Teekay Tankers Ltd. (TNK) Q4 2012 Earnings Report, Transcript and Summary

Welcome to Teekay Tankers Limited's Fourth Quarter and Fiscal 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Bruce Chan, Teekay Tankers Ltd. Chief Executive Officer. Please go ahead, sir.

Before Mr. Chan begins, I would like to direct all participants to our website at www.teekaytankers.com, where you will find a copy of the fourth quarter and fiscal 2012 earnings presentation. Mr. Chan will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter and fiscal 2012 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Chan to begin.

Thanks, Kent. Hello, everyone, and thank you very much for joining us. With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer; Brian Fortier, Corporate Controller of Teekay Corporation; and Peter Evensen, Teekay Corporation's Chief Executive Officer. During today's call, I will be taking you through Teekay Tankers' fourth quarter earnings results presentation, which can be found on our website. Beginning with our recent highlights on Slide 3 of the presentation. Teekay Tankers generated cash available for distribution before reserves of $0.13 per share in the fourth quarter. This is up slightly from the $0.12 per share generated in the third quarter, mainly due to stronger spot rates earned by our LR2 product tankers that provided a lift to overall earnings. We reported an adjusted net loss of $0.09 per share, in line with our adjusted net loss reported in the third quarter of 2012. The company declared a dividend of $0.03 per share for the fourth quarter, which is Teekay Tankers' 21st consecutive quarterly dividend and will be paid out on March 11 to all shareholders of record on March 4. Our dividend remains liquidity neutral, and in the fourth quarter, all cash available for distribution after reserving for debt principal repayments and estimated drydock expenses will be distributed to shareholders. We continue to focus on managing our fleet to ensure we maintain strong fixed cover during this period of cyclical weakness in the tanker markets. During the fourth quarter, we concluded a number of in and out-charter transactions, which when taken together, maintain our fixed rate coverage for fiscal 2013 at 42%, while providing Teekay Tankers the extension options to increase its tanker market exposure should spot rates exceed the option rate levels. In line with managing our fleet exposure to the spot market, we completed the sale of a 1998 built Aframax tanker that had been trading on the spot market for net proceeds of $9.1 million. Teekay Tankers remain financially well-positioned with total liquidity of $327 million as of December 31, with no significant debt maturities until 2017, allowing us to evaluate future growth opportunities without the need to raise additional equity at TNK. Lastly, reflecting a change in our previous approach of funding fleet growth through follow-on equity offerings, the Teekay Tankers' Board of Directors has amended its dividend policy from a variable dividend to a fixed dividend, commencing with the first quarter of 2013 dividend, payable in June 2013. The dividend will be fixed at an annual level of $0.12 per share payable quarterly, which allows the company to retain a portion of our operating cash flow to fund future growth rather than require an equity offering, which would be dilutive to our shareholders at today's low share price. Turning to Slide 4. We have provided a review of our fourth quarter financial results. As I mentioned, our fourth quarter cash available for distribution of $0.13 per share was up slightly from the third quarter, as seasonally stronger spot tanker rates were delayed into the latter part of the quarter and lower OPEC oil production offset any substantial firming in tanker rates. On a positive note, our long range product tankers benefited from increased demand for product shipments, a trend we believe will continue in the medium-term due to increased refinery capacity east of the Suez Canal. Turning to Slide 5. We have provided the details of our recent time-charter transactions and vessel sale. We continue to actively manage our operational leverage appearing time-charter-out contract, in the money time-charter-in contracts to maintain our current 2013 fixed coverage of 42%, while locking in additional cash flows. On a combined basis, the recent time-charter transactions on the Aframax tankers, Esther Spirit and BM Breeze, will generate a fixed profit of over $3,000 per day for the next year. Moreover, the optional charter periods on these contracts provide Teekay Tankers with additional upside to extend our spot market exposure should the tanker market improve. In addition to our recent chartering activity, we also proactively sold our oldest ship, a 15-year-old tanker trading spot, avoiding expensive drydocking costs while reducing the company's exposure to older vessels that face increasing discrimination from charterers in the current weak tanker market. Turning to Slide 6. During the fourth quarter, we recognized a noncash vessel impairment charge of $353 million, primarily related to our Suezmax fleet acquired from Teekay Corporation, but initially acquired by Teekay Corporation as part of the OMI Corporation acquisition in mid-2007 at a high point in the cycle for vessel values. Due to drop down accounting rules, vessels acquired from Teekay Corporation are recorded on Teekay Tankers' balance sheet at Teekay Corporation's original purchase price as opposed to the actual purchase price paid by Teekay Tankers. As you can see, from the asset value graph on the right of the slide, vessel values over the past 5 years have fallen significantly, and ships recorded on the books of these historically higher values have become impaired. As a reminder, vessel impairment analysis under U.S. GAAP is a 2-step task. The first step, comparing estimated undiscounted future cash flows to the current vessel book values on an individual ship basis. If the estimated future cash flows on an undiscounted basis are less than the current book value, even if by a relatively small amount, the vessel would fail step 1 and, therefore, would require a write-down to fair value under step 2. Earlier in 2012, we estimated that a recovery of the conventional tanker market could begin in the latter part of 2012 or early into 2013. Over the course of last year, the market sentiment and our views on this changed. And by the fourth quarter of 2012, it was apparent that such a recovery would likely not occur in this timeframe. As such, the delayed market recovery has contributed to our reduction in our estimated future cash flows from our conventional tanker fleet. With lower estimated future cash flows and relatively high book values, these vessels failed the step 1 test in the fourth quarter. And given the large decline in vessel values as shown in the graphs, the resulting impairment charges required for these vessels under step 2 of the test were significant. It is important to note that for the 13 vessels TNK acquired in June of 2012, these ships had been recorded on our balance sheet at Teekay Tankers' actual purchase price at that time, which was lower than Teekay Corporation's book value, none of those vessels would have been written down. As a result of the vessel write down, our annual depreciation expense is expected to reduce by approximately $22 million or $0.26 per share, commencing in 2013. I would like to stress that this vessel impairment charge is noncash in nature, and does not impact the company's cash available for distribution or cash dividend, nor does it affect any covenants related to Teekay Tankers' debt facilities. Moving to the market slides on Slide 7. We summarized developments in the spot tanker market during 2012. Last year can be characterized as the year of 2 halves. In the crude tanker sector, strong demand in the first half of the year gave way to a weaker second half, particularly for the Suezmax sector, as shown by the bars on the top of the slide. Demand for crude tankers in the first half of the year was driven by crude oil stockpiling, ahead of the EU sanctions on Iranian oil, which took effect from July 1, coupled with high levels of global oil production, particularly from OPEC. The combined effect of crude oil demand for stock piling purposes and an increase in long haul OPEC barrels led to a significant increase in crude tanker ton-mile demand throughout the first half of 2012. Looking at the second half of 2012, the picture was very different, with rates in the large crude tanker segments falling to historically low levels during the summer months. This collapse in rates was due to much lower levels of tanker demand once oil inventories had been replenished, coupled with reduced OPEC oil production. Rates did exhibit a modest rebound to 6-month highs in the fourth quarter on the back of regular seasonal factors. However, tanker rates have since weakened in the early part of 2013. In the product tanker market, the pattern of earnings was opposite from the crude sector, with a very weak first half of the year, giving way to a much stronger second half. LR2 spot rates reached a 3-year high of approximately $20,000 per day during the fourth quarter of 2012, driven by a combination of increased long haul naphtha movements into Asia and reduced competition from crude tanker new buildings on the East-West gas oil trade. Rates have since moderated slightly, though earnings in the LR2 sector continue to outperform the Aframax and Suezmax crude sectors. Turning to Slide 8. We take a look at developments in tanker asset prices. Second-hand tanker prices, as shown by the green line on both charts, held relatively steady through the first half of 2012, reported by a relatively strong freight market environment as outlined in the previous slide. However, asset values declined in the second half of the year in tandem with the weakening freight market. And by the end of the year, stood approximately 15% lower than they did at the start of 2012. In total, tanker asset prices have declined by approximately 60% since the peak of the market in mid-2008. Though prices declined in 2012, we believe we are at or near the bottom of the ship price market. This is borne out by some of the sales that we saw during the latter part of the fourth quarter, which were concluded at price levels similar to, or in some cases, above last done. In the Newbuilding market, illustrated by the blue lines on both charts, we also believe that prices are at or near the bottom. In recent weeks, we have seen a strengthening in the Korean won versus the U.S. dollar, as well as higher steel prices, both of which add support to Newbuilding prices. In addition, the last 3 months have seen an uptick in vessel ordering activity at the top tier shipyards, not just for tankers, but also for container ships, LNG carriers and offshore units. Together, these factors should put a floor under Newbuilding prices in the coming months, and we believe that any reduction in prices from hereon will be minimal. Slide 9 illustrates our outlook for tanker fleet utilization as shown by the green area on the chart, which we believe will reach a bottom during 2013 before undergoing a modest recovery next year. For the year ahead, we forecast tanker demand growth of approximately 3.5%, a reduction from 2012 levels due primarily to expected lower OPEC oil production, leading to a reduction in average voyage distances. However, with the fleet growth forecasted to be around 3.5%, the net result is no change in tanker fleet utilization. The spot rate is expected to be broadly similar to those experienced in 2012. For 2014, we believe that tanker fleet utilization will begin to improve, deferred by lower tanker fleet growth and higher tanker demand growth on the back of a recovering global economy. Should the level of new tanker ordering remain low through 2013, which we believe it will, partially due to a lack of available financing for most owners, and this recovery should extend beyond 2014 and lead to a period of improved tanker rates. Looking at the supply demand balance by segment, we believe that the Aframax and LR2 sectors offer the best fundamentals due to their small order books and favorable demand outlook, particularly for LR2s, as I will outline on the next slide. Slide 10 looks at the changing landscape of the product tanker market. In particular, the growth in long haul product tanker movements, which we expect will emerge over the next few years. On the map, regions colored in blue are those which are expected to see growth in refining capacity over the next 5 years, while those in red are expected to see a decline in refining capacity. Refining capacity in the U.S. is expected to remain unchanged during this time, although this masks some regional disparities with refineries on the east coast and in the Caribbean at risk of closure, while refining capacity in the Midwest, U.S. Gulf and West Coast regions could expand due to the benefit of access to cheap shale oil. The arrows on the chart shows some of the long haul product trade routes, which we expect to grow as a result of these refinery changes. Middle East and India are expected to become increasingly pivotal as suppliers of refined products, particularly to Europe, but also to Asia, Australia and Latin America, naphtha movements from both Europe and the Middle East to Asia are also expected to increase due to growing demand from Asian petrochemical plants. Finally, the expansion of the Panama canal from 2015, coupled with the rapid growth in product exports from the U.S. Gulf, will lead to an increase in product movements from the U.S. to Latin America and even to Asia. In sum, changes to global refining patterns are expected to be very positive for the global products trade in the coming years, and an increase in long haul movements is expected to be particularly beneficial for LR2 demand. Turning to Slide 11, Teekay Tankers remains financially strong and well-positioned for growth. Our total current liquidity of $327 million places us in a unique position among conventional tanker companies to pursue accretive growth opportunities without the need to issue new equity in Teekay Tankers. As discussed on Slide #6, the vessel impairment charge in our fourth quarter results was noncash, in nature, and had no effect on any of the covenants related to our debt facilities. This lack of covenant concerns provides us with considerable financial flexibility. Teekay Tankers' favorable debt profile continues to have low principal repayments through to 2016, as well as low levels of debt amortization, enabling us to retain our available liquidity for future investment opportunities. In addition to Teekay Tankers' strong balance sheet, we believe moving to a fixed dividend policy provides a sustainable dividend level based on our existing fleet size and employment mix. This prudent policy will enable us to retain an increasing amount of operating cash flow as the tanker market recovers to invest at an opportune time in the tanker cycle, and therefore, increasing the total value created for Teekay Tankers' shareholders over the long term. Wrapping up on Slide 12, we provide a cash available for distribution outlook matrix for the first quarter of 2013 based on our expected fleet employment profile, as well as guidance on our off-hire days recorded in the quarter thus far. Based on a weighted average of approximately 2/3 of days booked for the first quarter, for Aframaxes, LR2 and Suezmaxes, spot rates have averaged approximately $10,800 per day, $15,400 per day and $13,400 per day, respectively. We have continued to include our cash available for distribution matrix in this quarter's earnings presentation as we believe this measure continues to reflect Teekay Tankers' cash equity return, even though the company has moved to a fixed dividend policy. Even in a low spot rate environment, Teekay Tankers generates positive cash available for distribution, allowing us to pay a fixed quarterly dividend from vessel earnings, while retaining operating cash flow for future growth opportunities. With that, Michelle, we are now available to take questions.

[Operator Instructions] The first question comes from Jon Chappell of Evercore Partners.

So my first question has to do with the fleet expansion initiatives, and those pretty interesting charts you had on Slide 8, showing the big disconnect now between the newbuilds and the second-hand values. So as you kind of look at the capital allocation process, whether you want to invest in the new technology, which supposedly has significant fuel savings, but you wouldn't get the ship for a couple of years, or investing in a ship that you can get on to the water today, that's at a significant discount to the new technology? How do you kind of go through that decision and where do you think TNK will move with kind of the next phase of expansion plans, newbuilds versus second-hand?

Yes, John, I guess that is the exact kind of decision we're looking at. I mean, on the water assets, as shown on that chart, it does have a significant discount. I think a large part of that discount is due to the current weak tanker market. So it's a trade-off of having those assets immediately on the water, which means they're generating negative cash flow potentially in the first part of their lives and then recovering, versus, as you said, the fuel-efficient ships, which has a much lower cash breakeven over the long run and by virtue of being a new order doesn't -- isn't on the water for a couple of years. And so that's kind of the trade-off in terms of why they're probably at a higher price, you're avoiding that period of low market earnings. But we certainly are evaluating both and we've done a lot of work on our own fuel-efficient design, and we do believe that, that is the way that the tanker market will be moving in the future, and so we'll be looking at both opportunities.

Okay. And then as we think about expansion versus replacement, you obviously coveted to Nassau, you have 3 other vessels that are all the same age. One, of which is on spot today, the other 2 which will be on spot by the end of the year. Do you anticipate ridding those vessels from your fleet before their third special surveys?

Yes, in today's market, ships that are over 15 years of age, unfortunately, do face discrimination by charters and earn lower rates. We don't have any ship that will be of that vintage for over another year. But that will be a consideration at that time. In terms of our charter fleet, I mean, we are looking at that portfolio. And as you've seen, some of the transactions, the positive arb and seeing owners that are willing to charter ships to us at $11,100 a day, provides again more, hopefully, more opportunities in this low market for us to add additional operating leverage into the recovery market, which we are confident will happen at some point in the future.

Just 1 last one for me, probably for Vince. The liquidity dropped by $56 million quarter-over-quarter, it seems from the undrawn part of the credit facility. Was this a scheduled amortization? And if so, is there any other scheduled amortization of the undrawn parts of the facility that we should be aware of?

Yes, that is the scheduled amortization of the existing revolvers. So they amortize semiannually, roughly about $45 million every 6 months. That's the schedule.

The next question comes from Justin Yagerman of Deutsche Bank.

It's Josh on for Justin. I just wanted to touch upon the current market, and you put the slide in there showing the strength we saw last year, compared to, I guess, the weakness in the back half. And like you said, a lot of it has to do with Iran. But, I guess, as you look out towards late Q1, early Q2, I guess, how are you viewing seasonality this year and the ability for rates to move higher and, I guess, maybe maintain better rates through the summer compared to last year.

Well, as you said that this last winter, we saw some spikes. But the supply picture of ships coming online and ships at the end of the year, a lot of the orders got delayed into the first part of the year. People want to have the 2013 stamp on them instead of 2012, so you see ships coming out of the shipyard in the first quarter are traditionally a little bit higher. So that supply -- increased supply continues to put that damper on the volatility. So we're not overly optimistic for a strong rally right now. As you can see, in the chart that shows utilization, we actually see it coming down slightly this year as the supply is finally balanced with the increased demand. And it's not till next year that we start seeing an alleviation of the order book. Having said that, the 1 bright spot of, if you could say that, is on the Aframax LR2 area where the fleet will actually contract this year, depending on scrapping levels. And so that's an area, as you've seen also with LR2 rates in the fourth quarter and the first quarter being stronger than both of our crude segments.

Got it. I guess, switching gears to the expansion efforts. I guess in the past, actually this morning and the past few weeks, we've seen a lot of capital markets activity with investors looking for product tankers over crude. I guess, how do you guys think about the opportunities in product tankers? Are you concentrating more so on in the LR2s rather than some of the smaller product tankers or are you guys looking more on the asset play on crude?

Josh, we're certainly, as the slides indicate here, focused on the LR2 sector, that scenario where first we have, through our -- thanks to our sponsors Large Pool, The Tourist Tankers where we operate over 20 ships in that sector, the second largest operator of that fleet already, giving us good access and good utilization. Combined with the order book for that sector and our ability to trade again between clean and dirty in that segment is the area that we certainly are most looking at.

And with regard to preference of crude over product, acquisitions?

Yes, I mean, it would be -- that's, again, that LR2 sector, the beauty of it is that, for example, on a newbuilding, it's about $2 million more to quote, and it can be an LR2 product tanker of it. But then -- but it could also have the ability to trade crude. The crude markets rebound or have seasonality that they usually do or spikes that you can kind of capture strong fundamentals of the LR2 market with the spikiness of the upturn in certain parts of the crude market and really have good returns.

That's fair. I guess, I'm just trying to get a sense on the status of your design and, I guess, you put it out there maybe a year or so ago, and just kind of waiting for orders. The issue -- is issue right now price or is it still working through technical matters and getting comfortable with the yards and actual constructing?

I mean, we've certainly put a lot of work into ensuring that we choose the right ship design, but the basics of a ship are still largely the same. I mean, we're tweaking haul lines and engine types, but there's nothing really technically -- we're not creating the 787 here so -- of carbon fiber. So it's not really a technical thing. It's really just down to -- making sure we just got the overall best ship that has the best consumption and trading flexibility going forward.

Next question comes from Michael Webber of Wells Fargo.

Bruce, I just wanted to touch on a couple of points of clarification, and you mentioned that the write-down not having an effect on your liquidity or your covenants. When you say not having an effect in your covenants, not an effect on your covenant status or does it actually not move the value associated with your collateral maintenance numbers?

It doesn't move the value of our collateral maintenance, because the accounting task is relative to accounting at the historical, right? So the values have -- are always been the values. It's not like they've changed other than the absolute value of ships coming down over the last 5 years.

Okay. All right, now that's helpful. I guess, it's already been kind of forced over a couple of times, but to move the fixed dividend to preserve cash, it comes at an interesting time because we're actually just now starting to see Tanker C corps raise equity at reasonable discounts. It's the first time in several years. I am curious as to maybe how that's factored into your decision and then kind of within that context, what's changed between now and I would say the spring of last year, around the drop-down that makes you want to start preserving cash now?

Yes, I think it's a fair question. What we've been looking in the past with our dividend is that we've been patient. As you've seen with our track record, we haven't done acquisitions or ordered new ships to expand our exposure other than the drop-down. And so the dividend policy was fine then. But now at this -- we feel this is an opportune time in the cycle to be looking at investments. We believe that the market is closer to a rebound and that the opportunities are coming and this is a way to balance out a fixed consistent dividend to shareholders, but also generate and strengthen the balance sheet and allow us to really make countercyclical investments at what we think is going to be a very interesting time.

Fair enough. And it kind of sounds like you're guys are looking to build cash longer term. And what -- a, is the dividend going to be reevaluated in the quarterly basis and I guess what would it take to really move that dividend higher? It seems like we're a long way away from that now, but just how do you -- how are you guys going to approach that? What's the kind of the long term goal?

Sure. We will look at it, but right now, the money -- what we're looking at really doing is employing that excess operating cash flow and making the long-term investment. And when the market turns the other way, then we'll reevaluate, but the first primary focus is generating strength in that balance sheet and putting that excess cash flow to work.

Fair enough. Just one more question, and it's a bit more technical on modeling. If you kind of look at Slide 11 on your presentation, at $26 million in amort. Just to be clear, if you guys draw on excess credit, does that amort go up or does that get drawn out of your excess credit facility or excess within your credit facility?

No, we can draw on it. It doesn't change the amortization, still what I indicated earlier to Jonathan.

So the cash is unchanged.

The next question comes from Ken Hoexter of Bank of America.

First, can you just talk a little bit about the shift of dividend policy? I'm sorry if you went over this, I got cut off for a bit. But such a large shift to go to a fixed dividend, maybe just can you expand on why now given that if you -- is this because you anticipate the rebounds, you want to make those investments? Or kind of give the thought on why the Board decided to do it now.

Yes, exactly, Ken, as I was saying to Mike earlier that -- it's exactly about -- this is a -- we see this as a right time to be looking very seriously at putting money to work and making countercyclical investments. And that hadn't been in the past. Our track record has shown that we've been patient, but we've gone through multi-year low part of the tanker market, and we're in a position where other people aren't, which is to be looking at growing, and this is just a further way of again fixing the dividend, a level that gives people visibility even in a low tanker market, but also strengthens our balance sheet to be in a better position to make these countercyclical investments.

Again, I'm sorry if you hit on this. But you mentioned in your prepared remarks the shifts of location of refinery as an asset, is that changed in kind of a way of how you think about which assets you want to be buying going forward? Does that mean you focus more on product as opposed to tanker? Can you give kind of some thoughts on that?

Yes. I mean, we really our focused on the LR2 sector, which is an area, as you've seen in the prepared remarks and on the slides, where we see a lot of shift in the market dynamics, which will create increased demand. But as you know, we're focused with our Taurus Tankers pool with over 20 ships, and that is a benefit of those -- that ship size of being able to switch to being crude tankers. So we believe that we have the long run growth positive dynamics for LR2s, with the ability to switch to crude if there is increased volatility and higher rate -- periods of rates for crude, and so that is our -- that's why we like that segment the best.

And then just finally, given the dividend just the policy now, is that a statement on your part of looking at attractive assets now? Or is that just so you can start building the cash going forward?

It's the fact that we are building cash to -- and -- or actively looking at putting that money to work.

The next question comes from Sandy Goldman of Front Barnett.

On the product tankers, if you were to make a decision that you would like to enter into new building of a product tanker, when would you get delivery?

It varies, but it would be late second half, kind of 2015, 2016 is the range of where ships are delivering in that.

Okay. You've made a comment at the beginning that you said that the outlook was good for the medium term. Is the medium term taking you into 2015 and '16?

I think what we're saying is that we're still seeing periods of short term. I mean, while LR2 rates have been good in the fourth quarter and the first quarter, it's more over a longer period that we see this as a good fundamental, but that doesn't mean there won't be periods of weakness.

Okay. But you would consider entering into a new building contract then now?

The benefit of...

For delivery of '15 or '16.

Yes. As we head right into the improving fundamentals, that's a very -- would be an appealing strategy.

The other question I've got is, is there any major fuel economy coming out of the VLCCs or the Suezmaxes that are coming out of the yards now?

They are -- certainly every year just like ours, they get a little bit better. But the real shift change is ones that are delivering a little further out. It really depends -- the ones coming out now depended on -- it's kind of a mix. Some of the owners have some fuel efficiencies in them, and some of the orders were placed kind of off some of the older design, so it's more of a mix, the ones coming out now.

So far. Okay. You said earlier that people who had a 20-year old vessel could be disadvantaged. When do you reach the point when there's an 8- or 10-year-old vessel disadvantage?

Well, right now, actually just 15-year-old vessels are being disadvantaged right now.

I mean, you meant 15, that's what you said. Yes. excuse me.

Right now, there's really no technological reason for -- or safety reason, a well-maintained ship, there's no regulation on a near double haul that prevents it from trading out past 20 years. What happens obviously in a period of weak markets, the charters have plenty of choice and they can choose newer ships. But as we see in markets where it's back to normal, more normal utilization tanker market, that age discrimination tends to disappear.

Lastly, given the very sharp decline in stock prices. A lot of your competitors, as well as you, are there possible acquisitions or merger candidates? I mean, obviously you can't talk about who, but, I mean, is stuff getting attractive from your point of view to look at to buy or to merge?

Not now. I think really the focus on us is select assets either on the water or newbuildings, with the tankers of the future with a lower cash, better cash breakevens going forward.

The next question comes from Chris Combe of JPMorgan. Nishant Mani - JP Morgan Chase & Co, Research Division: This is actually Nish for Chris. A lot of my questions have been answered, but just one quick thing on growth prospects. I was wondering for new vessels coming online as you look at second hand acquisitions and newbuilds. If there's a specific IRR or return on equity you guys are targeting, given the fact that you have a good amount of room on leverage to kind of level up that transaction.

I think that where the market values are now at the season lows you can have a reasonable return expectations, obviously it depends on how fast and how robust the return is. I mean, we can target -- we target high IRRs, but where the factors are converging right now? It does look like its kind relying to being a good IRR prospect out over the medium term right now. Nishant Mani - JP Morgan Chase & Co, Research Division: Okay. Do you have any kind of benchmark over -- just you could provide on that by chance?

No. That's not -- we are looking at making the right long-term investment right now. And again, that number is so wildly different. As you can see, vessel values have fallen more than 50% over the last 5 years, and so if that's the indication of what the upper bound of some of that IRR could be on the return, that's what we're looking. But it's still variable, it's hard to pinpoint. Nishant Mani - JP Morgan Chase & Co, Research Division: Okay. And then given the fact that you have $300 million or so of undrawn lines, is there kind of a leverage target you guys are looking at in terms percentages of capital mix?

There isn't like a set target, but we certainly balance out leverage -- debt leverage with the opportunity to invest. But at this point in the cycle, this is the time to start levering up because asset values are so low. The leverage on the asset value may initially seem high, but you naturally delever over time as the asset values increase.

There are no further questions at this time.

Thanks, Michelle, and thanks, everyone, for joining us.