Thank you for standing by, and welcome to the Capital Product Partners Second Quarter 2016 Financial Results Conference Call. We have with us today us, Mr. Jerry Kalogiratos, Chief Executive Officer and Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today 29th of July, 2016. The statements in today's conference call that are not historical facts, including our expectations regarding developments in the market, fleet developments, our ability to pursue growth opportunities, our expected charter coverage ratio for 2016 and 2017, and expectations or objectives regarding our quarterly distributions, cash reserves, and annual distribution guidance may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of the forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand the conference over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Thank you, Cass, and thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on the Web site as we go through today's presentation. On July 21, our Board of Directors declared the cash distribution of $0.075 per common unit, and $0.21375 per Class B unit for the second quarter of 2016. The second quarter common unit cash distribution will be paid on August 12 to unitholders of record on August 5. The second quarter Class B cash distribution will be paid on August 10 to Class B unitholders of record on August 3. Unit coverage for the quarter amounted to 2.1 times after accounting for the $14.6 million in capital reserves and Class B distributions. Partnership's net income for the second quarter stood at $14.9 million, a $0.8 million improvement on the $14.1 million net income recorded in the second quarter of '15. As previously announced, the Partnership has agreed with HMM, Hyundai Merchant Marine, a 20% reduction of the charter hire rate until the end of 2019 for the five vessels currently employed with HMM as part of its restructuring process. We will receive 4.4 million HMM common shares as compensation for the charter-hire loss. In addition, and during the quarter, two of our Suezmaxs, Miltiadis M II and the Amore Mio II, commenced their scheduled dry-docking upon completion of their respective time charters with CMTC and SAIL [ph]. The Miltiadis M II will complete the dry-docking at the end of July and the Amore Mio II is expected to complete its dry-docking in early-August. Both vessels have [indiscernible] good employment with Capital Maritime for 10 to 12 months. As a result of the new charters and as of the end of the second quarter 2016, the average remaining charter…

Thank you. [Operator Instructions] Your first question comes from line of Jon Chappell from Evercore ISI. Please ask you question.

Thanks. Good afternoon, Jerry.

Hi, Jon.

Just a couple of quick ones as we think about the covered ratio going forward and your ability to potentially expand the distribution at some point. The capital reserve consistent over the last two quarters makes 100% sense as you lay out the debt amortization over the next couple of years. Just wondering about the increasing recommended reserves that jumped pretty meaningfully from the first quarter to the second quarter, is that the type of run rate you are thinking about for capital requirements going forward, is that's what you think about the covered ratio?

Jon, the cash reserves are built as we have previously announced to repay the amortization of external borrowing for the next two years, which is a capital reserve, as well as for other operational contingencies and CapEx requirements. As we build these reserves, we will aim for two things. Firstly, complete accretive transactions that will help us revisit [ph] the distribution networks. And to this respect, I would like to remind you the last slide on the deck where you can see the potential dropdown opportunities. And secondly, we can use cash to pay down debt in order to secure financing over debt under favorable terms. That should allow us to reduce our capital reserves and decrease our common unit distribution.

And the third, I guess the third area you contentiously used that you mentioned at the very end of your comments was the HMM share. So, first of all, little bit surprised there is no lockup there, but that's great, freely traded in a week or so. You did mention in the press release that you received the share at a discount. Can you just, number one, explain exactly what that means? And then, two, just talk about maybe your strategy with those shares. Is it something you would like to unlock liquidity as soon as possible, or do you kind of view them as optionality and hold on them [ph] until you needed it?

We received approximately 4.4 million shares, which represents our loss of charter revenue for approximately 3.5 years, amounting to 37 million at a price of KRW 9,530 per share. Today's HMM share closing price is KRW 10,600, because we received those shares at a discount. With regard to their use as discussed, we will opportunistically try to liquidate the shares over time. And potential cash windfall from the sale of the shares we could put to work immediately by completed accretive transactions that could help us revisit the distribution guidance upwards, so even in the short-term.

That's helpful. Then the final thing is, obviously a lot of the overhang has been duress now with HMM behind you. And even the other two containerships that were redelivered last year but on short-term charters. As you look across your fleet list there's still four ships that standout as being way above market with still pretty significant duration of about four years, in average, left. They seem to be better counterparties, but just as we think about the risk reward here, has there been any conversations there about potential renegotiations or do you feel comfortable with those charters until expiration?

No, there have been no discussion whatsoever. CMA CGM I presume is one of the counterparties you are referring to has been always punctual with payments. And actually, we have never had any issues whatsoever. If anything, they are in expansion mode. The other counterparty being COSCO I'm guessing, having merged COSCO now -- COSCO having merged now with China Shipping. This is really the national carrier of China Inc. And really this is, I guess in the end, the Chinese sovereign risk. And if you recall, we also have a charter insurance there in place so that if COSCO fails to honor the charter party then the insurance will pay us up to $25,000 per day for the next four years, plus market up to a maximum amount of the charter party hire. But in any case, we're not very much concerned with COSCO. We weren't in the first place, even lesser now that they have merged with China Shipping.

Great, that's what I wanted to hear. Thanks a lot, Jerry.

Thank you, Jon.

Thank you. The next question comes from the line of Spiro Dounis from UBS Securities. Please ask your question.

Hi, Jerry, how are you?

Hi, Spiro, I'm very well. Yourself?

Good. Not bad. Just wanted to maybe get some color around I guess the timing and magnitude of how you're thinking about a dropdown. And just to make it clear that -- it sounds like you don't intend to issue any equity to make this dropdown happen. It's going to be basically done with cash and debt, and just, once again, circling back toward the magnitude. I guess, how many of those vessels, some are on the water now, how many of those vessels are actually chartered and meet that specification?

Well, I think the first important step is to understand how and when we will liquidate the HMM shares. I mean, while this could be potential liquidity that we can use to acquire new assets, we will be opportunistic about the liquidation. So then we can think about the next acquisition. But in the end, shares that are freely tradable are liquid assets. So assuming that we have a windfall from the shares then we will think about what will be the next acquisition. Now, with regard to the charters of CMTC -- sorry, with regard to the vessels that CMTC controls, on the one hand, we have a number of MRs that have finance in place but do not necessarily have charter coverage. One of them has for I think a bit less than a year. But there are also other assets. For example, there are two Aframaxes new builds with five-year charters. In the end, the decision will be what is more accretive to our distributable cash flow, as well as what provides cash flow visibility. So no decisions have been made yet.

Got it. Okay, that's helpful. And then just second one, trying to maybe get a sense for when you do eventually increase distribution. And correct me if I'm wrong, it sounds like what you're trying to do is to increase the asset base before doing that I guess [technical difficulty] bring the situation back to where it was before, which I guess might be harder right now just given obviously the HMM charters are lower, plus you rolled over some charters into lower charters, is that the right way to think about what you are doing with the asset base, or is there a potential that maybe once the distribution is lifted it could be lower than it was before?

There are two things that will lead us to a distribution increase. As you have already pointed out the first one is the expansion of our asset base. And this could be achieved by, for example, using part of the proceeds from the liquidation of the HMM shares. And the second thing, it would be the refinancing. As we have discussed in the past, while we have now been reserving for -- while we have capital reserve in place which should if it continues accumulate so that we lower our outstanding debt to very low levels by the end of 2008, what we will try to do is find a way to refinance earlier than that. And any accretion from this refinancing should find its way back to unitholders in the form of a distribution increase.

Okay. I guess but in terms of what that number is maybe something everything is on the table at this point? Would be you expectation that it gets restored to the prior level, or I mean it could be any other number?

Well, two things. First of all, there is the HMM effect as you correctly pointed out that would make it difficult for the distribution to go back to the original level. And secondly, there is I think a refinancing would potentially involve a level of amortization that we did not have before. The fleet is not getting younger. We have to make sure that there is at least an element of amortization in let's say in the new regime when it comes to our debt.

Got it. That's clear. Thanks, Jerry.

Thank you. Next question comes from the line of Amit Mehrotra from Deutsche Bank. Please ask your question.

Hey, guys. It's actually Jason in for Amit. I know you touched on this a little, but any guidance on the targeted leverage level?

Well, we have always aimed for -- in the past for 50/50 debt equity mix, but especially now that our debt -- our leverage has been decreasing, we could potentially look at transactions with slightly higher leverage where especially there is also an amortization element as I just discussed. So you shouldn't expect us to deviate much from this the 50/50 debt equity, but it does in the end also depend on the overall leverage of the balance sheet and what level of amortization the new indebtedness will have.

Very good, and if I could actually follow-up, how important is non-amortizing debt going forward?

Well, as discussed, I think it would be prudent for us to have an element of amortization especially for ships that are not new builds or not very modern. So I think we would be pursuing at least some element of amortization going forward.

Okay. Very good. And another one, what is the max LTV going forward? Any guidance on that would be great.

Well, we don't necessarily think like that. But as I said, we have been aiming on a 50/50 debt equity or we were very close to that in the past. There is in any case an LTV covenant is that's what you have in mind at 72.5%, but this we haven't -- we are not anywhere near to that in terms of net debt to fair market values.

Very good. Thank you. And one last one just what's the drydock in special survey cash cost you expect for remainder of this year and next?

Well, there is only one vessel that is coming up for dry-dock over the next 12 months. That's a 37,000 deadweight tanker that's the one that was employed previously with Flopec. The cost of the cash expense for the dry-docking of a vessel like that would be between $0.50 million to $0.75 million.

All right. That's it for me, appreciate the time guys.

Thank you. And our next question comes from the line of Mike Gyure from Janney Montgomery. Please ask your question.

Yes, good morning. It looks like you had a great quarter on the operating expense side for the vessel fleet. Can you tell me if there's kind of anything in there that was may be one time versus the first quarter or what your expectation is for those expenses going forward?

There is one of award of acclaim that emerged from an incident back in 2013 of 1.1 million, and this was accredited to operating expenses as back then they repaired that, these vessel had to incur where fully expensed.

Thank you very much.

Thank you.

Thank you. [Operator Instructions] Next question comes from the line of Ben Brownlow from Raymond James. Please ask your question.

Good morning. Thanks for taking the question. On the swap and product tankers for the Flopec charter, the Arionas, can you just touch on the voyage employment rate there? And do you anticipate that vessel being dry-docked at any point before it begins its special survey in November?

Well, then the reason that this vessel was replaced is that the Agisilaos was in near proximity. So Capital Maritime offered to terminate the charter early so that we really minimize the ballast of the potential substitute. So from that perspective, it was a positive, because there is the obligation under the charter party to Flopec to have the vessel replaced. Now the vessel will need to dry-dock and pass special survey by November and in the meantime, we will be performing voyages effectively to reposition to, let's say, a region where it can get a proper and cheaper dry-dock. While the deadline, if I'm not mistaken, is in November, if we find the right the combination of voyages, the vessel might end up dry-docked and pass special survey earlier than that.

Okay. So it's right now receiving no revenue?

No. Actually the vessel is performing voyages that do generate revenue, but what we are trying to find is a proper voyage so that we will reposition the ship closer to a dry-docking -- to a region that we are dry-docking, and special survey can be passed at decent cost. The problem with South America is that there is very limited capacity, and it's also a quite expensive one when it comes dry-docking.

Okay. And do you anticipate one of those tankers going back to sponsor Capital Maritime after the special dry-docking?

Well, it will depend on what other opportunities are on offer. Capital Maritime is one source but also other parties as well.

Great. Thank you, Jerry.

Thank you, Ben.

Thank you. There are no further questions at this time. Mr. Kalogiratos, please carry on.

Thank you, Cass, and I'd like to thank you all for once again for listening in today.

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