Thank you for standing by. Welcome to the Capital Product Partners' Third Quarter 2017 Financial Results Conference Call. We have with 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, the 27th of October 2017. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, future debt levels and repayment, assumed net book value, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, future earnings, our expectations regarding employment of our vessels, redelivery dates and charter rates, fleet growth, market and charter rate expectations, may be forward-looking statements as such 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 these 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 hand the conference over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Thank you, Sophie, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our Web site as we go through today's presentation. On October 19, our Board of Directors declared a cash distribution of $0.08 per common unit. The third quarter common unit cash distribution will be paid on November 13 to common unitholders of record on November 3. In addition, our Board of Directors declared a cash distribution of $0.21375 per Class B Unit for the third quarter of 2017. The third quarter Class B cash distribution will be paid on November 10 to Class B unitholders of record on November 2. The Partnership's net income for the quarter stood at 9.7 million compared to 9.8 million in the previous quarter and 11.8 million in the third quarter of 2016. The Partnership’s operating surplus for the quarter prior to Class B Units distributions and the capital reserve amounted to 30.3 million compared to 30.5 million for the second quarter of 2017 and 31.7 million from the third quarter of 2016, that is before the 29.7 million in proceeds from the sale of CRs in HMM that we received in connection with our financial restructuring. Common unit coverage for the third quarter stood at a solid 1.2x. We are delighted that we successfully concluded in early October the refinancing of substantially all of our debt with total prepayments amounting to 116.2 million and the proceeds from a new 460 million senior secured term loan facility led by HSH Nordbank and ING. The new facility matures in the fourth quarter of 2023 practically addressing all of the Partnership’s near-term bullet payments. Finally, since our last quarterly call, we secured time charter employment for four of our vessels. As a result,…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Jon Chappell from Evercore. Please ask your question.

Thank you. Good afternoon, Jerry.

Hi, Jon.

So the first thing I wanted to ask was about the operating surplus, the 4.5 million your saving now with the anticipated new capital reserves starting early next year. It doesn’t sound like a lot of money, but it’s about $0.01 a quarter I think. So is the growth of the distribution that you’re aiming for completely dependent upon fleet growth or could the first stages of a renewal distribution growth come from the new kind of capital reserve run rate?

That’s a great question, Jon. As you say, the common unit coverage is said to improve now going forward as the annual amortization of the facility will be 5.8 million less compared to what we reserve today. And then you have also the amortization of the small facility that really starts amortizing at the very end of 2018. But in addition to those savings, you have interest cost savings from the 160 million paid in prepayments and of course decreasing interest cost going forward on the back of the new credit facility amortization schedule. So just to give you an example, the interest cost savings from the prepayments alone and that we’re always assuming a flat LIBOR rate and that you’ll probably have your own interest rate assumptions going forward would be in excess of 5 million plus another 2.3 million per year from the decreasing outstanding debt. But to answer your question with regard to distribution growth, the distribution growth will be tied, as we have said in the past, to asset growth. Now that the refinancing has taken place and our financial needs going forward are well established, we will focus on resuming growth by completing accretive transactions. Now on the last couple of pages on the presentation you saw a number of assets that could fuel this growth going forward, of course in addition to opportunities in the second-hand market that we could potentially source. The vessels with employment or the ones we have a right of first offer which are included on Slide 14 amount to more than 330 million in charter free value while the other additional modern assets that we have access to from our sponsor, included on Slide 15, amount to more than 470. So the combined value of the potential dropdown from…

All right, incredibly thorough answer and in anticipating for my follow-up question. Let me just ask one super quick one. I don’t recall seeing, how much is left on the ATM as it relates to some of the new capital that you were just talking about?

Correct. So our ATM filing you might recall was for up to 50 million and that is for three years, so for a period commencing in September 2016. Now since the ATM was put in place in September 2016 until today, we have issued approximately 6.6 million units bringing in about 22.3 million in net proceeds. This is less than 4% of the volume traded in the stocks since inception of the ATM program. We continue to use the ATM opportunities to clear any particular – and in a prudent manner for sure, and the net proceeds can be used for obviously general publishing purposes but including the acquisition of vessels or rather to potentially complement internally generated cash flows in order to complete an acquisition. But if I’m probably to guess your next question with regard to where did those proceeds go, the 22 million from the ATM and I think that’s also why the ATM has been useful so far. I think we have been very prudent in how we have used this tool and this is the way that we’re going to think about it in the future. As we have said in the past, we do not think that the current unit price is the unit price that we necessarily want to be issuing a lot of equity at. But if you look at our pro forma cash position after the – the refinancing is about 60 million. And don’t forget we repaid about 116 million in order to complete this refinancing transaction within 2017. As far as the capital reserve is concerned, after the amount has been paid out for scheduled amortization, what was left is 72 million. So really the refinancing we were able to complete the refinancing sooner than later and give visibility to unitholders with regard to the balance sheet and allow us to think about growth. By using some of the proceeds from the ATM as well as some of the proceeds that we got in from the HMM arrangement.

Okay. Once again very thorough. I appreciate it. Thanks, Jerry.

Thank you, Jon.

Your next question is from the line of Ben Nolan from Stifel. Your line is now open.

Great. I’m glad I got it early, Jerry. You’re not leaving much on the table for us here. Just a couple of quick ones as it relates to sort of the growth and you laid out some of the dropdown opportunities, the Amore and the crude tankers at the sponsor. When you’re sort of high-grading opportunities like that, how much of a preference is there for the vessels that already have long-term employment as opposed to just taking something with short-term employment that you might have to look to fix on long-term employment into the future? Does that weigh into the calculus at all or how do you think of it?

For sure and that’s a great question, Ben. For example, the two Aframaxes that have long-term employment in place would be good dropdown candidates from that perspective and for sure, because they give us and unitholders longer-term visibility, the accretion is easier to determine. But also in the end assets like the eco-MR product tankers for which we have right of first refusal, again this is a natural space for us and long-term employment can be secured as we have done in the past from third parties or by Capital Maritime before dropping those in.

Okay. Am I reading it right, you prefer long-term contracts but looking at them I suppose it all rolls around the returns that you can generate on the assets given the prices that [indiscernible]?

Correct. In the end, the main criteria needs to be accretion and what long-term contracts gives you is more visibility with regard to that accretion. So from that point of view I think the Aframaxes are attractive but also the MRs as we have done in the past with a time charter in place that makes sense could be also looked at. But if you have a choice, I think longer term charters are more helpful.

Okay. So to that end and this is my second question, when looking through sort of your suite of opportunities, obviously you laid out the ones from the sponsor, but how aggressively are you also looking at opportunities like for instance maybe doing say leaseback transactions with liner companies in the container space or things from unaffiliated third parties as opposed to being targeted towards this sponsor fleet?

The sponsor fleet gives us the comfort of time and the ability to look at assets with charters, as you say, because it’s not easy to go out there and find assets with a charter in the first place and a good charter that is. The second-hand market is very – it’s predominately for charter free assets or assets with shorter time charters. And then secondly, in order for you to line up the finance, get Board approvals and go through all the process that you need, so if you are to do a deal on subjects, as we say, on the S&P market, you have to pay through the nose for that. So, so far being able to grow through our sponsor has been, if you want a big advantage because the sponsor is well incentivized to see the Partnership grow. It can give us the time to line up the finance to get our approvals done without necessarily having to pay up. And importantly it does provide charters with assets which as I said are not very easy to find.

Okay. So more than likely that’s going to be that source of growth is through the sponsor I guess, right?

Don’t get me wrong, we are very active in the S&P market, including me personally and we look at a number of opportunities. But if you look at our transactions in the past, we have grown from eight ships to 36 and I think all but one were acquisitions from the sponsor.

Right. Okay. That does it for me. I’ll turn it over and see if anybody else can figure out any questions to ask. Thanks, Jerry.

Thank you, Ben.

The next question is from the line of Amit Mehrotra from Deutsche Bank. Your line is now open.

Hi, Jerry. How are you doing?

Hi, Amit. How are you?

I have an amazing question, okay, so here it is. I just had a quick question on the coverage ratio, because obviously that’s a big factor as well in addition to I guess growth and increases in the available cash balance. But I guess obviously the tanker market is not really I guess on fire, a poor choice of words, but it’s not on fire right now. But I guess that’s also impacting the average duration of the partnership charters. I think the duration is down about 10% since this time last year. Just thinking about how bad impacts you’re thinking around the coverage ratio because that obviously impacts what can actually accrue to the common unitholder in terms of the increases in the cash balance? Thanks.

That’s a great question, Amit. The longer term period market tends to be increasingly liquid as the market is weaker and that has been the case predominately on the crude side. Nowadays you see very little in terms of longer term fixtures, although as you saw from the dropdown list, our sponsor did fix five years bareboat for one of their VLCCs. But as a general point, you are right. But there’s also another reason for that. It’s also owners that will tend to avoid longer term charters at this point as they know that they will be locking in at very low rates. So for example on the MRs, right now it’s a standoff. You have a number of charters trying to find longer-term charters say for an eco-MR between 15 to 15.5 for three years, but there is very little bids. That’s what we ask, because charters don’t want to lock in at these kind of rates. So it works both ways. And we are I guess among them because we don’t really want to be locking in at least for the majority of our fleet very low rates if we can avoid it, as the fundamentals point out to a market recovery. But to your point, Amit, I think it’s easy to talk about the market recovery if you don’t see it. But in the end the way that we have now structured the partnership with the distribution of $0.08 per unit. You see we don’t need much in terms of charter renewals to deliver a good distribution coverage. Just to give you an idea we have four eco-MRs coming off charter over the next 12 months which are fixed, another is at $14,000 while the market today is – the one year market is between $14,750…

Right. I guess the point is, is that this was more probably of an issue 18 months ago when some of the re-chartering were more dilutive, but to your point the current charters were done in a pretty weak market anyway. So in some cases it could be neutral, at worst or even accretive in some cases. So that makes a lot of sense. One quick one for me and then I’ll hop off is you talk about debt to book value a lot in the presentation and I get that. I just wanted to understand if you could just help us and just overall the people listening on this call where the net leverage is now relative to sort of the fair value of the assets? I guess just how the banks look at it, because it seems like it’s still pretty low and I just wanted to make sure that that point was communicated just from a risk profile to company. Thank you.

Thank you, Amit. We don’t disclose the NAV of our – the fair market value or the NAV of our fleet simply because we think that for a MLP like us it might misguide people as to how this is looked at, because NAVs typically are charter free NAV while there are a number of charters that we have in place. But I have seen from various third party analysts, our net leverage being estimated in the very low 40s on a charter free basis that is which is probably around the right levels. But then if you do the exercise and you also add the value of our charters, it could be potentially even lower.

Okay. Thanks for taking my questions, Jerry. Have a great weekend. I appreciate it.

Thanks, Amit. You too.

Your next question is from the line of Spiro Dounis from UBS Securities. Your line is now open.

Hi, Jerry. How are you?

Hi, Spiro, very well. Yourself?

Good. Just want to follow up on some of the previous questions, first one just sort of going back to the funding model going forward. It sounds like – and I don’t want to put words in your mouth, but it sounds like this internal funding or self funding might be the sort of base case outside of capital markets opening up. So I guess if that is the case, how are you thinking about the timing around that? You’ve got a pretty decent cash balance here on a pro forma basis and it seems like you can build that a few million a quarter at this pace without the product market really ramping up from here. So as you think about the timing of a next dropdown or when you commence that growth, how should we think about that?

Spiro, I think you put it very well. As you say internally generated cash flow is a base case and there’s upside also from third party capital assuming that we can find capital that – with which we can compete accretive transactions. So look, as we just completed the refinancing, we are on the lookout to see what we can raise in terms of new capital, if any. As you say the cash balance is not bad. Of course, we don’t want to go a cash balance between 40 to 60 subject to our working capital requirements and other requirements should be maintained. And given where we are and what we expect to put aside going forward, we should be able to start dropdowns earlier than later. Traditionally we have done larger transactions. So to the extent that we can do that, we will deliver on larger transactions. But again, I think it’s best to get going sooner than later. So even a small transaction to begin with can be expected in the short term and I think that’s as much light I can throw into this question.

Okay. That’s fair. And just sort of along those lines you mentioned potentially third party capital. Just remind us again maybe what the sponsor’s appetite is to participate in a future equity raise and maybe historically what they’ve done on that front?

Well, the sponsor has participated I think in all but one equity offering one way or another. So the sponsor has always been very supportive of the Partnership sometimes also taking stock at a higher price than the trading price of the unit at the time. You saw that, for example, with the Amore dropdown back in September of last year. So overall, the sponsor has been supportive and that’s all I can say I guess at this point.

Okay. Last one for me, just want to get a follow up to a prior question. You mentioned that potentially going out to the third party, second-hand market to buy a vessel but of course your huddle there is that that’s mostly – that was what was on the spot market. And so I guess my question is why not buy it on the spot market here? It seems like your risk to the downside is limited from a spot basis. It can only go up and why not charter that yourself to a third party or even pre-negotiate a charter with Capital Maritime to get a deal done?

Correct. That could be done as well. Of course, we still have the transactional issues because CPLP cannot necessarily pull a deal without having the approvals in place, the finance in place not as easy as Capital Maritime can do, for example, which is a more speculative vehicle. But in theory, yes, that could work. We’re definitely not adverse to such thinking.

Got it, awesome. I appreciate it, Jerry. Thank you.

Thank you, Spiro.

Your next question is from the line of Ben Brownlow from Raymond James. Your line is now open.

Hi, Jerry.

Hi, Ben.

Thanks for taking my question. I’m pretty much – you’ve answered everything but just one for me on the profit sharing with the Miltiadis, that 50-50 profit sharing. Can you just talk about the general methodology and approach in determining that 22,000 a day threshold?

Right. So effectively and what this means is that every six months the charter Capital Maritime will close their books and see what the time charter equivalent has been for this six months period from the various voyage or time charters, whatever employment they have provided for the vessels. So if that TCE, the time charter equivalent is above 22,000, so call it – let’s say for example it’s 25, $1,500 per day for this six months period will go to us and the other $1,500 will remain with the charter.

Understood. But why not 21,000, 23,000? I’m just trying to better understand how that threshold is?

Okay, I see. It’s a negotiation. In the end it’s a negotiation between the conflicts committee and Capital Maritime. But what I can tell you is that if you look at the brokers’ estimates today, you’ll find that their one year estimate – one year time charter estimate for Suezmax is between $17,000 to $18,000 flat. So effectively here the Capital Maritime is giving an upside that it’s not really in the market. It has to be supportive of the Partnership. But because the market is so depressed, the only ask was that this profit share will start a little higher than the floor rate. But in reality this kind of charter would be very difficult to procure in the normal market from a third party. And for us I think what it does is that in case the market really picks up. So for example, seasonal spikes and so on and so forth, we at least get part of that rather than just getting the floor rate. So I think it’s situations where the market is so depressed, it’s good to have some profit share element to that to at least ensure that we don’t lose out if things pick up.

Great. That’s helpful. Thank you.

Thank you, Ben.

[Operator Instructions]. Your next question is from the line of Mike Gyure from Janney & Co. Your line is now open.

Thanks. Jerry, real quick on the cost side of things. I guess are you seeing anything unusual on the operating expense side? And then maybe what are you looking for as far as drydocks in the next couple of quarters?

Sure. The operating expenses on average have been flat but you have to take into account that as we highlighted in our press release that compared to last year, we have three more ships incurring operating expenses that were previously on bareboat. So that makes a difference in absolute numbers. But in terms of average OpEx, overall I would say they are relatively flat compared to the last few quarters with some volatility which is natural from quarter-to-quarter. In terms of drydocks, we have if I recall correctly four drydocks this year and it’s two Suezmaxes and two MRs.

Great. Thanks very much.

We’ve got no further questions at this time. Please continue.

Thank you all for joining us today.

That does conclude your conference for today. Thanks for participating. You may now disconnect.