Capital Product Partners L.P.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Thank you for standing by and welcome to the Capital Product Partners Second Conference Call on the Third Quarter 2015 Financial Results. 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 Friday 30, of October 2015. The statements in today's conference call that are not historical facts, including our expectations regarding developments in the markets our expected charter coverage ratio for 2014 and 2015 and expectations regarding our quarterly distributions 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 unit. And I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

[Jerry Kalogiratos:]

Thank you, Jenny 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 21, 2015, our Board of Directors declared a cash distribution of $0.2385 and $0.21975 per Class B unit for the third quarter of 2015, which represents an increase of $0.2 compared to the common and Class B unit distribution for the second quarter 2015 and the total increase of about $0.6 since the beginning of the year. The third quarter common unit cash distribution will be paid on November 13 to unit holders of record on November 6. The third quarter Class B unit cash distribution will be paid on November 10 to class B unit holders of record on November 3. The partnership's net income for the third quarter stood at $13.8 million a $2.5 million improvement on the $11.3 million net income recorded in the third quarter of 2014. The partnership's operating surplus for the quarter amounted to $33 million, which is $3.2 million higher than the $29.8 million in the third quarter of 2014. Common unit coverage for the third quarter stood at 1.04 times, partly due to the dry-docking and related off hire for two of vessels during the quarter and as the fourth drop down vessels was delivered to us towards the end of the quarter. In particular on September 18, we took delivery of the Eco-Flex Wide Beam 9000 containership, CMA, CGM, Uruguay, which represents the fourth vessels in the series of five dropdown vessels we agreed to acquire in 2014. Upon delivery the vessel commenced its five-year charter with CMA CGM. Moreover during the quarter, the partnership secured period employment and extended time charter contracts for five of its vessels, all on agreed rates. As a result of the new charters and as at the end of the third quarter 2015, the average remaining charter duration of our charters stood at 6.7 years with approximate charter coverage of approximately 94% for 2015 and 79% for 2016. As most of our remaining charter expirations in 2015 and early 2016 relate to product and crude tankers, we expect to be well positioned to take advantage of the improving market condition in this segment. Turning to Slide 2, revenues for the third quarter of 2015 were $57.6 million compared to $48.2 million in the third quarter of 2014. The increase is mainly a result of the improving employment day rates for certain of the partnership's vessels and the increased size of the partnership's fleet. Please note that we had a total of approximately 38 days of off hire in the third quarter of 2015 due to the dry-docking of two of our vessels. We expect another three dry-dockings during the fourth quarter of 2015. These include the dry-docking of the amendment as previously announced as well as the dry-docking of two product tankers in view of certain employment opportunities. Total expenses for the third quarter of 2015 were $38.9 million compared to $32.8 million in the third quarter of 2014. Vessel operating expenses for the third quarter amounted to $18.6 million, $3.4 million higher than the $15.2 million in the third quarter of 2014. The increase reflects primarily the increased fleet size of the partnership and expenses related to the dry docking of the Motor Tanker Atrotos and Motor Vessel amendment. General administrative expense for the third quarter amounted to $2.2 million compared to $1.9 million for the respective quarter in 2014. Total other expense net for the third quarter amounted to $4.9 million compared to $4.1 million for the third quarter of last year. The increase reflects a higher interest cost incurred in the third quarter and again we recognize during the third quarter of 2014 from currency exchange differences. The partnership's net income for the quarter of 2015 was $13.8 million or $10.7 million after taking into account the preferred interest in net income attributable to Class B unit holders and the GP interest; that is $0.09 per common unit. Moving on to Slide 3, you can see the details of our operating surplus calculations that determine the 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've generated approximately $33 million in cash from operations before accounting for the Class B preferred unit distribution. After adjusting for the Class B units, the adjusted operating surplus amounted to $30.1 million, which means common unit coverage for the third quarter at 1.04 times as two of our vessels went to the dry-docking during the quarter and a fourth drop down vessel was delivered to us towards the end of the quarter. On slide four you can see the details of our balance sheet. As of end of the third quarter the partners' capital amounted to $954.4 million, which is $81.8 million higher than the partners' capital at yearend 2014, which amounted to $872.6 million. This increase primarily reflects the insurance of 14.6 million common units in April this year, which raised net proceeds before operating expenses of $133.3 million and the net income for the nine-month period ended September 30 partially offset by the payment of 90.8 million in distributions since the end of 2014. As of September 30, the partnership's total debt decreased by $4.9 million to $573 million compared to total debt of $577.9 million as of year-end 2014. The decrease was due to the prepayment of $115.9 million of principal amount under three of our credit facilities, in addition to $4 million in scheduled debt amortization partially offset by $115 million in draw downs under our senior secured credit facilities with ING Bank. That was the funds to the acquisition of four drop down vessels already delivered to the partnership. Overall, our balance sheet remains strong with a net debt to cap of 30.5% and with partner's capital representing 60.5% of our total assets. Turning to slide five we're pleased to have secured new time charter employment and extended period contracts for a total of five of our product and crude tankers during the quarter at an average increase of Circa $2,700 per day as the partnership continues to take advantage of the current favorable rate environment in the product and crude tanker markets. In particular the employment of two of our product tankers to Petrobras for three years is a further important step in securing customer visibility and decrease rates and further underpins our distribution growth objective. I’d also like to note here that we are in discussions to secure similar employment for other product tankers in our fleet as we find the combination of tender and charter rate attractive. Furthermore and as previously announced the CMA, CGM, Uruguay the fourth drop down vessel was delivered to the partnership on September 18 and commenced its five year charter with CMA CGM. The vessel is earning the $39,000 to $150 per day over the period. It is important to note that for 8/13 vessel fixed year to date we have secured deployment for two years or longer. In addition by the time, that all vessels are commenced a new employment, the number of vessels employed to Capital Maritime and trading will have decreased substantially compared to the end of third quarter of 2014. From 13 out of total fleet of 30 vessels on September 30, 2014 to 7 out of 34 vessels currently in our fleet thereby reducing our exposure to Capital Maritime as sponsor and further diversifying our customer portfolio. While the partnership exposure to Capital Maritime as its software has been reduced Capital Maritime continues to be one of our more important charters and as courtesy it has provided with certain balance information for the six-month ended June 30 to help investors assess financial profile. Capital Maritime is a diversified profitable shipping company, which owns four VLCCs one Suezmax crude tanker, two MR product tankers, 200 bulk carriers and one 1700 DU container in the water. The average age of its fleet rated by deadweight is approximately 5.6 years. It bodes of a strong balance sheet with low leverage and with a net debt to the market value of its assets today of below 20%. At the end of the first half of 2015 total assets amounted to approximately $980 million and stockholder's equity stood at approximately 73.3% of the total assets. Capital Maritime has an extensive newbuilding program comprising two week of VLCCs, four week for Suezmax tankers, 7 Eco MR product tankers and one 1700 DU container vessel. All new builds are expected to be delivered between the fourth quarter 2015 and the first quarter of 2017. Capital Maritime intends to finance the newbuilding program with cash from its balance sheets and has arranged for a substantial part of this program debt from commercial banks. For the eight Eco MR, CPLP already has been granted a right of first refusal. Now moving to Slide 6 and taking into account the new charter, the average remaining charter duration is 6.7 years. We have six product tankers, two Suezmax tankers and one container that we see their present charters expire over the next 12 months. We expect to continue to take advantage of the attractive fundamentals of the product and cured tanker market to secure favorable period employment for a number of these vessels. Turning to Slide 7, we'll review the product tanker market development in the third quarter of 2015. MR product tanker spot rates maintain the positive momentum of the first half the year. It is the third quarter of 2015 and overall spot earnings climbed to the highest level since the second quarter of 2007. The market experienced particularly strong rates in the first part of the quarter with low oil prices in the U.S. driving season resulting in certain U.S. causal demand while high refinery utilization rates in the U.S. Gulf generated high export volumes from the region. In addition, European refinery margins and increased refinery capacity in the Middle East and Gulf led to increased product rate. The market lost some steam in the second half of the quarter due to the onset of refinery maintenance at the end of year’s driving season, but rates are still solid and well above last year’s levels. The product tanker period market remains active during the third quarter with rates at the highest level since the first quarter of 2009 in response to the strong spot freight rates. Favorable demand supply dynamics are expected to support period rates and activity going forward. As product tanker deadweight demand is projected to grow by 5.7% in 2015 while contracted activity has been limited. The order book for MR tankers has declined notably from the start of the year. And currently stands at 13.6% as a percentage of fleet. Concurrently the order book continues to experience substantial seepage during the first nine months of 2015 as approximately 38% of the expected MR on the higher sized tanker new builds were not delivered on scheduled. Now turning to Slide 8, the Suezmax support market experienced solid rates albeit weaker than the second quarter of 2015. Overall although, it was the strongest third quarter since 2009 as high oil production, robust European and Chinese imports and delays in certain ports in Northern Asia kept rates at unseasonably high levels. As a results of the firm’s spot market period rates further improved in the third quarter and presently stand at the highest level since the first quarter of 2009. According to the IEA world oil demand is set to grow by 1.8 million barrels in 2015, which represents a upward revision compared to its previous forecast and by 1.2 million barrels in 2016. Industry analysts expect Suezmax tanker deadweight demand to expand by 4.9% for 2015 on the back of the low oil price environment and high refinery throughputs. On the supply side, the Suezmax fleet is projected to grow by 1.6%. the Suezmax tanker order book through 2018 corresponds to just short of 20% of the current fleet, while slippage until the end of the third quarter was substantial and amounted to 35%. Moving to Slide 9, while the container markets saw positive activity during the early part of third quarter the container charter market and in particular the post Panamax market experienced a marked decrease in activity and rates from August onward. The key driver behind the drop of the charter market has been receiving demands on the demand side as supply fundamentals have remained relatively unchanged. Notably the weekend volume growth experienced the highest Euro trade on the back of the weaker Euro, lower Russian imports and the subdued economic sentiment in Europe weighed on the charter market while flowing Chinese economic growth negatively affected the North and South and did rise in rates. The increase supply of the new ultra large container vessels deployed primarily in the far East Europe lane have also had the negative impact on rates. Supply demand balance looks yet to gradually improve in 2016. Specifically container vessel demand is forecast to grow by 5.5% 2016 surpassing expect the container fleet growth of 4.5%. Furthermore the container order book corresponds to 19.6% as a percentage of fleet, the lower since 2003 while slippage for the first nine months amounted approximately 20%. Catalyst for a sustained market recovery in the short to medium term for the post Panamax sector include improvement in European demand and to lesser extent into Asia trade. Cascading for post Panamax into the sub 6,000 EU range increased the demolition of older vessels and the opening of a new panama canal that could generate additional demand for post Panamax to trans Pacific trade. Turning to the final slide we're pleased to have increased the partnership's common and classified distributions for the third quarter of 2015 by $0.20 after having increased the first and second quarter distributions by the same amount early in the year. Looking ahead we aim to fulfill our stated distribution growth objective of 2% to 3% per annum for the foreseeable future, by erasing the common and preferred distribution by the same amount every quarter as in the past three quarters. Our distribution guidance is supported by the positive effect of the full year contribution of the contracted dropdown vessels and it is important to note that it does not take in account any further acquisitions. We hold as described earlier a right of first refusal on 8 MR currently under construction by Capital Maritime, in addition to other accretive transactions that we can source from our sponsor or the wider shipping markets. While the container charter market has heater soft parts our exposure to this market is limited as we have only two container vessels currently enrolling all time present employment. We are pleased to see however, the continuously improving market back drop for the product and crude tanker markets. Our spot segment benefit from the lower oil price environment, incremental oil demand and solid turn mile growth. As we charter our tanker vessels that come off their current employment under this favorable market conditions, we expect to see increase cash flow generated from our fleet, which should support our distribution coverage going forward and we will further entertain our distribution growth objective. And with that, I’m happy to answer any questions you may have.

[Operator:]

[Operator instructions] Your first question comes from the line of Jon Chappell. And your line is now open.

[Jon Chappell:]

Thank you. Good afternoon Jerry

[Jerry Kalogiratos:]

Hi Jon.

[Jon Chappell:]

First question has to do with the containerships. It's a market somewhat unfamiliar to us. What's the realistic employment opportunity for those vessels as delivers them and kind of couple of parts there. First of all, how quickly do you think you could employ them? Second is there any liquidity whatsoever in contracts of three years or more and then third is it possible that Capital Maritime as the sponsor could them on and kind of bridge any gap in the softness in the market?

[Jerry Kalogiratos:]

Thank you, Jon. Currently I remember on the Archimedes the status is as follows. The amendment is completing its dry-dock as we speak and that is expected to be redelivered from lines in mid November. The chartering prospects for both vessels are being evaluated as the various operators need to readjust their own fleets to the revised growth expectations before they start looking to take endowments. Now, we're in dialogue with various operators about potential employment as we believe that in the near to medium term, some of them will take advantage of the opportunity to charter in large and modern quality tenants such as the [indiscernible] and replace other more expensive, smaller capacitor so such as the 6500 teu. In additional I think it’s important to note that the specification of both vessels, the [Archimedes] [ph] should give our customers flexibility as they can be applied in many different rates. The fall in oil and bunker prices allows both vessels to compete effectively also with the 9,000 teu eco vessels that have appeared as of late. Now in the medium to long term what we will be looking as catalyst for market improvements would be as previously discussed an improvement in European demand, which should boost the far East Europe volume which are very important for post Panamax trade. Cascading for post Panamax is into the sub let's say 6500 teu range, increase the evolution of the older vessels and of course the new Panamax looks. Now with regard to the charted durations it very much depends on the liner appetite going forward as well as in the end what’s on offer and what we want to take. Traditionally this type of vessels when they first appeared in the market they were long-term contact type of vessels five to ten years or even longer in certain cases. As more of them come up in the spot market you'll find that the period is more flexible. Again we will decide when and if we have an offer depending on the rate as we will prefer to go shorter when there is a lower rate on the table and longer when there is a higher rate or closer to the other average. So I think it's still pretty mature to answer any questions until we get more insight as to how this market will develop.

[Jon Chappell:]

Okay, and can you just give us a sense of where the market stands today not necessarily what you're negotiating but if we were to look at some type of industry average of what a one year contract might be on just under 8,000 teu containership where is the market for that today?

[Jerry Kalogiratos:]

Well this is quite illiquid market, so there are not many vessels like that, but it's not unlike the dry bulk of the tanker market that you don’t see many of them being fixed every week. The last time is closer to the high advantage but it is not representative of where the market is going to end up. I think the next fixture is going to be important.

[Jon Chappell:]

Okay. And then I guess the one part I missed before is this something I know you can't really speak for them but could you foresee a situation where maybe the operators aren’t ready to take in tonnage from anybody right now to capital Maritime kind of backstop this for a short period of time to bridge the gap until the market improves.

[Jerry Kalogiratos:]

Well unlike the tanker market where the Capital Maritime has a substantial spot presence it does not have any links to the line of market. So this is not for something where Capital Maritime could step in. There the market is much as you know is dominated by the line of companies, there is no real room for operators.

[Jon Chappell:]

Okay. I’ll ask one more housekeeping one and then I’ll turn it over, you mentioned the containership doing the dry dock but you also said two product tanker, which product tankers are doing the dry dock and what’s the estimated time for this.

[Jerry Kalogiratos:]

Well, that will depend on certain employment opportunities as you know we have a number of sister vessels and the reason that we would not like to name specific vessel at this point is because we might depending on the employment opportunities -- we might dry dock one vessel or the other if they are in place for the delivery under these employment opportunities. I cannot say more at this point but I think you heard earlier that we like fixtures like the one that we announced on Petrobras side and we hopefully we can do more than.

[Jon Chappell:]

Okay, sounds good. Thank you, Jerry.

[Operator:]

Thank you very much indeed. Your next question comes from the line of Deutsche Bank from the line of Amit Mehrotra. Your line is open.

[Amit Mehrotra:]

Thanks. Hi Jerry, how are you?

[Jerry Kalogiratos:]

Hi Amit I’m good, yourself.

[Amit Mehrotra:]

Good. Thank you. First question is just on the coverage outlook, I don’t have to tell you we've seen some encouraging movements in the product tanker at time charter market. And I’m just trying to understand what that could mean for perspective coverage if we look in 2016. So if we extrapolate the recent inflection over the expirations over the next six to 12 months the number I get to is 1.2 times on coverage as you exit 2016, is that in the neighborhood of where you see if not exactly, but may be directionally from where we are today.

[Jerry Kalogiratos:]

Amit that’s a good question well, ultimately cover -- unit covers will also be dependent on the employment of the two 8,000 teu vessels and as discussed we have little visibility at this point. As there was a sudden drop in demand I think caught everybody in the market by surprise. So, we'll need to wait for better understanding given the employment prospects under eight. Now, I think it’s important to highlight is that our distribution or distribution growth objective remains in place, the recent weakness in the container market affects only these two 35 vessels. As you correctly pointed out, we have a number of other vessels coming off charter in a very strong product and crude tanker markets. So, given the positive outlook of the tanker market the recent fixtures were a number of our vessels all have increased rates as we discussed. As well as the contracted drop down vessels, we expect that we can deliver of the distribution and distribution growth of $0.02 per quarter and provide adequate unit coverage.

[Amit Mehrotra:]

Great, no that’s very clear, just one question with respect to that distribution growth strategy if I may, you said essentially that you want enough cushion the coverage to say for a rainy day and that certainly makes sense given especially what we're seeing in the recent containership sort of rates, but I am just hoping can you give us some I guess quantitative metrics around what you mean by cushion. And what I mean by that is that if you do get directionally some improvement in the coverage as we move over the next 12 months and we get to that 1.2 times level, is that what you consider to be enough cushion and at that point, could the partnership decide to pivot the strategy and pass through some those incremental cash flow. If there are any beyond that 1.2 coverage to the distribution growth because one of the problems I think people have had with the partnership is the fact that the distribution growth while you guys are doing it steady has been a little bit a lackluster so, any indication on when you do get to that cushion more of it flow to the unit holder.

[Jerry Kalogiratos:]

Amit well I think we have said in the past that we feel comfortable with our distribution and distribution growth basis 1.1 times coverage and this is what that we're going to aim for and given our current employment and given what we've seen today that’s something that we continue to have in mind.

[Amit Mehrotra:]

Okay, one last question Jerry quick one on financing the leverage, the net leverage profile looks great and it implies I guess the opportunity for disproportion debt financing when you look at additional acquisitions down the line. Can you just talk about how you think about that, are you willing -- is the partnership willing to go to 60%, 70% LTVs or is 50% I guess where you guys want to max out that to sort of access the non-amortizing debt terms.

[Jerry Kalogiratos:]

We will continue to aim for a 50-50 debt equity mix. It is also -- it’s not only a choice that we have that we have consciously communicated but also if you are looking for this type of financing with a certain non-amortizing period banks will not -- the commercial banks will not usually advance more and a lot more than that when comes to finance.

[Amit Mehrotra:]

Yeah, okay Jerry thanks so much, happy Halloween, thanks.

[Jerry Kalogiratos:]

Thank you, too.

[Operator:]

Thank you very much. Now from Wells Fargo your next question comes from the line of Michael Webber. Your line is now open sir.

[Michael Webber:]

Hi, good morning Jerry, how are you.

[Jerry Kalogiratos:]

Fine Mike.

[Michael Webber:]

I just want to -- couple of questions here, first I wanted to go back and revisit your two containerships and it's more recovering again, within the context and you just touched on it briefly within the context of your distribution guidance of 2% to 3%, can you maybe walk us through what scenarios you guys around before in the guidance. What scenarios you guys ran in terms of employment prospects of those vessels in terms of how much employees scenarios that guidance from even in worst case scenario or short term period where there is two ships.

[Jerry Kalogiratos:]

Mike it is still early on to have more visibility into the post Panamax charter rates going forward, but what I can tell you is that even if the vessels were to remain idle, the two vessels for the full year 2016 and that would be unprecedented if you look back in 2009 when demand for container contracted by more than 9% after severe global GDP shock. There was limited idle time for container vessels. But even that remote scenario where both vessels were to be ideal for the full year we expect that our distribution coverage to be one times under distribution growth objective will be maintained. So that is what I can tell you today.

[Michael Webber:]

Now that’s what we are hoping to hear. Just quickly you went through the delivery schedule, which is very helpful for the capital fleet. I guess specifically on the MRs that you guys have coming into play relatively quickly as they deliver over the next call it I guess 18 months. Aside from the your leverage like its 30% and net debt cap is amongst lowest of mature marine MLPs can you talk a bit to what are their levers you could look at beyond common equity given where yields are to facilitate that growth be perhaps or some combination with the parent or maybe just kind of talk through kind what areas on your aquiver when it comes to kind of facilitating those drops.

[Jerry Kalogiratos:]

Currently, we are in the process of taking delivery of finish the delivery of the five contracted dropdowns. As you know, by now acquired the 4/5 with the next one in January 2016, so we still have some if you want contracted growth left in. obviously there are the eight MR where we have the right of first refusal on and the other assets of Capital Maritime level or second hand market. We've common yielding today closer to 15.5% is something that we need to see improving before we consider common issue for sure. Now with regard to alternative means of course we will look at that if it make sense and we can put together an accretive deal, but I think it's important for us to complete our contracted dropdowns.

[Michael Webber:]

Got you. Okay. That’s helpful. Appreciate your time Jerry. Thank you.

[Jerry Kalogiratos:]

Thank you. Mike.

[Operator:]

Thank you very much indeed sir. Now for Stifel we have a question from the line of Ben Nolan. Your line is now open sir.

[Ben Nolan:]

Thanks. Hey Jerry. So first I wanted to follow-up a little bit on Mike’s last question as it related to the potential drop down. I was curious if any of those eight MRs have already been contracted on longer term basis such that they would make sort of ideal drop down candidates from a cash flow perspective.

[Jerry Kalogiratos:]

It has been reported in the market that one of these MRs has been fixed on a two-year deal and that’s the only vessel that has been fixed. There are of course other assets of Capital Maritime is developing as we speak, is talking to a number of charters. There is more detail back on to share with you at this point. But expect to have more over the coming months.

[Ben Nolan:]

Okay, that’s helpful. Along those same lines obviously there is a refer in place for the 8 MRs, but there is not for the two VLCC as is that something that we should not consider necessarily as part of the potential pool of assets for drop down or would you expect that you might have a shot there as well.

[Jerry Kalogiratos:]

Well traditionally we have grown from with assets drop down from Capital Maritime and we have diversified fleet crude products and containers so if we want we are bit diagnostic in terms of the asset as long as we have as we believe in the prospects going forward. But the most important I think criteria on whether we look at those vessels or not is with a couple Capital Maritime will find appropriate employment that would make them accretive to us. At this point no such employment is in place long chapter so it hasn’t really come up.

[Ben Nolan:]

Okay. And remind me if there were a long term charter in place is there a criteria in which they would have to be offered to the partnership or there is no such requirement.

[Jerry Kalogiratos:]

No for the crude vessels there is no such requirement. There is such requirement -- there is no agreement when it comes to product tankers.

[Ben Nolan:]

Okay, that’s helpful and then lastly for me and this is a big deal but was just curious there was the one Suezmax that was returned early off of its charter and the Capital Maritime picked up the reminder of the charter at a better rate. I was just curious what the circumstances of that situation were.

[Jerry Kalogiratos:]

Well there was a certain charter part dispute, which we took advantage of terminating the charter and we fixed at a higher rate. So it was in the end a better outcome.

[Ben Nolan:]

Okay, but there is no -- there shouldn’t be any read through with respect to the fourth quarter P&L or any other potential situations like this on any of the other vessels I suppose.

[Jerry Kalogiratos:]

At this point we do not expect any such effect as you know we have fixed in the past secondary and its affiliate and another three vessel, so it’s somebody that we know quite well.

[Ben Nolan:]

Right. Okay and there was -- there is no read through on any of the other contracts.

[Jerry Kalogiratos:]

No.

[Ben Nolan:]

Okay. Alright that does it from me. Appreciate it, thanks Jerry.

[Jerry Kalogiratos:]

Thank you, Ben.

[Operator:]

Thank you very much indeed. Your next question from UBS comes from the line of Spiro Dounis and your line is now open.

[Spiro Dounis:]

Hi Jerry. Hope you’re doing well. I just had a quick question on drydock just I guess you had a few of that in the third quarter and some more come in the fourth quarter and sorry if I missed it could you quantify and maybe just from a cash flow perspective or an EBITDA perspective maybe how much that impacted results this last quarter and what the expectation would be if any in the fourth quarter.

[Jerry Kalogiratos:]

Sure. Two vessels dry dock during the third quarter in addition to the another five vessels in the first half of 2015 that’s mainly because of the position of the vessels, the future regulatory requirement as well as employment prospectus favored drydocking earlier than initially scheduled. The impact of the expense dry-docked cost and related of higher for the third quarter so the cash cost together it will be higher amounted approximately to $2.2 million which effectively will have implied a unit covered of a 1.1 times for the quarter. Needless to say drydocking take place within 2015 means fewer dry-docks in the future. So with regard to the fourth quarter we expect another three vessels to be dry-docked namely the one container motor vessel amendment and two product tankers in the certain employment opportunities. Now the other cost of product tanker total cost that is deferred as well as OpEx cost for on a product tanker is let’s say between three quarters of a million to million.

[Spiro Dounis:]

Got it, okay that’s helpful. And then just in terms of I think Amit was trying to touch on this before Scorpio recently signed some three year charters on MRs for over a 20,000 and I realize that there is some one-off I guess circumstances around some of these MRs but I got to think that’s encouraging to you especially when you got eight eco MRs in the hopper. Is that a number that you’re going to be looking gone off there that then a expectation and your are you doing close to maybe 17,000 or 18,000.

[Jerry Kalogiratos:]

Well, I think there is if you want a slightly differentiated the market for eco or non eco MRs today Clarkson for example would call one year rate for MR2s so eco MR2s and around $19,000 to $20,000 and two to three year deal between call it $17,000 to $18,000. Now in the end the actual rate depends on position especially for the one deal a good position that would give charters some income at the front end of the carrier would of course command but the premium when comes to the period rates. But also in terms of the trade I think the Scorpio fixtures also included some element of ice trading but of course if I am understand correctly what the exact rate is. But all in all yes I think you will find that for modern Eco vessels you can’t fix in the very high teams and for the older vessels between $18,000 to $19,000 for a year slightly less for longer period.

[Spiro Dounis:]

Okay, great and then just last one, just you kind of touched on this before, but I know 2% to 3% distribution guidance just wondering when you gave that guidance earlier this year obviously you knew about the containers and when they would be delivering, no expectation necessarily on what would happen, but what was the base case when you give 2% to 3% distribution guidance as to what would happen to those containers? Was it off hire for six months and then some lower rate or just you are trying sense of if you do end up re-chartering those quickly and re-chartering about something in the 30’s is that a situation where you could actually lift the distribution guidance because you are conservative.

[Jerry Kalogiratos:]

Well, to be perfectly frank I think the nobody expected the slow down and it’s magnitude in the container market. You saw the biggest liner of the world come up with a profit warning just a few days ago on the back of this unaccepted slow down. So I wouldn’t say that we were expecting this kind of market and I don't think anybody will actually if anything the market that was improving the second quarter of 2015. So, don't forget that Maersk before they deliver the vessels they had a number of options and given the flexibility and our discussions with them previously we were expecting that there is good chance that they will continue with the vessels. Well, they haven’t and that once again I think underlines how important is to conservative when it comes to distribution growth objective and what I can say is that if despite this slowdown and despite that much weaker rates that the market is expecting for postponing today. We feel very comfortable with the distribution growth and the distribution coverage going forward.

[Spiro Dounis:]

Got it, got it, and I appreciate the color. Thanks Jerry, have a great weekend.

[Jerry Kalogiratos:]

Thanks Spiro.

[Operator:]

Thank you so much indeed. Now your next question from Raymond James comes from the line of Ben Brownlow, and your line is now open.

[Ben Brownlow:]

Hi, good morning Jerry

[Jerry Kalogiratos:]

Hi, Ben.

[Ben Brownlow:]

Congrats on the recent tanker recharges, just to follow up on the containerships, what’s the shortest contract duration you would consider for those vessels and just given the rate pressure that you are seeing in the container market. Are there any discussion inner vessels in the spot market, I am just count to higher rate in the short term until the Bakken improves.

[Jerry Kalogiratos:]

Ben, in the container market there is no such thing as the spot market that we have in the dry bulk or the tanker market, what we call spot market on the container side is the three to six months trade, which is probably what would be the shorter and of employment. At this point, we will be looking freshly to see what an offer because as previously discussed that liners given the sudden slow down and we are adjusting their own fleets before they look at new tenants. And secondly I think we have choice we would of course try to grow shorter if the rate an offer is on the lower side compared to historical earnings, and or if we were to achieve a better rate and closer to the mean by going longer of course we look that as well.

[Ben Brownlow:]

Great, thank you and then on the tanker side, Capital Maritime has been very supportive and I think you have roughly four tanker renewals over the next 12 months that have rate upside based on one year time shorter, are there discussions with Capital Maritime for an early termination or I guess on the way I ask - is there shorter sort of discussion with third parties for those tankers.

[Jerry Kalogiratos:]

We have a total of six product tankers until Suezmax is coming off charter over the next 12 months, I think to answer your question I can point out to what happened with these two vessels that went to Petrobras that were effectively Capital Maritime agreed to redeliver the vessels earlier so that the vessels can commence these attractive charter and you saw seam listing happening with when Capital Maritime effectively terminated its charter earlier 27,000 and let CPLP have the benefit of the new charter would sell effective 750. So until now as you say Capital Maritime has been very supportive and I expect that this similar opportunities are found and it could be, could well be that, that could be the same.

[Ben Brownlow:]

Great, thank you.

[Jerry Kalogiratos:]

Thank you, Ben.

[Operator:]

Thank you very much. [Operator Instructions] Now from Seaport Global Securities your next question comes from the line of Sunil Sibal. Your line is now open.

[Sunil Sibal:]

Hi, good afternoon Jerry.

[Jerry Kalogiratos:]

Hi Sunil.

[Sunil Sibal:]

Most of my questions have been actually answered. Just one quick one when you think about the product tanker market especially, with regard to the duration of contract are you seeing any change in terms of the customer mindset there are could we see that market get, a more longer duration contracts then where the market has been typically and if that’s the case, how do you look like that scenario?

[Jerry Kalogiratos:]

That is indeed a good question Sunil we have seen charters coming to the market for fixtures, for longer periods compared to a year or two years ago and that’s mostly I think a result of two things. First of all expectations changing going forward with the spot market being well $10,000 above year-to-date where it was last year a number of charters are trying to take cover for longer. And secondly as a owners very much benefit from the these very same sport market in order to be attracted to give up if you want the more lucrative spot wages they need they require charters that to go longer. So we have seen a number of deals going longer compared to a year or two years ago.

[Sunil Sibal:]

Okay. And then as you look at your re-contracting book over the next year or so is that something direction wise, that you intend to pursue duration wise.

[Jerry Kalogiratos:]

For sure, as discussed that out of the 15 vessels that we have six year-to-date, for two years or longer if you were to rewind in 2012 or 2015 you would say that we were fixing back then for six, 12 months or so were about now that we find this, this longer employment opportunities as well as now that rates have recovered closer to the mean we are taking advantage of that.

[Sunil Sibal:]

Okay, that’s very helpful thanks. One more follow up on the eco-MRs drop downs in terms of the timelines, that you have could you walk us through timelines on those drop since how should may be thinking about if there is an opportunity which comes up of you guys do require a drop down candidate.

[Jerry Kalogiratos:]

Well, the opportunities are there with the right of first refusal on the MRs other is Capital Maritime has or even potentially from the second hand market, but I think the issue is more the financing side especially the equity side so, first of all I think we need to see the our unit price improve and then sort of we can complete accretive deals or secondly at later stage look at alternative sources of financing such acquisitions but there is no specific timeline you got at this point.

[Sunil Sibal:]

Okay, that’s all I had. Thanks.

[Jerry Kalogiratos:]

Thank you, Sunil.

[Operator:]

Thank you very much sir. Now from Bank of America Merrill Lynch you now have a question from the line of Shawn Collins. Your line is open sir.

[Shawn Collins:]

Great, hi Jerry good afternoon how you are?

[Jerry Kalogiratos:]

Hi, Shawn I am good, yourself.

[Shawn Collins:]

Great, great thank you. So my first question is a bit esoteric but given that you operate ships all around the globe I thought I give a try with this. This year the El Niño weather patterns has and is expected to have a particular pronounced impact not so severe, very severe not since 1997. 1998 I was just curious to ask if you or any of your customers had seen any disruptions from this with any tankers or containers ships. Thank you.

[Jerry Kalogiratos:]

Shawn not as far as I know of course in the past similar phenomenon have been very been official to the trade and but especially if it means refinery that is at this tensed to boost the trades, but not to minor as it recently.

[Shawn Collins:]

Okay, understand that thank you. I just turning to the balance sheet, two of four of your credit facilities are with HSH I think you have recently restructured those to push amortization out from 2016 to 2017, can you just briefly outline your near team debt maturity schedule. Thanks.

[Jerry Kalogiratos:]

Sure, so for 2015 there is a remaining repayment of $1.4 million under one of the HSH facilities. And then we have for 2016, $16 million under the ING facility that is assuming that the ING facility will be drown by January 2016, as we take delivery of the fifth vessel. Now there is the same $15 million we will have to repay in 2017 for the ING facility until the fourth quarter of 2017 when we have another combined so that would be $25 million that’s the fourth quarter of 2017 from the 2 HSH facilities and our coal facility.

[Shawn Collins:]

Okay, great.

[Jerry Kalogiratos:]

I will be happy to as the details break down if you want over the phone.

[Shawn Collins:]

No, that I can check it up with you offline. That’s helpful, that’s great that’s all for me thank you for the timing and invite.

[Jerry Kalogiratos:]

Thank you, Shawn.

[Operator:]

Thank you very much indeed [Operator Instructions] As there are no further questions sir. I shall pass the flow back to you for closing remarks.

[Jerry Kalogiratos:]

I would like to thank you all for joining us today.

[Operator:]

And with many thanks to our speaker today, that does conclude the conference. Thank you all for participating. You may now disconnect. Thank you Mr. Kalogiratos.

[Jerry Kalogiratos:]

Thank you, Jenny. Thank you so much.

[Operator:]

All the very best. You have a great weekend.

[Jerry Kalogiratos:]

Have a good day. Bye-bye.

[Operator:]

Thank you. Bye-bye.