Q2 2020 Teekay Tankers Ltd Earnings Call
Come to Teekay tankers limited second quarter 2020 earnings results conference call. During the call all participants will be and I'll listen only mode. Afterwards, she will be invited to participate in the question answer session at that time. If you have a question participants will be asked to press star One to register for question first systems during the call. Please press star.
On your Touchtone phone as reminder, this call is being recorded.
Now for opening remarks introductions, Oh, let's turn the call. The company. Please go ahead.
Well, we began I'd like to direct all purchase restaurant website, www dot teekay tankers dot com.
A copy of the second quarter 2020, <unk> earnings presentation, Kevin Hester overview. This presentation during today's call cool.
Allowing them to remind you that our discussion today contains forward looking statements.
Actual results may differ materially from adults projected by those forward looking statements additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the second quarter 2020 earnings press release and earnings presentation available on our website.
I'll now turn the call over to Kevin Mccarthy, Teekay tankers, President CEO and together.
Thank you Ryan.
Hello, everyone. Thanks, very much for joining us today for Teekay tankers second quarter 2020, <unk> earnings Conference call.
I Hope you on your families are all safe and healthy.
Joining me on the cold today are strong and try to Teekay tankers, CFO and Christian Waldegrave director of research.
Before we review our results I would like to say thank you again this quarter to all of our seafarers and shore based stops for their continued extraordinary efforts you Green energy to the world with Teekay spirits drew cobot 19 pandemic.
The unprecedented in front of Cobra 19 continues to be a major area of focus for us.
Unfortunately, we have just far successfully navigated the evolving logistical and regulatory challenges with minimal impact on operations.
Moving to our recent highlights on slide three of the presentation.
Three tankers generated total adjusted EBITDA of approximately $124 million during the second quarter, an increase of 88 million tons same period of last year.
Reported adjusted net income of approximately $81 million works. It wasn't 39 cents per share in second quarter optimum adjusted net loss of $12 million was 36 cents per share in the second quarter of 2019.
Teekay tankers has experienced strong first time since 2020.
40, total adjusted EBITDA of approximately $219 million, an increase of $118 million over the same period last year.
Adjusted net income of approximately $191 million $5.66 per share.
To approximately $3 million or Neal cents per share in the first topic 2019.
Teekay tankers first half 2020 annualized adjusted earnings per share yield 71.2% was among the highest in our industry clearly demonstrating the earnings power of our business.
We have continued to strengthen our balance sheet. This quarter the strong free cash flow from operations are $126 million.
And the opportunistic sale or green noncore asset.
Its contribution to net debt reduction of over $180 million or 25%.
The $549 million and increased our liquidity position to $468 million as at June 30 years.
Our net debt to total capitalization declined to 31.5% at the end of June compared to 40% at the end of Q1 this year.
Further strengthening our balance sheet post Q2, we received final payment was $12.6 million in July.
Previously announced 27.1 million dollar sale or STS support business I recognize the gain on sale or $3.1 million in second quarter.
In addition in August the company's secured a three year 67 million dollar term loan to refinance the debt facility secured by for Suezmaxes scheduled to mature in 2021.
Thank you Ray LIBOR, plus 225 basis points.
With the completion of this loan company does not have any debt maturities until 2023 further improving our financial stability.
Health and safety or recruitment shortstop remains paramount.
District managers had been implemented on all of our ships to protect their seafarers.
We have had no cases corona virus reported onboard our vessels.
Mark like industry has experienced significant challenges with regards to crude changes.
She was the issues relating to troubles frictions slate availability visa applications on restrictions by many ports and align crews to disembarked from vessels.
Despite these challenges I'm pleased to report that we have Stacy changed out a large portion of our seafarers when our vessels.
However, approximately 76% the bar Overdrew crew members are yet to be relieved.
Continue to work diligently with both industry and inter governmental organizations to tackle this challenge or leave our remaining overdue colleagues as soon as possible.
I'm truly prior to power seafarers and onshore colleagues have responded to ensure current conditions are completed safely and seamlessly with no interruption to service provider customers.
In freight market crude tanker spot rates, the second quarter remains firm.
The last three quarters average spot rates were the highest in the past 12 years.
Entering the third quarter are booked to date spot rates are weekend, which I'll touch on in more detail in the next slides.
The impact of this recent weakness in spot market is mitigated somewhat however by our well timed fixed rate contract secured over the last few months very attractive rates, what's your virtusa free cash flow breakeven for our spot fleet to approximately $12700 per day through to mid 2020.
You want.
We currently have 13 vessels on fixed rate charters at an average rate that's $39100 per day.
Turning to slide four we look at recent developments and spot tanker market.
That was mentioned Q2, so this third consecutive quarter the strong spot tanker rates.
Great for particularly from early parts of the quarter.
Elevated print trade volumes Jewson shortlived oil price war between Saudi Arabia in Russia led to strong tanker demand.
Floating storage also gauge support to rates, there's a significant mismatch between elevated levels of global oil production.
Depressed oil demand resulted in the large surplus boasts crude oil and refined products.
One short storage Philip rapidly.
Crude oil futures curve moving into a steep contango.
Well move into floating storage pitching as well over 10% of the trading fleet in mid May.
The market landscape shifted midway through the second quarter and a weaker spot rate environment has emerged in recent weeks driven by lower global oil production and return assumption floating storage.
OPEC of its partners implemented record oil production cuts at 9.7 million barrels per day between May in July the Saudi Arabia, Uri Kuwait, adding further cuts of 1.2 million barrels per day during June.
Compliance these cuts have been relatively high <unk> led to a significant reduction in crude trade volumes.
Oil productions, there's also declined in non OPEC countries due to the impact of weaker oil prices.
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Global oil production falling by close to 14 million barrels per day between April and June.
In addition, floating storage has come off and the record highs didn't made.
Which is released some ships back into the trading suites.
Taken together a reduction in trade volumes, coupled with ships returning to active trading has put pressure on crude tanker spot rates. During the latter part of the second quarter and this weakness has continued into the early part of Q3.
Turning to slide five would give a summary of our fixed rate Chargers and our spot fixtures in the third quarter 2020 to date.
Teekay tankers is being proactive in managing sleep looking an attractive fits rates charters.
During periods of significant strength and the tanker market over the past few quarters.
Economy of 23% of our fleet on fixed rate contracts, an average rate of $39100 per day.
Moving to <unk> bought sleep based on approximately 57%, 51% spot revenue days booked.
Teekay tankers third quarter state Suezmax, and Aframax bookings have averaged approximately $24800 and $15600 per day, respectively.
Well those east rates have weakened from last quarter spot rates are higher in third quarter of 2019, indicating stronger underlying supply demand fundamentals.
For our two free fleet.
Which were old currently trading dirty.
Based on approximately 42% spot revenue days booked third quarter, they bookings have averaged approximately $14400 per day.
[noise], combining our fixed rate charters with our spot fixtures. So far in Q3, our Suezmax fleet is 73%. It was Q3 revenue days.
Fixed that's $33500 per day.
Our Aframax fleet is 56% fixed.
$17600 per day.
I like to fleet was 48% fixed $17400 today since third quarter 2020.
We haven't tentatively scheduled the majority of our Drydockings in the third quarter.
Which slowed us to capitalize on strong earnings environment in Q1 in Q2 this year, while removing vessels for maintenance during the current we great environment that we're experiencing not.
Further details of our fixed rate charters on our docking schedule can besides the appendix and the presentation.
Turning to slide six we look at some of the opposing supply and demand factors, which will impact the tanker market over the next 12 to 18 months.
That's a declining by over 20% year on year in second quarter Global oil demand is projected to re Barrington during the second after the year. It's a continued recovery during 2021.
According to our UK global oil demand is expected to increase by 14 million barrels per day between Q2 Q4 this year.
Finally throughput is expected to increase by 9 million Boes per day over the same period.
This should be positive for tanker demand. So we must caveat. This view by acknowledging the high degree of uncertainty associated with all looked upon forecasting the current environment.
Each month with much depending on how various countries and regions managed to contain spread with covert 19 over the coming months.
Well the oil production was also the turning point this production expected to increase during the second half through the year as both OPEC and non OPEC countries returns supply to the market.
Okay, plus group sets returned 2 million barrels per day of production.
From August on works. So this may not be fully translated into additional export volumes in the near term, Saudi Arabia, such to keep its extra production for domestic use during the summer months when local power demand is higher.
Non OPEC oil production could also start to rebound in the coming months its global oil prices, having stabilized the rugs $40 per barrel.
Although oil market fundamentals are improving we expected coming months will be challenging ones the tanker market, especially as we turn to active trading from floating storage.
As shown by the chart underwriting over 150 tankers have aframax size and above remain in floating storage.
So this is a decline from the peak in mid May still represents approximately 7% to 8% hope to sleep.
The contango in crude oil prices no longer supports footwear in storage and an emerging global oil supply deficit is expected to lead to a draw their storage volumes from Q3 onwards.
As such we expect a significant portion of the floating storage vessels to return to the trading fleet, but ended the year, which will add to fleet supply.
Overall, we expect a weaker tanker market during the second half the 2020, especially in comparison to the strong first half logistics enjoyed.
There is however, the potential for some volatility into occurred during the fourth quarter seasonable weather disruptions in chokepoints such as the bus risk now provide logistical constraints in certain regions.
Turning to slide seven we look at the positive feet supply fundamentals.
Yeah.
The tanker ordering remains very low.
Due to a more restrictive financial landscape the in the past uncertainty over the impact.
Coming environmental regulations will have the choice of future vessel propulsion systems.
This lack of contracting has led to a shrinking order book, which currently stands at 24 year low of just over 7% existing World fleet.
To put this into context surety pass to market cycle peaks in 2008 in 2015.
Order books stood at 50% and 20% of the fleet respectively.
Since that time.
Tanker fleet is also agent as shown by the chart on the right inside.
There are currently 115, midsize tankers, which are aged 20 years old or Juicy turn trying to be over the next two years.
This compares to an order book of 140 vessels, which are expected to deliver over the same timeframe.
Given that most tankers leaves international trading fleet age 20, we'd anticipate minimal net fleet growth in Suezmax and Aframax fleets over the next two years.
The same chart shows there are 255 vessels 15 to 17 your age bracket, which will lead to go see their 17 and a half year intermediate survey over the next couple of years.
With the additional contracts that will be needed for the installation of ballast water treatment systems. We may see some additional vessels. This age group also being scrapped in anything but a strong market.
Further offsetting the limited number of vessels delivering into the fleet.
We must note that so far this year scrapping activity has been low due to a combination stronger freight rates in recent quarters.
Scrap prices and shut down at many scrap yards future cobot 19.
However.
We are starting to see shipyard activity, returning which in combination with a weaker freight environment could lead to increasing levels of tanker scrapping and close out 2020 and get into 2021.
In sum the tanker market it looks set for more challenging period in the coming months. Following a very strong first half of the year.
However, we remain encouraged by the tanker fleet supply fundamentals, which are far more favorable than we've seen in previous market cycles.
I'll now turn the call over to secure to cover our financial slight.
Thanks, Kevin turning to slide eight we highlight the strengthening of our balance sheet.
Over the last 12 months Teekay tankers generated $381 million that free cash flows from operations and received $109 million and proceeds from asset sales, which has transformed our balance sheet, creating a strong financial platform for the company.
I'm pleased to report that net debt has decreased by $445 million or 45% to $540 million and our net debt to total cap has reduced by nearly 20% to 31.5%.
Further our liquidity position has improved by 348 million to a total of $468 million at the end of June.
As mentioned previously we currently have 23% of our fleet on fixed rate charters or is only 2% of our fleet was on fixed rate charters in the second quarter of 2019.
Increase on fixed rate contracts at levels of well above the current spot market combined with our debt reduction has lowered the free cash flow breakeven of our slot spot fleet through the end of Q2, two at 2021 to approximately $12700 per day.
Creating shareholder value increase increase now that's sorry.
Creating shareholder value through increased net asset value has been and continues to be a strategic priority.
Our focus on directing cash flow generation proceeds from asset sales to debt reduction combined with time charter a time charter portfolio that as well in the money.
The increased our net asset value by $10 per share to our current estimate of $28 per share.
With our low free cash flow breakeven, we are well positioned to continue creating shareholder value throughout a wide range of possible near term market conditions.
In addition, Teekay tankers has secured a new three year 67 million dollar loan to refinance four vessels at attractive at an attractive LIBOR rate.
At an attractive rate at LIBOR, plus 225 basis points.
But the completion of this loan we do not have any debt maturities until 2023 further improving our financial resilience during these uncertain times.
Further details of our scheduled debt repayments and maturities are in the appendix this presentation.
With that I will now turn the call over to Kevin to conclude.
Thanks, you're in closing.
I'm proud of our team for continued to execute despite the unprecedented global events were currently experiencing.
Commercially we have generated significant cash flow from our spot fleet, but also capitalizing on strong market by securing fixed rate income over the next several quarters for 13 vessels near peak time charter rates.
Operationally, we are successfully focused on safety and well being of our seafarers and performing crudes changes with the nearest practical opportunities.
All the while continuing to deliver Teekays high quality of service to our customers.
Financially, we have true transformed our balance sheet over the last 12 months and build a resilient financial position, while creating significant shareholder value.
With a strong financial foundation, a low free cash flow breakeven and our mid size fleet profile, we believe that teekay tankers as well position to continue creating value.
Even in these unprecedented an uncertain times.
With that operator, we are now available to take questions.
Certainly.
Our first question comes from John Chappelle from Evercore ISI. Please go ahead.
Thank you good morning, or good afternoon guys.
Kevin first question for you I'm on slide seven you have 370 vessels that are 15 to 20 years of age by my math, you have about 3% to 5% of those yourselves. So as you continue to work away and accelerate the debt pay down what's your appetite and really what's the appetite of the market to dispose.
Of those 2003 to 2006 built ships to help you get to your target faster.
[noise], Yes, I think a good question some of our fee is it the latter into their their life although.
We we are confident and likely and you can give markets can lead to treat those ships out to their before special and before problem scrapping but.
I think as we look at it today the asset market has obviously been a quieter or over the last.
Month or two a than what we saw earlier in the year when we executed for older Suezmaxes.
Sure as we look forward I think.
As we get more visibility on co grades and how long that's going to be with us.
As oil demand returns to something closer to normal so I think you'll see the second I'm markets start to pick up.
And in the meantime, we will continue to look for opportunities and if we can get the right kind of number for for those assets relative to our.
And trading in the spot markets.
If it continues to be week, then, we'll we'll look to sell those.
So I think it and it will take some time before they.
Attraction in the second hand market is really there for process given the weakness worsened spot market.
All right that makes sense and then when you think about the Cashel that you are still generating helped by the time charters. If I look at your debt repayment schedule now with the boys pushed back to 23. It looks like you had about 170 million of non balloon payments due over the next three and a half years.
Is that a target that cash flow from operation you would like to Whittle away before theres any thoughts of other uses of cash or did you even pull some of the balloon payments forward I guess some of your peers have you been acknowledge as possible zero net debt situation as it is that an optimal balance sheet for you or how do you think about.
The cadence of a pay down.
Yeah.
Hi, Jon Stewart here, So we I guess, we have the opportunity to pay down.
More on the main corporate revolver, a weekend pre pay those amounts that we can accelerate those payments schedules. As you may recall, we also have a sale leaseback purchase options, which theres some more expensive debt, which we watch exercise to reduce our post cost of debt. So that's another area that weekend or make those payments prior to.
Prior to the debt maturities. So we do have places that we can.
Put our money I'm aside from the scheduled repayments.
And I can follow up these Stuart just last one that what those expenses of lease payments you guys have accomplished so much in the first six months of this year and you're at a much better positioned now however that was obviously left at the peak part of they know the market and there's a bit of uncertainty what what's your ability or just.
Sit here today with basically five months left in the year.
Did you actually exercise some of those.
So we'll just repayments.
Yeah, so the the more expensive leases or the next option declaration date on the more expensive leases comes up toward the end of this year and that would be for purchase that we had that we would make in may 2021. So we'll have a lot more visibility on in terms of how the second half of the years gone and our outlook for 2021, but given our current find.
Actual position and that sells first options being about 60 million to exercise I think there's a there's a pretty good chance of would be in a position to exercise those and of course, we do have the option to either exercise them fully for cash or to refinance them with traditional bank debt as well to to bring down the cost. So we have a couple of different ways. We can go about doing that.
Okay, great. Thanks, David Thanks, Kevin.
Thank you.
The next question from <unk>.
Mr from Bank of America.
Okay, great. Good afternoon, Kevin or Stuart can can you talk about your your thoughts on the impact of of the storage retarding, maybe your thoughts on the impact to market rates.
Given the you mentioned most of that should come off by the end of the or is there a way to scale your thoughts on how that's going to impact the spot spot rates.
Obviously, there's a there's a lot of factors that come into play is too where spot rates will go and what will impact them I think if as we said in my my prepared remarks, the current <unk>.
<unk> above aframax size or Aframax and above is about 7% to 8% of the fleet is tied up in storage.
You know is that comes off if they were old to come off today for example, it wouldn't make a horrible market.
Even worse.
Look towards the back half of this year.
They are you is projected to increase oil demand.
You might start to see some some more movement to refineries and increase utilization rates. So as we start to bleed be ships out of storage and back into the fleet.
It'll be a push and pull effect between those coming back to you and what kind of increase in demand that we get to see.
But that's the million dollar question, that's sitting here in August.
We can speculate on whether that is.
He's going to have a huge impact or a minimal impact.
Okay. Thanks, Kevin and then if we flipped to the crew.
Cost side.
Maybe just talk about I mean, you had a big decreasing your voyage costs and I just want to see maybe what is structural or it's all of that kind of lack of crude travel costs and and the impact. There. So maybe talk about what percent of bad is related that reductions related solely to the crew lack of crude changing.
And then secondly, just in the same vein are there any limitations on the crude given you have been able to switch them out is there any.
The strength that you have because you've kept them or is there any overtime or or any adjustment that needs to be considered going forward.
Hi, Ken I, just want to make sure I got your question right, you're asking about Opex expenses during during Q2 being down yeah. Yeah. It does that mean, obviously that you have adapted and voyage costs right. So I just don't understand what that is that John the lack of crude movement is there something else that that let you know maybe there was a.
Focus on cost reduction that you did internally to try to understand.
The the voyage expenses are are so the opposite the crude <unk>. The crew costs go through Opex and we've had a reduction in opex. This quarter, partially as a result of selling dsps business, which on which we sold in April. So we didn't apple full quarter of of Opex costs related to that to that sale of that business on the voyage expenses.
But its been a a balance of the cost of fuel and that also that we have time chartered out a number of vessels and when you time charter out vessels you don't you don't incur those those operating expenses.
Oh.
And you don't you don't have the voyage expenses related to to bunkers and other things when you time charter vessels out so we have a smaller small fleet.
Oh.
Without me there last that actually.
And then just to follow up on on John's question.
As you look at your assets are you.
Are you, saying the market is pretty much closed in terms of that ability to get rid of some additional assets or would you look at its you know if you start to see rates a start to scale up are you looking to unload assets further to reduce debt or or do you like where the fleet is at this point.
No I mean there.
The S&P market has been quiet there hasn't been one or two sales reported.
She leaves a couple of Aframax is one of the challenge is that anybody is facing where everybody is facing right now with with the sale kind of that is actually trying to hand over a vessel given the restrictions on crude changes and big parts of the world. So that is having a limiting in fact.
Just general uncertainty I think a lot of owners or potential buyers are okay.
Trying to read the tea leaves like everybody else and to try and kind of a purchase so I think you've you've got a lot of people sitting watching and waiting for the activity levels. That's.
Subsequent to be low.
As I said I think if you if you move towards the fourth quarter, we get hopefully better visibility on a return of demand or if we do get some some winter spikes I think the opportunities will.
Well increase just through People's confidence and you'll start to see people coming back and looking for assets.
If we can see those.
Between now and then.
Market those pick up.
If we do get approach for process will definitely look to do what we did a late last year and early this year.
Flipped maybe some of the older units.
Understood. Thanks, Kevin Thanks.
Thanks, Ken.
Well take the next question the from Hallmark from.
Clarksons Plateau Securities. Please go ahead.
Okay.
Hi, there hey, guys.
You've obviously outlined a.
There you you guys are just outlined a pretty remarkable change in the balance sheet here over the past year. Yeah, we'll look at that getting caught substantially you've got a lot of cash liquidity.
You've talked to it.
Well, John kind about potentially selling assets at the S&P market opens up.
Kicking out of steps are there how do you how do you think about things right now what Teekay is at this point and its lifecycle, where we aren't a tanker business, where we're at a soft patch. How do you think about one as you sell those ships, one replacing them with newer ones and then to how do you feel about sort of outright fleet expansion.
But from where Teekays perspective.
That's a good question Omar you know the even if we work to sell a few more assets, we still have a.
Well I'd, rather large fleets I'm certainly have critical mass in markets that we want to trade and so.
No I don't necessarily believe you have to be.
A lot bigger dumb are we in where we are aware we have been.
[music].
Well it comes down to what is what is the best use EUV your capital.
And when do you deployed which is the most important part and anymore areas.
I think is we look at the company today.
Obviously in a much much better position, we were 12 months ago.
We've done what a good work to build up to strengthen our balance sheet.
Unfortunately, we're in an environment, which is extremely uncertain.
So I think to look today, it said feed expansions or growth the thing, but I think is entirely premature.
We need to get better clarity on what the future looks like.
And then start to look at won't be the best uses of our capital is.
So I think the those conversations were sent to the market, we're not buyers of ships.
I think that remains very much true end goal will be that case for for 2000 trenches definitely.
I think weve in terms of where we go from here we're in a good position we've got.
No. We don't have a brand new fleet with high costs, we've got.
A good fleets.
Large capable in the markets, we want to play with critical mass I think we've built the luxury of time now with our balance sheet strength, we can really sits and trying to pick opportunities in terms of what we do with capital allocation.
When we need to so I think for the moment, we'll we'll just continue to read the tea leaves them you keep our powder dry and.
And ensure that the company remains strong and healthy and.
And flexible MACI is really where you want to be in tanker company.
Thank you that that's very clear and appreciate that.
Yeah that overview.
You mentioned the critical mass in a luxury being able to let's take a step back and improving.
Some of the older vessels and that's still have the.
The footprint.
I know, it's probably early that you know all the cold.
Certainty and the OPUC plus cuts and all that well.
How are you thinking about this or the board in conjunction with we think about that use of capital or use of cash at this point meeting.
When the dust settles to is it what's firstly, thank shareholder awards or or if it when oil slush, but are you able to answer that.
What I cannot answer Omar.
He sat down with the board back in late last year and came up with our capital allocation strategy for 2020.
That was clearly to focus our free cash flow into repaying debt and de lever you.
And the company building a stronger balance sheet so [noise].
Those conversation that conversation is being tied for twentytwenty.
And obviously, we'll have to wait until the end the year to two we visiting the conversation with the board about what we do with the capital allocation going forward.
For next year.
Got it understood well thank you so much.
Thanks, I want to.
Your next question comes from Randy.
Jefferies. Please go ahead.
Hi, John I forgot.
Well the Wendy.
Okay.
Hey, I just wanted to touch on your quarter to date rates you know they said levels.
I see above some of the benchmarks, we've been saying, but also somewhat below your peers now that's due to an older fleet age or something something else going on behind that and then with that how of the kind of time charter rate.
Responded to the current rate weakness.
Yeah good questions Ron.
You know I think what you'll find is when when all the dust settles and all the reporting is done.
There'll be some outliers in.
In.
In terms of how they perform during the quarter and.
But we intend to two concern too much worse.
What we do quarter on quarter, it's more over a period of time to try and understand trends.
He.
Q2, one of the sponsors that we have seen ourself in terms of our expectations of report Q2.
I would be in where we came in at.
He was a function of the shop when the market was booming in may and in April we made a conscious decision to take vessels out of the spot market to secures the long term fixed income.
We thought we'd need when the party was over.
And I'm glad that we did it you know we've we've looked at $170 million of forward fixed revenue.
But that.
Comes a little bit of a price than some of the is that we took we took chip childs.
Instead of doing a sport voyage at 60 or 70000 Boes a day.
We secured that time charter locked in.
40, 45000 Boes a day for the next 12 months.
Not that does the stock with these are on our Q2 numbers, but I think we is in terms of peer comparisons.
Like I said when the dust settles there will be some outliers.
Hey, good quarter, perhaps because the lead to a larger majority of the fleet open when the market.
Spiked over to the highest points. It did another school like slightly behind because you know more of their ships were were tied up for them.
The in storage or were tied up.
On demurrage, not being able to access those those higher numbers.
Okay, that's fair.
In terms of second part of your question in terms of how.
The current Mark is affecting time charter rates.
No actually there hasn't been a lot of time chartering in recent weeks, we're seeing interest to pick up significantly.
From both the traders on the oil majors.
Look at.
For a short term sort of winter coverage and then some bottom feeding if you will try and walk in lower time charter rates over over longer periods, but nothing.
I think materially been concluded so in terms of judging where the.
[noise], where the time charter market is today, where we see it's going to be a lot less than the 13 ships that we put away.
[music].
Already but.
Were you get to concluded deal in this current environment.
Okay.
Well I think last question.
Kind of with answer a little bit in previous questions, but on slide eight you know your balance sheet liquidity rapidly improving you mentioned get no plans on asset purchases or even dividends right and for this year at least which is understandable.
Well, it's on slide eight you see here that your NAV.
$28, writing or share price in 15 so.
Do you have any plans or authorization to repurchase shares now that your leverage it so.
[noise] already so we do have a buyback program in place that we had that we had put in place I think it expires in 2022, but for this for this year, we are continuing to focus on using our cash flow generation or paying down debt.
We do firmly believe the best way to create long term shareholder value is to do it from a position of a balance sheet strength and I think what we've seen this year and well and the expected headwinds in the second half a year from just kind of further underlined our view that we really need to be operating the company for position of of that of that kind of strength. So.
Our attention for the remainder of the year is to continue doing what we originally announced in November last year, which is focusing on on strengthening the balance sheet and creating value for our shareholders through.
The equity value when the company, which is increasing the the NAV.
Got it.
Right well have the Tonight. Thanks.
Okay great.
Thanks.
Our next question comes from Jay mentioned I am from value investors. Please go ahead.
Hi, good morning, gentlemen, congrats on a fantastic quarter and transformation over the last year.
Thank you thank you Jay.
So first question following a lot of your your shipping peers, we've been seeing a lot of fixed to floating swaps are coming into play a very low loss rates I've ever seen 0.3, 0.4, 0.5% fixed for several years at your latest filing I've seen it looks like I saw 50 million listed as a swap eat it earlier this year.
Sure I can you confirm if you got anything since then and if there's potential to swap even more about debt into low cost six instruments.
Hi, Jay <unk> Yeah. Good question. So we we have just below the one swap in place for 50 million as you said that it's important to keep in mind that we do have in our out of our total debt. We do have over 400 million in in lease obligations and those are all fixed rate so on in aggregate.
Across the company we are about.
Two thirds fixed rate debt and the remaining one third are of course is some of the debt that we hope to be able to pay down.
Through the cash flow, we're generating so overall, we think we're quite comfortable we we add much more fixed rate debt, we're actually probably in danger of being a being over hedged at a at some point in that in the coming quarters.
Okay that makes sense. So the plan would be to attack your your leased facilities. They like the higher cost debt and maybe an early 21 that option comes available and at that point, you would swap into traditional bank debt.
Understanding that correctly.
Well that will take a look of what we have either we'll just either well just exercise them for cash if we're if we're in a position to do that or we may refinance them with traditional that with bank debt and if we do refinance them with bank debt than we will at that point doing analysis and take a look at whether we think we ship lock that in with that with a swap or whether we would let it float.
Just depending on.
How the rest of the how much that we've been able to pay down in the interim and and where we see the market going forward.
Certainly certainly understandable yeah. When you look at slightly I think it's just phenomenal to see how did you just transformed this company year over year and you know we look at your leverage right and elaborate just gotten to a point, where I think last year, you are like 80% that assets and this year, you're very close now Q2 close to 40% and you have liquidity of nearly 350 million I know you said.
Earlier, just previous question they don't want to repurchase shares this year or pay dividend, you're just continuing this focus you're going to get the company even cleaner by the end of 2020 odd, but let's just talk conceptually what sort of leverage what you'd be comfortable with for the fleet as it is it some sort of band between like 30, 40, 50% or where do you see.
And your self pay a longer term.
I think I think it's I think it's very much dependents on.
Led by the strategy of the company and when do we think that would be the right opportunity to reinvest how we think that we would look at reinvesting versus looking at buying shares back are starting to pay dividends. So it's not really a number it's it's something that needs to be considered in light of our market outlook.
Our needs or desires for fleet renewal I'm as as was asked earlier or rewarding shareholders on more of a short term basis of dividends. So all those things need to be balanced up and and its side. So it's not really a easy to give a quick soundbite answer I think it's something that we need to have an in depth discussion with our with our board and as Kevin.
Indicated that something that we'll be doing toward the end of 2020 as we look forward to 2021, but you know certainly wary. We appreciate the map on buying back shares.
Shares at a discount to our NAV and where we're at we're aware of that and the impact of that can have and so we need to balance all those things up and decide what's in the best interest of trading you know that long term shareholder value.
Certainly certainly makes sense and then what your shares trading where they are it. It's your point, where it's nearly 50 cents on the dollar. So as you go into 21 and you have that option.
Are you looking.
That NAV right and at that discount level before considering taking those funds in investing in growth because I know latimes analysts on the call. We'll say do you want to grow the company or do you want to reward shareholders, but do you agree that you can also grow the company on a per share basis more creatively through repurchases.
Yeah, I mean, I do think that I do think an important one of the important considerations is to look at the company on a per share basis for everything you know if you're increasing the shareholder's ownership through buybacks I think that's a that is an avenue to increasing their shareholder's ownership I don't know that I would agree that you're.
Growing the company, but you're certainly increasing the ownership of the share of the shareholders and I do think thats an important consideration. So that is definitely one of the things that gets that gets way it up as we consider how to allocate that allocate capital.
Certainly makes sense, congrats again on a great quarter and look imports an excellent.
Great. Thank you.
It appears that there are no further questions I'm not enter question answer session for today.
To turn the conference back over Q.
Any for any closing remarks.
Thank you for joining us today, please stay safe journeys global pandemic and we don't look forward to speaking to you next quarter take care.
That concludes today's conference. Thank you for your participation you may now disconnect.
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