Genco Shipping & Trading Limited
Q2 2012 Earnings Call Transcript

Published: 2 Aug 2012

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Second Quarter 2012 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible at anytime during the next 2 weeks by dialing [phone] or [phone], and entering the passcode, 7066040. At this time, I will turn the conference over to the company. Please go ahead.

[Unknown Executive:]

Good morning, before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances of future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website, and the company's filings with the Securities and Exchange Commission, including without limitation, the company's annual report on Form 10-K for the year ended December 31, 2011 and the company's subsequent reports filed with the SEC. At this time, I would like to introduce Gerry Buchanan, the President of Genco Shipping & Trading.

[Robert Gerald Buchanan:]

Good morning, and welcome to Genco's second quarter 2012 Conference Call. And with me today is Peter Georgiopoulos, our Chairman; and John Wobensmith, our Chief Financial Officer. I'll begin today's call by discussing our second quarter highlights as outlined on Slide 3 of the presentation. I will then turn the call over to John to review our financial results for the 3-month period ended June 30, 2012. Following this, I will discuss the industry current fundamentals. John, Peter and I will then be happy to take the questions. During the second quarter and year-to-date, Genco has maintained an opportunistic time charter approach while taking proactive measures to preserve a strong financial platform in a challenging drybulk market. By maintaining the ability to benefit from future rate increases, and strengthening the company's financial flexibility, we have enhanced our position to drive future performance when market conditions improve. Turning to Slide 5, Genco recorded a net loss of $27.7 million or $0.65 basic and diluted loss per share for the 3 months ended June 30, 2012. Genco's cash position excluding Baltic Trading Limited was $251.4 million, which reflects the cash flows generated by a large high-quality fleet. During the second quarter, we maintained our focus on signing vessels to short-term or spot-market-related contracts with reputable, multinational companies, preserving the company's ability to generate significant operating leverage and a rising freight rate environment. Additionally, we continue to take proactive measures to increase our financial strength and flexibility. Specifically, we recently amended each of our 3 credit facilities under favorable terms, which John will discuss in more detail later in the call. Moving to Slide 6, we provide a summary of our fleet. Genco's modern and diversed fleet positions the company well to continue to provide service, adheres to the highest operational standards and take advantage of the positive long-term demand for the global transportation of iron ore, steel and other core commodities. Excluding bulky trading fleet, we currently own a fleet of 53 drybulk vessels, consisting of 9 Capesize, 8 Panamax, 17 Supramax, 6 Handymax and 13 Handysize vessels with a total carrying capacity of approximately 3,810,000 deadweight. Importantly, the average age of our fleet is 7.2 years, well below the industry average of approximately 11 years. I will now turn the call over to John.

[Robert Gerald Buchanan:]

Thank you, Gerry. Turning to Slide 8, I will begin by providing an overview of our financial results for the second quarter and 6 months ended June 30, 2012. Please note that we are reporting our financials on a consolidated basis as a result of our 25% equity ownership in Baltic Trading. For the 3 and 6-month period ended June 30, 2012, we recorded total revenues of $62.9 million and $122.8 million, respectively. This compares to the revenues for the second quarter of 2011 and 6 months ended June 30, 2011 of $99.3 million and $200.8 million, respectively. The decrease in total revenues for the second quarter of 2012 compared to the prior year period is primarily due to lower charter rates achieved by the majority of our vessels, as well as a higher number of days that our vessels were on plan off-hire to complete dry dockings during the second quarter of 2012 compared to the same period the prior year. This was partially offset by the increase in the size of our fleet. The operating loss for the second quarter and 6-month period ended June 30, 2012 was $10.4 million and $23 million, respectively. This compares with operating income for the second quarter and 6-month period ended June 30, 2011 of $31.6 million and $65.4 million respectively. The operating loss for the 3 and 6 months period ended June 30, 2012 is attributable to higher expenses associated with the operation of a larger fleet and lower rates achieved for our fleet compared to the corresponding year earlier periods. Interest expense in the second quarter of 2012 was $19.9 million and $43.6 million for the 6-month period ended June 30, 2012. This compares to interest expense of $21.5 million for the second quarter of 2011 and $42.9 million for the 6-month period ended June 30, 2011. The company recorded a net loss for the second quarter of 2012 of $27.7 million or $0.65 basic and diluted loss per share. The net loss was attributable to Genco for the 6 months ended June 30, 2012, was $60.8 million or $1.50 basic and diluted loss per share. This compares to net income attributable to Genco of $10.1 million or $0.29 basic and diluted earnings per share for the second quarter of 2011 and net income attributable to Genco of $23.5 million or $0.67 basic and diluted earnings per share for the 6-month period ended June 30, 2011. For the 3 and 6-month period ended June 30, 2012, Genco also recorded income tax expense of $343,000 and $615,000 respectively. This compares to income tax expense for the second quarter and 6-month period ended June 30, 2011, of $355,000 and $714,000 respectively. This income tax expense includes federal, state and local income taxes, on net income earned by Genco Management USA Limited, one of our wholly-owned subsidiaries and relates to income generated from the technical and commercial management of vessels for Baltic Trading Limited, sale and purchase fees payable to us by Baltic Trading Limited if any, and service revenue from the technical management of vessels owned by Maritime Equity Partners. Next on Slide 9, you will see the income statement of facts of Baltic Trading's consolidation with Genco Shipping & Trading Limited. This will provide you with a more detailed breakdown of the financial performance of the 2 separate companies. Key consolidated balance sheet and other items as presented in Slide 10 include the following

[Robert Gerald Buchanan:]

Thank you, John. I'd like to take this opportunity to spend a few moments discussing the industry fundamentals. I'll start with Slide 16 which points to the drybulk indices. Represented on this slide is the overall Baltic Dry Index. During the second quarter of 2012, the BDI was able to marginally recover quarter from the weakness shown in the beginning of the year when the index reached a low of 647 points in February 3. The BDI nearly doubled in May from the first quarter trough as weather related disruptions in Brazil and Australia eased lend and leading to more cargo availability on the coal imports to China increased following the completion of stockpiles due to the Daqin Railway scheduled maintenance. Panamax rates were able to find support in April due to the augmented coal trade associated to American grain season. More recently however, the substantial amount of newbuilding vessels delivered has weighed in the BDI through the first half of the year despite the robust scrapping activity observed. On Slide 17, we summarized the recent market developments in the drybulk freight market beginning with the supply side of the equation. As a result of continued low rates and an attempt to combat the excess page, scrapping has been on a record pace through the first half of the year, increasing 12% when compared to the same period last year. A little bit majority of vessel scrap have been Handysize and Supramax vessels due to the old age of those fleets. We have also observed younger vessel demolitions especially in the Capesize sector. 16 of the 42 Capesize vessels scrapped year-to-date were built in the 1990s, including 4 vessels built between '95 and '97. We believe this trend to prove crucial to a quicker recovery in the Capesize sector as 13% of the Capesize fleet was built before 1994. On the demand side, Drybulk trade is projected to grow 5% in 2012 with seaborne coal and iron ore trade being the focal points. Dating back to November last year, Chinese coal imports have exceeded 20 million tons in 7 out of the last 8 months, including a record total of 26.2 million tons imported in May. This compares to average monthly imports of 11.8 million tons experienced in the first half of 2012. Japan and India are also viewed as primary drivers of coal trade. Through the first half of the year, Japanese coal imports rose almost 6% year-over-year due to the lack of nuclear power availability from the shutdown of plants following the March 2011 tsunami. In India, a 16% increase in imports is expected as more coal fired power generation is brought online and peak power supply fall short of demand. At the same time, India's hydroelectricity generation has been negatively impacted from the mildest monsoon season in 3 years leading to a 5.5% decrease in June year-over-year according to India's central Electricity Authority. On the iron ore side, Chinese imports of the commodity have increased 9.7% through the first 6 months of 2012 from the same period year before leading Clarkson Research services to amend their full year import forecast to 721.5 million tons, 8% more than the prior year. Nearly 50% of China's imports for the first 6 months of the year have been sourced from Australia. Australian exports have more than made up for the limited exports out of India as Port Hedland shipments rose to a quarterly record of 64.7 million tons during the second quarter. Chinese iron ore fixture volume in July as compared to the prior months has increased as well as the National Development and Reform Commission has sped up the approval process of major infrastructure and construction projects this year to promote growth. Railway investment alone is expected to double in the second half as only 1/3 of 2012 target was spent through June. With these additional development projects, Chinese steel production is expected to be resilient through the remainder of the summer. Since March 2012, China steel output has been consistently strong with production over 60 million tons in each month. The only other time China has produced over 60 million tons in 1 month was in May 2011. At the same time, stockpiles experienced an 18% decline since March peaked. Turning to Slide 18, we believe that a number of short and long terms catalysts will affect the drybulk market. In addition to actions taken by the NDRC regarding speed up of infrastructure project approval, the Chinese government has decreased bank reserve requirements 3 times since November 2011 and cut loan and deposit rates twice since June 2012 in an effort to fuel lending and stimulate growth. As anticipated, this move has led to a 45% year-over-year increase in June bank loans. China's 12-year plan remains a long-term catalyst due to its related infrastructure programs as well as the urbanization and development of the central and western regions. Seaborne trade should also be quantitatively affected by planned volume expansion as iron ore and coal mine has planned to increase production and invest into higher capacity port facilities over the next few years. Higher imported volumes could further induce a price arbitrage between domestic and imported iron ore prices, thereby enhancing ton miles in the long run. On the supply side, as volatility and charter rates continues and scrapped steel prices remain at higher levels, we expect to see the increased scrapping of vessels witnessed in the first half continue with 2012 possibly being a record year for scrapping. On Slide 19, we talked more about the demand side fundamentals. Chinese steel production increased approximately 2% during first half of the year as compared to 2011 while urban fixed asset investment rose 20.4%. As China's urban population continues to expand in the years to come, steel consumption is expected to be even greater as a Chinese urban household has 10x to 15x higher steel intensity than a rural household. In line with the urbanization, China's Ministry of Land and Resources plans to build 36 million units of affordable housing by the end of 2015. The 2012 target is to have 5 million units constructed which is expected to make as 2.1 million units have already been completed. Furthermore, demand for steel in Japan has been supported by a resurging auto sector as well as an ongoing reconstruction efforts following last year's tsunami. And used crude steel output increased 3.5% in the second quarter of 2012 from the previous quarter and was the strongest quarter since the first 3 months of last year. India's growth potential going forward bodes well for the drybulk market also. Tonnage steel usage is forecast to grow 6.9% in 2012 and 9.4% in 2013 as urbanization and infrastructure investment accelerate according to the World Steel Association. India's June crude steel production reached a record high of 6.4 million tons, an increase of 7% from the same month last year. Growing steel demand in India is also forcing Chinese steel mills to source imported ore from longer ton mile origins. Moving to Slide 20, on the left of the page, we showed expansion plans of key iron ore producers as recently revised by the respective companies. The combined iron ore expansion plans through 2016 accumulate to 481 million tons per annum or 46% of 2011 seaborne iron ore trade. Iron ore production from the world's 4 largest mining companies Vale, Rio Tinto, BHP Billiton and Fortescue, increased 7% on the second quarter of 2012 compared to the same period for the prior year. Additional loading capacity and strong operational performance in Western Australia, specifically at Port Hedland, led to more production and in turn more shipments. In Brazil, second quarter operations recovered from the weather-related disruptions experienced during the first quarter with a 14% quarter-over-quarter increase in exports. Going forward, we expect exports for both Australia and Brazil to increase as miners bring greater amounts of iron ore into the market. Indicatively, Australian exports are forecast to grow by 9% in 2012 reaching 479 million tons. In order to keep up with this expected rise in demand, Rio Tinto, as well as BHP and Fortescue, intend to boost iron ore shipping volumes at Cape Lambert and Port Hedland. Volume capacity is also planned at receiving ports, with China expected to add 390 million tons of iron ore port capacity by 2015 according to Commodore Research. On the coal front, we expect demand to increase in the medium term as a result of both higher steel production in China and India and higher power consumption in the growing countries. Indicatively, over 80% of China's power is generated by coal fired power plants, while Indian coal imports are projected to climb to 185 million tons by 2017. On Slide 21, we discuss the supply fundamentals which remain uncertain. First, we will discuss the drybulk order book through 2014 which is shown on the graph at the bottom left of the slide. Although we expect the order book to be less cumbersome in 2013 and beyond, that remains at a significant level, representing approximately 21% of the systemwide fleet. New building orders have, however, decreased by 52% through the first 6 months of 2012. And no Capesize Newbuildings were contracted during the second quarter. In fact, according to the China Association of the National Shipbuilding Industry, more orders have been canceled at China's shipyards during the first 6 months of this year than during all of last year. Declining newbuilding activity along with stronger steel prices have put pressure on shipyard margins, increasing the potential of bankruptcies by some of the less developed Chinese yards. In 2012, 90% of China's shipyards have not received a single newbuilding order, while 25% have not received an order since 2009. We believe scrapping will continue to play a significant role through 2012 especially if volatility in the freight rate environment persists, with 20% of the world fleet 20 years or older. As illustrated on the graph at the bottom right of the page, 2011 was a record year for scrapping with 23 million deadweight scrapped. 18.3 million deadweights have been scrapped year to date 2012, a trend which we expect will continue and potentially lead to another record year for scrapping. Lastly, we note that Bangladesh vessel demolitions rose 26% year-over-year through the end of June, even though the scrapping shut down at the end of 2011 carried over to the beginning of 2012. This concludes our presentation and we'll now be happy to take your questions.

[Operator:]

[Operator Instructions] Our first question will come from Doug Mavrinac with Jefferies & Company.

[Douglas J. Mavrinac:]

Just -- as it relates to that, I mean, it'd almost be remiss without mentioning, the terms themselves, just I understand this to be clear is, you guys just basically prepaid nearly $100 million and your interest rate on the 2007 facility only went up by 100 basis points as well as the cash sweep but that goes towards the amortization, is that basically the gist of it, John?

[Robert Gerald Buchanan:]

Yes, there's the cash sweep, that's an important component, obviously the interest rate goes from 3 to 4. There's also 1.25% fee that's payable at the maturity of the 2007 Credit Facility which is 2017.

[Douglas J. Mavrinac:]

It's like 5 years from now.

[John C. Wobensmith:]

Yes, correct. And yes we pay, we took $100 million in cash and prepaid those 3 credit facilities and we also made the scheduled July 2 payment. So basically, pro forma cash about $100 million as of June 30.

[Douglas J. Mavrinac:]

Yes, so with the debt out of the way, following next year, no CapEx except maintenance. I mean, you got $100 million to last into 2014 before even accounting for the operating cash?

[John C. Wobensmith:]

Yes, I mean, obviously it's all going to depend on the market going forward. That's our start. Yes.

[Douglas J. Mavrinac:]

Right. Got you. Okay. Perfect. Now it's fantastic. So with that out-of-the-way, looking at the market itself, obviously Cape rates have been very weak, we know the reasons why. Supramax rates though have been hanging in there, quite comfortably above operating costs breakeven levels. So my question is, if we look at the cape market, is that telling us too negative of a story, or is the Supramax market a better gauge, or what do you make of that disconnect between very weak cape rates which move on to 2 commodities and quite resilient Supramax rates that move a whole lot of stuff?

[Thomas E. Reinckens:]

I mean, look, you just pointed it out. I mean, the capes are moving iron ore and coal, which is in a short-term weak period right now. And obviously, also there've been a lot of deliveries of vessels certainly quite a few capes. There's been a lot of scrapping, but the scrapping hasn't quite kept up with it. But we're hopeful that as we get into the second half of the year that we see some sort of turnaround. I certainly don't believe that cape rates where they are versus Supramax is, I just don't see that ratio staying around.

[Douglas J. Mavrinac:]

Right. Got you. Okay. And then, that actually segued into my next question and that is obviously looking for -- in a flexi plant looking for demand to get better, we've seen rather firm statistic come out of China, which Gerry kind of went over, but we've also seen the government there introducing stimulative measures trying to be more accommodative, cutting interest rates, accelerating infrastructure projects and so on, my question is have you guys seen that translate yet into increased fixture activity or is that something that maybe on the near-term horizon as those things start to gain traction?

[John C. Wobensmith:]

I think it's more on the near-term horizon. I think there's a timing issue and it takes a little bit of a period for stimulus to work its way through the system.

[Douglas J. Mavrinac:]

Right. So that's not in the numbers yet. It's more kind of only offing basically?

[John C. Wobensmith:]

Not that we see yet.

[Douglas J. Mavrinac:]

Got you. Okay. And then finally before turning back over, when you look at -- so if that's what's going on the demand side, looking at the supply side, we've seen slippage rates being very consistent for the last 3 to 4 years, not necessarily delivery rates because we know what the order book is telling us about the future months, but slippage rates being very consistent. We've seen scrapping rates being very high. It looks like there's an inflection point coming on the supply-side too, my question is, is there any reason to think the slippage rates may change or are there any other factors that would cause the slippage rates or scrapping rates to change as we go forward over the next say 6 months?

[John C. Wobensmith:]

I mean, I think on the scrapping, I mean, we obviously saw a dip in the price of scrap and you still had quite a lot of vessels go into the scrap yards. And that scrap price has recovered. I mean, I think scrapping is going to continue at its current run rate for this year and I think you're going to see quite a bit of scrapping next year as well. There's still -- if you think about it, you still have close to 20% of the fleet greater than 20 years old, 15% greater than 25 years. And particularly in the Capesize sector, the average age of scrapping candidates is starting to reduce and we're seeing even some of the Japanese companies scrap 15-year-old capes, and I think all of that is helpful.

[Douglas J. Mavrinac:]

And then on the slippage front, just before I turn it over, Gerry mentioned that we've seen a lot of cancellations year-to-date. I mean that number's been tagging at 35% or so since late 2008. Anything -- with the cancellations continuing through the first half of 2012, any reason to think that number may materially change or does that seem like the steady state going forward over the next 6 months?

[John C. Wobensmith:]

We've seen it change a little bit. There were a lot of deliveries in May and June that I think skewed that number. So we've seen the slippage come down a little bit, but I think when you get towards the end of the year, yes, you're going to continue to see that 30% number.

[Operator:]

We'll go next to Justin Yagerman with Deutsche Bank.

[Justin B. Yagerman:]

Notable, I guess in the credit facility rework is that your grace period ends in 2014. I was just curious how to think about that relative to your market expectations? Did you guys have any, I guess, say over when you would extend the grace period through and does that coincide with kind of a market recovery scenario in your estimation?

[John C. Wobensmith:]

I think it coincides with what we hopefully believe is a market recovery, but you know Justin, in these things, everybody has a wish list. So we obviously negotiated with the lending group and wound up where we did.

[Justin B. Yagerman:]

Yes. Well it's definitely favorable relative to what we've seen from some of these others. When we think about the factors that went to play here, how big a deal was it that you had as much cash as you did on your balance sheet when you were going into these negotiations with the lenders?

[John C. Wobensmith:]

I think it was very helpful. I can't speak for the private companies that are out there, but I haven't seen any other borrower having the ability to prepay like we did and I think that was helpful in sitting down with the banks.

[Peter C. Georgiopoulos:]

This is Peter. It's something that we've talked about while we've been in this crisis. We've mentioned, "Listen, we've got a mountain of cash on our balance sheet that we can use when we have to, to restructure our debt or as needed", and some people listen to us and believed us and some people didn't. And that sort of we did, we used it, we think, at the time that we needed the cash and that's why we've been hoarding it these years because we want to be prepared for something like this.

[Justin B. Yagerman:]

Fair enough, and looks like it paid off. In terms of the pledging on the Baltic shares involved in the negotiation, does that prevent any further sell down or even M&A activity if you were to decide to buy Baltic in? How does that impact any decisions that you could make with your ownership on a go-forward basis?

[John C. Wobensmith:]

I don't think it affects it. It's a pledge, just -- it's a security interest.

[Justin B. Yagerman:]

Okay, so you would have to -- if you decided to sell that one, you'd have to then replace that collateral with something else?

[John C. Wobensmith:]

No.

[Justin B. Yagerman:]

Okay. And lastly, on the demand side, we're getting increasing reports of a poor harvest in North America as we look at the crop expectations through the back half of the year. How big a factor do you expect that to be? And how are you guys thinking about that as you bake that into your outlook for the back half?

[John C. Wobensmith:]

No. I mean, look, it all has some effect on the Panamaxes and the smaller ships. I don't think it's -- I mean, grain only makes up 11%, right, of overall shipping demand, and as you're aware, there aren't huge growth rates in grain. So I think, a little bit of a factor but I'm concerned about it.

[Operator:]

[Operator Instructions] We'll take our next question from Christian Wetherbee with Citi.

[Unknown Analyst:]

This is Seth Larry [ph] in for Chris. If I could just start off, I'm just trying to get some clarity in your presentation, the pro forma cash number, the $99 million, I just want to clarify, that's pro forma for just about everything that's due within the next 2 weeks, right? That's after the amortization, after the upfront fees? There isn't any other, I guess debit we need to subtract from that number going forward, it seems like you set yourself up right at that $100 million cash level where any operating cash flow going forward may go to debt paydown, is that the best way to interpret that?

[John C. Wobensmith:]

Yes, if you take the starting point of $255 million, as we said on July 2, we made our scheduled $48 million amortization payments in DMB, $100 million in prepayments under the credit facility amendment, there were $3.6 million upfront fees related to those credit amendments and then you take out $4.4 million for Baltic and you come up with the $99.6 million.

[Unknown Analyst:]

Okay, got you. And then also I guess I was wondering and I apologize if this is in the SEC documents, but outside of the class B shares that you pledged from Baltic, is there any other type of cross collateralization as far as that in the amendment or is it just the shares?

[John C. Wobensmith:]

I'm not sure if I understand your question.

[Unknown Analyst:]

You just -- the class B shares, or your shares for Baltic that you had to pledge, that's the only pledge as far as your holdings? There isn't any other type of cross collateralization or...

[John C. Wobensmith:]

You mean with Baltic specifically?

[Unknown Analyst:]

Yes, with Baltic specifically.

[John C. Wobensmith:]

No, absolutely not. No. Baltic it's run, obviously as its own separate company so and it has its own credit facility.

[Unknown Analyst:]

Okay. And then I guess as we go forward from this point further on, does it make sense in your eyes to potentially do equity down the line? And I guess I know equity -- I know you just got the steel done but would it be possible to negotiate with your lenders similar to your February offering where if you raise x number of equity, you could reduce the fee on your facility. Would you see that scenario playing out at any point before 2014 when the amortization picks back up or what's your thoughts on that?

[John C. Wobensmith:]

We just got this done. So we have this and now we can sit down after a little bit of a breather and figure out what's next.

[Unknown Analyst:]

Okay. Last one is as we see some shifts, I think as Justin noted in certain lanes, have you seen any redeployment of assets across the lanes? I mean do you expect a large shift from the smaller vessels deployed in the grain lanes over to maybe coal? Anything noticeable that you've seen?

[John C. Wobensmith:]

You mean substitution of ships?

[Unknown Analyst:]

Yes.

[John C. Wobensmith:]

No.

[Peter C. Georgiopoulos:]

No.

[John C. Wobensmith:]

Nothing of note.

[Operator:]

We'll go next to Earl Stir [ph] with Clarkson Capital Markets.

[Unknown Analyst:]

Good news on the credit stuff grade. I wanted to see if you guys might able to give any insight as to the iron ore markets these days. We've seen some increasing iron ore inventories in China and relatively high day capacity there, what's your insight on that market at this point in time? When do you think you might see some pickup in listings on the iron ore side?

[John C. Wobensmith:]

A couple of things. I mean, one, this is typically a slow time of year for iron ore. So we have to use that as a starting point. Having said that, the inventory numbers are off the highs of approximately $102 million. We saw the inventories drop this week over last week. I think what's interesting and what I'm hopeful in setting up here is if you look at the price differential right now between Chinese domestic ore and imported ore, it's actually fairly significant. And I think you are going to see imported ore displays Chinese ore more and more going out into --

[Unknown Analyst:]

And the imported ore is of a higher quality, correct?

[John C. Wobensmith:]

They are absolutely of a higher quality and what I think could be interesting next year is you have, as we've pointed out, a lot of capacity coming on for additional iron ore. And I think Fortescue alone is 100 million tons coming out into the market. What I think could happen is you could see the price of iron ore be pushed down even further because of the increased volumes which would really open up the gap further. And Chinese domestic iron ore could be displaced significantly. And that coupled with increased demand, you could see some pretty significant growth rates in imported ore.

[Unknown Analyst:]

Right. Just think and it's probably in the documents, but thank you for the insight on the iron ore. It's probably in the documents, but on the cash sweep is that and then forgive me if you did say this, is that on straight up operating cash flow?

[John C. Wobensmith:]

It is cash on the balance sheet measured at the end of each quarter. So to just put it simply, if we have $150 million in cash at the end of the quarter, $50 million of it would be swept and 75% of that would be applied towards the next scheduled amortization payment which is March 14 and 25% to the balloon.

[Unknown Analyst:]

Okay. Great. Maybe possible if can give me a call offline just to make sure I'm calculating it correctly?

[John C. Wobensmith:]

Yes. I mean, Chris, it's like I said, it's very straightforward.

[Unknown Analyst:]

Yes, it looks very straightforward. I just don't want to screw it up.

[Operator:]

Ladies and gentlemen this does conclude today's Genco Shipping & Trading Limited Second Quarter 2012 Earnings Conference Call. We appreciate your participation and you may now disconnect.