Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited First 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, www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible at any time during the next two weeks by dialing 888-203-1112 or 719-457-0820 and entering the pass code 4187387.

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 in 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 first quarter 2021 conference call. I will begin today’s call by reviewing our year-to-date highlights, providing an update on our new comprehensive value strategy, financial results for the first quarter and the industry’s current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. The drybulk market has experienced its best start to a year in over a decade with Capesize spot rates currently over $40,000 per day and Supramax is at over $20,000 per day. In addition to the current fair market conditions, we view the outlook favorably. The order book as a percentage of the fleet is at a historical low, limiting net fleet growth, while unprecedented stimulus as well as the Brazilian iron ore export recovery have combined to create improving supply and demand dynamics. Our positive market outlook, together with our robust balance sheet has positioned Genco well to implement our new comprehensive value strategy. This new strategy is centered on low financial leverage and three key tenets: attractive quarterly dividends throughout the shipping cycles based on cash flow after debt service, less a reserve, further debt reduction, and growth of our asset base. We believe that this strategy will enable the company to create significant shareholder value and be a key differentiator for Genco over the long-term.

Thank you, John. For the first quarter of 2021, the company recorded net income of $2 million or $0.05 basic and diluted earnings per share. Excluding a non-cash loss on sale of vessels of $700,000, adjusted net income for the quarter was $2.7 million or basic and diluted adjusted earnings per share of $0.06. A 25% year-over-year increase in our fleet TCE to $12,197 per day was the primary driver resulting in increased adjusted EBITDA of $20.6 million for the quarter.

Thank you, Apostolos. During the first quarter of this year, freight rates experienced a counter-seasonal rally led by minor bulk vessels. Spot Supramax earnings exceeded $20,000 per day in March, a level not seen since 2010. Subsequently, during the second quarter, Supramax earnings have remained firm above the $20,000 threshold, while Capesize earnings have increased meaningfully to over $40,000 per day. Capesize rates continue to be led by iron ore demand from China after a 10% year-over-year increase in iron ore imports in 2020 to record levels. Q1 2021 imports are up by 8% year-over-year. Furthermore, steel production in China is up by 16% year-over-year in Q1, following all-time highs seen in 2020.

Gentlemen, how is it going?

Good morning, Randy.

Good, good. I always think it’s going well. So the rates earned for the remainder of the first quarter and obviously, the second quarter, quarter-to-date rates, they are pretty good, but not great, at least relative to this epic market we’re seeing. So I’m assuming that was due to some hedging, maybe some repositioning of the fleet. Was that the case? And then, I guess, looking ahead, more importantly, any further hedging or repositioning? Or will you be able to fully capture the strong market we’re currently seeing?

So first of all, the first quarter and the early part of the second quarter, we definitely did hedging in both the Capesize as well as the minor bulks. We are on the back end of most of that. I think an overall comment, and then I’ll come back to some specifics. An overall comment is in a rapidly rising market, whether it’s Capes or the Ultra Supras, it’s very difficult to keep up with it because you’re usually fixing anywhere from 15 to 30 days ahead of time. So there is always a lag effect on that. Having said that, as we mentioned, we have seven ships, so call it, 40% of our Capesize fleet that’s coming open during the month of May. So we should be able to capture the firm rates that we’re currently seeing. Just to give you a sense, though, we fixed three ships on a spot basis over the last week or so. We did one at $49,000 a day for an Australian round, one at $44,000 a day, which was a NOPAC round, Western Canada to China. And then we also did a $44,000 a day trip from South Africa to China. So we are capturing this. And yes, first quarter, we hedged, and we were pleasantly surprised with the rapid spike in rates.

Sure. That’s fair. And then I read through some of your charters once the release first came out last night, saw some good numbers. Then I realized the $23,000 and $25,000 a day were not for Capes, but for Supra and Ultramax, right, so very solid on those. With that, will you kind of look to lock in more time charters in the coming months, as rates remain high or play it out in the spot market?

A little bit of both. I think you’ll see us do some more time charters in the Capesize fleet. We’re certainly not going to put the entire fleet away but we do think it’s a prudent portfolio approach, particularly in the Capes because of the volatility to take advantage of the high market when you can. So yes, I expect a couple more longer term fixtures in the Capesize sector. The minor bulks, those 5 to 7 months, that was very opportunistic. They are obviously good rates. But we’ve got a well-built-up trading platform on the minor bulk side. So in general, we think we can do better than the overall indices and the overall market. But those are great rates, as you pointed out. So we wanted to take advantage of it.

Got it. And then I’ll just sneak in a quick one here. On the surprise dividend increase, how was that kind of $0.05 determined? And should we expect gradual increases as you work towards this new policy or is stagnant $0.05 until the end of the year and the new policy kicks in?

Look, great question. Obviously, we’re determining this every quarter with the Board. So it’s hard for me to make any promises going forward. Having said that, the $0.05, I think, was done because of our confidence in the market going forward as well as being ahead of plan in terms of hitting our targets. And so I can’t directly answer your question. But as you know, we are moving towards an approach that returns a substantial portion of cash to shareholders.

That’s fair. No appetizer before the dividend entrée. Thanks so much.

Thanks, Randy.

Thank you. Our next question comes from Omar Nokta with Clarkson Platou Securities.

Thanks. Hi, John.

Good morning.

Yes, good to hear. Good to hear the – obviously, the time charges from yesterday that you had disclosed and then some of the $40,000 a day plus rate you just discussed. Clearly, some very, very strong incoming cash flow. It looks like you guys are well underway on your new capital allocation strategy. And one thing is you bought an Ultramax recently, and it sounds like you’ll be quite a bit more acquisitive here in the coming months. Maybe just first question, and I apologize if you addressed this already. But the Ultramax that you just bought or taking delivery of soon, was that funded 100% with cash? And the next question is, for whatever you buy here in the interim until we get to the new strategy, will those all be funded with cash as well?

Right. So the Ultramax that we just bought will deliver most likely in July, early August. We will use a combination, and I may have Apostolos jump in here, but we will use a combination of cash and low-levered debt, if you will. We have, as you know, monies on our balance sheet that are escrowed for, particularly for vessel purchases as well as the ability to borrow under our current credit facilities to fund those. We have already – as we mapped out this new strategy, we had already assumed internally some vessel acquisitions. So we’ve already sort of planned for this. I know the logical question is, well, how many are you going to do? That we will have to see because that’s very market determined. But we are still looking at transactions. I still believe this is a very attractive time to acquire in terms of the fact that values have not caught up with freight rates. They are still well below historical averages. So yes, I do intend us to continue to be acquisitive, and we will be using cash and available that, off the balance sheet.

Okay, got it, John. And I guess you’ve been a bit more active on the Ultramaxes recently. Are you leaning that way here looking ahead or are you also looking at Capes?

Listen, we have been very upfront about the barbell approach strategy that we have in place. It depends on what comes our way, but we do want to keep relatively balanced as we have in the past between the Capes and the Ultras. So I do expect us to look at both sectors.

Got it. And maybe one for Apostolos, just regarding the planned refinance of your existing debt. I just wanted to ask if you could share if you started that process officially and sort of what does the lender appetite look like for refinance?

Yes, Omar. Yes, we have started the process. We have ongoing discussions with lenders. And I’d say that, generally speaking, the lender appetite has been pretty strong. As you may realize, this is a good structure for banks coming in with a particularly low LTV and a very strong balance sheet for the company.

Okay, so more to come on that front then?

I will add to that. I mean one of the key factors that Apostolos is working on is because of the low net LTV driving down the amortization as low as possible to get that breakeven rate very low. And obviously, at some point, we’re – while we’re targeting and at some point, we want to get to really a 0 net LTV, if you will, to get down into those low $7,000 a day cash flow breakevens.

Yes, yes. That will be very interesting. Okay, thanks, John and thanks, Apostolos.

Thanks, Omar.

Thank you. Our next question comes from Liam Burke with B. Riley.

Thanks you. Good morning, John. Good morning, Apostolos.

Good morning, Liam.

Good morning, Liam.

So John, on your fixtures on the time charters, they are running between, let’s say, 6 months to a year. Is there any thought to extend further or are you just going to take the rates as they come and make your decision accordingly?

We will take the rates as we make our decision accordingly. I will tell you when we fixed the Capesize vessel, we took a very hard look at the one-year market as well as the two-year market. And while there is liquidity coming more and more into that two-year market, we just did not feel we were getting paid enough for taking the discount. The two-year, just to give you an example, the Liberty was done at $31,000 a day. At that point in time, the two-year market was in the low $20,000s. And we have higher expectations for 2022 than even this year. So we felt, just from a technical and a financial standpoint, it was better to do the one-year rate. I do think as rates continue to firm, you’ll see more two-year yields being done. But again, it was a pure math exercise and the one-year rate was better for us at this point.

Okay. And now when you are looking at into 2022, and you feel comfortable as to where the rates are going. Is that just a function of the tighter supply or are you comfortable with the macro environment will continue to unfold well in your favor?

It’s both. The supply is pretty well laid out at this point, at least through the end of 2023. And I’ll point out what Peter Allen was saying earlier, 2023 and onwards is only 0.6% of fleet growth. Just to put a fine point on it. So we’re talking about very low fleet growth over the next two years at a minimum. So you take that against the backdrop of demand growth. You just don’t need a lot of demand growth to have rates continue to be firm and even move higher. So I would say it’s a function of both the very low supply but continued demand growth going into next year.

Great. Thank you, John.

I should also mention, I mean, a lot of this, at least on the Capes, has to do with the continued recovery and ramp up from Vale and their production guidance, not just this year but ramping up to a run rate of 400 million tons by the end of 2022 on the iron ore front.

Great. Thanks, John.

Thanks, Liam.

Thank you. Our next question comes from Poe Fratt with Noble Capital Markets.

Good morning, Poe.

Good morning, Poe.

Can I just go through just to illustrate the two-year? And I just want to make sure we’re still on the same page. You say it’s not worth it to take the two-year at $20,000 when you get the one-year at $31,000 right? I mean, if you take a two-year at $20,000 that means you’re taking the second year for essentially $10,000 a day, and that just doesn’t – I just want to make sure we’re sort of thinking about it in the same terms?

Well, if you’re taking two years to $20,000, you’re losing $11,000 a day for the first year, right? And then, so $11,000 a day for 12 months. And then with our belief that next year is going to be higher than $20,000, it’s pretty straightforward.

Yes, I was looking at it the other way, you are making $30,000 for the first year and then all you have to do to be whole is make $10,000 the second year?

Yes. No, that’s another way to look at it. And I can just tell you, when we – I don’t want to get too specific here because I think it will bore people. But when you start looking at what the vessels should be earning in terms of load factors, we just were not getting paid for a two-year deal. We were certainly getting paid for the one-year deal.

And then on your Supras, do you have a like number for a two-year? You said $19,000 for a one-year, what’s the two-year looking like that you think you could have gotten a deal done if you looked into that?

I haven’t really seen two-year Supramax deals done yet. There's been a lot of focus on the 5 to 7 in the market. And then there have been 12-month deals done. I haven’t really seen much liquidity in the two-year market yet.

Great. And then it’s pretty bad when you talked about rates and scoring. But can you just talk about what could potentially go wrong, not to rain on the parade, but what could potentially go wrong? Rates historically have been extremely volatile. And what do you think are the things that you’re worried about over the next 6 to 12 months that might push rates down from current levels?

Look, I don’t think we’re out of the woods yet from the global pandemic. And while it’s easy for us in the U.S. to talk because of the high vaccination rates and everything opening up, the reality is Europe is still, with the exception of the UK is effectively closed. We’re seeing major issues in India, unfortunately, with a COVID outbreak. So that risk element, I think, is still there. And quite frankly, Genco, just because of its low leverage profile, if we do, and I’d say it’s a big if, but if we do have another short-term demand shock, we could go right through that. And by the way, still execute on our new dividend strategy. India is, as I said, it’s a very unfortunate situation. I guess the good news from a market standpoint is that we have not – India is not locking down like they did in the past. And I do think they are going to see somewhat of a slowdown in their steel industry, but the reality is drybulk shipping is really more focused on thermal coal going into India. And their thermal stockpiles are down to 12 days coming into monsoon season. So I think there is actually a healthy story there to continue importing on the thermal coal side.

Great. Thanks for the color, John.

Thanks, Poe.

Ladies and gentlemen, this concludes the Genco Shipping & Trading Limited conference call. Thank you for your participation and have a nice day.