Global Ship Lease, Inc. (GSL) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Global Ship Lease Q3 2014 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. And I would now like to introduce our host for today’s conference, Ian Webber, Chief Executive Officer of Global Ship Lease. Please go ahead sir.

Thank you very much. Good morning, everybody and thank you for joining us today. As ever you’ve been able to have a look at the earnings release that we issued earlier this morning, and been able to access the slides via our Web site that accompany the call. Slides one and two of the presentation reminds you that the call today may include forward-looking statements that are based on current expectations and assumptions and are by their nature, inherently uncertain and outside of the Company’s control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation. We also draw your attention to the Risk Factors section of most recent Annual Report filed on Form 20-F, which you can obtain via our Web site or via the SEC Web site. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measure calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning. I’ll start today’s call by reviewing the third quarter highlights and we’ll then provide an overview of our fleet and our growth strategy. After that, I’ll offer some comments on the container shipping industry, as well as the market opportunities that exist for acquisitions in the space. Following that, I’ll turn the call over to Susan for her commentary on our financials. Then after brief concluding remarks, we would be pleased to take your questions. Slide 3, shows the highlights for the third quarter. The third quarter of 2014 was a milestone quarter for Global Ship Lease. First we continue to generate strong and predictable results for our shareholders with revenue of $34.2 million and adjusted EBITDA of just over $20 million. Second, we successfully returned our fleet to full contract coverage early in the quarter by agreeing to an additional time-charter for Ville d’Orion with Sea Consortium, Sea Consortium charter had two 4,100 TEU vessels Orion and Aquarius. First we took important steps in improving our financial and strategic flexibility and expanding our earnings power by redeeming the $45 million Series A preferred shares at a significant discount to their liquidation value funding the redemption primarily through the issuance of 35 million Series A cumulative perpetual preferred shares. This transaction replaced short-term debt the A preferred shares with permanent capital that the perpetual preferred shares that is effectively non-dilutive equity while generating a non-cash gain of $8.6 million. This not only strengthens our balance sheet but also removes the restricted covenants included in the old Series A preferred shares, which hampered our ability to raise unsecured capital down the road meaningfully enhancing our ability to pursue further growth. Finally and most importantly in the quarter we took a major step forward in the execution of our growth strategy. The purpose of which is to bring us to a position where we’re able to pay a meaningful and sustainable dividend by entering into a $55 million sale and leaseback transaction for an 8,100 TEU containership the OOCL Tianjin. That transaction was with Orient Overseas Container Lines Limited OOCL a top tier container liner company. We completed on that purchase two days ago, Tuesday this week October 28, and the vessel immediately commenced its timecharter back to OOCL for a period of 36 months to 39 months charter option and at a rate of $34,500 a day. This acquisition which I’ll come back to in more detail later in the call significantly increases our earnings power as it is expected to add approximately $9.4 million of annual EBITDA and will increase our total contracted revenue by between about $38 million and $41 million. Further the transaction diversifies our customer base with our top tier charter in OOCL and takes as a big step forward in our objective of being able to unlock value for shareholders. Moreover we see further scope for transactions comparable to this one to take advantage of cyclically low asset values to create value of our shareholders adding additional earnings to put us a position to introduce the dividend. Later in the call I’ll provide more detail on the trends and opportunities that exists in the current market. Slide 4, summarizes our financial results over the past five years. Our business model focusing on long-term fixed-rate charters with high quality counterparties has offered us consistency and stability in a market with significant cyclical volatility which you can see at the top of the slide which is an indication of timecharter rates, the red line. In contrast our results at the bottom of the slide are largely insulated from the dramatic swings of the broader market. This strategy has also enabled us to consistently maintain the fleet utilization at or near 100% excluding schedule drydockings, resulting in strong and predictable cash flows. Our utilization of 97% for the third quarter, down from the 100% is primarily attributable to 16 days of idle time at the start of the quarter related to the Orion prior to its deployments on its new charter with Sea Consortium, and 29 days for planned drydockings for two vessels. After these drydockings there are no further regulatory drydocking scheduled for 2014 and next year only the Tianjin early in the year is scheduled for a drydocking. On Slide 5, we show our fleet and charter portfolio including the recently purchased Tianjin. The weighted average age of our fleet is approximately 10.6 years out of an economic life of 30 years. As I mentioned previously we have significant forward visibility with an average remaining contract term of 6.5 years excluding the two 4,100 TEU vessels which now operate on short-term contracts. As of today total contracted revenue stream stands at approximately $900 million that includes the Tianjin. We although substantially insulated from market volatility in the coming years with no charter explorations until late 2017 aside from the two spot market vessels that we have continued to have success in employing. As I mentioned on the second quarter conference call the Julie Delmas one of our geared vessels which had operated earlier in the year at a reduced daily charter rates related to a damage crane was fully repaired and from July 14 this year moved back to her full $18,465 per day charter rates. Our substantial contracted revenue stream strong consistent earnings and insulation from the swings of the market puts us in a strong position from which to execute our growth strategy. And this is outlined on Slide 6. First it is our intention to maintain strong contracted coverage for our fleets with high quality counterparties primarily on longer term fixed rate charters. That provides a base load of earnings on which we can capitalize. Second, we’re looking to diversify our charter portfolio with additional top-tier liner operators to complement our strong relationship with CMA CGM. We’ve made considerable progress in diversifying our customer base by placing the two vessels on the charters with Sea Consortium and establishing a relationship with OOCL through the sale and leaseback of the Tianjin. And we remain focused on this as an important component on our strategy. Third we have seized opportunities throughout the year to improve our financial and strategic flexibility add to our immediate liquidity and strengthen our balance sheet increasing the control we have over our future rather than just working for the banks for as long as the restrictive loan-to-value covenant in the old credit facility obliged us to do. Our recent Series B perpetual preferred offering and the redemption of this Series A preferred shares of discount is the latest in the series of actions regarding our balance sheet taken during 2014 which included the $420 million bond offering in March and the current establishment of the $40 million revolving credit facility. All of these put us in a position to be able to grow allowing us to use our liquidity and act decisively and effectively when the opportunity arose, for example to purchase the Tianjin. We pay for this vessel out of our cash resources leaving the $40 million revolver undrawn and representing therefore immediately available liquidity. And this will be augmented month-by-month by our positive cash flow. Consequently we’re well positioned to effect further acquisitions which I’ll come back on to. The improvements that we’ve made to the flexibility of our capital structure through 2014 have also established our ability access a number of different sources of capital to fund accretive growth without diluting our equity shareholders. Continuing to identify and act upon opportunities to further improve our balance sheet and financial flexibility remains an important real time objective for us. Finally we continue to strongly believe in the importance of a meaningful and sustainable dividend for our shareholders. As we evaluate additional charter-attached vessel acquisitions at a time of cyclically low asset values we do so with the goal of generating additional EBITDA and net income that will enable and sustain the payment of such a dividend. At this time last year we were totally bound by restrictive credit faculty that prevented even the contemplation of a dividend payment. Through the refinancing that we’ve effected earlier this year, we removed that restriction and established a way forward by which we could begin returning value to shareholders in the form of a dividend. Subsequent success in swapping out our old preferred shares with the new perpetual preferred shares treated as equity had expanded our capacity to pay a dividend as the net proceeds from $35 million dollar perpetual offering increased the size of the basted out of which dividends can be paid. As you may know we can begin to access that basket when our fixed charge coverage ratio is over 2.25 times, this ratio is based on the last 12 months actual results adjusted pro forma for acquisitions and the associated financing. The addition of the $9.4 million of EBITDA to our run-rate from the Tianjin is a huge step towards meeting that test. We continue to focus on further additions that will increase our EBITDA to be able to pass that test. And to be quantitative we believe that by executing another transaction similar to the Tianjin would get us very close to achieving a fixed charge coverage ratio of 2.25 times or more. When we do and as with all dividend declarations the specific timing and size of the dividend policy will be determined by our Board taking into account circumstances at the time. However I can assure you that we consider the payment of a meaningful and sustainable dividend as soon as possible to be an objective of central importance to us. Turning to Slide 7, you’ll see an outline of the sale and leaseback transaction that I previously mentioned and which provides a good example of the successful execution of the growth strategy that I have just outlined. Indeed this transaction matches the acquisition characteristics that I have discussed on previous calls. Specifically our midsize vessel to be timechartered back to a quality counterparty with an immediate and significant addition to cash flow and strong overall return metrics. So earlier this week we took delivery of this 8,100 TEU vessel built in 2005 and immediately commence the timecharter back to the seller at a rate of $34,500 a day for three years and one quarter at charters option. This immediately accretive acquisition diversifies our charter portfolio increases our contracted revenue by up to $41 million and is expected to generate annualized EBITDA of around $9.4 million, representing a purchase price to EBITDA multiple of better than six times and equivalent to a 17% free cash flow yield. Overall we assess the IRR on this project to be mid-teens and higher. These are the criteria which we’ve outlined to on previous calls. And we have done what we said we would do. As I’ll describe and quantify in the coming slides this vessel also complements our existing fleet composition and falls into the range of small to medium size vessels that should benefit from an attractive supply balance in the coming years as the order book as we know focuses on very large vessels that are suited to serve some of the world’s more active and by volume larger in aggregate tradelanes. Slide 8, illustrates the increasing flexibility of vessels like the Tianjin. 8,000 TEU vessels enter the global fleet in the early 2000s being deployed mainly on the Asia Europe tradelane and then into the Transpacific. As the industry has upsized these vessels have been deployed on an increasing number of tradlanes. The slide shown that at the end of 2012 they were deployed on about 9 tradelanes in the world, a year later it was 12. Consequently we believe that this is flexible tonnage being deployed in increasing number of tradelanes around world with a good future. Our success in purchasing this vessel was a result of our industry contacts and experience, the Company’s track record for operational performance as an owner with minimal off hire other than for drydockings and our strong balance sheet and immediate liquidity. The transaction meets our strict vessel investment criteria, it diversifies our charter portfolio, it’s immediately accretive to earnings and cash flow allowing us to benefit from counter cyclical growth opportunity, and this is an important milestone in the execution of our growth strategy. Furthermore we believe that additional attractive opportunities exists in the market and it is our intension to seize upon those opportunities for the benefits of shareholders. In the next several slides I will briefly discuss the state of the markets and the positive acquisition environment. You’ve seen these slides before and the essential messages are unchanged. So I’ll move through it reasonably quickly. The key takeaway from Slide 9, is that forecast for demand growth in 2014 and ‘15 exceeds forecasts to supply growth. This is good news for the overall supply demand dynamic. Furthermore not on the slide but the order book remains low by historic standards at a touch under 20% order book to fleet ratio. Scrapping continues at record highs with over 350,000 TEUs scrapped in the first nine months of the year. So all things equal there should be a tightening of the supply demand equation which should lead to improved economics for vessel owners and for operators. However as we know the macroeconomic environments is currently fragile and the time when the container shipping industry enters its seasonal slowdown. But for GSL we have only two vessels on short-term charters and we’re thus largely insulated from short-term market conditions. As we previously discussed the order book is self heavily skewed towards the very large containerships over 10,000 TEU putting added pressure on the main east-west tradelanes, Asia to Europe and the Transpacific and also on to the Cascade. All of this leads to potential weaknesses in freight rates and continuing to press charter rates and asset values in the short-term markets. The corollary to this which is our investment thesis is the mid size and smaller fleet is under-represented in the order book leading to modest supply growth potentially completely offset by accelerated levels of scrapping. These vessels mid-sized and smaller are deployed in the mid-size and smaller tradelanes which on Slide 10 shows in aggregate represents approximately 70% of global container trade, that’s the pie chart on the left. And which have shown the most resilience in terms of demand growth the bar chart on the right. Mid-sized ships to smaller is our area of focus for both our existing fleet and growth opportunities. Slide 11, is an update of the freight rate environment which continues to be volatile, although periodic general rate increases imposed by the carriers can be seen to have a positive effect. This slide also shows that timecharter rates remain flat. The timcharter line on the chart masks the facts that recently Panamax timecharter rates in the spot market have firmed driven by lines upsizing their West Africa services together with the effects of scrapping levels. It is unclear whether this improvement will continue as we enter the slow season. Finally Slide 12, shows how asset values have developed in the last 14 years or so. With the decline in the second hand price index in the last quarter three of 2014 the environment remains extremely attractive the purchases of tonnage with immediately available liquidity. We will however remain disciplined in our approach to acquisitions and we’ll only enter transaction that meets our strict investment criteria. Let me now hand over to Susan for her commentary on our financials.

Thanks Ian. Please turn to Slide 14 for our summary of our financial results for the three months ended September 30, 2014. We generated revenue of $34.2 million during the third quarter down 1.9 million from revenue of $36.1 million in the comparative period in 2013. The decline is due mainly to reduce revenue income full vessels following three year charter expansions at a lower daily rate of $15,300 compared to $18,465 previously; these were effective February 1st, this year. And from 16 days idle time at the start of the quarter for Ville d’Orion until the commencement of the new charter with Sea Consortium on July 17th of this year and together we’re 29 days off hire for two planned drydockings. These 45 day plus five days of unplanned off hire during the three months ended September 30th, resulted in the utilization rate of 96.8%. In the comparable period for 2013 there was no off hire, so utilization of 100%. Vessel operating expenses were $12.5 million for the three months period with an average cost per ownership day in the third quarter of $7,984 compared to $7,127 for the same period in 2013 up $857 or 12%. The increase was primarily related to $0.4 million repositioning cost for Ville d’Orion prior to commencement of a new charter which is equivalent to $261 in the quarter across the fleet and to higher crew costs. Interest expense for the three months ended September 30, 2014 was $11.9 million including interest and amortization of deferred financing costs and regional issue discount on the notes. Interest on the $45 million Series A preferred shares until they were redeemed and the commitment fee on the Company’s undrawn $40 million revolving credit facility. In the prior year period interest expense was $4.7 million on borrowings under the Company’s credit facility and the $45 million Series A preferred shares. Our derivative hedging instruments which were all terminated on March 19th, this year at no effect on the results for this Q3. This compares to a realized loss of $2.9 million and $1.4 million unrealized gains in the comparative period last year. Net income available to common shareholders for the third quarter was $6.4 million after the non-cash gain on redemption of the Series A preferred shares of 8.6 million. For the prior year quarter net income was $7.3 million dollars after the $1.4 million non-cash interest rate derivative mark-to-market gain. Our normalized net loss adjusted for non-cash items was 2.2 million for the three months ended September 30, 2014 and normalized net income for the comparable prior year period was $5.9 million. Slide 15, shows the balance sheet and the key items as at the quarter end this year included cash of 64.4 million out of which we funded the purchase of OOCL Tianjin. Total assets of $877.5 million of quarter $790.6 million is vessels. A total debt of $414.4 million following the redemption of the Series A preferred shares and shareholders’ equity of $439 million which includes net proceeds from the issuance of the Series B perpetual preferred shares during the quarter. Slide 16 shows our cash flow. The main items to mention here are the issuance of the new Series B perpetual preferred shares and associated redemption of the old Series A preferred shares of $36.4 million. I would now like to turn the call back to Ian for closing remarks.

Thank you. Before we move on your question, I’d like to use Slide 17 to briefly summarize core strengths and strategy for creating value for our shareholders. First sale and leaseback of the OOCL Tianjin marks a major set forward for Global Ship Lease adding up to $41 million of contracted revenue and generating approximately $9.4 million in annual EBITDA in each of the next three years. We diversify our charter of portfolio with this 36 months to 39 months charter to a top-tier container liner company OOCL were delighted to have established a relationship with them. Second, excluding the two 4,100 TEU vessels. Our fleet is fully contracted through to late 2017 with contracted revenue of approximately $900 million and a weighted average remaining contract duration of 6.5 years as of the delivery of the Tianjin this week. This strong contracted coverage and our forward visibility on cash flows insulates us from market volatility and puts us in a strong position to pursue additional growth opportunities that will support the payment of a dividend in due course. Third, we benefit from a strong and stable capital structure with no refinancing requirements until 2019 when our secured notes for due, incidentally call in April of 2016. And we no longer have any of the restrictive maintenance covenants particularly loan-to-value that prevented us from growing in the past. Additionally we were able to successfully replace short-term debts represented by the old Series A preferred shares with new perpetual preferred shares the Series B shares that are treated as equity without any dilution to our common shareholders. Finally even after funding the OOCL transaction we have capacity to continue to execute our growth strategy. In the current market conditions opportunities exist to make mutually accretive charter-attached acquisitions while asset values are still significantly below the historic averages. We will remain disciplined in our evaluation of such opportunities but we’re not convinced with the purchase of only a single ship, rather we’re determined to follow on the success of that first transaction acquiring additional vessels that will expand our contracted revenue and our EBITDA to further diversify our charter portfolio with high quality charters and build our cash flow and EBITA for the future to create value for our shareholders. We believe that there is considerable value in Global Ship Lease based not only on our existing vessels and the substantial contracted revenue attached there challenges, but also on our financial position demonstrated excess to new capital sources and our compelling growth prospects. And as a result of all of these we believe that our shares are undervalued of their current levels. I am going to take this opportunity to remind you as I think I’ve said before the growth is not simply growth for growth sake, cash accretive additions to our fleet are essential to unlock our capacity to pay a meaningful and sustainable dividend and we’re committed to executing on that plan to ensure that the inherent value in GSL is reflected in our market valuation. In the mean time we welcome ongoing conversation with our shareholders and remain committed to telling the GSL story to both the buy and to the sell side. With that I would now like to hand the call back to the operator who will explain the Q&A process.

Thank you. [Operator Instruction]. Our first question comes from Mark Suarez with Euro Pacific Capital. Your line is now open.

Ian maybe we can just talk about your acquisition strategy for a second. My understanding obviously you talked it in the past the strategy is to continue to take ownership of charter-attached vessels as you’ve done with the sales leaseback transaction. Now looking at the market right now where we stand especially given that cascading effect from the post Panamax to the Panamax in the sub Panamax segments. Do you now have a preference as to what sort of vessel size segment you’re willing to consider little bit more closely as you engage in your growth strategy.

Well our view does evolve at the margins as we said previously that yes mid-size is smaller so the 7,000, 7,500 and below. But we’ve done a lot of work during this year on the 8,000, 8,100 segments and we now consider as the industry is generally upsized but that category of vessel is mid-size accounted mid-size in smaller, and we’ve included that slide in the presentation sharing how those vessels are being deployed in ever increasing numbers of tradelanes throughout the world and we think that they since at the top of the cascade and we will have a long term future. And you were right we continue to focus on charter attached deals whether they are sale and leaseback transactions, which is the most obvious one for us to look at replicating the sort of deal that we have just executed or whether their existing vessels with existing charters, they are less prevalent. And with continuing pressure on the sector, the asset values remain low and therefore provide a good counter cynical investment opportunity and operators remain push for liquidity which may lead to an increased level of activity in sale and leaseback transactions as they off load some of their ships to generate cash.

So do you think sales leaseback will continue to be sort of the main strategy going forward and looking at more over the 12 to 18 months or?

Yes it will.

And then I think you also touched when you talked about the market environment, we have seen an improvement in Panamax rate with accelerated scrapping. And now as you look into this Panamax category, are you beginning to see that thing trend in terms of premature scrapping if you will. Is that something that you think is taking hold now vis-à-vis the last 6 months to 12 months?

Yes that’s some of that mark, its mainly for I guess on sort of Panamax segments as we’ve said it’s great to see that spot rates have moved up, we are concerned that the improvement is not sustainable as we move into the slow season and indeed there are some signs that the spot market rate is softening. But irrespective it’s good to see rates off the floor.

And then just lastly on the daily vessel operating expenses. I know you had some one-off repositioning cost. But as we take a look at 2015, should we think about a 7,500 to 7,700 sort of OpEx range as a reasonable run rate?

Well I would look at historic performance for us and then the long-term inflation of chip operating cost is 2% to 3% a year.

Thank you. Our next question comes from Andrew Casella with Imperial Capital. Your line is now open.

I guess first just a housekeeping item. Just on the dividend payment ability, when we look at the bond you guys can pay $7.5 million general carve out. And then you said the basket was increased by the proceeds from the recent preferred sale. And then you said it’s all subject to a 2.25 fixed charge coverage test. Just curious is that something you’ll have to achieve before you can payout any dividend or is that just to get access to the incremental basket that was generated from the preferred capital raise?

That is indeed a test and that was to access the incremental basket, the 7.5 million general restricted payment basket is fully available to us right now.

And then when you guys kind of think about capital deployment strategy and also the fact that your acquisition was funded all with cash on hand or equity. What kind of other financing mechanisms are you thinking about? Why didn’t you use leverage in this case? I know you have access to the preferred market also the tack-on with the 10% notes but also the term loan market. I mean if you could just kind of take us through why not leverage some of these transactions and potentially get to that 2.25 test by accelerating acquisitions faster?

Indeed, and I did say I think in my prepared remarks that we continue to look at alternate sources of capital to improve our immediate liquidity. You are right we could do a tack-on to the bond, we could raise additional perpetual preferred, we could look at putting regular bank debt on an individual asset and we could look at equity. But I’ll say now we would now look at raising any equity capital based on today’s valuations. The Tianjin, could we leverage on her? Maybe. Did we meet you at the time? No. Can we in the future? Yes. So we’ve maintained flexibility and the amount of leverage which was an almost 10 year old vessel with a three year charter. It wouldn’t be massive but it would contribute to driving up the internal rate of return. So that’s something that we’re actively looking at. And clearly would provide us with incremental investment capacity. So lots of potential opportunities for us to supplement the immediate liquidity that we have today.

And then another question just one of the trends that we’re seeing in shipping, outside the containership sector is definitely towards consolidation. How do you kind of see global ship lease in that respect? And also to the extent you see some of these charter-attached vessels coming for sales. Do you see any larger deals that are potentially coming down the pipeline, or how are you kind of thinking the opportunities going forward and the potential to do something a little more transformative that might be a larger fleet acquisition versus a single vessel?

That’s a huge question, clearly that’s sort of call for a transaction or participation in for example a significant new building program would be transformative. And we keep an open mind for those sorts of things. I mean clearly we wouldn’t want to talk about anything specific but we’re aware of the opportunities that could exist. In the mean time and alongside we focus on our core strategy of developing Global Ship Lease itself whilst keeping our eyes open for other opportunities which might accelerate progress.

And just my final question, you said the dividend payment policy is subject to kind of the conditions at the time. But I guess just generally speaking should we kind of look to other sort of yield curves as potentially what type of dividend payment could be implemented like a ship demand or ocean yield, just kind of general thoughts there.

The first thing that we need to do is get ourselves in a position where we can access that basket, because that provides us with the sort of funds if you want. And this isn’t the cash sitting in our balance sheet that we can only access; it’s a notional amount that the bond holders will allow us to pay away a dividend. But to access that we need to pass on a sustainable basis this fixed charge coverage ratio test. And we need to grow to be able to do that. So our immediate focus is on being able to access that basket. I’d love to be able to give you a figure and the time table and all the rest of it on a dividend and so on. But I think that’s premature. That said looking at the sorts of yields that competitors they do pay dividends. That would be an important factor in the Board’s consideration of a dividend level at the right time.

Thank you. Our next question comes from John Race with DRZ. Your line is now open.

Can you comment upon whether or not you’re looking at what for example Costamar is being doing which is aligning with private equity is a source of capital with which to make acquisitions and then even further the possibility of dropping down assets into an MLP? Have you investigated any of that?

Yes we have.

Is that available, is that potential, are those discussions available to you?

We believe those discussions would be available to us as I sort of previously said on to the last questioner. We can’t comment on anything specific. But we’ve seen what Costamar have don; we’ve seen what Seaspan has done; we’ve seen what private ship owners have done teaming up with major capital providers. Would we like to be able to access a much bigger pot of money to be able to play in the sector? Yes we would even if we had a relatively small share of OpEx. Will it help us get to our objective of creating shareholder value? Yes, probably. So we certainly don’t rule that out. As to MLPs that we need to look more closely as market structure, we were originally created as a sort of synthetic MLP, it would be great to be able to return to that sort of the profile. But as we said on the call and as I’ve indicated in previous answers to questions we need to put ourselves in a position to be able to pay our dividend first.

So you’ve talked a lot about improving shareholder value which hasn’t availed itself to you in this market. You do, but you also have I think in this call more served than any other call talked the need for a dividend and hopefully you are doing that because you realize that a dividend in those companies have pay dividend traded about twice the valuation you are trading at, and that would be a great way to enhance shareholder value. You agree with that?

Absolutely this is an evolution at Global Ship Lease; we’ve been taking huge steps forward in 2014. And this is the only reason that we’ve taken these steps forward is to be able to support a dividend to support equity price to return value to our shareholders and to be able to therefore have more flexibility going forward to do on events. It has to be a sort of a serial process we have to take out the old restricted debt, we did that in March. We’re not directly associated with the objective of reinstating a dividend but we also tied up the balance sheet by removing the old Series A preferred shares and eliminating what we describe as an equity claw in that instrument. So that gives us more flexibility down the track to raise unsecured capital including equity without looking for the holder of those preferred shares consent. And then finally along that path we’ve completed on the acquisition of this containership and we’ve demonstrated quite clearly that we can grow. We can grow in the way that we said we were going to, we can grow the way from CMA CGM, other people will do business with us not withstanding our close association with CMA. And we have talked a number of times on previous calls about the importance of the dividend. I agree with you that we have been less quantitative previously, but now that we’ve actually completed on this acquisition and another obstacle towards the goal of instating a dividend has been removed. We felt it appropriate to be more transparent with you guys.

So this last transaction you referenced in acquiring your latest vessel, it took roughly nine months from when I mean the strategy was implemented to being able to get that deal done. You foresee a similar timetable for the second deal that you need to get in order to achieve your debt coverage ratio. You think it’s going to take another nine months so you think you are further along as a result of the process?

We recapitalize, refinancing in March and we announced the acquisition of this vessel in September. So it’s six months, nevertheless it’s a long time and your point is valid. No I would be very disappointed if it was another nine months or six months before we were able to effect a further transaction.

Thank you. Our next question comes from [Chucky Madina with Southpole]. Your line is now open.

I have a few questions. First the bunker cost pressure you talked about the cost pressure. Bunker costs have gone down significantly in this quarter as you know, I was wondering if you could comment on the positive effects of that but also a couple that with there may be bounce back in costs related cost and given the ECA regulations coming into effect in January. And then I have a few more.

Sure yes bunkers cost have come down significantly as you know, which is good news for us indirectly we only incur a bunker cost if ships are far or idle, otherwise regularly bunker costs for the account our customer and the indirect benefits to us is if customer are charters CMA Sea Consortium, OOCL occurring lesser bunker then they’re earnings more their stronger counter parties. Yes there are increased regulatory hurdles to overcome, that’s a continuing trend we will have to deal with. It is the cost to compliance with ECA and all of the rest of it significant for Global Ship Lease, no it’s not. Again the majority of the ongoing cost is for our charters, they have to source fuel so on and so forth, lower sulphur content fuel in the emission controlled areas and regular way fuel elsewhere. We as owner have to make sure that if the vessels are going to trade to those areas and they’re equipped to carry the relevant fuel types and that is a relatively modest amount of capital investment, which we have done where we’ve needed to.

Next the dropped in the second hand index, it’s a non insignificant drop. I was wondering transactions are few and far between here. Can you please give us a sense behind this dropped age of vessels and size of vessels that have been transacted?

Yes it is quite steep drop; it’s very difficult to determine exactly what’s driving these sort of movements as indeed it’s very difficult to determine exactly what’s driving short-term charter rates. However now as the year has gone by increasing numbers of owners particularly in Germany have been distressed running out of liquidity now that’s led to accelerated scrapping levels and perhaps for ships which are less attractive in the repurchase market and that’s forcing asset values to close on this scrap value. And scrap value has gone down a little in recent weeks as well.

And lastly what is the expected drydocking cost of the Tianjin for the next year please?

Well what we’ve said previously is that on average the cost of drydocking one of our vessels based on our actual experience is approximately $1.6 million and that is on average $300,000 of loss of revenue because the vessel is off hire but 10 to 14 days and the balance $1.2 million $1.3 million is the check that we have to right to the yard and the suppliers of spare parts and tank, and I would expect that Tianjin’s to be there or there about.

Thank you. [Operator Instruction]. Our next question comes from Jim Marrone with Singular Research. Your line is now open

First of all Ian just wanted to congratulate you on a job well done as far as restructuring with the refinance and removing those restrictions and then pursuing a growth through acquisitions, so nice job well done. And then the question I had was in regards to lower bunker costs and how will it affect your operations. But I think it’s been addressed in the last question, so I don’t have any further question either than that.

I mean we may get a small of benefit eventually as lubricating oil costs might come down. We as owner bear the cost putting the oil in the engine and that tends to move over time the same way as bunkers. But I think oil prices have to be sustainably lower than it was previously for about to flow into, lubricating oil which is distillate obviously form of crude.

Thank you. Our next question comes from Zvi Rhine with Sabra Capital. Your line is now open.

Just a quick question on the Aquarius. I think that charter expired November 4th, they could have elected to terminate it earlier they clearly didn’t do that. Have they, given you any indication as to what their intention is? They extend at least for the next 30 days.

There is always a period, there is a range of redelivery date; this vessel was plus or minus 30 days. As we’ve commented spot rates for Panamax vessels had firmed recently. And given Aquarius is out at top charter $7,500, that’s below current market and one would expect the charterer to keep the vessel for as long as possible at the cheaper rates. So we would expect her to stay on charter towards the end of the maximum term. But yes she does come open this year and as we’ve said previously we have a number of options we could agree a new charter with Sea Consortium if they reminded to. If not for whatever reason we could seek a different charter, we’ll charter up, if nothing was available now and the seasonally weak parts of the year we could idle the vessel if we were confident of future employment opportunities at decent rates, and the last option would be to sell the vessel, either with a charter if we have one or more likely in these circumstances without. So those options remain available to us.

And Sea Consortium hasn’t given any indication if they want to continue on with the new charter at this point in time?

I wouldn’t as you'd expect discuss, commercial discussions. We will make an announcement in due course when it's appropriate.

I wouldn’t as you'd expect discuss, commercial discussions. We will make an announcement in due course when it's appropriate.

Fair enough. And last question -- maybe you won't be able to comment on this either. But given the increase in the spot rates, if you did a similar type of charter, where do you think it would be at? What would the daily rate be? And I know that you think that you're going seasonally slow curve to come down. Can you give us an indication where it is right now?

Well, I would think if someone was trying to fix a vessel for delivery today, you might be looking at 8 or little more -- $8,000 a day, $8,500 a day maybe. But don’t forget we're looking or Sea Consortium at least would be looking at this transaction from the perspective of agreeing a rate to apply from early December. So there'll be taking a forward view, and the stock market as I have indicated is softening. So we would love to be able to fix at today's levels, but the reality is that there's a tension in the negotiation between any charterer and any owner. Owner and charterers have different views.

Well, I would think if someone was trying to fix a vessel for delivery today, you might be looking at 8 or little more -- $8,000 a day, $8,500 a day maybe. But don’t forget we're looking or Sea Consortium at least would be looking at this transaction from the perspective of agreeing a rate to apply from early December. So there'll be taking a forward view, and the stock market as I have indicated is softening. So we would love to be able to fix at today's levels, but the reality is that there's a tension in the negotiation between any charterer and any owner. Owner and charterers have different views.

Thank you. And I'm showing no further questions at this time. I would like to turn the call back over to Ian Webber for further remarks.

Thank you everybody. Thank for listening, thanks for your questions. And we look forward to giving you further updates on our progress after we issue our fourth quarter results next year. Thank you.