Navios Maritime Holdings Inc. (NM-PG) Q3 2012 Earnings Call Transcript
Published at 2012-11-20 15:25:03
Angeliki Frangou - Chairman and CEO Ted Petrone - President Ioannis Karyotis - SVP, Strategic Planning George Achniotis - Chief Financial Officer
Natasha Boyden - Global Hunter Urs Dur - Clarkson Capital Markets
Good morning. And thank you for joining us for this morning’s Navios Maritime Holdings Third Quarter 2012 Earnings Conference Call. With us today from the company, are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; SVP of Strategic Planning, Mr. Ioannis Karyotis; and Chief Financial Officer, Mr. George Achniotis. As a reminder, this conference call is also being webcast. To access the webcast, please go to the Investors Section of Navios Holdings website, www.navios.com. The copy of the presentation referenced in today’s earnings call can also be found there. Before I review the structure of this morning’s call, I’d like to read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Holdings. Such forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Holdings filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in the call. Thank you. The agenda for today’s conference call is as follows. First, Ms. Frangou will offer opening remarks, next Mr. Petrone will provide an operational update and an industry overview, next Mr. Karyotis will go through an overview including recent financials for Navios South American Logistics; then Mr. Achniotis will review Navios Holdings financial results. Lastly, we’ll open the call to take your questions. I’d now like to turn the call over to Navios Holdings Chairman and CEO, Ms. Angeliki Frangou. Angeliki?
Thank you, Laura, and good morning to all of you joining us on today’s call. We are pleased to report our results for the third quarter of 2012. We had a solid quarter in a market environment that continues to be challenging. We have therefore focused undoubtedly control, the efficiency of our global fleet in respective to our balance sheet. As a result, we can continue to return capital to our shareholders through dividend payment and declare efficient dividend for the third quarter of 2012 to shareholders of record on December 18th. Slide two shows our current corporate structure. The value of Navios Holdings primarily derives from four areas, the drybulk fleet within Navios Holdings and three principal operating subsidiaries. The growth continues to be valid at less than the sum of its parts. As you can see the value of Navios Holdings interest in the two publicly released subsidiaries is $2.76 per share, the market value of the remaining two businesses at only $0.80 in total. Navios Holdings core fleet drybulk consists of 49 vessels in the water. This fleet has charters with creditworthy counterparties, as (inaudible) growth of certain charters should continue to provide great comfort to all our stakeholders. The value of Navios Logistics is also growing. We have an experience management team addressing the market opportunity. Together we have transform Navios Logistics into a key provider in the Hidrovia Region of South America. Ioannis Karyotis will address Navios Logistics results in further detail later. The opportunity in South America is large as it has been for us. As you have now seen from our press release Navios Holdings entered into restructure agreement with its credit default insurer. We will view this as this business developed. As of now, as there is no terms to show accounting the credit default insurance company involved as it become to gradually exist the insurance business in the maritime space. We believe that the message now is that Navios Holdings is strongest post the restructuring, as Navios will receive upfront payment cash payment and enjoy market upside from the vessels relating to defaulted charters. We would not have had either of these advantages under the old insurance regime. I also wanted to note that in the current low charter rate environment it is not nicely that we review credit default insurance for a new charter. Instead, we will internally monitor a chartering risk of defaulted charter directly through the charter market. Slide three summarizes the strength of the restructuring insurance. Navios Holdings will receive the $175.4 cash payment, from this amount $164.4 is attributable to defaulted chartered from which Navios would have received payment over here by certain payment to date in lump sum as opposed to a lengthy period under the specific insurance agreement, we estimate that we’ll received a net cash benefit of almost $26 million. I also wanted to note that a part of those cash compensation included $11 million. This amount was not attributable to any defaulting charters, but essentially an associated economic benefit to Navios Holdings. Turning to the second line of the restructuring, we covered the revenue of $41.2 million of credit default insurance covering Navios Holdings charter revenue. The terms of this insurance pretty much nears the terms of drawing insurance on the related charters. The table on the bottom of the slide resummarizes exchange in a credit default exposure. On the default insurance policy, we will incur $207 million of credit default insurance coverage. In drawbacks, the elements of this restructuring insurance agreement, you can see that in fact, we had more than 100% of this coverage on loan. Turning to slide four, we wanted to elaborate on the benefits to Navios Holding over restructuring the credit default insurance. First, we now have an upside, is a market upside potential from the defaulted charters. Previously, Navios Holding rechartered vessels was revenue on charter defaulted to the extent that the vessel is not impacting cuts, for an amount greater than the second day mitigation rate. Only upside payment will not be repaid at Navios Holdings. These rates are shown at $15,000 per different Capesizes, $10,000 for Panamaxes and $8,000 per day for Ultra Handymax vessels. There is a significant potential upside from retankering profit occurred to Navios Holdings, we received an undiscounted cash payment to its structure of credit default insurance. Navios Holdings estimate, as we’ll earn annually $3.4 million from every $1,000 per day and (inaudible) rate. I also wanted to address the potential insurance payment by Navios Holdings similar to restructuring. Our restructuring process at Navios Holdings consider during the other restructuring insurance in Navios Partners. We did have a significant commitment in Navios Partners. And in the last investment in Navios Partners, we felt that it is important to provide assurances to the existing cash flow of the entity As a result, we are due to provide insurance in a number of charters, including $76.7 million in charters revenues, provided that the maximum cash payout of this benefit will not exceed $20 million. The terms and conditions on this policy are about identical to the terms and conditions of the old policy. Now, turning to slide five, we will provide some credit analysis on this charter, underlines the continuos coverage from the calibrated credit default insurance providers. As you can see, 100% of the charter revenue is covered by the insurance is investment grade by the respective reacting agent. Slide six shows our strong liquidity position. On the basis of capitalization, we are 49.7% today and in the third quarter, reflecting 112 basis points, reduction in the nine months since the end of 2011. We have liquidity of $243.4 million and have reached a $173.4 million with cash. Moreover, in the pro forma of our balance sheet, our net cash position from our credit default insurance restructuring, the net debt to capitalization ratio falls by 680 basis points or 13.7% to 42.9%. This reflects a 62% increase in pro forma liquidities to $395.5 million and an 88% increase in pro forma accounts to $325.5 million. As demonstrated on slide seven, we believe that we are in a strong competitive position. Our balance sheet was strong again in the third quarter, and is further enhanced by the cash payment from the credit default restructuring and repayment of debt. This has also has substantially reduced our cash break-even. As it is indeed difficult to address the market focus on the expense side, it is somewhat break-even. The restructured credit default insurance will include a Navios Holding repayment by 12% or $6 million (inaudible). We also continued to raise the bar in operational performance as we shift to reduce operating costs. Our cash break-even costs are 10% lower in 2011 and 17% low in 2010. Looking at our revenue coverage, we can see that we only have 288 open days for the balance of 2012. We will end 2012 with $1,000 dollars as revenue for $1,000 loan per day. As shown in the revenue line, $12,000 per day, we will generate another $3.5 million of free cash flow. In terms of our competitive position, which is follows, we believe that we’re a preferred commercial partners for industry participants. Our balance sheet is strong and we have demonstrated a historical ability to enrollment to honor our commitment such as handling threshold commercial vessel, understand that they can engage with that with the concept that we can provide reliable sales. Charter, in terms of long-term contract with a security that we have 900 technical non-commercial issues. Suppliers can provide equipment in this business even as expanding (inaudible) supplies, cellphone fixation for their growth and transitions. Slide eight sets forth Navios cash break-even after they restructured credit default insurance. Turning first to the cost side of the equation, we have a cash break-even of $15,933 per day for 2012. This reduces to $15,751 in 2013. Our revenue per day adjusted for the $175 million insurance payment is $18,907 in 2012 and $18,688 for 2013. Navios Holdings are 98% of our available base for 2012 fixed. So we effectively know that we’ll create substantial cash flow in Navios Holdings of fixed 34% for 2013. If you refer to the chart that recognized on the slide you can see that using the numbers of page fifth under baseline, Navios Holding is $113 million short of break-even. However, we have accelerated charters revenue for 2013 and beyond and a lump sum payment of $175.4 million. This was part of our contracted revenues that we have presented to you overtime, with significant cash resources our financial position for 2015 is $230 million excess. And we have 9,880 base open for 2013. That assuming a market of about $12,000 per day will create an additional $118.6 million. I wanted to remind business in this environment will include all operating expenses drive both (inaudible) expenses for our charter and fleet we made within credit default insurance fees as well as interest expense and capital repayment. I also wanted to say that we provide this conservative analysis to demonstrate that we are confident of our future. At this time, I’d like to turn the call over to Mr. Ted Petrone, Navios’ President who will take you through Navios’ operations and our industry perspective. Ted?
Thank you, Angeliki, and good morning all. Please turn to slide nine. Our long-term core fleet consists of 49 vessels totaling 5.1 million deadweight. We have 25 vessels in the water with an average age of 5.8 years. Please turn to slide 10. Post restructuring agreement with our credit default insurance, Navios’ average charter out rate for its core fleet is $18,907 a day for 2012, $18,688 a day for 2013, and $30,343 a day for 2014. 98% of Navois’ fleet is chartered out for 2012, 33.7% for 2013, 10.6% for 2014. As depicted in the left side of slide 10, dark blue portion of the bar represents pre-insurance restructuring levels. Differentials in the charter out rate and contracted day reflect changes as a result of the acceleration of the charter payments through the $175.4 million lump sum payment in the credit default insurance. This payment enhances our balance sheet and cash on hand. Please turn to slide 11. We enjoy vessel operating expenses about 23% below the industry average in all asset classes. Navios’ current daily OpEx is $4,387. The $1,285 daily savings per vessel in operating expenses aggregates over $14 million in annual savings which goes directly to our bottom line. Please turn to slide 12. In Q3, the supply of tonnage and continued economic weakness contributes to the BDI region of lowest quarterly average since 1998. IMF lowered world GDP forecast for 2013, the weaknesses in commodity demand should keep freight under pressure for the near future. Conversely, after having kind of three-year low, Chinese steel prices are showing signs of recovery and U.S. they decreased its forecast of cuts in grain exports, both bringing positive news for drybulk. Subsequent to Q3, in the vessel of recent trends, Capesize rates, market will improve in October as spot rates surged to a nine-month high of $18,288 a day in October 23rd. Lower iron ore prices have cut China’s domestic iron ore production, increasing Chinese import of substitution. In contrast, the Panamax and Handymax rates remain under pressure as a result of reduced U.S. and FSU grain exports and in iron ore shipments. Lower charter rate should induce more scrapping this year and into next year with an additional 11.6 million deadweight becomes 20 years old. Please turn to slide 13. Well, GDP continues to be driven by developing economies. Developing economies now contribute a higher percentage of total world growth in the developed economies, representing over half of the global consumption of most commodities. The IMF recently lowered its forecast for world growth to 3.3% for 2012 and 3.6% for 2013. Emerging economies are projected to grow at 5.3% in 2012 and 5.6% in 2013. The IMF now expects the Chinese economy to grow at 7.8% in 2012 and 8.2% in 2013. India’s economic growth is expected to be 4.9%, 2012 and 6%, 2013. Turning to slide 14, currently just over 50% of the world population resides in urban areas. As figures expected to grow to 67% by 2050, adding approximately 2.8 billion urban residents, with a large portion of urbanization occurring in that Asia-Pacific region. As you can see in the right hand side graph, growth income supports increased metal demand. The rising global incomes and the shift in the global economy towards Asia should support world growth trade by increasing movements of raw materials as shipping patterns adjust to the new global model. Turning to slide 15, crude steel production in China through October totaled 594 million metric tons or about 2% more than same period last year. China imported 609 million metric tons of iron ore through October about 9% more than same period last year. China have the right to pick estimated iron ore mining capacity from Australia and Brazil graph against the decline of domestic Chinese iron ore margin. Substitution import iron ore from low quality domestic production is already occurring as domestic production increased only 1%, imports have increased 9% year-on-year. Turning to slide 16, scrapping rights for older less efficient vessels has continued to accelerate through November 16. 30.5 million deadweight tons have been scrapped. This represents an annual scrapping rate of about 35 million deadweight or close to 6% of the fleet. The current rate environment should keep scrapping levels high as over 7.2% of the fleet is 25 years of age older and about 12.5% of the fleet over 20 years old providing about 84 million deadweight of scrapping potential. Moving to slide 17, non-deliveries continue to be a substantial part of the drybulk order book. Through October, non-deliveries amounted to 27%, newbuilding deliveries were 88.4 million deadweight against an expected 120.6 million deadweight. Later this and this year is expected to be about the same as 2011 but net deadweight growth should be lower after scrapping is taken into effect. Total order book declines dramatically in 2013 and beyond to about 50% of the fleet. Please turn to slide 18. We currently owned 25.2% of Navios Partners including a 2% GP interest. Navios Partners operates a fleet of 21 vessels, equaling 2.3 million deadweight with an average age of 5.6 years. Since its inception in 2007, Navios Partners fleet has grown by 261%. Please turn to slide 19. Navios Partners provides a significant cash flow to Navios Holdings. Since it starts of operations, Navios Partners has grown distribution by almost 27% and we received about $100 million in distributions from partners. In 2012, we expect to receive about $28.5 million in distributions. This is more than 100% of holdings expected annual dividend. Including Navios acquisition dividend, Navios Holdings receives over 137% of its expected annual dividend from its ownership in these two companies. Please turn to slide 20. We have an approximate 55% economic interest in Navios Maritime Acquisition. Navios Acquisition’s current fleet consists of 29 tankers totaling 3.3 million deadweight. Navios Acquisition currently has 19 vessels in the water with an average age of 5.2 years. We anticipate Navios Acquisition newbuilding program for product tankers positions them to take advantage on a favorable long-term industry dynamics. Please turn to slide 21. Company summarized on slide 21. Navios Acquisition has a large, modern and diversified tanker fleet worth more than a $1 billion. Navios Acquisition has long-term contracted revenue that is well above the company’s low operating break-even. This cash flow can sustain Navios Acquisition for a long period in distressed market conditions. Navios Acquisition has profit sharing arrangement in many contracts. These agreements limit the downside risk to the base rate and allows Navios Acquisition to enjoy the upside volatility. For example, year-to-date profit sharing has been triggered in all asset classes. This conclude my presentation. I would now like to turn the call over to Ioannis Karyotis, Senior VP and Strategic Planning. Ioannis?
Thank you, Ted. As you can see on slide 22 and 23, Navios Holdings own 63.8% stake in Navios South America Logistics. Navios Logistics has three segments all enjoying significant growth prospects. Our dry port in Nueva now has total static product capacity of 460,000 metric tons. 94% of fleet has been contracted this year for a period of five years. The construction of a second conveyor belt to double our vessel loading capacity is progressing and is expected to be completed in the first half of 2015. We have less expanded our Liquid Port Terminal in Paraguay, but now has totaled static storage capacity of 45,700 cubic meters, up from 35,600 cubic meters a year ago. In the bulk business, we have acquired one pushboat and six tank barges that we’re previously targeting for an annual cost of $1.7 million. As a result, our voyage expenses will be reduced significantly. Please turn to slide 24 to discuss the results of the third quarter and the nine months of 2012. We have a strong third quarter in which we accelerated our EBITDA growth. Overall, the revenue decreased by 6% compared to the same period last year to $65 million while EBITDA for Q3, 2012 increased to $15.2 million, 14% higher compared to Q3 of 2011. Looking to the segment, EBITDA of port terminals in the third quarter increased by 66% to $6.9 million, a result of increased volumes and higher tariffs mainly attributed to the new contracts in our dry port in Uruguay. The 18% decrease in revenue in a quarter is attributed to lower finished products in our liquids port in Paraguay and low margin activities [that develop] low impact on EBITDA, but can effect revenue. Revenue in the barge business increased 4% and EBITDA expanded more than six times to $4 million, from $0.6 million in the third quarter of 201, mainly due to the expansion of the barge fleet with three additional add on our components. Cabotage business reported 6% increase in revenue while EBITDA decreased by 44% to $2.3 million from $4.1 million in the third quarter of 2011, mainly due to off hires of certain vessels. Interest expense and finance cost net were $5.1 million in both the third quarter of 2012 and 2011. Depreciation and amortization expense increased to $7.2 million as compared to $5.5 million in Q3 2011. Our net result for the quarter was a net income of $0.9 million compared to a net loss of $1.5 million in the expected period last year. Turning to the nine month period ended September 30, 2012, revenue increased by 12% compared to the nine months of 2011 to $188.4 million. EBITDA grew 29% to $37.2 million, driven by the port terminals and the barge business segments. Interest expense and finance cost net were $16.2 million compared to $11.3 million in the nine months of 2011 due to the interest expenses generated by the senior notes issued in April 2011. Depreciation and amortization expenses increased to $20.1 million from $16.6 million in the nine months of 2011. As a result, net income was $0.9 million compared to $1 million in the same period last year. Please turn to slide 25. Slide 25 provides selected balance sheet data as of September 30, 2012. Navios Logistics had a strong balance sheet. At the end of Q3, cash and cash equivalents were $59.6 million compared to $40.9 million at the end of 2011. Net debt to book capitalization was 30% down from 35% at the end of 2011 and still conservative overall. Now, I would like to turn the call over to George Achniotis, Navios Holdings' Chief Financial Officer. George?
Thank you, Ioanni and good morning all. Please turn to slide 26 for a review of the third quarter and then my financial highlights. I would like to draw your attention to the talk of viability if I possess. We are presenting the consolidated results of 2011 on a pro forma basis to exclude the results of Navios acquisition, which was deconsolidated at the end of Q1 2011. Despite a 45% year-on-year reduction in WDI, depreciated [a ship] in the quarter, reduced by 18% at $18,785/- per day well above the market. This is a reflection of our food and traffic strategy over the past few years. Despite the 18% reduction in the [SEC rate] rate, EBITDA for Q3 reduced by less than 10% to approximately $61 million compared to $67 million in the same period last year. The reduction was partly mitigated by 13% increase in the available base over the fleet, due to the delivery of (inaudible) and chartering vessels and a 48% increase in the EBITDA contribution from Navios Logistics that Ioannis discussed earlier. Net income for the period reduced from $16 million in 2011 to about $5 million in 2012. The reduction is mainly attributable to the reduction in EBITDA, higher depreciation due to the increase of the on fleet in both Navios Holdings and Navios Logistics and in fact interest expense following the insurance of the $88 million add-on to the 2017 secured bond in June. Turning to the highlights of the results for the nine-month period ended on September 30, EBITDA was adjusted for 2011 and 2012 to exclude the effect of certain one-off items, primarily from the drop down of vessels and its partner. Expenses relating to the bond extinguishment in January of 2011 and a non-cash accounting loss on the deconsolidation of Navios acquisition in Q1 2011. Adjusted EBITDA decreased by approximately 8% to $184 million from $200 million in 2011. Similar to the quarter year result, the main reason for the decrease was the attachment and the TC rate achieved in the period, and that was mitigated by how [many] renewal days in the fleet. A significantly higher EBITDA contribution from Navios Logistics. Net income for the nine months of 2012 and 2011 was also affected by the one-off items discussed earlier. Excluding the effect of these items adjusted net income for the nine months through September 2012 decreased to approximately $19 million compared to $48 million 2011. The decrease is mainly attributable to a decrease in EBIDTA and increase in interest expense into the new bonds issues by Navios Holidngs and Navios Logistics and the higher depreciation due to the increase in the number of old vessels and barges. Please turn now to slide 27, where the balance sheet highlights are presented. The cash balance as of September 30, 2012 was $163 million compared to about $177 million at the end of December 2011. The balance will increase substantially following the $175 million lump sum cash payment to be received as part of the agreement for the restructuring of the credit default insurance. Long term debt including the client portion reduced significantly from $508 million at the end of December 2011 to $353 million at the end of September 2012. The reduction is in line with our status strategy to delever and strengthen the balance sheet in order to be able to whether the current distressed market and take advantage of distressed transactions that may become available. Senior notes increased by $88 million since the year end, following the issuance of the add-on to the 2017 secured senior notes in June 2012. Despite the prolonged periods of depressed rates and vessel by using (inaudible) market and net debt to book capitalization of insurance reduced to 49.7% from 50.8% at the end of December 2011 and it further reduced due to the restructuring of the credit default insurance. Finally I would like to note that we were in compliance with all our debt covenants at the end of the quarter. Turning to slide 28, the Company continues to pay an impressive dividend to shareholders. A dividend for the first quarter of 2012 or $0.06 per share was declared to common shareholders as of December 18, to be paid on January 4. This represents a dividend yield of 6.7% based on adjusted share price. I would also like to point out that the total annualized cash dividend inflows from our ownership in Navios Partners and Navios Acquisition is approximately $34 million. This exceeds the annual dividend paid out by Navios Holdings by over $9 million. This concludes my review of the financials. At this point I will turn the call back over Angeliki for the closing remarks. Angeliki?
Thank you, George and we open the call to questions.
(Operator Instructions) Your first question comes from Natasha Boyden of Global Hunter.
Good morning, Natasha. Natasha Boyden - Global Hunter: On the interim call, you - Angeliki, I think you said that the restructured insurance would last another three years. Is that correct? Does that hold some of your holdings as well?
Yes, and I want to correct that because I made a mistake is on 31 December 2016, is actually four years. Natasha Boyden - Global Hunter: I am sorry, you said December 31, 2016?
Yes, I made a mistake there on the previous call. Natasha Boyden - Global Hunter: I think you also said on the call that this whole restructuring came about because the insurance company wanted to get out of the maritime insurance business. Is that also correct?
Yes. Natasha Boyden - Global Hunter: Okay, did they give any sort of indication as to why they wanted to was it just to too much with too much counter party default or what was -- did they give any reason?
I think it was not the major line of their business and I think they were just exiting that business, there was not major part of the insurance business. Natasha Boyden - Global Hunter: Okay, it obviously still appears that you still have coverage on the remaining case that have not defaulted, but I am just wondering if, does the new insurance - the newly restructured insurance, I have a feeling that it does not extend to any new assets that you might purchase?
Yes, but I want to repeat one thing in today's market, if you fix you are going to be below mitigation levels anyway you have very low level of the cycle that is very minimal value to the actual insurance. Natasha Boyden - Global Hunter: Sure, that makes sense. And that kind of brings to my next question, obviously with these defaulted charters, I'm assuming that you are going to intend the trade the vessels either on spot market or short term charters I mean obviously there has been put it in our long term charters at this levels?
If it doesn't make sense and in that sense we have a great benefit as Navios from these - Navios calling up from these arrangements just to realize the lump sum payment we received which is a $175 million we get $164 million before the charter is a nine vessel this is has an MPV and that's present value of $25 million it has we have $11 million excess cash and if you really see we also keep significant market upside in essence for every $1,000 we fixed above mitigating rate they're looking at $3.3 million. So if you take this $675 million of assets contracted revenue that you are very accustomed to see in our pages, I'd say page eight of our presentation used to give you our coverage forward. So today if you apply this $175 million you can see that we have $30 million surplus and still 10,000 days available that as I provide you with a 12,000 average rate will provide you about $120 million of additional costs. So we are sitting as in this trough of this item with a very strong liquidity and with ability to grow with further as market recovers. Natasha Boyden - Global Hunter: On the cash do you now included that you have now on the balance sheet is that primarily going to go towards that reduction?
We have allocated about $25 million for debt repayment. On the other side we are looking that we have about $395 million liquidity in that you know this part of the cycle I think cash is king, I mean don't forget we have major default on the biggest companies because of liquidity or debt maturity, so we're sitting on a very nice position. Natasha Boyden - Global Hunter: Right and it's lastly with the remaining ships that you have on the charter have you have any indication from the counterparties that they would want restructure those or they might be default?
No, we don't have actually the counterparties, as we are insuring is about their all investment grade and we have no indication whatsoever. Natasha Boyden - Global Hunter: Okay, great. Thank you very much for your time.
Your next question comes from Chris Wetherbee of Citi.
Good morning. This is (inaudible) in for Chris, if I can start off just asking a few points of clarification on the restructuring, the $41.2 million that's related to pool insurance coverage is that still with that same insure or is that a different credit default insurer?
It is exactly the same insure is a similar quality with what we had in the past is just the amount is reduced, it covers only all the long term charters.
So, would you expect until eventually exit from that insurance, will that happen in four years or is there any chance that'll happen over the near term?
No, it won't happen, this is where the [charge] should be December 31, 2016.
Okay. And then the migration rates that you give is it fair to assume within this four-year period I mean that essentially how you long you have to realize any upside potential in the market above those rates when you would charter the vessels right?
Listen you have an MPV benefit of $25 million from the contracted revenue you've got in anything you'll achieve today above mitigation, it is a purely on your coming to your bottom-line. Let's take an example the 10-year rate is for Panamax over - is about $25,000, for Capes is Paraguay is about $45,000 you do realize this is an amazing potential upside to a bottom line. And receive up front today with the ability to really sit on $400 million in the trough of the cycle.
Yeah, okay. And then I guess lastly if I - if you touch on OpEx I know there is a slight uptick next year in 2013 is that function of charted in cost or is that any owned fleet OpEx?
Sorry - actually the cost goes down by about $200, from $15,953 to $15,751.
All right, I just mean in the daily operating expenses, going from a $6500 to $7100.
Yes, some charter interest why, you have seen an uptick.
Okay, thank you. I'll turn it over.
(Operator Instructions) Your next question comes from the line of Urs Dur of Clarkson Capital Markets. Urs Dur - Clarkson Capital Markets: Good morning and good afternoon.
Good morning. Urs Dur - Clarkson Capital Markets: Okay, so we've all gone through this restructuring pretty at length, and they're leaving the business we now have to model going forward, any [how] on the new charter rates, so let's talk about the market going down the road as you see it? Can you discuss with us, any current developments in the order book, is it still declining, can you discuss a little bit further on the scrapping situation? And what's your global macroeconomic view here?
I think I'll let Ted discuss the scrapping and the rates. But one thing we will say is that in the current market environment in the $70 million to $100 million dry bulkers to work and having really - to get the benefit of the charter as asset evaluation, in essence, now we have started charter or [asset] evaluation, and we were - we have the benefit to have the [still] price and the contracted revenue and we see that we materialize the full value of [risk]. So with that I'd like to give it to Ted to give you the market perspective.
Hi, Urs. Let's start with the order book, we're (inaudible) to the end of what has been a big growth spurt, but it looks like that really is over starting in Q4, this year going into next year. The order book really starts dropping off dramatically. As a matter of fact you - from next year onwards you have total order book that's on paper, because much is delivered, not as much as you delivered in this year, of is on order. And when you take out the 27%, 30%, 35% on deliveries you've gotten down to about 100 million dead weight, which is close to what's over 20 years of [wage or] about $84 million. So we really see fleet growth slowing down starting really about now in Q4. Having said that all the research out there showing us some very good growth rates for next year, in tons, but also in ton models and again we've also have this whole idea of a lot of (inaudible) coming on line again in one of our [grass-root] selling for Brazil and Australia. So that could reduce the price - continue to reduce the price of the (inaudible) which brings us substitution effect. Also called - is really moving again, so we really have a confidence going forward that the rates are going to be higher than they are today. Urs Dur - Clarkson Capital Markets: Right. Okay, and I would just hope to tab that point of view, as you probably covered it in the release but what's the potential uses of all this cash now here?
We will be repaying about $25 million in bank debt and the remaining is really in a balancing to our working capital purposes. And in a sense we will review market and (inaudible) potential for the use of this cash. Don't forget we're always conservative anyway. Urs Dur - Clarkson Capital Markets: Just to remind us all, regards to bank covenants and debt covenants, you're all fine there and this cash payment in the near term even creates more room, correct?
Exactly. Urs Dur - Clarkson Capital Markets: Okay, I'll be around. I appreciate it, thank you for your time.
At this time there are no further questions, I will now return the call to Ms. Frangou for any closing remarks.
Thank you, very much for attending our Q3, results.
Thank you for participating in today's conference call you may now disconnect.