minute scrap there were probably half of that so tremendous optionality and flexibility of having unencumbered vessels, it's really like like gold.
Your ship orders. This that's the good thing we could sell them as they lowered alluded to that gradually part of the plan or we could borrow guessing if we needed to I wanted to Ah. So so all that kinda Optionality and then.
Meanwhile, you know the 85% unsecured is you know a relatively good price for unsecured and we always can take look at it quarter by quarter, and then make that sort of the next that could be the next capital allocations I did but we also want to have dry powder for further further allocations like further share repurchases.
The hope that answers your question Red.
Yeah, no it does for sure.
And then secondly look out the crude tanker market what kinds of changes have you seen in vessel movements I hear in recent months are there certain regions that maybe have been busier than others and then it gets also think question on the refine product side of the business.
No that's absolutely Randy I mean, it you know you can see a into Q3 earnings on the Aframaxes and definitely Libya being completely down and not having been able to restore isn't girl like 100000 barrels a day versus they were well over 1 million barrels a day that that her.
Regionally the western Aframax market.
Then you know I would particularly say on the product carriers, you know you've just seen such incredible volatility a the L.R.T. We've had really you know really were superstars. There for awhile and then came down dramatically you're seeing NAFTA now priced higher than LPG and.
Backed out you know some of that NAFTA demand and kinda hurt some some of the you know larger product carriers. So those are the couple of ways. We we've seen some of the trends manifesting themselves. You know, we still seen over or close close to 3 million barrels a day still.
Crude exports out of the U.S. golf and I think that has also helped the larger crude market hold itself up a bit going through this period.
Sure.
Perfect well go I know, it's been a long crazy call. So that's it for me, but obviously keeping the great work, especially with that with the share repurchases and getting your Qubec home I know that's the primary.
It really is Randy and I want to Ah think absolutely everybody for your patience year on the call and Doug through these challenging times. So you know we look forward to you know, making our capital allocation decisions for our shareholders in the absolute most optimal way and thank you for supporting Seaways. Thank you.
Very much.
Uh huh.
Hey, Ryan.
Our next question comes from Ben Nolan of Stifel.
All right I thought your cut me off their losses, [laughter], Oh, yeah, I realize that [laughter].
[laughter] yeah yeah.
[laughter] like Randy said, it's been a baby call.
The I I have two question number one is <unk> and it relates to the $30 million of additional a buyback authorization that you've got obviously it was a terrific quarter with lots of cash now and the balance sheet and is taking sort of a tactical shotgun approach to what you're doing with that.
But thinking through sort of from a longer term perspective, the eventual what needs to or desire to grow the business with paring that with the liquidity the shares or preserving cash for potential opportunity Uh huh.
How how maybe you could talk through how is it you came to want to re up.
$30 million a buyback.
And you out at what point do you say, okay, well now we need to transition to.
No thinking about liquidity and long term growth and everything else.
You know Ben that's a great question I need fit the easy it the easiest answer is that at Ti ways. You know, we consistently like to have a pool tool box of a you know.
Our buyback ready your program authorized you know so that when we see that that's the right capital allocation decision. You know, we can exercise that and and I would simply say that you know for US right now I mean this environment of Cold 19, <unk> has been very tricky and I think that.
We are very actively and very carefully looking at a you know what's the best way to allocate our capital and then I'll flip it over to Jeff maybe for a little more detail.
Yeah. Thanks, a lot I think it it ties into a questioning that came up before or <unk> or next place you're getting lots about that that the cycle. We're in and we're in a de stocking cycle, but it's it's not easy I think we've used expression that little bought the viewpoint of Greg Bridge loan foggy about.
How long that cycle is going to last it because it involves factors that no management team can control you know, what's OCA could do outs to dogooder, which are things like that so.
That's why the capital allocation decision it was quarter by quarter that they'll put yourself in the corner is our view of Jo Ann and as you know, we always sort of take a balanced view odd things that's kind of our our style and so we absolutely like having the program re up so we have the flexibility to do it if it makes sense.
Okay, and we are also keeping in mind, yeah that needs a other needs that we have eventually for renewing our fleet et cetera.
So, we'll we'll weigh all that stuff.
At quarter by quarter and also how the cashes is building.
Based on how the de stocking Scott So yeah I think it's I think that's the best answer we give you guys are we got all the tools in place it just evaluate continually.
Okay and now this is a sort of a tie in question and I apologize very open ended.
And I, usually don't like to ask open ended questions, but ER here. We are close to six months ended this really sort of bizarre situation.
And you know I know that you guys are pretty critical thinkers and.
I'm curious.
From your perspective, how or how you if you're thinking about your business differently, both from a sort of asset allocation perspective, and and how you know cost perspective, how you're running the business and in conjunction with that.
Are there changes that you sort of can envision in the industry I mean, the scale matter more than it used to you or or or right. I don't know I I again apologize no. It very open ended but.
I would love to hear yourself.
Well, then I would start that from a tactical perspective, and you know the conversations that I've been having with you know bill.
On the technical side, you know, it's Ben you know spend a bit.
Easier for him to sell me on some of these efficiency improvements items like the nave is stocks and the and investment in Super sleep paint for our Vlccs, because really focusing on increasing our efficiency and meeting our.
De carbonization targets. So this is really a big effort.
And we will increasingly have a focus on that and you see that the business. The business will continue to change you mean that that lower ordering book you know is really a as as owners.
Keep having to see okay, what's going to be the next effective technology that isn't just you know and intellectual idea, but that can actually be manifested and I think that that's really going to affect fleet development. So you know you start with what can you tactically due to <unk>.
And improve the efficiency of the vessels that you own and then you look at Okay. You know how is the industry going to change and what will be the proven technology, that's really going to suit our needs going forward. So I think.
You know really you know even during cold 19, when you have all these urgent issues and you know everybody is a huge effort to coordinate crew repatriation stuff you still have to have your eye on the ball and and we do as to how the industry is going to change in regards in the next.
You know 10 years.
Okay.
Go ahead, David Your father, no no no no I was I was just.
Maybe also I guess to be a little bit more specific or you guys can you envision doing things from a cost perspective that maybe you wouldn't have done in the past or does again to scale matter more than maybe it used to we're not a I dunno <unk>.
Just maybe some of those are.
Sort of macro level question.
[laughter] you know I do think scale is important but I do think that you know you get operational efficiencies you get you know from the pools, we often get commercial efficiencies, but you know scale without a doubt continues to be important at you know just in your liquidity shares traded and a you know.
Sure for all of us and buying ticket attention from shareholders. So anything that we can do to differentiate ourselves and to put ourselves for you know we're really looking at the market and then Jeff you wanted to add something go ahead.
Well I think that are actually I think your previous comment about looking at the majors Ducs and it's like paid and things like that those are in addition to being carbon emission focus towards sort of cost related. So we're we're spending money to save money and to be Carbonite. So you got to sweat the details that's a tactical.
And as you said Bose, but but then strategically Ben we always spend time thinking about the big picture and where we where we can move too you know I think we're likely to stay tanker company just to put that out there, but there's a lot [laughter]. There's a lot of of things to consider as low as touched on but in terms of.
You know where you're going to move next and how technology is changing and how we can never respond to that so we try to have a balance of sweating, the details and make a tactical decisions, but with the you know a lot of consideration given to whats next I can't give it we can't give you answer other than that we do understand the values and scale and we do understand the value or the.
Portions of how trends are changing and don't want to have stranded assets you know want to put your money in the right place for the next 2030 years and not just the next two years so.
There's no one answer but other than the one thing I gave it about saying sector, probably oh, it but today, we're looking to everything.
All right I appreciate it thanks.
Hello.
Yeah. Thank you.
Our next question comes from Liam Burke from B. Riley.
Thank you good morning, Lois morning, Jeff.
Hey, good morning [noise].
Jeff I want to be for capital allocation subjected up here, but longer term do you have a either in terms of debt to total capital or or some other metric a an ideal capital structure for the business understanding your operating a high fixed cost business there.
Let me just I'm going to a little light you could pose your answer there for a second because you know I would suggest that that your ideal.
Leverage you know is going to depend upon where you are in our cyclical business and that it's not always the same answer and then just this this is your your expertise.
Well, thanks flawless short like we have no problem, starting or with the 50% leverage you know if it's okay, we're going to buy a vessel or a few vessels our block or whatever you know 50, 55% yeah. That's that that can take advantage of the situation, but but we think there isn't it.
Manager working down your leverage from there.
And last actually right like net loan to value is a number that very tricky because it depends on.
What's what could be 20% that loan to value at the peak could become quickly you know 75% loan to value within companies got into trouble with that before so that's why we like starting with that level due to maximize the benefit of your equity when you're when you're acquiring vessels that they're working it down but.
But we don't have a set in stone target. We just think it's good to work it down to.
Hello levels. Because then you could always re lever to you could help you make a capital allocation decision that smart, whether that's buying a vessel because you've got to the right time to do it for a few vessels or doing more shared purchasing or whatever it is so I think we'd like I would just say definitely unaided. It helps to kind of like where we are how's that.
Fair enough.
Let's see the time charter rates.
Secured another quarter or strong looking sort of longer term do you see opportunistically moving in time charter market as you see the cycle through reduced volatility or.
How are you looking at the time charters now.
You know right now the time charter flow has really Ed and you know charters are reluctant to step out you know we are again in the lowest part of the demand cycle for the year and as we head into Q4, you May you know you may see.
The rates run and charters step out for term business, but right now, it's it's a little bit apathetic I would say.
Great. Thank you.
Oh.
Your next question comes from Jay immense Meyer from value investors edge.
Good morning, Good morning, Lois and David Congrats on a fantastic water.
Thank you.
Thanks, Jeff Yes. So a lot of this is it's been touched and I realize the call is getting a little bit long with the glitches here, but just a quick question not looking for too much detail, but there's a norm as spread there right on the on that at the Lccs between the modern tonnage and those small shifts a massive spread right. How much of that is specifically you kind of I guess you would normally expect.
Due to the age of the chefs and how much of that was just like positioning not looking for exact answer, but just kind of broadly speaking.
You know the V. else he sees our or you know obviously by scale. The most attractive vessel to hold you know story, John and the most economic right. So they were the first you know to really ramp up in the in the storage market and then the Chinese have just been for ratios in there.
Our imports into China within Oh, the Chinese crude market they have their own.
Benchmark and you're still in contango over there so while it may not be a situation, where you putting extra viz. On if you are holding a a v. and story job trying to you're not in a big rush to discharge. So you know that the these have had a few advantage is that the rest of.
The market did not did not share in the last you know a eight weeks.
Yes, Thanks, I guess I didn't phrase it quite correct I was just asking about that you'll see some some themselves between the age profile. There there's a huge between the 15 plus into the younger ones.
No absolutely I'm, sorry for that yeah, I mean, it as soon as you know you you get a some softness in the market you know if you are highly flexible.
Less than 15 year old BCB LTC, you're going to be preferred you you're going to be more flexible on a lot of the western trade.
And the older vessels are going to be left with those charters that are willing to take vessels that are over 15 years old.
You know anybody when you when you look at it within our portfolio. Those those ships are still highly cash cash flow positive considering you know what their asset values are it at this point and what their book value is.
Yeah. It was only slightly just jump doesn't there's only two of them effectively spot well the.
Sorry, if you could that yeah, <unk>, so that's a little bit of it sort of sampling error not Airbus no sampling affect us to two older vessels.
But as you say lowest are still they're pulling their weight to the capital that we have right now so yes.
Although the does do their time and when it's the right time, though number one as well and and Jack you know if you look at the first quarter. They they you know we know in a running market they will earn as high as modern tonnage and no.
Well seen or we could have we could have some helping us in Q4, and and then you'll see a shrinking of that das variance you know as the market strengthens.
Thanks, Laura Thanks, Jeff sounds like yeah sounds like not really statistically significant but there are obviously is a big spread between the two classes.
You know we covered a lot of the leverage stuff I just had a quick sort of question for Jeff I noticed you swapped a lot of that stuff out on library earlier in the year, you got great swap rates at the time right, but the swaps of came down right and price. Since then can you remind us the I don't if you have this is probably you are a rough estimate of what your total all in bank that cost isn't.
It's like it's around 4%, which is hard to believe is is that right or can you remind us about <unk>.
Oh I think if you include I mean, now you've got or at the spreads are 240 going to be going forward and.
Uh huh on the cynosure and to God Sakes, sorry on the core facility.
And 200 on the Cynosure and then you've got LIBOR or you know and they include the swap you're still going to be between.
For the 5% for those because of having done for some swaps earlier on why exactly cynosure credit facility came with a swap you know that was a that was what we can be done. We just did something in this quarter. It's an acute go look it up like that talks about taking advantage on the lower rates that we have now by.
Extending out in time or the.
Swapped at time, Besides your credit facility.
Otherwise would have expired in 2025, we pushed it out to 2027.
Yeah that has the effect of saving about 40 basis points, Oh, where LIBOR swap into there. So I think you're you're probably right that that ER with the eight half percent, Dave on only being $25 million probably all in costs. It is.
Oh.
It's probably around 4% to 5% range as you said.
Thanks, Jeff Yeah. It was a legacy facility looks like right on the cynosure, but I did see the blending and that was pretty impressive out there to 2027 I think it was like 2.3 or something so good job on that last question for you I'm episode joint venture with your on a Friday. It comes up for renewal in 2022, I know previous commentary danced around it a little bit with your NAV as well.
I'm kind of the broad expectation is that those have a life still about 2030 to at least now that was a little bit prior to some of the recent carnage in the market. We've seen so I guess a little part one on that is our those episodes still study and operating.
Full utilization and all that and then I guess part two is when do those negotiations and discussions began our we already in that phase or is that like a year out.
So for a part one of that Jay I mean, those episodes have have had.
Then on the field since 2010 without one day off hire and so they are both highly efficient you know units and they really improve that quality that crude exports. So you know they they've been extremely.
Hi, unserviceable on that field and we do expect them to continue to have at least a another 10 years of life. So you know.
Well the 12 to 20 or 32, and then you know we Oh you know we are constantly.
Our customer and when we give you more solid detailed we'll do that.
Thanks, a lot I realize you can you probably is as much as you can hi, thanks, again, Lois and Jeff It just excellent to see such great capital allocation and up here I towards per share returns right and good allocation there. Thanks again.
Thank you.
Thanks Jay.
That concludes our question answer session I'd like to now I'll turn the conference back over to Louis Zebrowski for any closing remarks.
Well. They go Oh, you know again once again. Thank you guys are really for you for sticking with US here, we had a few technical difficulties on the call, but its 2020 is that kind of year, we had a great quarter and we're looking forward to another great quarter in Q3, and thank you. So much for your support a seaway they thought.
This concludes todays conference call. Thank you for attending you may now disconnect.
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