Global Ship Lease, Inc.
Q2 2013 Earnings Call Transcript

Published: 14 Aug 2013

[Operator:]

Good afternoon, ladies and gentleman and welcome to the Global Ship Lease second quarter 2013 earnings conference call. Today's conference call is being recorded. On today's conference, the speaker's will be Ian Webber, Chief Executive Officer and Susan Cook, Chief Financial Officer. After the prepared remarks, a Q&A session will follow and instructions will be given at that time. I would now like to turn the conference over to your speaker for today, Ian Webber. Please go ahead, sir.

[Ian Webber:]

Thank you, very much. Good morning everybody. Thanks for joining us today on our second quarter call. I hope that you’ve been able to look at the earnings release that we issued earlier on and been able to access the slides through our website. Slides one and two as normal remind you that today's call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company’s control. Actual results may differ materially from these forward-looking statements due to many factors including those described in the Safe Harbor section of the slide presentation. We also draw your attention to the Risk Factors included in our annual report on Form 20-F, which we filed in April 2013, which you can access via our website or via the SECs. All of our statements today are qualified by these and other disclosures in our reports filed with the SEC. We don’t undertake any duty to update forward-looking statements. Finally, for reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning which is also available at our website, www.globalshiplease.com. As usual, I will start by reviewing the second quarter highlights. We will then talk about fleet, including the successful re-chartering of our two 4,100 TEU vessels in May. Then I will offer some industry comments and specifically talk about CMA CGM. Susan will then comment on our financials. After some brief concluding remarks, we will take questions. Slide three shows the highlights for the quarter. We are now fully chartered; fleet continues to perform as expected generating strong and consistent cash flow. With fleet utilization close to 100% from negligible off-hire, we reported adjusted EBITDA of $22.9 million from revenue of $35.9 million for the quarter. We used that cash flow to continue to delever by paying down nearly $11 million of debt making for a total repayment of nearly $200 million since we started repaying debt in the fourth quarter of 2009. At June 30 of this year, our ratio of net bank debt to last 12-months adjusted EBITDA continues to be less than 4 times at 3.9 times. The new one-year charters on the two 4100 TEU vessels at $7000 a day, which we mentioned on last quarter's call, came into effect in the quarter, thereby maintaining an uninterrupted revenue stream supporting $45.1 million of adjusted EBITDA in the six months and $25.6 million of debt repayments in that period as well. Turning to slide four. This summarizes our financial results since we commenced operations in the first quarter of 2008. Notably, we have delivered consistent results from our long-term fixed-rate time charters despite the volatility in the spot charter market for many of the past several years, which volatility is illustrated by the time charter index at the top of the page. As highlighted on the slide and as a direct result of the successful execution of our business model, we continue to generate robust performance throughout the cycle posting solid revenue adjusted EBITDA, operating income and utilization quarter-on-quarter. I reiterate a point that we have made in the past since growing our fleet to 17 vessels and until the two recently re-chartered 4100 TEU vessels came off their initial charters. The only quarterly fluctuations that we had experienced have really been due to days off-hire for planned dry-docking which is a regulatory requirement and is thus unavoidable. Indeed, as there were no dry-dockings in second quarter of 2013, which helped us achieve almost 100% utilization as I had mentioned. We have got two vessels which were docked in the first quarter and we have got one further vessel scheduled to be docked in the fourth quarter of this year. Although she may be pushed back into early 2014. Turning to slide five. We have seen this before. It's an overview of our fleets and chartered portfolio. The average age of our fleet is just over 9 years now, out of an economic life of 30 years. And we still have an average remaining term of seven years on our charters, and that represents a contracted revenue stream of just about $1 billion spread over those seven years. This strong contracted revenue stream together with our stable and reasonably predictable cost base, provides us with stable and visible cash flows into the future. With the new one-year charters on the two 4100 TEU vessels, we completely eliminate our exposure to the spot market for the next year or strengthening our ability to operating successfully in a challenging rate environment. Beside these two vessels, which currently represent under 4% of our total revenue, we have no charter expirations until late 2016. Slide five highlights deleveraging of the balance sheet and shows some of the principle terms of our credit facility. The two main points to take away from this slide are, that firstly we have paid down about a third of our debt, $200 million of the maximum borrowing of $600 million, since quarter three of 2009. And secondly, the waiver that we have from our bank group for the loan to value covenant continues until December 2014, insulating us from the volatility in asset values that we see in the current market whilst allowing us to utilize our cash flow to continue to reduce our debt. Now a few words on the market. We have included four slides similar to previous calls, which as the overall message is little different from previous times, I’ll cover quickly. Looking at overall supply and demand, a more granular look at demand by trade region, the order book, idle capacity, and some comments on line of sectors performance including CMA CGM. Slide seven shows the overall supply and demand fundamentals for the last 13 or so together with world GDP growth and the Time Charter Index. Estimates for demand growth for 2012 now stand at 3.2% with supply growth at 4.9%. So an excess of supply growth over demand growth. And that seems likely to repeat itself in 2013 where our current forecast for supply growth of 6.1%, which is actually a little lower than when we spoke to you last time, but continues to exceed our forecast demand growth at 4.7%. Which is also down on the forecast that we discussed back in May. Now the supply growth forecast of 6% or so doesn’t take account of slow steaming or idle capacity, fluctuations in idle capacity. So the differential between supply growth and demand growth will probably be less than the headline figure. And it obviously varies from trade lane to trade lane and vessel size, segment to vessel size segment which we have discussed before. Nevertheless, the economic fundamentals for our industry for 2013 seem likely to remain fragile. It's worth reminding you, as I am sure you already know. However, that our business model including significant locked-in revenue based on long-term contracts protects us from volatility in the short-term market and allows us to deliver highly visible and robust cash flow. Slide eight drills down a little bit into the different trades. As before and not surprisingly, it's the emerging markets which support the individual trades which continue to make these the fastest growing segments. These in aggregate represent the majority of global container trade at 70% of total trade. And show demand growth forecast of around 6% in aggregate compared to only 2% or so for the main arterial trades. And it's these smaller trades that typically employ the mid-sized and smaller vessels. And whilst this class of vessels like the industry overall is currently in oversupply with idle capacity, the order book for these ships is relatively modest which is shown on slide nine, with mid-sized and smaller ships representing -- the order book representing only about 10% or less of stand-in capacity. Slide nine also shows that the overall order book is 19% of stand-in capacity, which is at a ten-year low. And as before, this obviously remains heavily skewed towards the large container ships at 10,000 TEU and above which will be destined for main east-west trades, notably Asia and Europe and the transpacific. We also note on this slide, slide nine, that despite the cascade and the short-term excess of smaller and larger vessels, that the small and mid-sized vessels are likely show shortages particularly in the geared sub-segment due to the modest order book, current high levels of scrapping activity. 450,000 TEU, may be 3% of the total fleet, is expected to be scrapped in 2013. And exposure to faster growing trade links. For the same reason of small orderbook, we think that the new eco designs won't have much of an impact on this fleet, the mid-size and smaller fleet, in the near to medium term as there will be simply too few of them to have any serious effect on the market. Meanwhile, because of the overall excess of supply of capacity, we expect charter rates and asset values to remain under pressure. Moving on to slide ten, which looks to freight rates and industry's financial performance, which also should be affected by excess capacity. Freight rate data are included on this chart. It goes up to second quarter, while financial performance data lags, it only includes up to the first quarter due to the delay in reporting financial results from most liner companies. But I think they need to come through for the second quarter now. You will see that when freight rates generally remain under pressure, the charter on the left. That was a marked improvement in rates on the key Asia-Europe trade during the second quarter. Although these rates remain at less than half of those perhaps a year ago, which has prompted lines companies to implement another series of significant general rate increases and peak season surcharge. It remains to be seen as to how effectively is it going to be, although it's interesting to note, and this isn’t on the slide, but it's interesting to note that Drewry's World Container Index for a composite of the east-west treads is currently at around $2100 per FEU, forty foot equivalent unit. Which is up some 40% or so on a low of about six weeks ago. That’s encouraging. The chart on the right hand side shows the developments of the larger liner companies operating margin since the first quarter of 2009. Most recently and perhaps as expected, given the seasonal slowdown combined with uncertain global economic conditions, the seasonal slowdown being quarter four and quarter one, the average operating margin of the 18 or so liner companies that are included in this data declined from a loss of 2% in fourth quarter 2012 to a loss of 4% in first quarter 2013. CMA CGM, which is of particular focus for us for obviously reasons, continues to outperform with positive operating margin of 5.1% in the first quarter. And we look forward to hearing their second quarter results. Continuing on CMA CGM, as I am sure you know, they have closed on $250 million of new equity from Yildirim, the Turkish Group, and from FSI. They have also received the proceeds of €400 million from the sale of their terminal link business, ports and terminals. They have also negotiated a covenant package with lenders which is more consistent with the industry's inherent volatility. All of these factors, notably the improved liquidity from new equity and from the sale of terminal link, have contributed to a notch up by Standard and Poor's in July such that CMA CGMs corporate is now single B, continuing with a positive outlook. Closer to home, we continue to pay our charter hire in full, now only period of hire is outstanding and that was due on first of August. Before turning the call over to Susan, I would like to discuss the process that we have got underway which we have referred to before, as to explore opportunities to increase the company's financial flexibility with the goal of being in a position to add a growth component to our business model and to be able to reinstate a dividend. Both of which would enhance shareholder value and complement our success in delevering the company. Firstly, as we talked about on the fourth quarter call in March, in light of our predictable cash flow waiver until December next year from loan to value, the improved credit position of CMA CGM continues to outperform their peers. And positive credit markets in the U.S., all of that were supportive for our decision to start a deep dive into looking for a capital markets solution to see if we can enhance flexibility. Since then and as we mentioned on the last quarter's call in May, we have been actively pursuing a solution to improve our capital structure on favorable terms that will be acceptable to all constituencies and best serve the interests of our shareholders. We proactively approached our lenders to establish terms on which we could obtain a suitable amendment of the credit facility to allow for increased flexibility going forward. We have been working with the eight members of our bank group and our agent bank and that dialog continues. Bringing together the views of eight different lenders is, as you might imagine, a time consuming and methodical process. Whilst this process is being completed, we continue to monitor the current state of the capital markets, we continue to develop the other strengths that are necessary to support a successful recapitalization. And then taking into account any views that CMA CGM might have as our shareholder and sole customer, our objective is to present a detailed proposal to our board for approval, and the board remains highly supportive of our efforts to revitalize the company. While I have given you an insight into the process that’s taking place and I assure you that this remains a top priority for Global Ship Lease, we are not in a position to predict the outcome, let alone terms or timing. And to remind you, the base case of generating substantial cash flow of our long-term charters remains intact. We will remain disciplined. Whatever capital market solution we arrive at, if in fact a solution on acceptable terms is achievable, needs to be one that creates long-term value for our shareholders. In the meantime and as I have just referred, we continue to create value by deploying our contracted cash flow to delever the company's balance sheet. I would now like to turn the call over to Susan.

[Susan Cook:]

Thank, Ian. Please turn to slide 12 for a summary of our financial results for the three months ended June 30, 2013. We generated revenue of $35.9 million during the second quarter owing to our fully chartered fleet of vessels. This is down $3.4 million from revenue of $39.2 million for the comparative period in 2012. The decline in revenue is due mainly to reduced revenues for two vessels following charter renewals at lower rates of the initial charters expired in September 2012. And this was offset by less off-hire, mainly from reduced levels of planned dry-docking. Utilization was 99.9% for the quarter compared to 98.6% in the same period of 2012, as we experienced only 1 day of hire. We have only one more dry-docking scheduled for 2013 or which, as Ian mentioned earlier, may be pushed forward to early 2014. And this will have a positive impact on off-hire days in revenue for the remainder of the year. Vessel operating expenses were $11.6 million for the three-month period and the average cost per ownership day was $7504, up $175 or 2.4% on $7329 for the rolling four quarters ended March 31, 2013. This increase in spend is mostly on crew costs, repairs, maintenance and supplies. Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended June 30, 2013 was $4.8 million. The company's borrowings under its credit facility averaged $410.9 million during the second quarter. The average amount of preferred shares outstanding throughout the period was $45 million, giving total average borrowings of $455.9 million. Our derivative hedging instruments gave a realized loss of $2.9 million in the quarter for settlement of swaps in the period as current LIBOR rates are lower than the average fixed rates. Further, there was $5 million unrealized gain through revaluation of the balance sheet position given current LIBOR movements in the forward curve for interest rates. At June 30, 2013, the interest rate derivatives totaled $327 million, against floating rate debt of $445.1 million including the preferred shares. The total mark-to-market unrealized loss recognized as a liability on the balance sheet at the end of the quarter, was $25.1 million. Net income for the second quarter was $10.1 million, including a $5 million non-cash interest rate derivative mark-to-market gain. For the prior year quarter, net income was $7.5 million after $0.9 million non-cash interest rate derivative mark-to-market gain. Normalized net income adjusted for the non-cash items was $5.1 million for the quarter and $6.6 million for the comparable period last year. Moving to slide 13 and the balance sheet. The key items as of June 30, were cash of $31 million; total assets of $880.9 million, of which $838 million is vessels; total debt of $445.1 million including the preferred; and shareholders' equity of $384.1 million. In addition, and as I mentioned earlier, the balance sheet position of our interest rate swaps was a liability of $25.1 million. Slide 14 shows our cash flows. The main items to mention here are net cash provided by operating activities of $19.5 million in the second quarter, capitalized expenditure on dry-dockings in the period was $1 million. And we repaid $10.8 million of our credit facility as at the end of the quarter leaving us with an outstanding balance of $400.1 million. Finally, as Ian mentioned earlier, two new charter agreements with CMA CGM for our two 4,100 TEU vessels commenced on May 1. These new charters are for a period of one year at a rate of $7,000 per vessel per day, compared to the previous charter rate of $9,962. Based on the new rate, we expect a reduction in revenue and EBITDA of approximately $0.5 million per quarter. However, this will be offset by savings from the $253 million of recently expired swaps as well as from fewer planned drydocking during the rest of this year and the following two years. I would now like to turn the call back to Ian for closing remarks.

[Ian Webber:]

Thanks, Susan. I would like to conclude by highlighting a number of the company's core strengths and reiterating our current strategy and efforts to drive shareholder value. This is slide 15. First, our fleet remains fully chartered through April 2014 with no further expirations other than the two 4,100 TEU vessels until late 2016. With an average remaining term of 7 years, $1 billion of contracted revenue and relatively stable and predictable costs, we have significant visibility in to our future financial results despite current market conditions. This is a significant strength when we are looking at recapitalizing the business. Second, we are now realizing the positive cash flow effects of both the $253 million of swaps which rolled off in mid-March this year, as well as the reduced drydocking schedule. Only one more drydocking is scheduled this year which as I mentioned earlier may be deferred into early 2014. Thereafter, two or maybe three, if the latter is deferred in to next year in 2014. So two or three drydocks in 2014 and none in 2015. Third, we're insulated from asset value volatility as a result of our waiver from loan to value until December 2014. Fourth, our business model continues to show strong and predictable cash flow which is a great platform from which to further delever our balance sheet and, as I mentioned, to consider capital market opportunities. We have no exposure to refinancing or financing obligations until late 2016 when the credit facility matures. Finally, and as I mentioned earlier, the process to increase our financial flexibility on terms that are acceptable to all constituents and that best serve our shareholders, is very much alive. It's being driven hard by management and the credit markets remain supportive. Our objective throughout this process remains to put ourselves in a position to add a growth component in our business and to be able to reinstate the dividend. Clearly, should we reach a satisfactory conclusion to the process, we will inform the market appropriately. That concludes our prepared remarks and I would like to hand the call back to the operator who can explain the Q&A process.

[Operator:]

(Operator Instructions) Your first question comes from Chris Snyder from Sidoti. Please ask your question.

[Chris Snyder:]

My first question is on the debt pay down. There was $10.8 million this quarter, down from like $14.8 million last quarter. And it seems like you guys could have paid more as the cash on hand increased $5 million quarter-over-quarter. Was there a reason for that and do you expect to pay more next quarter to make up that difference?

[Ian Webber:]

Chris, thanks for the question. It's a mechanical calculation as to how much cash we pay down. It's simply the balance of cash for the payments of the end of June, which is the one that’s included in these financial segments. It's the cash at the end of May that’s in excess of a fixed figure of $20 million. So we have $30.8 million of cash at the end of May. We simply paid down $10.8 million. Yes, we have got more cash now on our balance sheet. We could have paid down more debt if we wanted to. But we prefer to keep the cash in our balance sheet rather than hand it over to the banks early or earlier than we have to. As to what the repayment is going to be next quarter, it very much depends on working capital movements might be and if it would be [along] [ph] our major forecast. We are required to pay a minimum of $40 million in a year on a rolling 12-month basis.

[Chris Snyder:]

Okay. That’s kind of what I figured. My second question is, you know as we are kind of talking about all the active lease [supporting] [ph] opportunities and hence the financial flexibility. And I was wondering if you guys were leaning towards amending that current credit facility or introducing a new source of financing and pay down the existing facility with the new funds. Is there one way you guys are leaning?

[Ian Webber:]

Well, we keep our options open. Most likely, the sort of plain vanilla approach would be to raise some new capital and use that capital to pay down bank debt, existing bank debt in exchange for more flexible terms. Otherwise why would the banks change their position from what they have got today for you to be comfortable there collecting 40-50-$60 million of prepayments a year. So it would be a bit of both of what you said, renegotiating terms of the existing facility supported by some sort of new capital raise.

[Chris Snyder:]

Okay. And my last question real quick is, the $1 million drydock payments this quarter, that just had to do with the two drydocks last quarter?

[Ian Webber:]

Yeah, it would be the final payments for those two vessels

[Chris Snyder:]

Okay. That’s what I figured, because I know the first quarter payment was very low [for a] [ph] drydocking. That’s all for me. Thanks for taking my question, guys.

[Operator:]

Your next question comes from Mark Suarez from Euro Pacific Capital. Please ask your question.

[Mark Suarez:]

Just to go back on the rechartered vessels. Has spot rates have at all improved since [you locked in] [ph] in May or how is that -- how will you describe the market of the spot rates for those rentals right now?

[Ian Webber:]

They may have improved marginally depending on which (inaudible) you look at. A Panamax vessel, you might be able to earn $7500 or $8000 a day for them. We are earning $7000 which was the spot rate at the time. We are very comfortable with the one year extensions. We have explained before, I think that normally in a soft market you only agree as an owner relatively short charter hoping to capture an upswing later and improve rates. We were not confident that there was going to be a material upswing and indeed there has not been a material upswing. We were more concerned to secure employment, seamless employment for these vessels for a year or so, which is what we attained.

[Mark Suarez:]

So with that will you feel comfortable come April 2014 to maybe recharter them at lower than one year, maybe six months to one year kind of charter term?

[Ian Webber:]

I think we will have to see Mark what the conditions are near at that time. Impossible to say.

[Mark Suarez:]

Got you. And turning to [SNT] [ph] market for a moment. Which vessel segment, and I think you touched upon this in your remarks on the macro environment, which vessel segment do you see the most opportunities right now for attractive returns. I mean if you just look at secondhand prices are fairly attractive at the 10 to 15 year old vessels, sort of in the mid-size range. What is your view on of the vessel segment that you feel where you can actually get the most returns, where you see more attractive opportunities at this point?

[Ian Webber:]

Well you have sort of answered your own question, Mark. It is the mid-sized and smaller tonnage stock coming on to the market. It is mid-life, but some of it's younger than mid-life and some of it is older. Prices for 4250 and smaller vessels have firmed a little bit recently but not massively. You can buy vessels for a small premium to their scrap value. But the key is to secure employment for them. So cover the period of an anticipated downturn, to at least cover operating costs and then ride the cycle up. And that’s what we are seeing other owners who have got access to investment capital doing there. They are buying small mid-sized ships at the bottom of the market putting a relatively short term charter on and hoping to get significant returns from cyclical recovery.

[Mark Suarez:]

Got you. And how would you compare that with newbuilds right now? We heard talks that newbuilds parts are now again becoming very attractive. Would that be something that if you currently had the financial flexibility, you would go after or you are still leaning towards the second hand vessels here?

[Ian Webber:]

Well, you do need significant capital to commit to a newbuilding program. We do see opportunities to invest in both ends of the [inaudible] older tonnage, because you could pick it up [close to] [ph] scrap, and brand new ships to take advantage of the eco designs and all of the rest of it. Particularly combined with the factory pricing out of the yard. For us today it's probably out of the question because of the capital that’s required. We need to take some relatively small steps if we can recapitalize to grow the fleet by adding smaller ships, existing ships, to get earnings potential into the business immediately rather than commit to a newbuild program which you have to fund and you get no return on until the ships are built and go on to their initial charter.

[Operator:]

(Operator Instructions) The next question comes from (inaudible). Please ask your question.

[Unidentified Analyst:]

Firstly, as long-term investors we appreciate the increase transparency around some of the discussions you are having with your lenders. So thank you for that. I just kind of want to get your comments on what you are seeing in the capital markets and the environment there and any other details from the talks that you guys are having.

[Ian Webber:]

Sure. I mean we can comment generally. You all know probably far better than I do that the credit markets in the U.S. were red hot the first, probably five, maybe six months of the years. Our yields were at all time lows and I did caution people that because of the sector that we are in, we would be unable to take advantage of the 4% or 5% or 6% deals that some trades were able to achieve. As the market softens, as I am sure you know, in sort of June-ish, July, what we are hearing is that the market has once again strengthened. It's very supportive, not quite as hot as it was earlier in the earlier in the year. But we are trying to get ourselves in to a position with everything ready so that we can hit the market if it's appropriate immediately. Unidentified Analyst Okay. And then within the second quarter, there were two of your peers that came to the market with preferred deals. (Inaudible) with a $50 million preferred, that seven and five eights. And then a much smaller company Box Ships, came with like a 13 million, 9% preferred deal. Looking at your long-term cash flow profile, that fact that CMA CGM was recently upgraded by S&P, I would have to imagine that you are somewhere in between that. Is that what you are thinking or is that too early to....?

[Ian Webber:]

So I won't get into specifics on what we might be thinking be about because inevitably circumstances change and I don’t want to be sold off very low. Now what we do need to do is raise some new capital. We are not completely [at different] as the format would be, because it partly depends on how much we think we need that will help shape the instrument, because different instruments as you know have different capacities. We have looked at preferred, we have looked at convertibles, we have looked at high-yield, we have looked at equity, but let me reassure that we are not contemplating a massive equity issue to those margins. Unidentified Analyst Okay. That’s good to hear.

[Ian Webber:]

And in terms of yield, I mean in terms of [preferred deals] business, we don’t use it necessarily as an absolute benchmark but the closest comp for us, for the sort of unsecuritized money, is the CMA bonds. And it's great to see them trading in the 90s and their yield is 11% or so. Unidentified Analyst Okay. It seems like the biggest hurdle coming to us is, tell me, but it seems like it's a bank issue. Getting everybody in the same room together and making decision now. I know you probably can't comment on timing of when these discussions will start to become a reality, but is part of the hiccup right now because of the summer recess that a lot of the bankers in Europe are taking right now? Or what else is there that’s kind of holding you guys back a little bit?

[Ian Webber:]

I wouldn’t describe it as a hiccup. I mean it is taking longer than we have hoped. Like it or not, and it can be frustrating, I am sure it's frustrating for you. It's frustrating for us, this process in dealing with banks. And it's not just us, I am sort of talking generically here. And certainly it's our experience in previous discussions with our bank group and any discussions that we might be having now. It's a methodical process. It's a dialog between us and our lenders. We think we have got great relationships. We have performed on the loan. We are a good borrower and now we are trying to leverage that relationship combined with an offer to them to achieve flexibility. So we have to start with the banks here. And as I say, it is methodical, it is extra tiff, and it simply takes time. And for some of the things that we would like to achieve, we need 100% bank group support. It's not majority consents here. So we need all of the banks on board. And to you point, yes, most recently progress has slowed down. It's continuing, let me assure you of that. But progress has slowed down because of people absent, on vacations. It's not GSL management, we have been here all the time. But we have to accept that there are folks who need a break and if people aren’t around then the rate of progress does slow down. I would say that in parallel with all of that, we continue to develop the other strengths that we need to have in place for a successful capital raise. And then whenever things come together we will put a proposal to the board, hopefully the board will agree to it, take into account CMA CGMs views and then we are off to the races. Unidentified Analyst Along those lines, the discussions with CMA CGM, is this something that they may be wanting to participate in as far as funding. It seems like it would be a no brainer for them given their stake within your company and they also benefit from a higher equity price.

[Ian Webber:]

Well, I wouldn’t want to comment on any specific discussions we are having with any potential investor, whether they are insiders or not. What I can say is that CMA CGM, as you would expect, are very keen to see a revitalized GSL. Unidentified Analyst Okay. And just lastly on kind of how you are thinking about growth going forward. I believe you said you would be looking probably more at second hand tonnage when that kind of comes. Would it be fair to assume that you guys do pursue growth opportunities, these would be accretive to your earnings and cash flow going forward on any deal that you may have. Because it sounds like you are going to be doing a short-term -- if you were to buy ships, you would fix them on a short term and want to benefit from the rising rate environment in the coming years.

[Ian Webber:]

Yeah, that’s absolutely right. We wouldn’t invest in tonnage if we didn’t expect to make sensible return over time. Because of the way the spot markets working at the moment for mid-size and smaller ships, we would hope to charter revenue that would cover the costs. And so in the near term we would be sort of EBITDA neutral. But if you believe in a cyclical recovery, which we do. We believe that the special sized segment, mid-sized and smaller, will be in short supply in, I don’t know, through 18-14 months because of the combination of better demand growth and lower supply growth, exaggerated by scrapping of the tonnage today for purely economic reasons as owners don’t have the cash to hang on to the vessels. We believe that the cyclical recovery, and other owners do as well, because they are sitting on money in this sort of tonnage. We believe that the cyclical recovery will come more strongly for that vessel size segment than others.

[Operator:]

You have a follow-up question from the line of Chris Snyder from Sidoti. Please ask your question.

[Chris Snyder:]

There is a question about your (inaudible) last time. So now that you guys, the interest rate swaps start rolling off -- I don’t know if it's too early to think about this, but have you thought about entering into new swaps. I know that it's LIBOR at very low, near historical lows, is that something you guys have thought about?

[Ian Webber:]

Yeah. We don’t spend every moment of every working day looking at or swap coverage. We are required to have 50% of our floating rate debt swapped out and we have got more than that right now. Pending a potential refinancing and pay down of bank debt, we are comfortable with leaving or swap portfolio as it is.

[Operator:]

That does conclude our conference for today. Thank you for participating. You may all disconnect.

[Ian Webber:]

Thank you very much. Thanks. We all look forward to talking to you in, likely November, for the third quarter. Thank you.