Capital Product Partners L.P.
Q2 2017 Earnings Call Transcript

Published: 28 Jul 2017

[Operator:]

Thank you for standing by, and welcome to the Capital Product Partners' Second Quarter 2017 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. There will be a presentation followed by a question-and-answer session [Operator Instructions] I must advise you this conference is being recorded today on the 28th of July 2017. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, our refinancing plans, future debt levels and repayment, assumed net book value, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, future earnings, our expectations regarding employment of our vessels, redelivery dates and charter rates, fleet growth, market and charter rate expectations, may be forward-looking statements and 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 or 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 and we make no prediction or statement about the performance of our common units. And with that, I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

[Jerry Kalogiratos:]

Thank you, 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 July 20, our Board of Directors declared a cash distribution of $0.08 per common unit. The second quarter common unit cash distribution will be paid on August 11, 2017 to common unit holders of record on August 3rd. In addition, our Board of Directors declared a cash distribution of $0.21375 per Class B Units for the second quarter of 2017. The second quarter Class B cash distribution will be paid on August 10th to Unitholders of record on August 2nd. The Partnership's net income for the second quarter stood at $9.8 million, compared to $14.9 million in the second quarter of 2016. The Partnership’s operating surplus for the quarter prior to Class B Units distribution and the capital reserve amounted to $30.5 million, compared to $36.6 million for the second quarter of 2016 and $32.7 million for the first quarter of 2017. Common unit coverage for the second quarter of 2017 stood at 1.3 times. On May 22nd, we entered into a firm offer letter for a six year senior secured term loan facility for up to $460 million led by HSH Nordbank and ING Bank. The proceeds of the new facility will be used together with cash from our balance sheet for the refinancing of substantially all of our existing indebtedness thus addressing all near to medium-term amortization and bullet payments as the maturity of the new credit facility is expected in the second half of 2023. During the quarter, we also expanded the time charter employment for the 37,000 deadweight product tanker, 'Alkiviadis, with French oil major Total for an additional year. The remaining charter duration of our charters stood at 5.5 years at the end of the quarter with approximate charter coverage of 83% for 2017 and 52% for 2018. Turning to Slide 3, revenues for the second quarter of 2017 increased by 2%, compared to the second quarter of 2016. The increase was primarily a result of expansion of our fleet, partly offset by the lower charter rates earned by certain of our vessels compared to the second quarter of last year. Total expenses for the second quarter of 2017 were $45.7 million, compared to $40.3 million in the second quarter of 2016. Total vessel operating expenses for the quarter increased by 17.6%, compared to the second quarter of 2016. The increase primarily reflects the expansion of our fleet and the increase in the number of vessels in our fleet incurring operating expenses following the redelivery of 'Atlantas, Aktoras and Aiolos, three 37,000 product tankers from their previous ten year bareboat employment with BP Shipping. The Aktoras and Aiolos, which were redelivered to us at the end of the previous quarter, were trading mainly dirty petroleum products during their employment with BP and as a result, had to incur increased operating expenses and off hire days, during the second quarter in order to be prepared for clean product trading. In addition, in order to transition these vessels to clean petroleum product trading and reposition them for longer term employment, they have been trading on voyage or short time charters during the second quarter of 2017 and into the third quarter of 2017. The Partnership's net income for the second quarter was $9.8 million compared to $14.9 million in the second quarter of last year. Turning to Slide 4, you can see the details of our operating surplus calculations as determined as distributions to our unit holders, 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 $30.5 million in cash from operations before accounting for the Class B units of distributions and a capital reserve of $14.6 million. After adjusting for the reserves and the Class B unit distributions, the adjusting operating surplus amounted to $13 million, which translate into a 1.3 times common unit coverage. On Slide 5, you can see the details of our balance sheet. As of the end of the second quarter, the Partners’ Capital amounted to $929.8 million, total debt decreased by $8.7 million to $596.3 million compared to $605 million as of the end of last year, due to scheduled loan principal payments during the first half of 2017. Importantly, total cash as of quarter end amounted to $156.3 million. Overall, our balance sheet is strong with a net debt-to-capitalization of 28.8% and with Partners Capital representing 58.7% of our total assets. Turning to Slide 6, we extended the time charter contract of 'Alkiviadis with CSSA, the shipping affiliate of Total for an additional 12 months at a gross daily rate of $12,750 per day. The charter extension will commence in early August with the earliest charter expiration in July 2018. The vessel is currently earning a gross daily rate of $13,300 per day. Taking into account the new charter, the average remaining charter duration is 5.5 years. We have six product tankers and two Suezmax tankers that we will need to recharter until year end. This includes the Aktoras and Aiolos, the two 37,000 tonners which were redelivered to us towards the end of the first quarter from their previous ten year bareboat employment with BP Shipping. In addition, the active Anemos ecoproduct tanker is currently employed under short time charter with Louis Dreyfus and is upon completion of that charter expected to commence a new short time charter to Cargill which may extend up to 180 days. We are currently thinking longer term employment for these vessels as well as other vessels that have come off or are expected to come off their present employment and we expect to have more updates on this front over the coming weeks. On Slide 7, we review the product tanker market developments in the second quarter of 2017. MR product tankers spot rates remain at subdued levels during the quarter due to the weak demand and supply dynamics. On the demand side, persistently high oil – industry talks and limited arbitrage opportunities have had a negative impact on chartering activity. However, the U.S. oil stocks have accelerated its products lately bringing back at least some confidence to the market, to that OPEC production cuts maybe having an effect. Crude oil, gasoline and distillate stocks have declined by as much as 84 million barrels since its all time high in early February this year and concurrently at 82.5 million barrels above the five year average for this time of the year. Just over the past month, the crude oil, gasoline and distillate stocks in the U.S. have declined by nearly 40 million barrels, which may translate into short-term pain for the product tanker markets, but it’s a necessary for the resumption of a more normalized arbitrage trade. Finally, increased refinery maintenances of Suez in the first part of the quarter and decreased Chinese product exports further reduced the amount on our MR tonnage. The product under fleet grew year-on-year by an estimated 5.2% as of the end of this quarter. The positive news came from the U.S. as exports reached seasonally new record levels at about 4.7 million barrels on average during the quarter, on the back of increased U.S. refinery throughput and strong demand from Latin America, which partly mitigated market weakness in the west. In the East, refineries are returning from maintenance and the recovery in Chinese exports in June following a large rebound in five product export growth as brought in Chinese authorities led to a modest rebound in rates. In the period market, rates for larger MR product tankers have seen a small improvement compared to the previous quarter with a bulk of fixtures currently being short-term, as owners remain reluctant to fix longer period on the back of expectations for an improving market before year end. Despite the current weakness in the market, supply and demand fundamentals are gradually improving. On the supply side, the MR product tanker order book stands at 7.1% as a percentage of the fleet. The lowest on record despite the recent rise of the contracting activity, while slippage remains high as approximately 32% of the expected newbuilds were not delivered on schedule in the first half of 2017. In addition, shipyard capacity has shrunk over the last three years thus limiting the amount of new vessels that can be ordered in the short to medium term. Clarksons have recently said that tanker shipyard capacity has declined by 55% since 2009. Thus, we strongly believe in the recovery of the product tanker sector and especially of the MR segment as the historically robust supply fundamentals along with the refinery capacity expansion needs of Suez and strong U.S. product exports bode well for the sector in the medium to long run. We are well positioned to take advantage of the product tanker recovery. As that, these were most of our rechartering exposure lies over the coming years. Now moving to Slide 8, the Suezmax crude tanker market was softer in the second quarter compared to the previous quarter, amid seasonally weaker demand while the existing agreement between OPEC and non-OPEC oil producers to cut oil production, reduce crude oil exports and therefore further limited activity levels for Suezmaxes. At the same time, the Suezmax fleet continued expanding during the quarter. In total, 34 Suezmaxes were delivered in the first half of the year compared to just eight in the same period of 2016. On the other hand, China’s good crude oil imports held at strong levels while increased flows of crude oil and long haul voyages from the Atlantic today also supported rates. In the period market, we saw a limited demand for Suezmax tankers during the quarter and period rates remained at low levels. Demand fundamentals for crude oil demand remains strong. The IEA expects solid world oil demand growth of 1.4 million barrels for both 2017 and 2018. In addition, Chinese and Indian seaborne crude imports are projected to see robust growth in 2017 by 8% and 5%, respectively, while U.S. crude oil exports could become increasingly significant to the crude oil tankage rates. Looking to the supply side, the Suezmax tanker order book has decreased to 13.1% despite somewhat higher contracting year-to-date with 14 vessels ordered. This compares to 14 Suezmaxes ordered in full year 2016, and 59 in full year 2015. It is also important to stress that 2017 is a peak year in terms of new deliveries as the number of expected deliveries decreased sharply from 2018 onwards. Furthermore, slippage for the first half of 2017 remained elevated at 31%. It is also worth highlighting here that we have seen four Suezmaxes and three VLCCs scrapped year-to-date compared to none in the same period last year. Moving to Slide 9, we are very pleased to announce that we entered into a firm offer letter for a six year senior secured term loan facility of up to $460 million with by HSH Nordbank and ING Bank as mandated lead arrangers and bookrunners and BNP Paribas and National Bank of Greece as arrangers. The lenders also include Alpha Bank, SEB and Piraeus Bank. We are thankful to our financing banks for their support in putting this facility together. In spite of the overall challenging ship finance environment, the facility was over 1.1 times oversubscribed which highlights the strength of our balance sheet and excellent track record we have established over the years with our banks. We intend to use the net proceeds of the loan under the new facility together with available cash of $120.6 million to refinance approximately $580.6 million out of our total debt of $596.3 million as of the end of this quarter – of the second quarter. The only remaining facility will be the small ING facility of $15.8 million which has minimal amortization for the next five years. The new facility is structured in two tranches with a collateral pool of a total of 35 vessels and has a six year maturity from draw down that is in the second half of 2023. The loans drawn under the new facility will bear interest at LIBOR plus margin of three and a quarter, compared to the current weighted average margin of 3.18% for the four facilities to be refinanced. Our financial covenants under the new facility are substantially the same with a covenants of our existing credit facilities and do not contain any restrictions on distributions to our unit holders if the absence of an event of default. In Slide 10, we compare our debt maturity profile before and after the completion of our planned refinancing. It is important to highlight here that the heavier 2018 amortization payments, the 2019 and 2020 maturities and the current credit facilities will be addressed with a new credit facility thus giving our unit holders enhanced visibility in our financial position as our new credit facility is expected to mature in the second half of 2023. Moving to Slide 11, the new credit facility will comprise two tranches. Tranche, A amounts with a lower of $259 million and 57.5% of the value of 11 of our vessels with an average age of approximately three years and shall be repaid in 24 equal quarterly installments of up to $4.8 million. In addition to a balloon installment of $143 million which is payable together with the final quarterly installment. Tranche B amounts to the lower of $201 million and 57.5% of the value of 24 of our vessels with an average age of approximately 10.3 years, and shall be repaid fully in 24 equal quarterly installments of up to $8.4 million. This means that that maturity there would be no bullet payment for this tranche leaving effectively close to two-thirds of our fleet debt free. Turning to Slide 12, you can see our pro forma debt outstanding after the refinancing. Our total pro forma debt will be approximately $475.8 million at closing the refinancing. In addition to the significant extension of the debt maturities, the favorable reprofiling of our debt and the streamlined debt structure, the Partnership would also benefit from manual savings compared to our current capital reserve. In particular, the annual amortization of our total debt after the small ING facility starts amortizing, will be $4.5 million lower compared to our current capital reserve. Furthermore, the Partnership will benefit from interest cost savings from our reduced indebtedness after the repayment. The savings will become substantial as time goes by as the annual amortization reduces our debt balances. After this financing takes place, debt to book value will fall to approximately 36% and the new amortization profile will ensure significant deleveraging until maturity which would imply assuming depreciation and amortization in line with our accounting policies and our write-offs as debt to book value ratio of less than 20% by 2022. That addresses in our opinion any further issues regarding the maturity and refinancing of our debt in the future as the outstanding debt amounts upon maturity will become very manageable. Just compare the balloon of the new credit facility of $143 million to the scrap value of our fleet, which amounts approximately $200 million at today’s scrap prices, while our fleet will be around 14 years of age at maturity. Now turning to Slide 13, we are very pleased to have lined up the new credit facility which we believe will benefit the Partnership in a number of ways. Firstly, by enhancing visibility on our financial position, and our level of indebtedness, at the same time extending debt maturities to the end of 2023, secondly, by strengthening our balance sheet with our pro forma for the refinancing debt to capitalization ratio amounting to 33.8% compared to 39.1% as of end of the second quarter. Thirdly, by mitigating the refinancing risk that dual term structure of our new credit facility provides for full repayment of the debt associated with 24 vessels of our fleet. As a result, upon maturity, the Partnership will have a sole bullet payment of $143 million, which compares favorably to the projected net book value of the collateral fleet of $846 million at the end of 2023 or even the scrap value of the fleet of approximately $200 million. And finally, the annual amortization of our debt under both remaining facilities is expected to be approximately $4.5 million lower than our existing capital reserve of $58.6 million before taking into account any interest cost savings thus increasing our distributable cash flow. As a result, we believe that this transaction will further strengthen our balance sheet and it will be an important cornerstone as we turn our attention to growth. To that end, as you can see in Slide 14, the Partnership has access to a number of assets that could be potential dropdown candidates. Certain vessels have charters in place as for example, the two Aframaxes that have long-term employment with a U.S. oil company. The two Aframaxes have also debt finance in place, which can be now weighted to CPLP. In addition, we continue to hold the right of first refusal of five eco MR product tankers. Four of these vessels have debt financing available as they are financed under the same ING credit facility with the Amore. The last acquisition we made back in October 2016 which allows us to not wait 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. Also there are container and VLCC assets that subject to the right conditions can be dropped down in an accretive manner to the Partnership. We aim, subject to market conditions, the availability of financing, to further increase the long-term distributable cash flow of the Partnership by pursuing additional accretive transactions including a number of acquisition opportunities from our sponsor. And with that, I am happy to answer any questions you may have.

[Operator:]

[Operator Instructions] And with that, your first question comes from Jon Chappell from Evercore. John, your line is open.

[Jon Chappell:]

Thank you. Good afternoon, Jerry.

[Jerry Kalogiratos:]

Hi, John.

[Jon Chappell:]

So, just one quick clarification, very thorough detailed presentation on the new credit facility, but you’ve been – obviously been retaining more cash in the capital reserve perspective knowing that the amortization on the old facilities was coming up. Is the capital reserves that we think about in the distribution coverage ratio, is that’s strictly going to be the debt amortization going forward, or is there end of any overage?

[Jerry Kalogiratos:]

You might recall that, when we set the capital reserve in April of last year, we put aside $14.6 million on a quarterly basis to fully provide for the debt repayments coming due until the end of 2018. So, in light of the new credit facility, we will definitely need to revisit the capital reserve, but we will do that upon the drawdown of the facility. We expect to draw the full amount under both tranches and we will give unit holders visibility with regard to the capital reserve after the refinancing transaction is complete.

[Jon Chappell:]

Okay, all right. Thanks. And then, shifting gears then to the growth profile, keeping into our thought process, kind of how you are thinking about financing that. A couple of these shifts already have facilities associated with them. How much of the total cost of those ships, I guess, charters included was represented by the credit facilities with those that we were talking about and a 50-50 debt equity or is it 60, 65?

[Jerry Kalogiratos:]

As we have communicated in the past, we will aim to do transactions on a 50-50 or so debt-to-equity ratio. Some of these facilities actually provide for even higher debt for even higher level let’s say that might or right now, that are now with Capital Maritime. But as we have done for example with the Amore, we took less debt. We reduced the debt down to 50% of the acquisition price and we also got the two for that specific case and for the Amore it’s also two year non-amortizing period.

[Jon Chappell:]

Okay, final one and I’ll turn it over. Clearly there is only two – these two crude tankers that have five year charters. What’s your appetite for taking down drop down even if the financing is available without charters and taking that kind of market risk at today’s markets?

[Jerry Kalogiratos:]

I think, for us, like in the past, it is important to have and to be able to give unit holders some visibility with regard to cash flow going forward. So, vessels like the two Aframaxes that have long charters are definitely preferable. But also, sectors like the product tanker sector, where we are quite constructive might be potential drop down opportunities as even shorter time charter, call it a year or two years might be attractive for us in the sense that it is a market where expect to see more upside.

[Jon Chappell:]

And I am sorry. Just one more quick follow-up on that same point though. As you are looking at these five optional vessel drop downs are obviously very modern, but will you have some of your fleet renewal with your existing fleet that are maybe 10 years older so, is there a two-tiered market as far as kind of liquidity and price on the three plus year charters you could potentially get on those different ages of product tankers?

[Jerry Kalogiratos:]

Sure, nowadays eco had a very modern eco vessels. They come under premium in the period market and today, I would call it anywhere between $500 to $750. But that’s more the, let’s say the eco, versus non-eco differential. And that of course, does very depending on fuel oil prices, but bunker prices. But at this point, there is a differential for sure.

[Jon Chappell:]

Great. Okay, thanks, very much, Jerry.

[Operator:]

Thank you very much. The next question comes from Ben Nolan from Stifel. Ben, your line is open.

[Ben Nolan:]

Great, thanks. Yes, so, Jerry, I had just a couple of questions mostly related to the new credit facility. First of all, congratulations. I know you guys have been working on this for a while, but, the amount of repayment $120 million – little over $120 million, seems like a pretty high amount. It leaves you with a relatively thin cash balance I think. Although, what jumped out, I think there is still the restricted cash. Through this new credit facility, does it release that restricted cash for you guys?

[Jerry Kalogiratos:]

No, you should expect that covenants for the new credit facility will be similar. So, about $0.5 million per vessel would remain restricted cash. But having – we’ve intend to complete the transaction over the coming months and of course, we will build up some additional cash cushion. That should leave us anywhere between $40 million to $50 million. But having done that, you will find that not only can we service our debt amortization very, very comfortably, but also the common unit coverage will increase on the back of the potentially lower capital reserve and that’s to be decided. But also because of the interest cost savings that are not insubstantial. I mean they are north of $5 million, just because of that repayment.

[Ben Nolan:]

Right, okay. And then, sort of along those lines, in thinking about the capital necessary to execute on some of these drop downs. Obviously, there would probably need to be – you are reserving cash and some of that can go towards new acquisitions, but, it would seem like you probably need more than simply what’s available on the cash flow if you are going to execute on this drop down soon. How do you think through maybe the funding of that? Or you are utilizing your ATM and actually, maybe an update on sort of how active you’ve been on the ATM and if there is an update on the share count or the unit count as it stands today?

[Jerry Kalogiratos:]

Sure. The – as you know, our ATM filing is for up to $50 million and allows us to sell incremental common units in the markets and it’s valid for three years. The ATM was launched back in September 2016. Now since the ATM was put in place on September 12 and until today, we have issued approximately 2.9 million units with the net proceeds being just sort of $10 million. So this translates into less than 2.2% of the average daily volume of the stock since inception of the ATM. We are going to continue to use the ATM opportunistically and in a prudent manner, and to your earlier point, potential net proceeds from the ATM could complement drop down transactions. But to this point, as you know, and as always been in the past, accretion is the main criterion when it comes to drop downs and that’s what is going to determine what additional capital if any we are going to raise. We are of course mindful that the unit price is not what it used to be and it makes more – accretive drop downs more difficult. But that’s the criterion.

[Ben Nolan:]

Okay. Perfect, that was both a thorough and a very good answer. Appreciate it. I guess, I’ll turn it over to someone else now. Thanks, Jerry.

[Jerry Kalogiratos:]

Thank you, Ben.

[Operator:]

Thank you. And your next question comes from Spiro Dounis from UBS Securities. Spiro, your line is open.

[Spiro Dounis:]

Hey, Jerry, good morning and congrats on the transaction done.

[Jerry Kalogiratos:]

Thanks, Spiro.

[Spiro Dounis:]

Just wanted to, just start off on recommencing growth here. Obviously, this is a big hurdle to get through and it sounds like maybe just some more big work to get through at this point. But once that’s done, how do you think about the timing of the drop down? I know you said maybe market dependent, but is that around the price – the unit price, interest levels, combination of both, how should we think about when the next drop down could occur?

[Jerry Kalogiratos:]

Well, let us firstly, let us complete, as you say the paper work and the transaction. It’s important to have it behind us. And then, we can think about the drop downs. As I mentioned earlier, accretion is going to be the main criterion. But now that we have this behind us, this is what we are going to look for, growth and potential drop downs in an accretive manner. I am sorry, I cannot give you more in that respect in terms of timing, but you can rest assured that this is what’s going to be our focus going forward.

[Spiro Dounis:]

Okay. I thoroughly get that. Maybe, the different sort of similar question and maybe it’s tough to answer to, but I know historically, back in maybe, call it a normal environment, I think you guys had guided to 2% to 3% distribution growth. As you think about, your growth potential in a normal environment, and where you would like to get back to. Is that the bar, obviously that would imply some of that level of accretion, but just trying to get a sense of where your heads are on? What details it looks like in a normal environment?

[Jerry Kalogiratos:]

Well, first - the financing transaction apart from the obvious advantages to us with regard to addressing the maturities, extending maturities we won to 2023 providing visibility deleveraging and all that it’s definitely accretive to our distributable – to our long-term distributable cash flow. But in the end, any accretion that will come from drop downs, we hope to be able to find their way to unit holders in the form of distribution growth.

[Spiro Dounis:]

Okay. Fair enough. Appreciated. Thanks, Jerry.

[Jerry Kalogiratos:]

Thank you, Spiro.

[Operator:]

Thank you. [Operator Instructions] And your next question comes from Mike Gyure from Janney. Mike, your line is open.

[Mike Gyure:]

Hey, Jerry, can you talk a little bit about on – I guess, the operating fronts? Some of the expenses I thought were a little higher in the voyage and the vessel operating cost this quarter compared to let’s say last quarter. And you mentioned kind of the – some of the vessels that potentially were impacted by that, could you talk about I guess, the trend, as you look toward the back half of the year, do you expect the operating cost to remain sort of at the same level or increase or decrease?

[Jerry Kalogiratos:]

Sure, that’s a fair question. The drop in operating surplus that you notice by almost $2.2 million compared to the previous quarter is mostly related as you to the increase in our operating expenses. So they are two sides of that. On the one hand, we had two vessels, the Aktoras and the Aiolos, which were redelivered to us after the respective 10 year bareboat employment at the end of the first quarter. These vessels were now incurring operating expenses during the second quarter and will incur operating expenses going forward, which was not previously the case. So that’s a recurring item. The operating expenses impact of these vessels was approximately $1.3 million. But note that included also certain one-off OpEx items. Importantly, you have to take into account that the time charter equivalent of the previous bareboat employment of these two vessels was higher than their earnings post redelivery due to the extending of hire of total of 62 days associated with the redelivery balancing and cleaning of these vessels, as well as the weak charter markets. And as a result, the net revenues for this quarter did not increase commensurately to make up for the increased operating expenses. And finally, there were some additional off-hire days and increased average OpEx for the rest of the fleet this quarter on the back of – if you won certain one-off maintenance items and unscheduled repairs, which we do not expect to be repeated in the coming quarters.

[Mike Gyure:]

Great. Thanks that’s very helpful.

[Jerry Kalogiratos:]

Thank you.

[Operator:]

Thank you. And your next question comes from Ben Brownlow of Raymond James. Ben, your line is open.

[Ben Brownlow:]

Hey, good morning, and my congratulations on the refinancing.

[Jerry Kalogiratos:]

Thank you.

[Ben Brownlow:]

Jerry, just to make sure, we are speaking about this or I am thinking about it in its entirety, when you – on the new amortization schedule, is it fair to say that’s basically going to be the replacement CapEx program? And is there any reason going forward why that capital raiser program would continue in any form?

[Jerry Kalogiratos:]

As discussed, we are going to communicate more with regard to the capital reserve going forward after the transaction is complete. But, to your point, as in the past, effectively, we set a capital reserve which equaled our future debt amortization and in lieu of a replacement CapEx. So, it is very probable that we will continue along this way.

[Ben Brownlow:]

Okay, that’s helpful. And on the two crude tanker potential drop downs, is it fair to assume, I mean, just given when they were built early 2017, that those are on kind of a weaker rate backdrop?

[Jerry Kalogiratos:]

These two vessels are fixed on a five year time charter employment at – let us – I mean, it has been also reported in the market that at substantial premium to the current markets. It has been reported a market that these vessels were fixed at the $26,400 per day which compares very favorable to current rates.

[Ben Brownlow:]

Okay, that’s helpful. And one more – one last one from me. On the product tanker side, I didn’t catch it if you said it. Any update on the actives?

[Jerry Kalogiratos:]

No, the active is currently completing a short time charter with a trader. And then we fixed for another short time charter between which has, so-called, flexible period between 40 to 180 days with Cargill and escalating rates starting from 15.5 up to $15,000 per day.

[Ben Brownlow:]

Great, thank you again.

[Jerry Kalogiratos:]

Thank you, Ben.

[Operator:]

Thank you. [Operator Instructions] There are no further questions. Jerry, please you continue sir.

[Jerry Kalogiratos:]

Thank you and thank you all for joining us today.

[Operator:]

Thank you ladies and gentlemen. That does conclude your conference for today. Thank you all for participating. You may all disconnect.