Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Second Quarter 2021 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone today's conference is being recorded and is now being webcast at the Company's website at www.gencoshipping.com. A replay of the conference will be accessible at any time during the next 2 weeks by dialing (888) 203-1112 or (719) 457-0820 and entering the passcode 8885406. At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission including, without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2020, and the Company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC. At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

Good morning, everyone. Welcome to Genco's Second Quarter 2021 Conference Call. I will begin today's call by reviewing our year-to-date highlights, providing an update on the company's new comprehensive value strategy, financial results for the quarter and the industry's current fundamentals and then open the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. The second quarter of 2021 was a transformative period for Genco. In April, we announced our new comprehensive value strategy centered around growth, deleveraging and dividends. Since then we have made notable progress working towards paying our first dividend under this strategy. Highlighting our strong progress in achieving growth objectives over the last 4 months, we have agreed to purchase 6 modern, fuel-efficient Ultramax vessels to build out this core portion of our fleet to 15 ships. We believe that we are at a unique point in the drybulk cycle with freight rates at their highest levels in over a decade while values which have increased year-to-date have lagged the upward trajectory of earnings. This creates compelling return on capital opportunities. To capitalize this and to derisk our latest purchase of 3 Ultramaxes, we secured 3 2-year charters at rates ranging from $23,375 to $25,500 per day locking in an unlevered cash-on-cash return of approximately 50% over this period on those 3 newly-acquired ships. In terms of our proactive deleveraging progress, during the first half of 2021, we repaid $82.2 million of debt or 18% at the beginning of the year debt balance. This included the retirement of our scrubber facility as well as the prepayment of our revolver. Financial deleveraging is a key part of our value strategy. Therefore, given the strong market, we believe it is prudent to accelerate debt repayments to further fortify our…

Thank you, John. For the second quarter of 2021, the company recorded net income of $32 million or $0.76 and $0.75 diluted earnings per share. A 216% year-over-year increase in our fleet-wide TCE to $21,137 per day was a primary driver resulting in increased adjusted EBITDA of $50.2 million. During the quarter, we continued to further strengthen our balance sheet through operating cash flows from fair market conditions together with opportunistic vessel sales bringing our cash position to $161.2 million including $44.9 million of restricted cash as of June 30, 2021. We also reduced our debt balance in the year-to-date by 18% through a combination of scheduled debt amortization as well as the prepayment of our scrubber and revolving credit facilities. As a result, our debt outstanding is $367 million as of the end of the second quarter, which after considering our cash position resulted in net debt of $206 million. Genco's already low leverage position and strong freight rate environment have enabled us to enter into a new global refinancing of our debt. We appreciate the strong and ongoing support from our leading banking group. As a key step towards implementing our comprehensive value strategy, we have entered into an agreement with our lenders for the $450 million credit facility, which consists of a 5 year term loan together with a sizable revolver that can be used for growth. This new debt structure will provide improved capital allocation flexibility and significantly reduce our cash flow breakeven rate, which combined with the strength of our balance sheet provides a solid foundation for our value strategy and our goal to distribute sizable dividends to shareholders. The $450 million credit facility provides for a $150 million term loan and a revolving line of up to $300 million, which can be used for…

Thank you, Apostolos. During the second quarter of this year, freight rates continued to increase to 10 year plus highs driven by a resurgence of global economic activity leading to augmented demand for raw materials. Spot freight rates for both Capesize and Supramax vessels currently stand at over $30,000 per day. During the first half of the year, global steel production rose by 14% year-over-year supporting the iron ore trade and Capesize rates. While China's output rose by 12%, ex-China has seen a notable rebound rising by 18% year-over-year led by India, the EU and Japan. We have also seen a recovery in the Brazilian iron ore trade, which is up by 11% year-over-year. There is a highly seasonal weighting towards the second half of the year for Brazilian iron ore exports, which historically rise approximately 20% from July to December versus January to June. On the minor bulks, rates have been driven by strong grain demand from China. Additionally, we continue to see increased shipments in minor bulk commodities closely linked to global GDP growth and economic activity. Regarding the vessel supply side, net fleet growth year-to-date is approximately 2%. The order book as a percentage of the fleet is 6%, which compares to 7% of the fleet that is greater than or equal to 20 years old. Encouragingly, new building vessel ordering has been relatively low this year despite the strong market conditions. We believe these positive supply and demand dynamics provide a solid foundation for the drybulk market and lead to low thresholds for demand to exceed to improve fleet-wide utilization and freight rates. For the balance of the year, we expect increased iron ore exports to be a catalyst for Capesize rates, while increased grain exports from the Black Sea region in August are expected to be supportive to Supramax earnings in the Atlantic Basin ahead of the North American grain season in the fourth quarter. These demand drivers are expected to be met by favorable supply side fundamentals underpinned by the historically low order book. This concludes our presentation. And we would now be happy to take your questions.

We will move on to our first question from Randy Giveans of Jefferies.

Congrats, obviously, on the best quarter in a decade. I'm sure I'll say the same again next quarter but I guess, 2 questions for me. First, you mentioned you're going to repay $117 million in debt during the back half of the year, you also have I believe $87 million due to complete the acquisition of the 4 vessels. So I guess, where does that put your balance sheet and your maybe financial flexibility for future acquisitions or maybe even share repurchases at this point in the next few months?

I mean look, we -- a couple of things. So the 3 ships that we just bought or agreed to buy, which we'll be taking delivery of between August and October, as you saw we did de-risk those purchases with time charters on 3 of our existing ships, 2 years between $23,375 and $25,500. As I said in the opening remarks that actually yields a 50% cash-on-cash return. So you're effectively paying off half of the purchase price over a 2-year period on ships that are 2017 and 2014 built. So I think we've done a pretty good job of de-risking and covering. We have a very large revolving credit facility in place. I think part of that was to have additional firepower for acquisition. But having said that, we're also concentrated on the value strategy and deleveraging the balance sheet. So for the time being, I think we're very happy with the acquisitions we've made, Randy. But we certainly definitely will still have cash at the end of the year after the paydowns and taking delivery of the ships. So we'll take it as it come, and we're going to continue to look for opportunities. As I mentioned on the call earlier, values are still compelling from where freight rates are and where time charter rates are. Again, evidenced by those 2-year deals that we did a few weeks ago.

Sure. Yes, I can see that as well. And then speaking of those charter rates that you mentioned there, you chartered out a few of those Ultramaxes, very strong rates, as you mentioned, $23,000, $24,000, $25,000 for 2 years. I guess a few questions around that. Any additional appetite for further Ultramax charter outs or is there kind of a base level of spot exposure you want to have there? And then as it pertains to the Capesizes, I think you only have one charter there or maybe 2. Is the reason that charter activity and rates aren't as elevated on the Capesizes because of maybe uncertainty around Chinese steel production? And really, I'm just trying to ask you about that as well, so kind of a 2-for-1 question here because that's clearly the big concern in the market.

So in terms of chartering activity, we may do a couple more on the Ultras but I think you're going to see us focus more on the Capes in terms of locking up cash flows. That is the most volatile sector, and as we come closer and closer to implementing fully the value strategy I think it makes sense to have coverage in place. Rates today in the Capes are still probably around $30,000 a day for 1 and 2 year rates are probably $24,000 to $25,000 a day. So good, healthy numbers. Having said that, the spot market is actually quite a bit higher. My guess is as the spot market continues to hold up over the next couple of months and increase along the lines of the FFA curve, you'll see those charter rates move up further. But I think that's where you're going to see us concentrate a little more on de-risking and our portfolio approach and putting some more ships away under longer-term charter.

Got it. On the steel front.

Yes. So look, on the steel front, in typical fashion there is a lot of conflicting reports. And a lot of times, we see the Chinese government say things but not necessarily execute. I do think -- it seems like there is definitely some curtailment on steel production. I think a lot of it's centered around the Communist party anniversary and reducing pollution, particularly around Beijing. It's possible that will continue for a little while, but we don't see any fundamental shift. And I would point out that the most important thing to drybulk shipping and in terms of China is iron ore shipments. Now, granted the steel production goes into that, but the reality is Brazil is continuing to ramp up and get their logistics system back up and running after early 2019. And we expect those volumes to continue. We've seen this before where even steel production has been flat, but yet iron ore imports continue to move up. And as we're going into the second half of the year, again typically stronger seasonally second half of the year, for Vale it's usually 18% to 20% higher in terms of shipments in the first half. I don't see too much of a change in that right now. And I also think the Chinese government was trying to put some downward pressure on iron ore prices, which successful no doubt about that, but that opens up steel margins. So it's actually better for the steel companies to see some of these lower iron ore prices. And quite frankly, Vale and the Australian iron ore miners have low cash flow breakevens on iron ore production. So any -- these slight movements downwards are -- they're still producing excellent cash flow. So a long answer to that, but reality is we continue to think the market firms coming into the third quarter here on the Capesize and the Ultras for that matter.

Yes, I appreciate the color and I agree. Obviously, the increase in Vale exports and really the non-Chinese steel production ramping as well could offset that.

We'll move on to our next question from Omar Nokta of Clarksons Securities.

I guess, as Randy said, congratulations on I guess on several fronts, the earnings and then also this refinance, the acquisitions and the new JV. I did want to ask about the $450 million credit facility, which with the $300 million revolver it's a pretty decent-sized revolver, I'd say and one I don't think I've really seen much of in the shipping space over the past several years. So I guess, kudos to you on being able to get a revolver that size. But also I wanted to ask in terms of how the mechanics of the revolver, how does that work in terms of vessel acquisitions? We've seen it where if you have a revolver and you use it to buy ships, the --that portion that's been drawn converts into a term loan. Is that what's happening here or does this stay on as a revolver?

Thanks, Omar. No, it's a regular revolver. It does not convert into a term loan. You're able to draw and pay back and redraw and it has regular quarterly reductions of about $11.7 million, but it does not term out. It's just a regular revolver and gives us plenty of flexibility going forward. I will also say that 5 of the vessels in our fleet will stay unencumbered, so that -- those provide additional flexibility for us in the future. And it also has an uncommitted accordion feature. So if we did want to increase the facility amount, we could do that by putting additional vessels in there.

Yes. I mean, Omar, I would look at it as a holistic $450 million credit facility. Yes, $300 million is a revolver and $150 million is a term loan, but it's really a $450 million facility that, as Apostolos says, reduces based on a 20-year amort schedule at $11 million and change per quarter. That's how I would view it.

Got it. Yes. Pretty nice schedule there. And then not that you would necessarily want to do this considering you're reducing debt fairly aggressively here, but just in terms of, let's say, all else equal you don't have that much drawn on the facility if you were to buy a ship for say, $30 million, could that be completely --fully drawn? If you were to pay $30 million for a ship, could you draw down $30 million to fund it or does it have to adhere to some LTV covenant?

You could...

Sorry, help fund that.

So you could draw down $30 million depending on the revolver availability, obviously. You would not need to put it out in as collateral. There is an overall covenant of 55% LTV, a drawdown, but that's for the whole revolver, right.

Got it. Yes. And I appreciate you kind of answering that. And then one kind of follow-up is, as Randy asked about, you intend to repay $117 million here during the second half, get you down to that $250 million at year-end. And it sounds, if I recall it, Apostolos you mentioned that you're not going to stop there at year-end $250 million, next year you intend to continue paying down debt. Is there a certain level or amount that you intend to pay or you have a target of how much of that $250 million you want to pay down next year?

Great question, Omar. So we don't have a target set yet but as we're coming into the next quarter earnings call, if you will, we -- if you think about it, we will have our third quarter cash flow in the bag, so to speak, we will have probably 60% of our fourth quarter fixtures done. So we will have a very good sense coming into the end of the year, our cash position and how much we'll be paying ultimately down too. Clearly, the target is $250 million, it'd be great if we could go lower than that, but that's going to depend on freight rates. So also at that time we're going to take a view on 2022, and we will then let the market know what we plan on repaying for debt for 2022. So it's a little bit of a let's wait, let's make sure we have as much information as possible as we head into year-end, and then we can set that repayment for 2022.

Makes sense. It sounds like you're -- no matter what the amount of debt outstanding at year-end, if I just do a simple calculation, will be below the scrap value of the fleet, so not a bad place to be.

Yes. Yes. And basis today's scrap values? Yes, that -- I would agree with that. But look ultimately, Omar, one of the key tenets of this strategy is obviously get down to that net debt 0 because we want a rock solid, low cash flow breakeven rate so that we can continue to pay dividends throughout any type of market cycle.

We will now move on to our next question from James Jang of Univest Securities.

I have a couple of quick questions. We're expecting a start of a real super cycle in the drybulk sector in the coming year, and we're expecting that to last about 2.5 to 3 years. My question is, are you open to chartering in vessels at current levels if you are -- if you have the same sentiment as me with the super cycle coming up or would you like to own vessels?

I think it's a little bit of both. So first of all, we definitely are in the owning vessel business and will continue to be. But as part of our -- particularly our minor bulk strategy, we do quite a bit of booking of forward cargoes and using other people's vessels at times to move those cargoes. So we do charter in. But those typically be -- those are typically for short-term cargo covering where we believe we can make a profit on those liftings. We have done some longer-term charters in the sense of 3 to 5 months or 4 to 6 months. But again, that's on the -- usually on the back of a decent backhaul cargo, so that we're covering quite a bit of the -- of that minimum period and then using it to make money on the front haul. What I think you're referring to is longer-term charters, longer-term chartering in. And I would say, no. We -- that -- we view that as quite a bit more risk to do longer-term charters. We have a large enough fleet where we can operate very efficiently, and we'd rather use our minor bulk fleet, trade around that with 4 cargoes, and as I said, on a short-term basis use -- potentially use other vessels outside of our fleet. But long term, I would say the answer is no. We just look at that as dialing up the risk too much.

Got you. Okay. The next question is on the expensing. So with the smaller vessels folded in, do we assume that the Cape will be in the next month that you would look at or you view maybe more of still a case-by-case basis and value?

I would call it a case-by-case basis. We have a barbell approach where we've identified we want to continue to grow in Capes and Ultras. There have been some very compelling Ultramax transactions that we've been able to execute on, which we have quickly and definitively. The Capesize market in terms of acquiring eco vessels, which is what we are focused on, is a little more challenging in the sense that the market is not as liquid as the eco Ultramax market, but we will definitely continue to look at that. And if we see an opportunity then we'll move on it.

And it appears we have no further questions at this time. I'd like to turn the conference back for any additional or closing remarks.

Thank you, everyone, for participating today, and I hope everyone has a nice day and enjoys the rest of your summer. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.