Q1 2021 SFL Corporation Ltd Earnings Call

Good day and thank you for standing by welcome to the Q1 2021 S. F. L Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on yard tell the Sally.

Please be advised that today's conference is being recorded if you ever quite hit for it or assistance. Please press star Zero I would now like to tend to kind of friends over to your speaker for today well, yes takata. Thank you. Please go ahead.

Thank you and welcome all to us of <unk> first quarter conference call.

I will start the call by briefly going through the highlights of the quarter and following that of our CFO Aksel Olesen will take us through the financials and the call will be concluded by opening up for questions.

Before we begin our presentation of we'd like to note that this conference call will contain forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1995 words, such as expects anticipates intends estimates or similar expressions are intended to identify these.

Forward looking statements.

Forward looking statements are not guarantees of future performance. These statements are based on our current plans for the expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements.

Important factors that could cause actual results to differ include but are not limited to conditions in the shipping offshore of credit markets. You should therefore not place undue reliance on these forward looking statements. Please refer to of filings with the Securities and Exchange Commission for more detailed discussions of risks and uncertainties, which.

You may have a direct bearing on your on our operational results and our financial condition.

The announced dividend of <unk> 15 per share represents a dividend yield of around seven 5% based on the closing price yesterday, and this is sort of $16 million quarter with dividends.

Over the years, we have paid nearly $28 per share should dividend or approximately $2 $4 billion in total and we have a significant fixed rate charter backlog supported continued dividend capacity going forward.

The total charter rate revenues was $135 million in the quarter with more than 85% of this from vessels for long term charters of less than 50% from vessels employed on short term charters and in the spot market.

The EBITDA equivalent net cash flow in the quarter was approximately $98 million and the last 12 months. The EBITDA equivalent has been approximately $440 million.

The net income came in at $31 million in the quarter for 27 per share. In addition to good contribution from our operating assets. We also had a positive effect this quarter from the sale of shares of <unk> crude carriers and positive mark to market relating to our interest rate hedging instruments.

Our fixed rate backlog stands at approximately $2 4 billion from owned and managed vessels. After the recent acquisitions, providing significant cash flow visibility going forward.

The backlog excludes revenues from 16 vessels trading in the short term market and also excludes future profit share of Optionality. In addition, we have exclude the charter hire relating to the drilling rigs to be conservative in light of the ongoing financial restructuring in Ctrip.

We are pleased to execute on our commitment to investing assets in markets with the lower carbon footprint.

We have spent a lot of time evaluating various new technology initiatives that can improve performance of vessels, including existing vessels on the water.

In April we agreed with the Volkswagen group to build the charter out two newbuild tibial few of car carriers deciding to use liquefied natural gas or LNG for propulsion the.

Charter period is 10 years from delivery in 2023 and until the new vessels of our deliberate Volkswagen will chartered our two existing car carriers <unk> composer Nsfl conductor and we intend to corporate with our customer to use eco friendly biofuel for the propulsion over to existing car carriers.

The transaction adds more than $200 million to the fixed rate charter backlog and importantly also added another end user to our customer portfolio.

And maintaining market, leading operational standards and close relationships with end users pesos as illustrated by another deal with Maersk line, where we have agreed to purchase of 2020 built 5300 Teu container vessel in combination with the long term charter.

The delivery expected to take place in the third quarter of 2021, and we will then have 13 vessels on charter to Maersk line.

All of these are on time charter terms, where we are responsible for technical management and vessel operations.

And while the purchase price is confidential on this last vessel, we can confirm that it's well below current charter free broker valuations I think of nice buffer for us.

Subsequent to quarter end. The company also successfully placed $158 million in senior unsecured sustainability linked bonds due in 2026 the <unk>.

<unk> will pay a coupon of 725% per annum and net proceeds will be used to refinance existing debt and for general corporate purposes.

It was done on a very cost efficient in the region documentation basis, but with strong international demand from Asia, Europe and the U S.

Yeah.

Excluding the drilling rigs the backlog from owned and managed shipping assets was $2 4 billion at the end of the quarter.

Over the years, we have changed both fleet composition of structure and we now have 80 for shipping assets in the portfolio and no vessels remaining from the initial fleet in 2000 and for.

This slide does not include the remaining three offshore assets.

So in total we have 87 assets if.

If we include these as well.

In addition to the long term chartered vessels, we have 16 vessels traded in the short term market.

We also had significant contribution from profit share this quarter as well as over the long term both relating to charter rates and fuel savings.

We do not have a set mix in the portfolio focus is on evaluating deal opportunities across the segments and try to do the right transactions from a risk reward perspective.

Over time, we believe this will balance itself out, but we tried to be careful and conservative in our investments and not just the interest because money is burning in our pocket.

With respect to see drill and their financial restructuring there isn't really nothing more to report at the moment, we have entered into agreements related to two of our drilling rigs, where we will receive approximately 75% of the lease higher under the existing charter a range of rents for vested interest in west Texas during <unk>.

The drills chapter 11 proceedings.

Both rigs are active and working.

For all companies and the charter rate is sufficient to cover of debt service relating to this race and.

And we're of course very pleased to see of strengthening harsh environment drilling market in the north sea on the back over rising oil price.

With regard to the later break the best tourists. This has been redelivered to us of fell and we are preparing it for recycling, which was which will most likely take place in the third quarter.

Over the years.

We have gone from a single asset class charter to one single customer two of diversified fleet and multiple counterparties and.

And over the time the mix of the assets of charter backlog has varied from 100% tankers initially to nearly 60% offshore 10 years ago to container and car carriers now being the largest segment with 77% of the backlog.

If you look at the Counterparties. It does now mainly to end users and market leaders in the respective segments and relatively few of our intermediaries, where we have less visibility on the use of the assets and quality of operations. So.

Strategically this gives us access to more deal flow of opportunities such as the repeat business with Maersk and MSC for example.

Our strategy is there for being to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the sea tankers group. This gives us the ability to offer a wider range of services to our customers from structured financing to full service time charters, which is where most of our <unk>.

Asset.

Folio of lives.

And with full control of the vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact the improvements to our vessels through the life of the assets and not only be possibly owning vessels employed on verbal bareboat charters, where the customers may not always have an incentive to make such.

Improvements.

And with that I will give the word over to our CFO akshay, the Williston, who will take us through the financial highlights for the quarter.

Thank you Miss the advocate.

On this slide there so of pro forma illustration of cash flow for the first quarter.

Please note that it is all of the guideline to assess the company's performance.

Not in accordance with U S GAAP net.

Also net of extraordinary and non cash items.

The company generated gross charter hire for approximately 100 of $35 million in the first quarter.

With approximately 84% of the revenue coming from our fixed charter rate backlog.

Which currently stands at two 4 billion, providing us the strongest the ability on our cash flow going for.

During the first quarter non IP generated gross charter hire of approximately $74 million.

Including approximate the $2 4 million and profit split contribution related to fuel savings on some of the large container vessels.

Of this amount of approximately 95% was derived from our vessels on long term charters.

This is the standard backlog currently stands at approximately $1 9 billion at an average remaining charter term of approximately for in the half years, we approximate the sitting in the half year, if weighted of charter hire.

The recent acquisitions and sort of extend since in the line segment.

75 percentage of our total backlog is for the growth leading container shipping line and automobile manufacturers.

Our tanker fleet generated approximately $15 3 million and gross charter hire during the quarter, including approximately 300000 and profit share contribution from our Vlccs on charter to frontline.

Furthermore, the net charter hire from the company's two suezmax tankers guidance.

The short term market was approximately $2 5 million compared to $1 6 million in the previous quarter.

During the quarter of Drybulk fleet generated approximately $32 million and gross charter hire.

This amount of approximately 60% flow through from our vessels of the long term charters to Golden Ocean in June the Glorious.

During the quarter the.

The 10th supermarket in handsets this of employed in the spot and short term market the.

These vessels generated approximately nine 8 million in net charge of higher compared to $6 4 million in the previous quarter.

The <unk> two drill rigs, which have been funded all of the subsidiaries of cereal on variable of terms.

In the first quarter with you the charter hire of approximately $13 2 million from the rig.

In connection with the chapter 11 filing of <unk> in February and the previously announced as the.

The first and the interim agreement at the <unk> relating to the license investor of lists, allowing the uninterrupted performance of sub charters the oil majors for the chapter 11 process is ongoing.

According to the disagreement is the field will receive approximately 75% of the enlist charter hire under the original contract for <unk> in this line.

This is essentially equivalent to the interest and amortization due on the secured bank loan facilities relating to this range.

This summarizes the net.

The EBITDA for approximately 98 million for the first quarter.

We then the zone to the profit and loss statement as reported on the youth.

As we have described in previous earnings calls our accounting statements are different from those of the traditional shipping company.

Most of our business strategy focuses on long term charter contracts, a large part of our activities I testified at the capital lease.

As a result of significant portion of our charter revenues are excluded from U S GAAP operating revenues and instead.

Net revenues classified as repayment of investment in finance leases of Mr. Low.

The sales and the associates and long term investments and interest income from associates.

So the so for the first quarter.

Total operating revenues according to U S GAAP of approximately $109 million.

This is less than the approximately $135 million of charter hire actually received for the reasons just mentioned.

During the quarter. The company reported profit profit split the income of $2 6 million mainly related to fuel savings on some of the loss container vessels.

Furthermore, the net result impacted by nonrecurring and noncash items.

Including amongst others of positive mark to market effects relating to interest rate swaps and makes the investments of $9 3 million.

Following the divestment of 51% through the book of folding last quarter. The vessels are accounted for as the investments in associates applying the equity method.

As the result of the accounting treatment operating revenues operating expenses and net interest expenses and these affiliates are not included in the <unk> consolidated income statement.

Instead, the net contribution from these affiliates are recognized as the combination of interest income from associates and results in the facility.

So overall according to the U S. GAAP the company reported the net profit of $31 5 million or 27.

Per share.

We then move on to the balance sheet.

At quarter end as Phil had approximate the $216 million of cash and cash equivalents ex.

Excluding approximately 8 million the cash held in our wholly owned non consolidated subsidiary.

Subsequent to quarter end, the company's successful of placed $150 million in senior secured sustaining basis the league.

The incentive fantasy.

And most of the coupon of seven in the quarter of revenue and the net proceeds will be used to refinance the existing existing debt.

Include the convertible notes that matured in October which is included in the short term debt.

As discussed in the last earnings call. The best line listen this tours for fully consolidated on our balance sheet of some national leases during the fourth quarter. After among other things changes to certain financing terms relating to the asset.

Pulling the agreements entered into with the drill in connection with the chapter 11 filing releases for this line. This investor of this have been same store operating leases.

This guidance will step removed from investment in sales type of direct financing and leaseback assets the vessels and equipment.

The balance sheet during the first quarter.

Also the recently announced transaction.

Approximately $184 million of remaining capex to be paid for the next two an obvious and the.

We expect the majority of this debate.

For the senior Bank finance.

So based on Q1 'twenty one figures the continental ex the ratio of approximately 2007 per cent.

Then to summarize the board has declared a cash dividend of <unk> 10 per share for the quarter.

This represents the dividend yield of approximately 10% based on the closing share price yesterday.

This is the sixth consecutive quarterly dividend and since the inception of the company in 2000 and for approximately $28 per share were approximately $2 $4 billion in aggregates as the return to shareholders to the dividend.

Our $2 4 billion backlog from a shipping assets given the strong visibility of future cash flow and continued debt service.

The current net significant financial strength with approximately 260 million of the cash on the balance sheet at the end of the first quarter.

The recently demonstrated our commitment to investing in modern fuel efficient vessels with the lower carbon footprint through the recent agreement that Volkswagen group for two new building car carriers and the issuance of $150 million of senior unsecured sustainability linked notes.

With the strong track record on the affiliation with the <unk> group of companies.

Having unique access to both capital and deal flow a great combination to continue to grow our business.

And with that I give the word back to the operator will open the line for questions.

Thank you as a reminder to ask the question you will need to press star one on your Italian styling to withdraw your question. Please press the pound or hashed E. Please stand by while we compile the Q&A roster.

And we now have our first question.

That comes from the line and Randy given from the Jefferies'. Thank you. Please ask your question.

Thanks, Operator, Howdy, gentlemen, how's it going.

Hi, Randy good to hear from you.

<unk> as well alright, so looking at your fleet here you've done a few acquisitions, mainly on the car carrier side and you also bought the the 5300 Teu from Maersk.

At these levels kind of are you interested in buying or selling and if so what asset classes are attractive right. Now obviously asset values are rising pretty much all across the all subsectors. So any sector you prefer at these levels.

Yes. Thanks.

We look at.

Obviously, if we look at opportunities across our sectors. So I would say we are of course very much more cautious.

On offshore assets for for natural reasons.

Also what we are seeing for instance on the on the liner side of container side, we've seen asset prices going up very quickly so.

There, we would be cautiously looking at opportunities and our focus would be to do the deals where we can take down call. It our effective asset exposure to a more normalized.

Mid cycle type of residual value also factoring in expectations for for changes in the in propulsion technology going forward, so, but so but if that works and we have a good strong chartered to a strong counterparty.

Where we are confident that they.

We'll pay also also when the market cools down we wouldn't have a problem with adding more capacity in that segment of course of our preference is to buy assets with long term charters.

And we have seen over the years debt, it's been more in the liners set line of reported space, where we have seen the long term charters, but we are also seeing it from time to time in other sectors.

Of the Drybulk side, we've seen it and we looked at projects.

On the tanker side too.

And the Bureau of course also full of developments in the segments, where we are not exposed currently.

But of course until or unless we do a deal there we cannot really comment on specifics but.

But we look at but we look at many opportunities and the.

And tried to be selective on which video.

Sure I guess did you look at or participate in the LNG powered VLCC tenders by some of the oil majors or the Qatar LNG Newbuild tenders that are kind of out there currently.

What I can say there is that we have.

<unk> essentially I would say.

All of our or certainly most of the opportunities that have been out there and we have we've spent more time I would say on on the opportunities where they have been the call. It new technology in view of fuel opportunities.

What we have been where we are we always for.

Quite a lot of time and our CEO of term Shirley.

The <unk> focused a lot on that.

We are focusing on what we call the world to way.

The perspective on on assets and what we of CNS that our view of few vessel.

You cannot always compare of dual fuel tier of dual fuel do you have different technologies there.

There are technologies. There, we believe are better from a long term perspective out of more versatile as an owner from a longtime perspective and many of the projects. We saw particularly during the last year, where based on technology, where we were not so interested in taking a lot of call. It <unk>.

<unk> dual exposure. So so if you combine.

That's with shorter charters than we would prefer.

We've seen others be more.

What does that mean more eager to get the projects and therefore bid lower rates or accept higher risk, so, but but again, we have our preference from a risk adjusted return others have theirs.

We will only know.

Later of what which was right, but we try to be cautious and mindful when we make these investments in.

And we see a lot of focus on on technology shift.

And we of course will prepare and watch that carefully as it develops.

Got it.

Alright, and then for the upcoming converts maturity I know you mentioned you did the hundred $50 million senior unsecured bonds I guess.

Of that entire amount the used to repay the converts and when will you repay those.

I think the.

The convert will.

For.

Service of the sustain the.

Both of those of course, two to tap on a very kind of attractive market in terms of cost of capital. We did that we're in Nashville in the base.

Proceeds for debt bond is partly to address the convert general corporate purposes.

And the balance.

Can be than the adjusted some cash at hand, so the combination of of the of already it's also for all practical purposes.

The that mature at the heart has been addressed the.

We also have the in the ex.

<unk> indenture on the new bond this year.

Barring amendment of the $200 million.

The $50 million in on top of the one piece that they have already raised so given the additional flexibility.

Right and can you confirm the amount and the date that you plan on repaying those converts.

I mean I cannot confirm the exact the.

Nathan the amount that the.

Yes. The early October mid October I think.

At quarter end outstanding amount of approximately $212 million got it.

Alright, thanks, so much.

Thank you.

Thank you and our next question comes from the line is that Greg Lewis from BP I G. Thank you. Please ask your question.

Yeah, Hi, Thank you and good afternoon.

I was actually hoping for for a little color around that.

The interest rate guidance, congrats on doing the sustainability linked bonds I imagine you're gonna be the like more of those in the future, but I guess what of what I'm kind of curious as.

As we think about all the good run rate just looking at your debt position.

At the end of Q1.

Any kind of color around interest rate guidance, you can give us for the next few quarters.

How we should be thinking about that number.

You're thinking about the.

The secured debt.

The team.

Yes.

Just that if I.

As I look at.

The interest expense in Q1, there was a nice step down from Q4.

And so.

How does that how we should.

I think it will be I'll.

I will say that the baskets for all of the stable from here from for both you saw in the first quarter, but with the step down is really related to the divestment of the 51% from there either book unfolding and how the hub that reflected.

That's basically the main the main difference there.

Okay over that other.

Other generally we have a lot of interest rate hedges. So when we do of long term charter, we typically of fixed the interest rate.

So we have we ended the we don't have so much for that.

Market related movements.

As such on a cash interest basis, we do see on some of the swaps. We have some swaps that are so called designated and while.

While we of others, where we have where we don't have them. So closely tied to the underlying call. It loan and therefore, we have some mark to market movement.

The value of their but our interest swaps are really basis hedges.

To ensure that we can really have a stable interest rate when we have visibility on cash flow.

Okay perfect for that and then and then all of the I was hoping you could the dig in a little bit around this acquisition.

That would be announced with the first I mean I guess my first question is yes.

The where to look back.

When you previously kind of worked through the.

Uncertainty around the last see draw of restructuring.

The company was kind of quiet on the acquisition front.

As I think about this acquisition is this kind of work.

And how should we think about this.

The acquisition of in terms of.

The company's financial position.

The outlook I guess the start asking.

Yes.

You are absolutely correct, we were quite cautious through last year, given the uncertainty relating to see drill and also whether or not see drill we're going to file for chapter 11, again or not as debt.

Good.

So so as we now have more clarity there we know that the two rigs that are working are producing good cash flows for for sea drill covering for call. It opex for them also contribution through their G&A.

And and and.

There is a buildup.

On top of that net.

After also paying of that charter rate for us.

That gives us of course better visibility on.

On the cash flow from from from those two assets also now when the when effectively the of the convert maturity has been addressed.

We are I would say from a from the from a from a from a corporate perspective.

And of better positioned to do more transactions hopefully.

But again, we are cautiously evaluating all deals and.

And we.

We hope to of course to execute on more transactions and we'll announce them and comment then, but but I think it's certainly.

A much better quality of setting for us now of them than last year.

Just due to the to the rig situations.

Okay, Great and then just.

And realizing we don't want to talk about specific customers on the call.

I would kind of characterize a lot of liner companies not all but a lot of liner companies decisions the kind of.

Focus on owning the.

The holiday and then kind of as the vessels age.

You typically beyond after there maybe halfway through their useful life.

The liners typically then go out.

And the cell cell of the sale and leaseback vessels.

Is there anything to glean from the fact that debt. This transaction that you did was for 2020 built vessel versus say.

2005 to 10 build outs or is anything changing in how the liner companies are thinking about the.

The positioning of their fleets and is that at the opportunity for the outgoing forward.

Yeah. Thanks.

Yes. The vessel we have agreed is essentially.

Ryan you, it's a newbuild vessel.

But it's been on the water of few months and therefore.

You could call it the secondhand, but it's but all of the all the all of the new Colgate bouts of vessels that we will build on the new vessel, but if you look at the order book and of course, there's been a lot of activity on the new building ordering side. The last six months in particular, Steve.

The order book is slower than the than it's been historically I think over the years, it's hardly being below this level ever. So it's only been in the last two years or so that we have seen lower order books, then we've saw up until call. It this new call. It search, but if you look at the assets that have been ordered I would.

Most of the assets are very conventional type vessels. They are very similar to specifications you would order of 10 years ago.

Only the only around the third I think of the vessels have.

In order to the scrubbers at least based on the market data, we've seen and very few vessels I believe sort of 10, 12% or so have been ordered with dual fuel.

So if you look at the container ships and the way we look at it there was a big technology shifts.

From vessels ordered before the financial crisis I E delivered maybe as late as 2011 2012, and the vessels ordered after the financial crisis, which started delivering in 2013 and onwards the.

The early the quality of the vessels the order before.

The signed for a much higher speeds bigger engines less fuel efficiency.

And really built for higher speed, while the vessels built from 2013 and onwards.

We're really at the time very similar to what has been ordered recently of course of new vessel is always marginally better than the previous vessels. So there are some gradual improvements, but it's not really being a real shift in that so I would say the line of companies as we as we see them experience it.

We are of course more focused on the what we call. The modern eco type vessels built from 2013 onwards, but of course in the frenzy that we've seen right now where there had been a shortage of capacity because of bottlenecks.

Charter anything so so so that's also why you've seen.

Asset values and charter rates for for vessels that were barely covering their operating expenses for many years now suddenly shooting through the roof and you get phenomenal rates.

Currently we believe that.

That is something that will subside when the market cools down again, but we believe that modern vessels built after the financial crisis.

Have much better prospects also in the long run.

Okay, great for that debt.

I guess just because it is the topical I will squeeze in another question of Yep.

Clearly the Drybulk market has been very strong year to date and just as I think about that and I look at.

A lot of a lot of the vessels you have that are on short term charters.

As we think about the opportunity for you know of.

A lot of the vessels that are on short term charters is it.

How should we think about the opportunity for those is that something where it.

I would think about.

For example on the old.

One year charter or is that.

If you can't get something at multi year, we'll just kind of keep these vessels operating on kind.

Kind of short term spot market work.

Yeah, well so far we have been operating income in the short term market for for a while the market has been soft so a few years.

And all of these were chartered on longer term charters previously and then ask the have come off we've tried to them in the market and we Havent had because we have the platform operating platform. If you haven't had to effectively flip them and re charter them at the at very low rates as they came off of those charters.

But we are from from an average, but thats the perspective of charter perspective, VR, we are agnostics.

And we will of course, we like long term charters.

You can also buy them from us if you'd like to I mean, we are agnostic from that perspective, as we like to say everything is for sale here, except for my dogs, you won't get that one.

So so so so yes, we will look at opportunities also relating to charters.

But but.

Again.

If you look at the main bulk of our portfolio are employed on long term charters and while the number there are I think the around 16 vessels in the short term market. If you look at the aggregate value.

Of our portfolio is a very very small portion maybe 8% to 10%, perhaps I don't have the number on the top of my head.

That's the absolute it is a small handful of vessels, but nevertheless, it seems like that could be a nice driver for EBITDA or any of the EBIT.

Amortization here over the next couple of quarters, Alright, Hey, Thank you very much for the time everybody. Thank you. Thank you.

Thank you and the next question comes from the line is it Liam Burke from B Riley. Thank you. Please ask your question. Thank.

Thank you and good afternoon.

With the state of the strategy of emphasizing container and.

And dry bulk fleet assets are you going to manage your tanker.

As such any differently.

And as asset values or improve.

Do you expect to manage the fleet that part of the fleet.

Well.

Of course, if we look at the transaction opportunities in all segments and we've also looked at opportunities on the tanker side of course, we have in mind also we quoted the wider shift in the market, where we see that.

Debt.

I think many investors and stakeholders prefer.

The line of assets in dry bulk assets over oil production and oil of transportation assets.

So, but it's all down to the risk reward and if the opportunity of <unk> interestingly enough and also factoring in.

As you know.

Assets like tanker assets over time may be more expensive to fund because.

Cost of the relative less interest in the market.

Doesn't mean that you cannot develop interesting opportunities also around those.

I think the reason why we have more on the line of sight in Drybulk side now is simply because that is where we have seen more compelling investment opportunities that combines both our counterpart is that is that as strong assets. We like both from a tax note technological aspect, where we have long term charter cover.

Rich and where we believe the residual value call, it exposure or or the or the asset.

Where they are at the end of the charter is at the threat of attractive level.

So the fact that we've done more on the line of sight now is not the excluding new deals.

We did the deal with Phillips 66, the couple of years ago, and and of course, we can do other deals.

So with the with all the majors going forward.

Sure now getting back to the dry bulk fleet, obviously, it's less smaller part of it and your propensity is to go with the.

Longer term charters to match do your financing.

The asset prices on the container side or higher is there anything you see in the Drybulk area. That's interesting to you, which would mean you are pretty specific criteria.

Yes.

Look at we looked at the opportunities there as well.

So so but we cannot be specific on what we should look at what we do look at the end and.

It's a nice cocktail of all.

Asset the counterparty chartered tenor.

And the Expo and the residual.

The residual exposure yeah. So so we may do more and also on the on the on.

For the dry side.

We are also seeing projects with with some of the major sort of for manufacturers.

From time to time, but.

Not not something that we're we have announced any specific transactions at this today.

Thank you very much.

Okay.

Thank you once again, ladies and gentlemen of the Star one if you wish to ask the question. Our next question comes from the line of Chris Let Debbie from Citi. Please ask your question.

Hey, guys. Good morning, James on for Chris just wanted to follow up on a couple of points.

Greg brought up.

You mentioned that basically the interest rate on the interest rate side from.

The liability perspective.

For any step ups of protections.

On the Permian basically in terms of the lease rates that we should be thinking about moving forward, where if there is a sizable increase but.

Potentially the spread between your financing costs.

The top line might extend.

Yes.

The the way it works I mean, what we what we typically do when we when we do of new long term charter, we typically tied to match financing term with the charter term.

And then we also normally hedged interest rate the.

Either either through a fixed rate the agreement with the financial institution or we do a pilot of interest rates.

Hedge on the side of it.

If you then look at what you have been then you have your sales.

At the end of the charter periods Youre looking at the new charter opportunity and of course, any charter opportunity and the charter rates call. It the new market will have the prevailing the interest rates as a component in the and the structure at the time and therefore.

You can say that.

If the market if the interest rates should go up.

Significantly.

You will have the.

You will effectively see a higher charter rate at that time.

We also have.

On some of the assets.

I'd like our eighth container ships with the gold notion we have of charter and interest rate adjustment factor, where they effectively absorbs the interest rate volatility.

Which means that we can then.

<unk> be finance.

On the on a short term interest market.

And.

And if the market and if interest rates should go up they will absorb it.

Is that not correct OXXO exactly except from the extra half case of this of to go north.

Yeah.

So a lot of talk about container assets.

Hey, Bill.

Okay.

Okay.

Yeah.

Got it from like an asset liability matching perspective, it seems like its pretty tightly match didn't it's not necessarily that there is downside or upside for us.

From an interest rate perspective, excluding sort of the contact center.

Re chartering activities at the rate weighted sort of thinking about this moving forward.

In terms of the however, we have undertaken the conservative strategy in terms of the interest rate.

Exposure.

On the survey taken the risk and also if you look at the letters from the digital sold so fixed rate bonds. So thats kind of of the philosophy. We have here so maybe owning shipping assets, it's the perfect.

The interest edge.

Inflation ex.

Yeah Yeah.

Yeah.

Then separately.

Orin connected as well I guess, the sustainability bond debt.

Now understanding sort of the 7% rate what do you think it would have been had it not been sort of sustainability linked.

Or are the cost savings it really something that you don't see here, but it was like a repeat issuer of sustainability bonds, you might see debt rate move down further overall, just trying to understand about essentially what was gained with that transaction in particular I think.

Look I am of discussed this a lot of internal with kind of.

The managers that.

Replace the notes I think.

I don't think there will be of kind of a significant difference in the pricing whether it was interesting you said that you reach a much broader audience of investors.

In the paper that you have far more liquidity.

We will sell the kind of fairly international.

The broad placement of I think kind of.

For the five 8% both of us from international investors outside of the Nordic sort.

It's basically kind of make the paper more attractive for investors, hence credit liquidity, which overall is positive for the trading of the bond in the of the market. The I think also in other factor is debt raising capital in.

On Norwegian documentation of this was is also much more cost efficient from a legal perspective.

And so.

And sort of I would say also you could maybe also on a fee perspective compared to some of the U S issuance as we have seen so if.

If you if you look at the all in cost.

We think that that's also a significant part.

<unk> contributor.

Got it alright, and then.

The outlook in your approach to the market or you think of just about sort of your outlets and the approach to the market.

From the sector perspective.

Kind of wanted to get your sense of where you are in sort of terms that you might look at it on the deals themselves.

You want like.

In the longer term secured perfect world look like relative to the.

The market what sort of deals that are sort of the.

The most likely the you've done instead of the most attractive like the kind of terms of you're seeing or it's the things with long term that are like sort.

Of capped downside available to you along with upside just trying to understand sort of like for the market is in terms of.

What you see across coming across.

You are mentally and whats attracted and then if you could layer in sort of like what essentially is in terms of are you getting on the debt.

Side versus the what's available in the market to someone else.

Terms of bank debt.

And does that that'd be great.

I think in terms of kind of deal flow I think we see quite of bit these days.

But of course, the NPV of being quite selective I mean some segments.

The call it the enterprise the cost will be quite rich.

You have also have kind of lot of forward starting dates on a lot of the cash flow revenue basically and that goes for.

Back to kind of.

Financing at the of.

Ability to look in the interest cost.

I think I mean, we we.

Validate the broad deal of deal opportunities across.

All all segments line Theres tankers dry bulk.

As of lots of activity. The again I think we are being as low as being very disciplined but we have a strong focus on on counterparty risks.

And also the residual value of course debt is a bit trickier of these days with the.

Of the doors and of the new propulsion technologies, and Theres kind of Nokia conclusion will throw a solution yet so.

And those locations, especially left to be certain debt you have a sufficiently long charter to basically be on residual debt thats very comfortably.

In terms of bank financing I would say.

Currently we have a bank group of ink around 30 banks International I think you've seen the migration to the east for SSL.

We have a lot of the cornerstone banks in Japan.

But in total and then also give a lot.

The support from the minutes of the Chinese financial institutions.

The European banks are still there, but I would say I mean day due to regulatory issues kind of over.

The policy of reducing the exposure to the shipping space. There has been kind of a retraction in the overall there is really a flight to quality for for the bank. So for <unk>. We are very fortunate that we have very good access to the capsule that let's say looking backward.

Will it lost the 12 months I mean, the margins have the.

Become more competitive.

Which is basically <unk>.

For us to basically kind of.

The take advantage of the capital cost arbitrage.

Of the transactions, we do so for US if you look at the recent transactions two of them I mean, we have been.

So in the incoming calls in terms of one thing to finance this asset sales. So we are.

Of the of.

Domestic two to basically finance.

The transactions and also new opportunities and I'm very appreciative to our banking group both of the support they are giving us.

Got it.

Two very small point of clarification.

From the deal flow you're seeing is there.

More of a reluctance to take on the residual value risk.

From your customers for sort of give I think it was layered in there just kind of want to clarify the NIM.

So just to be clear at the <unk>.

The access to sort of like the broad. Thank you Anthony Eastern Thanks line, that's not necessarily something that's sort of like broadly available throughout the market or is that something more specific you can just trying to understand if that's in the industry trend or an asset vouchers.

Sure.

So on the first of all I think I think of all customers try 222 of the residual risk to us I think.

So something you see in the market.

We have a big group both of existing clients the very good relationship.

The.

That's very often see that you can expand relationships.

Basically think of common approach to what sort of.

Since for residual value of it for both parties on the.

The third of DC can execute zone.

Could you please repeat the last part of your question.

You had mentioned the trend about the pulling out.

The bank for the long answer from the banks and then being replaced by the Eastern banks is the ability of access.

The replacement think something thats available to the entire market or is there something more specific to you given the scale and scope of just trying to understand if it's the net sale trend or.

The industry trend, yes, as I said I mean, there is a general flight to quality and I think as it fell at the company induced the kind of.

Strong track record.

Nation with the C of tankers group of companies, we were fortunate to have strong access to the banks I think it's really the equal the second third tier ship owners that basically are losing up on bank capacity.

So as William from the European banks, maybe of a very strong support.

With regards to the Japanese banks the day, they are very fond of our business strategy all of it.

The acquired assets with the long charter attached and Thats kind of very familiar with them because the last is the approach debt most of the Japanese ship owners have us well so kind of resonate gives me kind of.

The approach.

Risks.

Thank you.

Thank you.

Thank you and there are no further questions at this time please continue.

Thank you Ben I would like to thank everyone for participating in our first quarter conference call and also thank the <unk> team on board the vessels and onshore for the efforts and the challenging time with continued uncertainty caused by the COVID-19 situation in particular for our vessel crews.

If you have any follow up questions. There of contact details of the press release, where you can get in touch with us through the contact pages on our webpage www dot SFA the core dot com. Thank you.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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