Capital Product Partners L.P.
Q3 2016 Earnings Call Transcript

Published: 31 Oct 2016

[Operator:]

Thank you for standing by and welcome to the Capital Product Partners Conference Call on the Third Quarter 2016 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer and Chief Financial Officer of the Company. At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you this conference is being recorded today. The statements in today’s conference call that are not historical facts, including our expectations regarding developments in the markets, the expected use of proceeds from the offering of our common units, fleet developments, our ability to pursue growth opportunities, our expected charter coverage ratios for 2015 and 2016 and expectations or objectives regarding our quarterly distributions and annual distribution guidance maybe forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

[Jerry Kalogiratos:]

Thank you, Kara, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today’s presentation. On October 20th, our Board of Directors declared the cash distribution of $0.075 per common unit and $0.21375 per Class B unit for the third quarter of 2016. The third quarter common unit cash distribution will be paid on November 14th to unitholders of record on November 7th. The third quarter Class B cash distribution will be paid on November 10th to Class B unitholders of record on November 3rd. We are delighted to announce that our Board of Directors has approved an increase to our quarterly distribution by half a cent to $0.08 per common unit from the fourth quarter of 2016 onwards on the back of an accretive acquisition that we’ve completed earlier this month. The Partnership’s net income for the third quarter stood at $11.8 million compared to $13.8 million in the third quarter of 2015. In August 2016, we successfully sold approximately 4.4 million HMM common shares for an aggregate consideration of $29.7 million. We are pleased that following the successful liquidation of the HMM shares, we were able to recover circa 80% of our total charter hire loss related to five of our containers following HMM’s financial restructuring in July 2016. Common unit coverage for the third quarter amounted to 1.5 times, excluding the impact of the HMM proceeds and after accounting for the $14.6 million in capital reserves and the Class B unit distributions. On October 24th, we used part of the HMM shares sales proceeds to fund the acquisition of an eco-type MR product tanker, the motor tanker 'Amor'. The vessel was acquired from our sponsor Capital Maritime for a total consideration of $32.8 million including approximately 284,000 common units issued to Capital Maritime at the price of $3.54, which represents a premium of 14% to Friday’s closing price. Furthermore, during the third quarter 2016, we secured one year employment for two of our M/R tankers, the motor tanker Atlantas and ‘Alkiviadis. As a result of the new charters and acquisitions of the Amor, the remaining charter duration of our charters stood at 5.7 years as at the end of the quarter with approximate charter coverage of 97% for the fourth quarter of 2016 and 79% for 2017. In September, the Partnership launched an ATM, At The Market equity offering under which the Partnership may at any time and from time-to-time and for a period of up to three years, offer and sell new common units having an aggregate offering amount of up to $50 million. We intend to execute the sale of units in a prudent manner and use the net proceeds from this offering for general partnership purposes which may include among other things to repaying or refinancing all or a portion of our outstanding debt and funding working capital, capital expenditures, or the acquisition of new vessels. To-date, since the launching of the ATM on September 12, we have sold $2.3 million worth of units. Turning to Slide 3, revenues for the third quarter of 2016 was $60.3 million, an increase of 5% compared to $57.6 million during the third quarter of 2015. The increase was primarily a result of the increase in the size of the Partnership’s fleets, partly offset by approximately 102 days of off hire related to the dry-docking of two of our Suezmaxes namely the Miltiadis M II' and Amore Mio II. Total expenses for the third quarter of 2016 were $42.4 million, compared to $38.9 million in the third quarter of 2015. The $1.5 million increase observed in voyage expenses was primarily attributable to the expansion of our fleet, as well as the increase in bunkers consumption, due to the ballast voyages of the Suezmaxes that underwent special survey and the voyage charters of the M/T 'Arionas' which traded in the spot market until it commenced its special survey earlier this month. Total vessel operating expenses during the third quarter of 2016 amounted to $19.1 million, an increase of 3%, compared to the third quarter of 2015. The increase primarily reflects the expansion of our fleet. Total other expense, net for the third quarter of 2016 amounted to $6.1 million, compared to $4.9 million for the third quarter of 2015. The increase primarily reflects higher interest costs incurred during the third quarter of this year, mainly as a result of higher debt outstanding during the period compared to the same period in 2015. The Partnership's net income for the quarter $11.8 million compared to $13.8 million in the third quarter of 2015. Turning to Slide 4, you can see the details of our operating surplus calculations that determine the distributions to our unitholders, compared to the previous quarter. Operating surplus is a non-GAAP financial measure, which is defined fully in our press release. We have generated approximately $31.7 million in cash from operations excluding the sale proceeds of the HMM shares and before accounting for the Class B preferred units distributions at a capital reserve of $14.6 million. After adjusting for the reserve and the Class B unit distributions, the adjusted operating surplus amounted to $14.3 million excluding the impact of the HMM share sales proceeds which translates into a common unit coverage for the third quarter of 1.5 times. On Slide 5, you can see the details of our balance sheet. As of the end of the third quarter, the Partners’ capital amounted to $923 million, a decrease of $15 million compared to $938 million as of yearend 2015. The decrease primarily reflects distributions declared and paid during the first nine months of 2016 of $56.1 million, partly offset by the net income of a nine month period ended September 30th and the net proceeds from the issuance of common units under the ATM offering. As of the end of the third quarter, the Partnership's total debt increased by $22 million to $594 million, compared to $572 million as of yearend 2015. The increase was due to a $35 million drawdown under – excuse me – under our senior secured credit facility with ING Bank to fund the acquisition of the Motor Vessel CMA CGM Magdalena, which was delivered in February 2016, partially offset by $13 million of scheduled loan principal payments under the same credit facility during the first nine months of 2016. Overall, our balance sheet remains strong with a net debt to capitalization of 31% and with Partners’ capital representing 59% of our total assets. Moving to Slide 6, we are pleased to have secured time charter employment for two of our M/R tankers. The motor tanker Alkiviadis has extended its time charter employment with a French oil major Total for 12 months or $13,300 gross per day. The charter extension was agreed in early August with the earlier charter expiration in July 2017. The vessel was previously earning a gross daily rate of $15.125 per day. In addition, the motor tanker Atlantas has been fixed on a time charter to Capital Maritime for 12 months at $13,000 gross per day. The new charter commenced in October 2016. The vessel was previously employed under bareboat charter to BP Shipping at a gross daily rate of $7,250. We are pleased to see the continued support from our sponsor in providing employment coverage at attractive rates at the time of a period market for product tankers remains relatively liquid. While CPLP’s exposure to Capital Maritime as a charterer has been reduced with currently six vessels on charter to Capital Maritime out of total of 36 vessels, Capital Maritime continues to be one of our important charterers and as a courtesy, it has provided us with certain balance sheet information for the six months ended June 30th to help investors assess its financial profile. Capital Maritime is a diversified profitable shipping company which owns six VLCCs, one Suezmax Crude tanker, five M/R product tankers, two handy bulk carriers, and two feeder container vessels. The average age of its fleets rated by deadweight is approximately 4.6 years. It boasts of a strong balance sheet with a net debt to cap as of June 30 of around 14%, 14 – and again during the first half of 2016, total assets amounted to $1.2 billion and stockholders equity stood at approximately 67% of total assets. In terms of new billing commitments, Capital Maritime has on order two eco-Aframax crude tankers which have been fixed on a five year charter and one remaining eco-M/R product tanker on order. All newbuilds are expected to be delivered during the fourth quarter of 2016 and the first quarter of 2017. Capital Maritime intends to finance this newbuilding program with cash on its balance sheet and debt from commercial banks. Now turning to Slide 7 and taking into account new charters, the average remaining charter duration is 5.7 years. We have seven product tankers, three Suezmax tankers and two containers whose charters come up for renewal over the next 12 months assuming that the respective charterers do not exercise optional periods. Moving on to Slide 8, we review the product tanker market developments in the third quarter. MR product tankers’ spot rates remained under pressure during this quarter as high inventories across all major refined products, lack of our business opportunities and refinery outages in the US and Europe had a negative impact on ton-mile demand for product tankers. According to the IEA, OECD total inventories stood at a record level of 3 billion barrels in July 2016, limiting petroleum product seaborne movements. At the same time, the MR product tanker fleet has expanded at a relatively high pace with net fleet growth at 6% year-on-year as at the end of the quarter, adding pressure in the markets. On the bright side, strong US gasoline demand and surging Chinese exports, partly offset weakness in the markets. In addition, US product exports remained at elevated levels with exports averaging 4.1 million barrels in the third quarter, when compared to 3.7 barrels in the previous quarter. The product tanker period market saw in general less activity and softer rates, as the weaker spot market affected charterers’ appetite for period deals. Despite the current weakness in the markets, demand and supply dynamics are gradually improving. New contracting activity has been very limited and overall 2016 is on base to see record low ordering with only five new MR orders recorded year-to-date. The negative sentiment prevailing in other shipping sectors such as in the drybulk and offshore markets, as well as the limited access to capital from the industry as a whole has severely limited the ability of owners to pursue newbuilding orders. Importantly, the rationalization of the shipbuilding industry continues with several shipyards either closing or cutting down capacity due to the – of new orders. For example, we count currently only one major shipyard in Korea willing to take orders for newbuild MR product tankers compared to five shipyards a couple of years ago. As a result, the MR order book has now decreased to 10.7% as a percentage of the fleets, the lowest since 2000 where slippage remains high at approximately 27% of the expected newbuilds were not delivered in schedule. Finally, on the demand side, structural reforms in China’s refining sector and the refinery capacity expansion East of Suez are expected to positively affect product tanker trade and as a result, analysts expect to see product tanker deadweight demand to continue to grow by between 3% to 5% over the coming years. Moving to Slide 9, the Suezmax crude tanker market was overall weaker in the third quarter of 2016 compared to the previous quarter. The decline was partly attributed to seasonally weaker demand for crude oil as well as to the declaration of force majeure at a number of Nigerian export terminals, as a result of militant attacks on oil facilities. This led to a significant decline in the volume of cargoes available for Suezmaxes in the West African markets, particularly in the first two months of the quarter. In addition to the weaker demand, increased crude tanker deliveries have exerted downwards pressure on rates during the quarter as 20 Suezmax deliveries have been reported in the first nine months of this year compared to 10 in the same period of 2015. On the positive side, the spot market rebounded from mid-September onwards on the back of higher exports from Russia and Nigeria as the Milton Group’s facilities entered into negotiations with the Nigerian government thus resulting in higher oil production at subsequent lead crude exports. The Suezmax market was all supported by solid Chinese crude imports and robust crude flows from Iran. Chinese crude imports reached a new record high of 8.1 million barrels in September, up 18% year-on-year. In the period market, we saw limited demand for Suezmax tankers during the quarter while period rates retreated in line with the softer spot markets. According to the IEA, world oil demand is expected to increase by 1.2 million barrels in both 2016 and 2017. Overall, industry analysts expect Suezmax tanker deadweight demand to expand by 1.5% for this year. This is largely on the back of firm growth of Chinese crude imports and the reemergence of Iranian crude exports to Europe, partly offset by lower exports from West Africa as a result of the force majeure declared in Nigeria earlier in the year. Looking on to supply side, the Suezmax tanker order book June 2019 corresponds to 19.4% of the current fleet as compared to 22% at the end of the previous quarter. Contracting activity has declined sharply with just 11 Suezmaxes ordered year-to-date a sharp contrast to the 59 vessels in full year 2015. Turning to Slide 10, we are delighted that our Board approved the increase of our distribution by half a cent from the fourth quarter onwards. This is as a result of the accretive acquisition of an MR product tanker we concluded last week. In particular, we acquired the motor tanker Amor from our sponsor Capital Maritime for total consideration of $32.8 million. The vessel is on a time charter with Cargill International at the rate of $17,500 and is expected to expire in October 2017. The consideration was funded with $16 million from the cash proceeds of the HMM shares and the redemption of $15.8 million of debt under a term loan of a new credit facility with ING Bank. The term loan is non-amortizing for a period of two years from the anniversary of the dropdown with an expected final maturity date in November 2022. The interest margin on the term loan is 2.5%. The remainder of the consideration was funded with the issuance of approximately 284,000 units to Capital Maritime at a price of $3.54, which was a volume weighted average unit price for the period from July 14 to October 14 and represents a premium of 14% to Friday’s closing price. As we pursue more accretive acquisitions going forward, all will subject to market conditions and opportunities, we expect our Board to revisit the Partnerships’ distribution guidance. Moving to Slide 11, as mentioned in past quarterly calls, the Partnership has access to a number of assets that could be potential dropdown candidates. We continue to hold the right of refusal on five eco-MR product tankers which are currently controlled by our sponsor. Four of these vessels are financed under the same ING credit facility with the Amor, which allows us to innovate the respective tranche for each vessel at the 50% advance ratio provided the vessel has one year of employment or longer and provides for a two year non-amortizing period. Moreover, the Partnership has access to a number of crude tanker opportunities from our sponsor including two Aframaxes with a five year charter to a US oil company. Capital Maritime is in the process of arranging a credit facility for these vessels which is expected to provide for the financing of these vessels with both Capital Maritime and CPLP. We expect to continue to seek accretive acquisitions from our sponsor and from third-parties, subject to the accretion to the distribution and to conference committee approval on the terms of the transaction. Finally, turning to Slide 12, we are pleased to have achieved a number of important milestones for the Partnership during the last few months. First, we concluded our negotiations with HMM and we successfully liquidated the equity compensation received from HMM by recovering approximately 80% of our total charter hire loss. Second, we agreed to acquire a modern eco-MR product tanker from Capital Maritime, with an attractive charter to Cargill. We have funded part of the acquisition cost with the proceeds from the sale of the HMM equity compensation. It is also worth highlighting that our sponsor Capital Maritime has received units as part of the purchase price at a significant premium to the latest closing price of our common units. Additionally, we will launch an ATM offering with the aim of raising further capital over a period of time for vessel acquisitions and general corporate purposes. Regarding recent market developments, we know that the demand fundamentals for tankers and the specialty product tankers remains solid on the back of refinery capacity relocation, increased ton miles and the low oil price environment. However, the high oil product inventories and the increased supply of tanker vessels has recently weighed on vessel earnings. The limited number of new tanker ordering thus far this year and the rationalization of excess shipyard capacity combined with solid industry fundamentals are positive trends for the tanker markets in the medium- to long-run. Finally, we are delighted that with the expected expansion of our fleet, our Board of Directors has approved the increase of our quarterly distribution from the fourth quarter 2016 onwards to $0.08 per common unit. Depending on our access to the financial markets, our objective is to pursue additional accretive transactions going forward and expand our asset base, with a view to further increasing the long-term distributable cash flow of the Partnership. And with that, I am happy to answer any questions you may have.

[Operator:]

[Operator Instructions] And our first question comes from the line of Michael Webber of Wells Fargo. Please go ahead and ask your questions.

[Michael Webber:]

Hey, good morning, Jerry. How are you?

[Jerry Kalogiratos:]

Hi, Mike, very well.

[Michael Webber:]

Hey, Jerry, just a couple questions firstly it’s around the drop and then how you think about your long-term refinancing and I guess they are interrelated, but maybe actually starting with the debt and you’ve got a relatively heavy 2018 and 2019 amortization schedule and that was – that along with HMM was kind of the precursor to the recent distribution cut. Just kind of restarted that dropdown program here, so I guess, my questions are two-fold, one, how do you think about the timeline for addressing that 2018 and 2019 refi risk? And then, two, it’s been when you can get that roads how you think the current distribution path? Do you look at the current path being a temporary kind of lower runrate, and a kind of pretty refi norm or do you look at this as kind of the new normal and everything from here and that will be based off of this level regardless of what you are able to do with your debt?

[Jerry Kalogiratos:]

Sure. With regard to the refinancing plans, we do enjoy an excellent relationship with our banks and from preliminary discussions we have had, we understand that it would be interested in participating in a potential refinancing after having repaid or prepaid depending on the timing, a portion of our existing debt in line with the sums we are putting aside as a reserve. You recall that we have set aside this $14.6 million each quarter until the end of 2018 or just sort of $16 million per year. So, we are going to maintain that this reserve until we find a proper solution. Now, one thing to bear in mind is that, that certain of our facilities expire from 2019 onwards. I mean, apart from one that expires in the first quarter of 2018 and it’s really a very small part of our debt. We have to make sure that when we refinance, we also give adequate visibility in terms of the maturities compared to what we have today. So we wouldn’t want to ration to refinancing, so that we just lock in maturities in 2020 when most of our maturities are in 2019 at this point. So, what I am trying to say is that, we are having these discussions and we have to find the optimal point in time to enter into this refinancing transaction. Secondly, with regard to your question as far as the distribution is concerned, I think the message that we gave back in April is that going forward, any distribution level will be based that we choose will be based after we reserve for debt repayments. So, with the distribution level that we have today is based on our capital reserve which is based on the debt repayments that might a bit on the heavy side compared to a more normalized repayment schedule. If we do manage to refinance and achieve a better repayment schedule then part of that accretion could find its way back into the distribution.

[Michael Webber:]

Gotcha, that makes sense. So when I look at this, it seems like, just based on the current reserve, you’ll have north of $175 million through the end of 2018 which should take care of the – through that period 2019 now it’s obviously a bit lumpier. So, I guess, part of that – I guess, part of the answer to that question is, and I may guess part of the real question there is, how early can you realistically get traction with your banks to look at 2019 which kind of seems to be the kind of the big variable, you’ve got the cash to can face everything this year or next year without much of an issue. But is this something where you need to get within six to nine months of that period before you can really sit down and move that figure around or is that’s something you guys think you can realistically address today with your lenders?

[Jerry Kalogiratos:]

Well, discussions, as I said, are ongoing. And we have to balance that decision with the fact that we don’t want to be too early, when it comes to refinancing. So to make sure that we give adequate visibility. So we will continue our discussions over the coming quarters and hopefully as – also as our cash balances are better, we can find a solution. We will wait until 2019, but I don’t think it will happen next quarter either. I am right.

[Michael Webber:]

But it’s not a situation where you can do it today – as it matures until there is a wind there which kind of becomes realistic and that’s probably next year?

[Jerry Kalogiratos:]

Yes, I think it will be 2017, but the discussions will definitely continue in 2017, but you wouldn’t want us to do it today either. I mean, if we did it today and we did five to seven year, let’s say facility, that wouldn’t take us in terms of maturity very far from where we are today.

[Michael Webber:]

Right, yes. I think that unitholders and – they were receiving a higher distribution would probably argue with that, but I certainly get to the idea that there is a frictional point at which you can’t doesn’t really doing much good to address this today or they might not be willing to really give you the kind of terms you want thus far out which was kind of just where it was kind of going with that. But the, I guess, two more quick ones and I’ll turn it over, actually very quick ones. You guys, you’ve liquidated the HMM stake you’ve got one more container ship it looks like on the dropdown candidate it’s a smaller, I think 2000 TEU container ship with STX. From a viability, actually I don’t think that ‘s the word, from a viability standpoint, going forward, obviously the tankers makeup a bigger, the majority of that dropdown pipeline. Do you think container ships remain a viable option for you guys down the line outside of what’s in the existing pipeline, just given were to happen with HMM and I guess, more severely with – and like where you guys didn’t have exposure there. But is it still within the long-term mix of what you guys have looked with that?

[Jerry Kalogiratos:]

Look, when it comes to the – to dropdown opportunities, immediate dropdown opportunities as if I refer you back to the relevant slide in the presentation, as you say, it’s dominated by tankers. Some of them you know very well like the MR product tankers, we will have a right of a refusal there are also certain crude assets and two of them we have also communicated previously that have a five year charter. And in addition to that, as I discussed earlier, this – some of these tanker assets, they also have debt in place which can be no weighted in a way to Capital Product Partners. So, really, if you have the asset, if you have the charter coverage and you have the debt, it’s a question more of where the equity comes from. And we still have certain proceeds from the sale of the HMM shares left and we have some incremental proceeds from the ATM. So we will look at – I think that could be the easier transactions to look at in the near future. But in general terms, attrition remains the criterion. So, if, again, this is a theoretical question, but would we look at a container that is, let’s say fixed to a first-class liner like Maersk or CMA or with the other big guys, if it was an accretive transaction and provided cash flow visibility, yes, of course, we would look at it. I think, it’s more, we are a bit agnostic with regard to – as you know to asset classes and especially today, if you were to buy at the current market levels, there is limited downside.

[Michael Webber:]

Gotcha, enough. That makes sense. One more me and I’ll turn it over – and I think I’ve asked for this in the past, but within your fee structure there are a couple crude carriers that have S&P fees attached to them, I believe they are legacy assets that came over from the Crude Carriers acquisition. There is a not – that’s kind of fee that’s not in part of your all time going operating structure by any stretch they are kind of attached to a couple legacy assets. Is that’s something that you guys would look at removing or is there a fundamental or a strategic reason why those are in still in place?

[Jerry Kalogiratos:]

There is – as you correctly pointed out, these are legacy assets. We took over the management agreement when the company merged with Crude Carriers. But I think, to your analysis, it is actually a good question, because it’s an opportunity to point out and I think that’s something that most of you that you have been following CPLP for sometime know quite well that Capital Maritime as a sponsor. It has been very supportive of CPLP in mode than on weighs. Firstly it has participated, I think, in all but one equity offerings and the current acquisition of the Amor I think, if anything demonstrates that the sponsor has acquired units at a premium not just this time, but also in the past as you might recall and happy to go over the details. And secondly, in times of when the period market has been liquid, you recall maybe in 2012, 2013 that the tanker market was very weak, charterers were very reluctant to take period charters. Capital Maritime stepped in and took vessels on charter providing cash flow visibility to investors. I think all these are important considerations when it comes to the sponsor support. Now as you say, that these three assets that are legacy assets out of 36 ships, we haven’t really thought about this. It’s good that you pointed out, but I think you also have to look at the broader picture. And do not forget that to another point that you have raised, you have discussed the reset of the IDR of the in charge of distribution rights, which took place a couple of years ago. I would like to remind you that this was a decision approved by the AGM without the participation of Capital Maritime. So really this was not a decision of Capital Maritime or CPLP behind closed doors. And more importantly, there was also a value transfer. So, Capital Maritime agreed to waive more than $30 million of value in terms of acquisitions in order for this IDR is set to be approved by the unitholders. So, I think, these are all important points when it comes to governance and in general, I do not think that the fact that three of our vessels have legacy management fees or it’s something that should be started at a broader picture.

[Michael Webber:]

Right. But that financial question, that specific hang on in the fee structures, is there a possibility that you guys could look to revisit that any point or is that not necessarily on the board that’s end at any point?

[Jerry Kalogiratos:]

We have not discussed this recently, but it’s good as you raise it. We will have a look at it again. But it will be also good for the positive sides of relationship with the sponsor to be highlighted as well.

[Michael Webber:]

Absolutely. All right, guys. Thanks for the time.

[Jerry Kalogiratos:]

Thank you.

[Operator:]

Thank you. And your next question comes from the line of Jon Chappell of Evercore. Please go ahead and ask your questions.

[Michael Webber:]

Thank you. Good afternoon, Jerry.

[Jerry Kalogiratos:]

Hi, Jon. How are you?

[Michael Webber:]

Good, thanks. How are you?

[Jerry Kalogiratos:]

Great, well.

[Michael Webber:]

Good. Just a couple questions, much quicker than the last. First on the dropdown capabilities, just two parts to this one. First of all, you used $16 million of cash in the HMM sales to finance the Amor that leaves you about $13 million that’s there and as we think about the potential to get the ATM done, that would probably be $38 million in total. Is that the kind of excess on the cash liquidity you are thinking about for the equity components of dropdowns or would you really need the equity capital markets to open up again for a true offering before you can take down any more assets?

[Jerry Kalogiratos:]

That’s actually the way that we think about. As you are saying, we do have about a bit less than $14 million of proceeds left from HMM. There is also the ATM and subject to raising some incremental equity, we could look at certain transactions. I think it’s worth noting that our ATM filing for up to $50 million is valid for three years and allows us to sell incremental common units in the market. But, it will be done as we deem appropriate and within certain parameters with regard to volume and price. In the end, the – our ability for example to conclude accretive acquisitions will be one of the major criteria for using the ATM and as you have noted, we have so far made very limited use of it. So, we have issued approximately 674,000 units bringing in about $2.3 million in net proceeds. As we have access to certain assets from the sponsor or of course from the second market – the second-hand market that arises, we will combine some of the liquidity from the ATM together with the HMM proceeds. The debt, as we discussed for certain of these tankers that’s in place and we can put together a transaction.

[Michael Webber:]

Okay. And then, just on the optional vessels with the write-up for – am I reading it correctly that only the Aframaxes which obviously are not under write-up for – but only the Aframaxes have long-term contracts attached in the MRs that are under the write-up – or none of them have any employment even for 12 months at this time?

[Jerry Kalogiratos:]

That is correct. Capital Maritime is trading VMRs in the spot markets and the two Aframaxes have a five year charter.

[Michael Webber:]

Okay. So as it relates to both – as we take as we cap on the Maritime’s decision, but then your existing fleet, obviously has an MLP structure in the important – as your distribution, it’s important to have kind of cash flow visibility. But you do have several product tankers coming off charter in the very near-term and despite the very favorable outlook that you’ve just laid out, which we agree with, it seems like the charter market is somewhat artificially depressed. So would you consider operating those on kind of shorter term voyages, whether it’s a spot market or kind of three to six months charters to kind of bridge the gap before the charter market more appropriately represents the supply demand outlook?

[Jerry Kalogiratos:]

Well, I guess, the charter we will go will be around a 12 months period. Where if you start coming off from that duration, it will be increasingly more difficult for people to have adequate cash flow visibility which is – as well for us, when it comes to the distribution, but because we have this view that we expect the things to improve in the medium to long-term, I think you will find that – have done back in 2012, 2014, we will go – we will tend to fix more often for a year than not as we expect a better market ahead.

[Michael Webber:]

Okay, and that will hold true for the crude tankers and the container ships as well?

[Jerry Kalogiratos:]

Yes, that is correct. That is correct. On the – you have – we have recently fixed the Suezmaxes for a year and in any case to be frank, the longer than a year demand for charters is pretty limited at this point. When the market changes in this way and charterers have access to cheaper ships from the spot market, they tend to take a step back and don’t forget that many of these charterers they also have existing exposure from more expensive charters that they won’t see re-delivered before they look at getting in new ships. So, in any case, I would say that the 12 to 18 months kind of charter durations are the more liquid at this point.

[Michael Webber:]

Yes, understood. Thanks, Jerry.

[Jerry Kalogiratos:]

Thank you, Jon.

[Operator:]

Thank you. And your next question comes from the line of Spiro Dounis. Please go ahead and ask your questions.

[Spiro Dounis:]

Hey, Jerry, how are you?

[Jerry Kalogiratos:]

Spiro, very well, yourself?

[Spiro Dounis:]

Good, good. Another day in paradise. Just wanted to ask about following up on the last comment and question, on the two container vessels coming off charter, I guess, later on 2017, I believe there is a renewal rate in there that there is a bit of a step-up from the current rate and I guess, just wondering, I don’t think it was ever disclosed, could you just give a sense of where that renewal rate is relative to the current market, I am just seeing in a sense of the likelihood that, and maybe option gets extended?

[Jerry Kalogiratos:]

On the horizon, I think it is – unfortunately I think it is unlikely that charterers will exercise that option. The option was a $20,000 equal, it’s still is at $20,000 per day. But, as you know the container market also for Post-Panamaxes as well, it saw some signs of improvement during the previous couple of quarters. It has come off on the back of the Hanjin bankruptcy. This is really because the Hanjin bankruptcy meant that the number of additional vessels were re-delivered to owners and the idle fleets exempt from 5% to 7%. In addition, a lot of these vessels were Post-Panamaxes, which in a way offsets the beneficial impact of the Panamax and unlocks which really enhance demand for Post-Panamax vessels in the previous couple of quarter s. Well, I’d say Post-Panamax now they are called Neopanamax. So, that’s – so I think it is unlikely that the charterers PIL exercise that option, but of course we have a few months to go. But if I may, there is one important highlight that I have to make with regard to the Hanjin bankruptcy. The overall – we do not any exposure to Hanjin and that’s important to highlight, but for us, in a way, it is good news. It is good news, because except for the impact that it has on the charter market or at least in the short-term, it has enhanced the position of HMM. And this has taken place in two ways. Firstly, Hanjin bankruptcy has increased the cargo volume for HMM, as well as they are – it increased their access to quality Post-Panamax ton adds that could help lift their operating margin and profitability. And finally, don’t forget that the – I think the Korean government and the Korean establishment in a way having seen the adverse effects of the Hanjin bankruptcy, which I think were greater than people expected, we will make sure that HMM is properly supported going forward as they very much wanted to have a national mainline operator. So, all in all, the Hanjin bankruptcy, while it has, I think negatively affected at least in the short-term the charter market, for us, it’s good news as it means that our HMM exposure has less risk than previously considered.

[Spiro Dounis:]

Good points. And then just one follow-up on the dropdown and I guess the distribution increase. Trying to get a sense for how much this drop maybe is a blueprint for the future when in terms of how much you are able to raise the distribution? And I guess, what I am wondering is, once the five – the assets increase pretty much all the result of the accretion of this drop without cutting into the coverage ratio, and then, how much will sort of help back in the spec for amortization I guess, even though this is a non-amortizing loan, I think you said before that we should expect future gross to maybe have some hold back in there. I am just trying to guess doest that accretive to the surplus?

[Jerry Kalogiratos:]

Well, the idea, as I said earlier, will be to pay out the full accretion of any dropdown after reserving for debt repayments. So, in a way, you should see the communicated distribution increase from next quarter onwards, as the expected accretion of the dropdown after debt repayments. And in general terms, that is going to be the policy going ahead, of course subject to the length of the charter and the long-term prospects of the Partnership, we will tend to revisit distribution in line with the dropdown accretion of future transactions.

[Spiro Dounis:]

All right. That’s from me. Thanks Jerry.

[Jerry Kalogiratos:]

Thank you, Spiro.

[Operator:]

Thank you. And your next question comes from the line of Ben Brownlow. Please go ahead and ask your question.

[Ben Brownlow:]

Okay, thanks for taking the question. Most of my questions have been answered. But on the – on bank financing for dropdowns, how much commitment as a percentage of asset value should we think about that going forward? Is that kind of 50% loan to value financing appropriate way to think to about it? And then, on the term loan, can you just touch on the covenants there?

[Jerry Kalogiratos:]

Let me start with the second question. The covenants of the term loan are identical to the ones that we have for our existing loan agreements. So, 72.5% LTV test to on EBITDA to net interest expense cover ratio and $0.5 million per vessel minimum liquidity. But, overall, when it comes to the advance ratio of, let’s say future acquisitions, when it comes to VMRs and the rest of the all but one of the remaining MRs are currently financed by the same facility, whether we use that to acquire the Amor. So, we can no way tranche this. That will be at a 50-50 debt-to-equity ratio. When it comes to potentially, for example, the Aframaxes or the VLCCs, there we potentially we could look at the higher advance ratio and given the fact that our overall leverage is below 50% and there is amortization to these new credit facilities. We could potentially go a little higher than 50-50 debt to equity ratio. But, let’s say within the realm of 50% to 60%. But, you shouldn’t expect anything higher than that.

[Ben Brownlow:]

Great, thank you. And on the HMM proceeds, just from an accounting standpoint, with the near $30 million in deferred, I guess revenue will that be through the time charter period of 2019 when the dayrates adjust or is that through the end of the time charter period of 2025?

[Jerry Kalogiratos:]

It’s going to be until the end of its time charter.

[Ben Brownlow:]

Okay, great. Thank you.

[Operator:]

And your next question comes from the line of Mike Gyure of Janney. Please go ahead and ask your questions.

[Mike Gyure:]

Yes, good morning. Thanks. Can you guys talk a little bit about the drydock schedule for maybe the next two quarters and kind of what’s going on there?

[Jerry Kalogiratos:]

Sure. That’s actually a good question, because in this quarter, as I mentioned earlier, we had 102 off hire days relating to the drydocking of the Miltiadis M II ad Amore Mio II. These are Suezmaxes and as a result, they weighed on revenues. So that you understand the loss of revenues because this hire was around $3.1 million. If you add to that an additional $0.6 million that these vessels incurred in bankers under voyage expenses , this was quite an impact for the third quarter. But going forward, in the fourth quarter of 2016, we only have one vessel drydocking that’s the motor tanker Arionas. That’s a smaller ship, 37,000 tonner. So, you should expect an off hire of about 25 days and of course, its contribution to revenues is much smaller. And importantly, we have no drydockings in 2017. So, we are – in 2015 and 2016 were heavy years, so when it comes to special surveys, but we have none into next year.

[Mike Gyure:]

Right, thank you very much.

[Jerry Kalogiratos:]

Thank you.

[Operator:]

Thank you. There are currently no further questions. Please continue.

[Jerry Kalogiratos:]

With that, I would like to thank you all for dialing in today.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference. Thank you for participating. You may all disconnect.