Genco Shipping & Trading Limited Q4 2012 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Doug Mavrinac - Jefferies & Company - Analyst : I just had a handful of follow-up questions. First, stating the obvious, current charter rates remain weak, but as you guys pointed out, Panamax spot charter rates have started to move in the right direction with those increases in chartering activity. My question is, when we look at Capesize spot charter rates, which haven't moved yet, is the current weakness, relative to where rates were just a few months ago, more of a function of a lack of Chinese drybulk buying in recent weeks? Or is there something else that is to contributing to that incremental recent weakness that would keep Cape rates where they are but yet allow Panamax rates to increase?

Question: Doug Mavrinac - Jefferies & Company - Analyst : Right. Right.

Question: Doug Mavrinac - Jefferies & Company - Analyst : No, no. That's perfect, John, because it gets to the crux of it. So it's not this whole perpetually over-supplied deal, but it's simply a decrease in chartering activity because it makes sense, since every time we see an increase in chartering activity, last fall, the previous fall, even at Panamax rates most recently, you do see an increase in charter rates. So that actually gets to the point of the question. My second question is --

Question: Doug Mavrinac - Jefferies & Company - Analyst : Right, right, of course.

Question: Doug Mavrinac - Jefferies & Company - Analyst : Right. Yes, that makes sense too, John. I was just getting to the point that you read sometimes about how chartering activity has picked up but yet rates haven't. I was just trying to clarify that, that is not the case that it's not low -- it's a rate -- activity is picking up and rates aren't. It's just that activity isn't at the level of where we saw late last year.

Question: Doug Mavrinac - Jefferies & Company - Analyst : Okay, perfect. And then getting to the second question is, when we look at the current state of the market, rates are one thing. But when we look at utilization levels and idled capacity and whatnot, you guys are still seeing utilization levels at very high levels, obviously. But just as an update, are you seeing any significant numbers of viable drybulk ships out there that would prevent charter rates from going up once chartering activity did improve? companies.

Question: Doug Mavrinac - Jefferies & Company - Analyst : Okay, perfect, perfect. Now, so just big picture. I'm not asking for a forecast and whatnot, just intuitively, when you look at 2011, you look at 2012, Gerry alluded to it, how drybulk shipping trade growth remains strong. We estimate its increase 6% per year during those two years, and that's seven of eight quarters during that period when China's GDP growth was decelerating. So if we grew 6% in 2011 and 2012, when we look at 2013, is there any reason we should grow less than 6%? Or does 6%-plus sound like a decent number if that was the backdrop over the last two years and we know that things are getting better in 2013?

Question: Doug Mavrinac - Jefferies & Company - Analyst : Right, right, right. Perfect. And then just finally, switching over to the supply side of the equation, and Gerry alluded to also how we saw a significant drop-off in new shipyard deliveries in the second half of year. We estimate that the average monthly deliveries were about 5 million deadweight tons per month in the second half of the year. So once again, does it just intuitively make sense that even though we know that trajectory of the order book would suggest that shipyard deliveries should continue to slow, 5 million deadweight tons per month, 12 months in 2013? That's about 60 million deadweight tons. Is there any reason why that isn't an unreasonable expectation for '13?

Question: Doug Mavrinac - Jefferies & Company - Analyst : Right.

Question: Doug Mavrinac - Jefferies & Company - Analyst : It does, it does, because I know what other guys are saying. But what I'm saying is, if we see 5 million deadweight tons per month, simple math will tell you that's going to be less than what people are expecting? 5 times 12 is simply 60, so anyhow, John, that's all the questions I had. Thank you for the time.

Question: Michael Webber - Wells Fargo Securities, LLC - Analyst : I want to shift gears a little bit and talk a little bit about the lending environment. Obviously, you guys went in and secured a restructuring last year. It seems like that's probably going to need to happen again at some point this year, but sentiment seems to be improving, at least towards the back half of the year and 2014. So John, I'm just curious to how -- are you finding the banks easier or more difficult to deal with right now? I know you can't get into a huge level of details in terms of what you guys are working on right now, but are you noticing a difference in terms of their attitude towards the space?

Question: Michael Webber - Wells Fargo Securities, LLC - Analyst : In terms of what you guys are talking about now, if you just leave that -- the run rate effective Q1 '14, I believe, but from a -- if we don't see a pick-up in rates, you've got a cash burn that brings that deadline up into '13. Are you guys involved in more significant negotiations earlier in the year right now than you say that you were the last go around? Is that something that you guys are actively working on right now?

Question: Michael Webber - Wells Fargo Securities, LLC - Analyst : No, that's fair. That's fair. On a bit of an [earlier] note around Baltic, I think, given the current market scenario and its corporate set-up, I think most can agree, it should be valued more -- or higher than it is right now. It should be trading better than it is as an equity proxy for the drybulk market. Are you guys thinking about strategic options to maybe increase the liquidity there? Do you think there's anything you can do to increase that value? It would be a nice positive for you guys. I think you guys would probably agree that it should be trading better than it is right now.

Question: Michael Webber - Wells Fargo Securities, LLC - Analyst : Okay. So again, the 25%, that discounts any of the -- probably precludes some secondary offering or something drastic to increase the liquidity. I would assume that's probably off the table at this point?

Question: Michael Webber - Wells Fargo Securities, LLC - Analyst : All right, okay. One more around the supply and Doug mentioned this a little bit earlier. I think we're covering everything; we've got 6.5% of net supply growth this year. So pretty similar numbers, but from our perspective and I think you guys would probably agree, that on the biggest systemic issue around the space is not necessarily the number of ships but the number of shipyards. You've got a fair amount of readily available swing capacity that could get ratcheted back up should we see rates return. Are you guys starting to see yards getting shuttered, specifically in China, or are you seeing a reduction in the amount of shipyard capacity that's out there? Or should we start to see an improvement in the environment?

Question: Chris Wetherbee - Citigroup - Analyst : Maybe just want to make sure we're thinking about all the timeline correctly for 2013. When you come from some of the covenant waivers, is that at end of first quarter '13 and then you have amortization payments waived til the end of '13? I just want to make sure I'm thinking about the timeline correctly.

Question: Chris Wetherbee - Citigroup - Analyst : Okay.

Question: Chris Wetherbee - Citigroup - Analyst : Okay. So you're clear for the entire year of 2013?

Question: Chris Wetherbee - Citigroup - Analyst : Okay. That's helpful. And then maybe just switching gears to the rate side. So you have a competitor in the market talking about potential rate recovery in maybe the second half of 2013. It feels like the deliveries are weighted, I think, first half, which is consistent with what you guys have been talking about. How do you think about the second half? Obviously, you have a little bit better seasonality, but is that -- are you thinking that, that's an appropriate benchmark to be looking at as far as timing of, if your potential rate bounced back, if you view that optimistic or is it maybe something that looks a little bit better in '14 when you have a little bit better balance of supply and demand?

Question: Chris Wetherbee - Citigroup - Analyst : Yes. Yes. That certainly makes sense. You guys, obviously, are basically spot at this point. It's a pretty simple question, but you've got to wait to see the rates start to move. And then do you start layering out though early in this process? Either the first move, do you start going out a little bit longer in duration to start once you get better rates and potentially in the back half of this year? Or do you -- how long do you wait before you start to pull in things a little bit longer term? companies.

Question: Chris Wetherbee - Citigroup - Analyst : Okay. That make sense. Thanks for the time, guys. Appreciate it.