Good day, and welcome to the Q4 2015 (sic) [ 2014 ] Ship Finance International Limited Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ole Hjertaker. Please go ahead, sir.

Thank you, and welcome, everyone, to Ship Finance International end of fourth quarter conference call. With me here today, I also have our CFO, Harald Gurvin. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual markets -- sorry, actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission. The board has declared an increased dividend of $0.42 per share, up from the $0.41 per share dividend in the previous quarter. The dividend represents $1.68 per share on an annualized basis or an 11% dividend yield based on closing price yesterday. And the company has not paid an aggregate of more than $18 per share since 2004. Reported net income for the quarter was $25 million or $0.27 per share, but if you adjust for nonrecurring and noncash items, the adjusted net income was approximately $0.39 per share. Aggregate charter revenues recorded in the quarter, including 100% owned subsidiaries accounted for as investment in associate was $169 million (sic) [$179 million]. The EBITDA equivalent cash flow in the third quarter was approximately $149 million and last 12 months, the EBITDA equivalent has been approximately $553 million, a 16% decrease year-over-year. In the fourth quarter, and including all 100% owned assets, just over 50% of our charter revenues came from the offshore segment, around 30% from tankers and the remaining 20% split between our drybulk and container assets. This includes cash sweep and profit split contribution. After the recent sale of the West Polaris and scheduled reduction in bareboat rate on West Taurus from late first quarter, the relative share from offshore will go down, while the liner segment share will increase when we now have full cash effect from the new 8,700 TEU container vessels from the second quarter onwards. And we have significant capital available for new, accretive investments. All the 8,700 TEU container vessels are now in service and have commenced their long-term time charters. There was some offer relating to one of the vessels in the fourth quarter due to repairs following an incident during docking at a port in Asia, but very limited impact on net cash flow in the quarter. The EBITDA contributions from the vessels is estimated at approximately $46 million per year on average during the charter period to Hamburg Süd, giving us a very good return on our invested capital. The tanker market improved from the third quarter and the cash sweep increased to $11.3 million from $7.9 million last quarter. Aggregate cash sweep for the year was nearly $33 million and this is payable in March. The market has remained strong into the first quarter, and there are good prospects for a cash sweep contribution also in the first quarter. We also have exposure to the crude oil market through our 2 modern Suezmax tankers operated in a pool with sister vessels owned by Frontline 2012. The average TCE equivalent for the third quarter was approximately $32,400 per trading day in the fourth quarter, up from approximately $20,900 per day time charter equivalent in the third quarter. In the fourth quarter, one of these Suezmaxes had a month in connection with scheduled special survey and a major upgrade to improve fuel economy and thereby increasing earnings potential going forward. This has included modifications to the engine, propeller and hull elements, and preliminary test results are promising. The vessel is now back in service and the second vessel is due for a similar modification starting in late March. In December, Seadrill exercised an option to acquire the deepwater drillship West Polaris, and we received $111 million in cash proceeds subsequent to quarter end, strengthening our liquidity position. We booked a profit of $6 million in connection with the transaction and the intention is to reinvest the capital received in new and accretive projects. And the next purchase options for deepwater rigs are in late 2016. In the first quarter, we have disposed of 5 feeder-size container vessels. These were the vessels originally acquired in 2006 and chartered to Horizon Lines, but the deal was restructured in 2012 when Horizon Lines had problems paying the charter hire. We did originally not guarantee any of the financial obligations relating to these vessels, but as part of the deal in 2012, we agreed to charter the vessels in the market for a period and provided a $25 million charter backstop guarantee to the financing institutions. In exchange, we received $40 million in second lien notes at the time in Horizon Lines and $9.25 million warrants in the company. In November, Matson announced the acquisition of Horizon Lines where Matson will pay $0.72 per share and assume all obligations in Horizon Lines, only subject to regulatory approval of a sale of Horizon Lines' Hawaii assets to The Pasha Group. This approval is still pending, but if it does go through, the aggregate value of bonds and warrants will be close to $7 million after the bonds have accumulated with a payment inclined structure from 2012. We have so far conservatively recorded the notes in Horizon Lines at 40% of par value, but there could, of course, be significantly more value there. Relating to the 5 vessels, the guarantee was effectively exhausted in early 2015, and following a discussion with the financing institutions in there, we agreed to deliver the vessels back to these financing institutions, which also will mean that we have reducing -- we are reducing effectively a loss-making charter structure where these vessels have negatively contributed approximately $5 million first quarter for us in 2014. We did record a book impact -- impairment in the fourth quarter of $11.8 million relating to the disposal of these 5 vessels, and this is mainly linked to reversal of interest rates swaps when we know that we already have redelivered these vessels to the new owners. Most of our vessels are chartered out on a long-term basis and we still have more than 9 years weighted average charter coverage. Full details on a vessel-by-vessel basis is available by contacting us on e-mail at ir@shipfinance.no. We have nearly $4 billion of fixed-rate order backlog and the estimated EBITDA equivalent backlog is approximately $3.4 billion or around $0.36 per share. These numbers include only the reduced base rates from the Frontline vessels and do not include the cash flows from the 2 Suezmax vessels operated in the spot market, nor do they include revenues from our other vessels after the end of their current charters. We now have a total of 15 customers across our 4 market segments, and with the exception of the jack-up rig West Linus, we have not done any long-term charter deals with related companies for more than 6 years. As there has been a lot of focus on the offshore sector recently, in light of the reduction in oil price and a softening charter market for drilling rigs and offshore assets, we think it's worthwhile to take a quick look at our offshore assets and counterparties. In 2008, we acquired 3 ultra-deepwater drilling assets from Seadrill at a cost price of more than $2.5 billion. $2.1 billion was financed in the bank market. And these deals were all on the back of strong sub-charters for the rigs and we structured it with front-heavy charter payments. We have now amortized more than 60% of the loans and Seadrill is currently enjoying significantly lower charter rates on the rigs compared to where we started. When West Taurus comes off its initial 6-year charter to Petrobras in April, the average bareboat charter rate for the 2 deepwater units we have remaining to Seadrill is approximately $160,000 per day. And one of the rigs still have sub-charters of $500,000 per day for another 2 years. In May last year, the harsh environment jack-up drilling rig West Linus commenced its 5-year shop sub-charter to ConocoPhillips at a rate of $377,000 per day. Utilization has been very high for newbuild drilling rig and there is no termination right for ConocoPhillips in that charter as long as the rig performs on the charter. Seadrill has now replaced North Atlantic Drilling as charter guarantor for the rig. And as for the other Seadrill charters, our charter rate has accelerated the first 5 years, enabled us to amortize the debt from $475 million originally last year to $237.5 million over the 5-year sub-charter period. Thereafter, we will still have 10 years remaining charter to Seadrill, but then at a significantly lower rate, giving Seadrill a comfortably lower breakeven rate, including OpEx. Seadrill has purchase options at certain intervals for this rig first time in 2019. We also have a jack-up drilling rig on charter to Indonesia-based Apexindo. This is a standard 375-foot jack-up drilling rig, built 2007 in Singapore. Our chartering counterparty is a Dutch subsidiary of Apexindo but fully guaranteed by the parent as the rig is operating in Indonesia where it has been working on sub-charters to Total since it was new. Its parent sub-charter runs to third quarter 2015. We have more than 3 years remaining on the charter to Apexindo and the cash flow is very strong with only limited financing attached. Apexindo has a purchase option in February 2018 at $70 million, where we also are entitled to a 25% profit split if the market value is higher at the time. I just wanted to comment that the broker value was nearly $180 million at the end of the fourth quarter, but due to the weak market outlook for jack-up drilling rig, we expect negative pressure in valuation, but there is still a very significant difference between the broker valuations we see currently and where the purchase option price is 3 years down the road. And Apexindo is listed in Jakarta with a market cap of approximately $700 million. In addition, we have 6 anchor handlers and platform supply vessels to Deep Sea Supply. These were deals we did back in 2007, so we are now well into that charter duration. And we only have approximately 5 years remaining charter. Four of these rigs -- sorry, 4 of these vessels are operated in Brazilian waters, 2 vessels until late 2015 and 2 vessels into the first quarter 2016, while 2 of these units are operated in the spot market. We have a full Deep Sea Supply guarantee for these charters and Deep Sea Supply is listed on Oslo stock exchange with a market capitalization of approximately $140 million. Frontline continues to perform on its obligation and we have -- and as we have mentioned before, we have the interesting combination of a very low financial leverage, well below current scrap levels and significant leverage to the market through the cash sweep arrangement with Frontline. We have amortized down the debt on these vessels very quickly and have reduced the loan amounts to nearly 0, as illustrated by the red line in the graph. With this low leverage, there is no net loan amortization required and even with the scratch base rates from Frontline, there is a significant free cash flow from the vessels. The threshold level for the cash sweep kicks in already at $17,675 for most of the VLCCs and $13,200 per day for the Suezmaxes and is capped at $6,500 per day per vessel in 2015. This year will be the last year with a cash sweep structure and after we agreed to the cash sweep structure in 2012, it has given us a very significant additional cash flow over and above the base charter rates with Frontline. Frontline enjoys a strong market currently and have commented in their release today that they are comfortable with their ability to repay or finance their convertible loan due in April this year. They raised significant new capital over the last quarters and have stated to the market that their target is to rebuild Frontline into being a leading tanker company, which is encouraging. If we then switch to our performance the last 12 months, the normalized contribution from our projects, including vessels accounted for as investment in associates, the EBITDA, which we define as charter hire plus profit share less operating expenses and general and administrative expenses, was more than $550 million in the period. Net interest was $121 million or approximately $1.30 per share and our normalized ordinary debt installments relating to the company's projects was around $200 million. This is excluding prepayments relating to sale of other assets and without net amortization of Frontline vessels, given the very low leverage on these vessels after significant prepayments of debt earlier. In the corresponding period, we have declared dividends of $1.65 per share or approximately $154 million in aggregate. This is in line with our historic payout ratio of approximately 75% since 2004. And with that, I will leave the word over to Mr. Harald Gurvin, our Chief Financial Officer, who will take us through the numbers for the fourth quarter.

Thank you, Ole. On this slide, we have shown our pro forma illustration of cash flows for the fourth quarter compared to the third quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S. GAAP. For the fourth quarter, total charter revenues before profit split and cash sweep were $162.6 million or $1.74, in line with the previous quarter. Revenues from VLCCs were slightly down in the quarter due to the sale of 3 older VLCCs, while revenues from Suezmaxes were up due to the stronger earnings on the 2 Suezmaxes trading in the spot market, one of which was out of service for 29 days during the quarter in connection with a special survey and major upgrade to improve earnings efficiency. Revenues for liners were up in the quarter due to delivery of the 2 first 8,700 TEU container newbuildings in end September and beginning of November 2014. Liner revenues are expected to increase further going forward following delivery of the 2 remaining container newbuildings in January 2015, which will have a full cash flow effect in the second quarter. Revenues from drybulk were also up in the quarter, mainly due to the full quarter of earnings for the Kamsarmax drybulk carriers acquired in the third quarter. The decrease in offshore revenues is due to a scheduled step down in rates of West Hercules in November, which will reduce revenues by approximately $6 million per quarter going forward. West Taurus will have a scheduled step down in the rate in the first quarter of 2015, which will reduce revenues by approximately $16 million per quarter going forward. It is important to note that the scheduled rate reductions are balanced by reduced interest and debt repayments on related financings. So the net effect on the distribution capacity is neutral. The sale of West Polaris at year end would reduce offshore revenues by approximately $16 million per quarter going forward. Although the reduction in distribution capacity will only be approximately $3 million per quarter, the intention is to invest the $111 million sales proceeds from West Polaris in new, accretive projects. Vessel operating expenses and G&A were $28.6 million compared to $26.7 million in the previous quarter, mainly due to valuation of the 2 drybulk carriers and 2 container vessels in the third and fourth quarters. We recorded cash sweep of $11.3 million from Frontline in the fourth quarter, up from $7.9 million in the third quarter and also a profit share of approximately $150,000 relating to 4 Handysize drybulk carriers, in line with the previous quarter. So overall, this summarizes to an EBITDA of $149 million for the quarter or $1.59 per share, up from $146 million in the previous quarter. We then move on to the profit and loss statement as reported under U.S. GAAP. As we have described in previous earnings calls, our accounting statements are slightly different than those of a traditional shipping company. As our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing. As a result, a significant portion of our charter revenues are excluded from our book operating revenues and instead booked as revenues classified as repayment of investment in finance leases, results in associate and long-term investment and interest income from associates. If you wish to gain more understanding of our accounts, we would also this quarter publish a separate webcast, which explains the finance lease accounting and investment in associates in more detail. This webcast can be viewed on our website shipfinance.org. Overall, for the quarter, we report total operating revenues according to U.S. GAAP of $88.7 million, which includes $11.3 million in cash sweep from Frontline. We recorded a gain of $3.8 million in the quarter, which includes a gain of $5.2 million relating to a settlement for the early redelivery of 4 Handysize drybulk carriers in 2012 and a book close of $1.4 million on the sale of 3 older VLCCs. Total operating expenses were $63.2 million, including an impairment of $11.8 million relating to the divestment of five 2,800 TEU container vessels in the first quarter of 2015, giving net operating income of $29.5 million. We recorded a negative mark-to-market of interest rates swaps of $8.4 million in the quarter, of which $6.3 million is noncash and also a gain of $6.1 million on the sale of the shares in West Polaris. So overall and according to U.S. GAAP, the company reported net income of $25 million or $0.27 per share for the quarter. Adjusted for one-off and noncash items, the net income was $36 million or $0.39 per share. Moving on to the balance sheet. We showed $51 million of consolidated cash at the end of the quarter. In addition, we had approximately $162 million freely available for drawdown under revolving facilities. Available-for-sale securities of $74 million, include $50 million invested in short-term tradable securities as a short-term liquidity placement. In addition, the second lien notes in Horizon Lines are recorded under available-for-sale securities at only $24 million or 40% of par value including equity interest. Amounts due from related parties under current assets includes the proceeds of $111 million on the sale of West Polaris, which were received in January and a $32.7 million in cash sweep from Frontline receivable in March this year. The $119 million amortizing Frontline notes are included in amounts due from related parties under current and long-term assets. The notes are conservatively recorded in our balance sheet at 73% of par value on average at quarter end. On the debt side, we had approximately $1.7 billion of consolidated interest-bearing debt outstanding at quarter end. In addition, our 100% owned subsidiaries accounted for as investment in associates had $1 billion in bank loans at quarter end, down from $1.4 billion in the previous quarter, following the sale of West Polaris. The debt in these subsidiaries is not included in the consolidated account. Stockholders' equity was approximately $1.24 billion, including $87 million of deferred equity. The book equity ratio, including deferred equity, was $39.6 million -- or 39.6% at the end of the quarter. Then looking at liquidity and remaining CapEx. As mentioned, the company had total available liquidity of approximately $213 million at the end of the quarter, which includes $51 million in cash and approximately $162 million freely available under revolving credit lines. Available liquidity, excludes the cash proceeds of $111 million received in January 2015 on the sale of West Polaris. We also had $74 million in available-for-sale securities at quarter end, as previously described. On the CapEx said, 2 of the 4 state-of-the-art 8,700 TEU container vessels were still under construction at quarter end, both of which were delivered in January 2015 and immediately commenced their 7-year charter to Hamburg Süd container line. The financing amount was higher than the remaining installments payable to the yard and the total positive cash effect to Ship Finance upon delivery of the 2 vessels was approximately $43 million. We are comfortably in compliance with all financial covenants under our loan agreement at quarter end and we have very limited refinancing requirements over the next years. It is worth noting that Ship Finance has been in full compliance with all financial covenants for each of the 44 quarters since the company was established. Given the financial turmoil and depressed shipping markets over the last years, this gives us a very strong standing in the bunker market and we have recently secured new financings with both existing banks and new banks. We continue achieving excellent financing terms and have seen a significant reduction in loan margins over the last year, improving the cash flow from our projects. Then to summarize. The board has declared an increased quarterly cash dividend of $0.42 per share for the quarter. This represents a dividend yield of 11% based on the closing price of the shares as of February 25. Net income for the quarter was $25 million or $0.27 per share, while net income adjusted for one-off and noncash items was $36 million or $0.39 per share. The aggregate EBITDA was $149 million or $1.59 per share. We took successful delivery of the 2 remaining container newbuildings in January 2015, which immediately commenced their selling of charters to Hamburg Süd container line, with the investment opportunity in multiple segments and our capital available for new investments. And with that, I give the word back to the operator, who will open the line for any questions.

[Operator Instructions] We will now take our first question from Herman Hildan of Clarkson Platou Securities.

So my first question. I mean, you basically touched upon your market exposure, obviously, and offshore is looking a bit like shipping a few years back. And your comment on there were statements where an idea [ph] was replaced as a guarantor for Seadrill. Can you give some more color on that, why you did that and if that really -- I mean obviously, if you look at the numbers reported this morning of other companies, it seems like Seadrill is about your counterpart.

Well, that was really a request from Seadrill and North Atlantic, where they requested that Seadrill was stepping as charter guarantor. I understand they've also done this on the different loans they have in the North Atlantic Drilling. Of course, we've obviously seen a strengthening of the credit, as Seadrill is a more substantial counterpart than the North Atlantic Drilling.

Yes, obviously, that makes a lot of sense. Also recently, we've seen some contract terminations by Petrobras and Saudi Aramco, PEMEX, et cetera. Have you been approached by any of your counterparties to discuss the charter terms for your offshore exposure?

No, we are not. I mean, of course, we are in continuous dialogue with the different charters, but we have not received any requests to amend charter rate or terms for any of the assets in the offshore space.

And kind of in light of what's happening in the offshore space, obviously, it should be creating a lot of growth opportunities. But if I quote your comment direct from the reported, it sounds like your focus near term is more on the shipping side in terms of growth rather than on the offshore side. Could you give some more color on that as well? And also if there's any change in terms, whether you see that yield potential increase your growth, in light of the challenges that the market is facing.

Yes. Absolutely. We are -- as you know, we have a significant portfolio of offshore assets, but right now, we are focusing more on the other segments. And I would say particularly, container is interesting now. We're also looking at the tanker opportunities and actually also bulker, despite the bulker market being relatively weak. Our mindset is that when we are high up in the cycle, we will structure a deal very differently than if we feel that we are low in the cycle, where there could be more upside opportunities. With respect to the offshore segment, specifically, I think that could present -- a lot of opportunities could present itself there. But it's a bit early for us. We think that there will still be a lot of noise in that market, and I think there is no rush to go out and do deals there in what we see at least currently as a market that is still hasn't -- what do we say, that is still in a downward declining curve. So we are, therefore, a bit careful in that segment, but of course, we look at opportunities. I would think generally, if you look at the competitive landscape, what we have seen over the last, I would say at least over the last 6 months is that some of the players who were very active up until 0.5 year ago or so are not there anymore. And this is particularly the bond market, which to a certain degree was a competitor for us in some segments, particularly when you look at companies who look at doing sort of, say, leaseback deals as a more of a cost of capital arbitrage. So with the bond market effectively more or less closed for shipping companies and also many of the, what could we say, the hot money, funded by hedge fund and maybe also private equity, a lot of it U.S.-based, that inflow of capital into this segment has slowed down, which also, what do we say, creates more opportunities for us because then, hopefully, we can get better returns on the deal we look at. So we are screening a lot of deal opportunities, but we try as always to be -- to invest carefully and not to rush into things, and that's also why we don't quantify how much you will invest from quarter-to-quarter. But it's pretty clear. We have a very significant investment capacity. We have more than $200 million available, year-end. We received the proceeds from the Polaris right after year end, so more than $100 million in there. When we took delivery of the 2 container vessels, we got another positive liquidity of $30-something million. We expect that cash sweep from Frontline very soon of more than $30 million. So it all adds up. So for the time being, we are, what could we say, reducing drawn amounts under revolving credits, et cetera, to reduce the negative carry, but we have investment capacity, but we try to invest carefully and hopefully with deals that will perform in the long run.

And to my second question in terms of "deal yields." Do you see pricing on potential deals going up or returns going up as a result? What's happening or do you kind of still see the same returns?

No, we see deals. I will say also as a consequence of both the bond market being virtually dead for the shipping and offshore space currently and with some of the capital that sort of came in, and we're very actively investing in the shipping space some time ago, that was -- that contributed to bring down the yields in the segment. We now see the opposite effect where we see better yields or, I would say, you get more bang for the bucks. So because a yield is only one part of the equation. You have to match that with implied risk in the deal. And notice, when you look at project returns, the easiest way to cheat on returns is to be over optimistic on the residual value. So we tried to be careful as well -- there as well and hopefully, invest wise over the cycles. But we have a very cyclical view, and we try to put money to work when we see more upside than downside, both in residuals, but also in terms of counterparties.

That sounds like a good strategy. A final question. Also there's been some talk about lenders, traditional lenders being more muted. Do you see any signs of that from where you stand?

I would say -- for us, I would say it's the opposite. We have new banks approaching us. I think it's a twofold. If you come with a standalone type project, you will probably have a challenge sourcing capital. But Ship Finance now with its 11 year history, excellent performance in the banking market, went through, call it, the perfect storm in 2009 in the financial markets, the -- call it, the sharp downturn in the tanker market 2011 without any issues on the banking side. It means that the banks trust us. So if anything, we see margins coming down and bank appetite go up at the moment.

We will now take our next question from Fotis Giannakoulis of Morgan Stanley.

I want to ask about the opportunities to deploy capital. You mentioned about the container ships, you have over $200 million of capital, of liquidity right now, part of it is equity that was released from the sale of a drillship. What are these opportunities? What kind of deals in the container ship space are you looking? Today, we saw the announcement of potential acquisition from Navillus partners long-term transaction. Can you give us a little bit more color?

Absolutely. I would say in the container space, our main focus is on the bigger container ships, sort of 9,000-plus container ships and preferably, assets built now. Because there has been a technology change in the container space. And for the container lines, who, what could we say, structurally is very similar to the airline industry. It's all about the slot cost, as cost per produced seat for airlines. So that's why the focus is on the newer, bigger units where they have economy of scale. So you have a lot of focus on the 18,000 to 20,000 TEU type vessels, 40 meter length, 59 meter beam, but you also have focus on the 9,000 to 11,000, which is basically 48 meter beam, but 300 or 330 meter length, but relatively similar type of vessels. And everything below 9,000, typically, the liner companies communicate that they see a lot of volume in the, what could we say, and availability in the short-term charter market and, therefore, not so focused on -- or they don't see the requirement to do long-term charters to do those kind of deals. But of course, we are opportunistic. Last year, we acquired 9 container ships out of the German market. These were container ships acquired at a very high price. The KGs who own them went into insolvency, we picked them up. Some of the vessels we bought practically at scrap value and then we charted them out for 5 to 6 years, where we have a structure where if they were only worth scrap value at the end of the charter, it's a great deal for us. And if there is more in the residual layer, it's a phenomenal deal. So it's all about being we'll be focused on the bigger vessels, but of course, we wouldn't close our eyes on opportunities for other vessels if the economics are good. But I think that we are very careful with the residual value assumptions for container ships because of the technological change that has taken place in that segment, which is, what we can say, more profound in that segment compared to many other segments.

Okay. And can you give us an idea of what kind of yields as you mentioned, the vessel after the charter, especially after the long-term charter, runs the risk of becoming obsolete. So I assume, as we said, you want to amortize the investment, but after this amortization of the debt or your investment, what kind of cash on cash yield are you expecting from these deals, and how do these yields compare with a cash flow that was generated by the West Polaris that was recently sold?

Yes, we think, without being too specific, because it's all from a deal-to-deal related, it has to do with the counterparty and the kind of sort of risk assessment, the quantification we do when we do the deal. Some counterparties are easier to source finance for at very attractive terms and others you have to structure the capital differently. So it's a bit of comparing apples and pears. But I would just note that on the West Polaris, the rig that was an residual part of the purchase option, that was the rig where we probably had the lowest cash yield. If you know on elaborate basis among those rigs. So I'm very confident that we will be able to invest the capital there at a higher yield than we had for the West Polaris. But I'm hesitant to be too specific because it's all down to trying to do the right deals, and of course, we are greedy and we try to grab as much as we can, and hopefully over time, that will build the distribution capacity further.

One more about the other 2 sectors that you briefly touched earlier in your presentation, you said that you might be looking at acquisitions even for drybulk or tankers. These are 2 sectors that are mainly sport-oriented. And we haven't seen so many long-term charters like the ones that you have in your Panama fleet. How would you approach these kinds of acquisitions? And given the different state of these 2 different markets, the drybulk is really suffering right now. The tanker market is performing very well. Where do you think there are more opportunities between these 2 sectors?

You are absolutely correct. Both are very volatile segments, as we've seen over the last few years. So in both those segments, it's very important to deal with the right counterparties. What we've seen, and if you look at it more structurally, we've seen that particularly in the drybulk segment, we have seen more counterparty issues. If you look at it over time, in the segment as a whole, there are more counterparty issue on the dry side than there is on the tanker side. Maybe that has to do with the relatively lower threshold to become a player in the drybulk segment, where you basically only need to buy a vessel and you can go out and charter it in the market. On the tanker side, you have that thing and you have more, call it, system requirements to trade the vessels. And also the value of the cargo relative to, call it, the transportation cost is much, much higher on the tanker side, even after the drop in oil price than it is for on the drybulk side. So we've seen very few counterparty defaults even in weak markets on the tanker side compared to the dry side. But of course, we can look at the dry side if we have the right counterparty because -- but then of course, we have to be careful so we deal with the people we believe can withstand the volatility in the market. Because we have to face it, when we charter out any vessel or rig for a long-term charter, be it a 5, 10 or even longer charter, we have to assume that our counterparty and the market they're in will go through several cycles in that period. So we just have to be careful so we deal with the companies who can manage that and have the strength and the resources to also pull through the low ends of those cycles. And of course, in the dry side now, we'll be seeing values coming down, which makes it may be interesting to -- from a value perspective to invest and maybe do shorter charters compared to doing very long charters because there could be more upside in the residual value from where we are.

So practically, that means that you are also looking for deals with charters. It's not that you might be tempted in buying some very cheap drybulk vessels given the current turmoil.

Well, our business model is not to sort of charter vessels on short-term basis. We have some Handysize bulkers who have been redelivered from the charters that we are employing in the short-term market simply because we feel that it's too early to lock them in on long-term charters. We want to wait until the market hopefully recovers. But that said, we have in the past acquired vessels and then fixed long-term charters on these assets afterwards with -- sometimes, with very great success. So one example, was the 9,000 TEU container ships, or 8,700 TEU to be precise, that we ordered in 2013 and that we later charted out to Hamburg Süd, and it will generate a very nice return for us. So we are -- if you look at it on a portfolio perspective, most of our assets are in long-term charters and then we have a small percentage that we are employing in the shorter-term market, and also from time-to-time, we do invest selectively, but again on a very small scale, in assets where we think there are opportunities to fix longer-term charters when markets come up.

We will now take the next question from Marcelo Brisac of Armory Investments.

I had a few questions about West Polaris. I hope I'm not making you guys repeat yourself. I know gave you a lot of numbers. I try to keep up with them all, but maybe I missed something so I apologize if I'm asking just to repeat information. Just to start, you mentioned that the impact of the sale would be $16 million per quarter in terms of revenue, but only $3 million per quarter in terms of distribution impact. When you say distribution, are you talking about net income or cash flow?

That's the net cash flow.

Net cash flow, okay.

Based on the financing that was in place at the time of the sale.

Okay. So really West Polaris was generating like $12 million per year in cash flow and you received nearly $111 million for that, so it's really -- Seadrill is buying it at less than 10% return on equity, I guess, right?

No, but it's really we owned the asset and we have the financing and they bought the subsidiary including the financing. So the deal was really structured back in 2008 and then we had either arrange a new financing in 2013, which gave us some additional liquidity then, but it's really off the 3 rigs, this was the one that had the worst net cash flow per quarter.

Less than 10% seems pretty low. And just frankly, you also -- so you're not going take any debt out of your balance sheet because it was all within the subsidiary, right, that was not consolidated?

Yes, that was in the investment in associates. So that wasn't in our consolidated debt.

Okay. So that's not coming out of the balance sheet. And you said you're going to still guarantee part of that debt and I assume that's going to remain off balance sheet. But how big is the guarantee you're going to give into that?

It was $94 million at the time when the deal was done in December, but end of January, it came down to $88 million, which is -- we reduced it by $6 million per annum. But of course, we had a full indemnity from Seadrill in case there are any gold [ph] under this guarantee.

We will now take our next question from John Reardon of Merriman Capital.

Just an observation. It's kind of funny. A couple of years ago, the big fear as far as Ship Finance goes was the Frontline situation. Now Frontline is good. And back then, the drilling-related, that was the good stuff, now that's where the big fear is. And it sounds to me like you've got the situation well in hand. But getting back to Frontline, I see the clawback is going to pay you a rather significant amount of money coming up in a couple of weeks. And I was wondering if you could share with us what your plans might be for that. Could we be looking at just putting it up on the shelf for future use or perhaps a special one-time dividend or maybe repurchase some stock, which seems to be at pretty depressed levels relative to your earnings, EBITDA and dividend? Anyway just some thoughts.

Thank you. You are correct. There is around $33 million Frontline will pay us in a couple of weeks. Historically, when we have received profit split and cash sweeps, we have not paid that out, that sort of special dividends. It's all gone into, what can we say, our balance sheet and with our ambition to reinvest. So our ambition is to reinvest that capital. But it's, of course, difficult to air market to something very specific. So I cannot really comment more than it will continue -- it will strengthen our balance sheet and investment capacity. And I think, actually right now, it's probably a good time to have investment capacity. Because for a lot of shipping companies, you cannot really access the equity market, that's difficult to access for many shipping companies and also with the bond market, not being very active, particularly the Scandinavian bond market is virtually dead, where several companies have common raised capital. It means that there is a more interesting playing field for us. So hopefully, we'll be able to reinvest it at an accretive rate. And hopefully, we will also be able to continue increasing the distribution going forward.

Just as one follow-up. The German banks have kind of been playing extend and pretend with some of their shipping-related loans, mainly in the container area. And I was wondering now that their regulators seem to be putting a little pressure on them to clean up their balance sheets, are you seeing any opportunities coming from some of the German banking paper in the shipping world?

Well, frankly, I was told [ph] in '09 when I thought there will be a lot of opportunities coming out of the German market because it was so obvious, as you point out that there was a mismatch between leverage on some of those project and, call it, underlying values. Unfortunately, I was wrong. It hasn't been a big value coming out of the German market. But last year, we picked up 9 container ships, 4 -- sorry, seven 4,100 TEU container ships and two 5,800 TEU container ships, which is basically out of structures like that, where we turned around and fix them out and we got them at a very low price, and it's a very nice deal for us. But again, from a total investment perspective, when you look at our $4 billion capital base, it's a small piece. There've been a lot of initiatives out there, where they have a lot of, call it, very creative structures really designed to ensure that the banks won't have to take a hit. But that's the issue when you have a strong balance sheet, who's going to pick up the bill in the end. So we are -- we try to invest carefully. We try to do deals that are not only giving a strong yield the first 1 or 2 or 3 years, but will give a good return over time. And I think also having a large shareholder in Mr. John Fredriksen, who's known as a very -- the world's biggest dealmaker in shipping perhaps over the years, he is -- I would say that he is -- that's really the main focus when we have discussions with him, it's all about counterparty risk and it's all about residuals. So we try to invest conservatively and we try to get decent returns. Good risk-adjusted return on our investment is probably the best way to phrase it.

And we will now take our next question from Ceki Medina of Southpaw Asset Management.

First, on Horizon Lines, I heard you mentioned profit of $7 million. I'm calculating $47 million. Maybe I misheard, so I just wanted to make sure that's the right number.

Yes, we haven't quantified anything relating to -- you mean the notes and the warrants?

Correct.

Yes, yes. No, I think I said that there is -- depending on the time when the deal closes, and this is impending regulatory approval of a sale of the Hawaii assets in Horizon Lines, but depending on where it closes, the aggregate value of the notes and the warrants, and the price for the warrants will be $0.72 per share, will be in the region of close to $70 million, we believe. High 60s, close to 70, yes. We have recorded them -- these notes had only 40% of face value. So yes, hopefully, there should be a good value there.

Right, so I was going to mention the $70 million coming in, in addition to the many items you counted with respect to the cash balance you have. So I'm wondering how you are investing the cash in the meanwhile, before you use it for an actual investment. You mentioned first-lien loans. I mean, there is the dividend drag, if you will, on the equities, 11%. And so I was wondering how you are making use of the cash as you sit on it?

Yes, yes. I think the main way we manage liquidity is to reduce drawn amounts on typically revolving credits because that's where we see a better, call it, use of the cash if we have ambitions to invest it. We have also invested, but that's a relatively small amount, also some bonds, typically first lien type bonds, but again, on a relatively small scale. So we have tried to avoid having a lot of cash sitting on the balance sheet because as you know, the interest rates on your bank account, your cash bank account is relatively low as we see it now.

Yes. Okay. Two more quick questions. What is the amortization schedule of the Frontline bonds? You have a decent balance there as well, I see. And the second one is, the day rate on the Suezmaxes for the fourth quarter, you mentioned low 30,000s, and I'm seeing from Frontline, theirs got 43,000, can you explain the difference.

Well, the vessels -- first of all, one of our vessels was drydock in the fourth quarter, which means that you have also positioning and repositioning voyages in and out of the drydock. It was out of the drydock for a month, but if you look at -- we have our 2 Suezmaxes in a pool with 2 Suezmaxes owned by Frontline 2012. But in addition, Frontline 2012 also have some vessels on charter. So it's really -- I cannot really comment much on Frontline. You really have to ask them about the exact details of those sub-charters. But we only look at the actuals that we bring in. Also when we talk about this, we talk about this on a time charter-equivalent basis, so we don't include -- so the gross charter rate is, of course, significantly higher, but we have to deduct voyage expenses, including bunkers, et cetera. So we are talking about the net number.

Got it. And the amortization schedule of the Frontline bonds, on a year-by-year basis maybe? So in 2015, how much of the -- maybe in 2016, how much of those are going to amortize?

The way they're structured is that the payment sort of follow the whole charters with a reduced payment in 2015 and then increasing going out. So if you look at 2015, the amortization is around $2 million per quarter, increasing slightly in the fourth quarter. And then going forward into '16, it's around $4 million per quarter in total amortization. That's just amortization and then, of course, you earn interest on this also. The payments from Frontline are higher, of course.

[Operator Instructions] We will now take a question from George Burmann of JP Turner & Company. It appears that he has stepped away. There are no further questions in the phone queue at this time.

Okay. Then I would like to thank everyone for participating in our fourth quarter conference call. And if you have any follow-up questions, there are contact details in the press release. Thank you very much.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.