Dorian Lpg Ltd. Q4 FY2020 Earnings Call

Greetings, and welcome to the Dorian LPG Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Thank you, Christine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2020 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; and John Lycouris, Chief Executive Officer of Dorian LPG USA. As a reminder, this conference call webcast and a replay of this call will be available through June 30, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although, we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today. Additionally, let me refer you to our unaudited results for the period ended March 31, 2020, that were filed this morning as part of our earnings release on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. With that, I'll turn over the call to John Hadjipateras.

Good morning from Stamford, Connecticut, and thank you for joining us. I will say a few words before Ted, who will review the financials with you, and John will then talk about the fleet and the market. And today, we also have with us on the line from Copenhagen, Tim Hansen, our Chief Commercial Officer, who will answer questions from you about the market, the current freight market. In my prepared remarks for our last call on February 4, I said our outlook for the coming calendar year remains optimistic. The coronavirus is, of course, a potential headwind. That was 16 weeks ago. In the intervening period, my priority is being the safety of the 500 seafarers currently serving on board our ships as well as our shore-based staff and stakeholders. And I can report that our fleet has continued to operate, thanks to the dedication of seafarers and colleagues onshore and that we are all safe, though mindful of the new peril that surrounds us. The most talked about disruption for us has been the difficulty to make crew changes. For one, we would hardly make any. This inconvenience affects both those who exceeded their contractual time on board and those ashore, waiting to replace them, anxious to get back to work. We are starting to see opportunities to carry out crew changes now. What was a simple task in the past has become a logistical challenge. Transporting a COVID-free seafarer through airports and launches to the ship, trying to minimize exposure and striving to ensure that the ship remains disease-free is no simple task, as you can imagine. It is encouraging, though, to start to return to normality. One of our second engineers will shortly be going home to meet his new baby born at the end of April. I hope that you and all your families and friends are also safe and healthy. Our financial year 2020 concluded March 31 was our best since 2016. Continued growth of seaborne trade of LPG, a somewhat restrained order book and renewed exports from the USA to China resulted in freight levels, I would call, good. These developments were supported by a continued expansion of US shale production and of PDH demand in China and South Korea as well as continued inroads of LPG for residential use in India and other Asian countries. The freight market was quite resilient, and the TCEs were also underpinned by a lower bunker cost. In the quarter ended March 31, we achieved total utilization of 91.7% and daily TCE revenue over operating days, as defined in our filings, of $51,888 a day, yielding utilization adjusted TCE, or TCE per available day of about $47,594 a day. April continued robust, and we estimate that we have 75% cover of the current quarter at near $50,000 per day. However, the current market, as expressed by the published Baltic Index, is now closer to $20,000 per day. We have read many forecasts ranging from a little too very pessimistic. They are predominantly based on assumptions about a decline in U.S. shale production available for export. I do not pretend to know which forecast to believe, much less to make them. Will economic activity bounce or crawl back? Will there be permanent demand disruption? What I do know is that the order book is at about 12%. Propane as a fuel for several applications is among the most attractive options avoiding greenhouse gas emissions. It produces fewer than gasoline, diesel, and heavy fuel oil. And whereas natural gas methane produces fewer greenhouse gases per Btu than propane, if it is released in air directly or from methane slip, it produces a global warming effect 25 times that of carbon dioxide. LPG, as has been shown in India, can improve the quality of life for a very large part of the world's population. Dorian has a young ECO fleet. Dorian has a strong balance sheet with low leverage and good liquidity and no significant CapEx commitments. As we previously reported, we completed two strategically significant transactions during April 2020: a jump in new sale-leaseback and a refinancing of the commercial tranche of our main banking facility. These transactions increased our available liquidity, reduced our financing costs, extended the maturity of our debt, and reduced our principal amortization. We are optimistic about the fundamentals of the LPG trade and confident that Dorian LPG is well positioned to continue to provide safe, reliable, clean, and trouble-free transportation for our customers and create value for our shareholders. Over to Ted to discuss our financial results.

Thanks. My comments today will focus on our recent financings and our unaudited fourth quarter results. For the discussion of our fourth quarter results, you may also find it useful to refer to the investor highlight slide posted this morning on our website. John just touched on the two strategically significant financing transactions we completed during April 2020. On April 23, we completed the sale-leaseback financing of the Crest. After prepaying the debt on the ship, we netted $23.9 million in additional liquidity with a floating rate of 250 basis points over LIBOR and an age-adjusted amortization profile of over 20 years. This financing represents attractive terms and net our goals of lowering our interest costs and extending the debt maturity in line with our strong balance sheet. On April 29, we completed the refinancing of the commercial tranche of our 2015 debt facility. This transaction addressed a number of objectives. First, we turned out the next major refinancing to March 2025. Secondly, we added a $25 million revolving credit facility, which gives us access to additional liquidity should it be needed. Thirdly, we achieved an immediate reduction in interest margin on our commercial tranche from 275 basis points over LIBOR to 250 basis points. We can also reduce the margin by an additional 10 basis points if we reduce the loan-to-value ratio on the vessels in this facility below 40%. Finally, we are extremely pleased to have added a sustainability feature by which we have the opportunity to reduce our interest margin further by achieving agreed levels of improvement in our average efficiency ratio, which is part of the Poseidon principles promulgated by the leading shipping banks, measures annual carbon emissions per deadweight ton, and targets consistent year-over-year decreases in this ratio in line with IMO guidelines. Finally, the new facility reduces the mandatory amortization on the commercial tranche from approximately $12.3 million per year to $600,000. With these two financings now completed, we have reduced the principal portion of our cash cost per day by approximately $1,330. Going forward, we will amortize about $9 million per quarter on the 2015 amended and restated facility and $4.3 million on all the Japanese financing arrangements. Thus, in total, we will pay down $13.3 million per quarter or $53.3 million per year, which is down from nearly $64 million a year. Again, turning to our fourth quarter results, we had a total utilization of 91.7% for the quarter and TCE per operating day of $51,888 a day, yielding a utilization adjusted rate of $47,594. Our spot TCE, which reflects our portion of the net profits of the Helios Pool for the quarter, was $50,311 per day. Finally, to give you some additional insight into our overall spot chartering performance, the Helios Pool, as a unit, encompassing about 35 ships recorded a spot TCE, including contracts of affreightment of approximately $51,500 per available day for the quarter. Daily OpEx for the quarter ended March 31, 2020, was $8,556 per day, excluding amounts expensed for dry-dockings. It was $9,407 including those costs. OpEx per day excluding the dry-docking related cost modestly increased compared to last quarter's $8,413 a day. Since the March quarter, though, had fewer calendar days than the December quarter, total OpEx was roughly flat on an aggregate basis, again, reflecting our team's continued vigilance on operating costs. Total G&A for the quarter was $5.7 million and cash G&A, i.e., G&A excluding non-cash compensation expense, was about $5.3 million. This level is generally consistent with our expectations for the first calendar quarter of the year. Our reported adjusted EBITDA for the quarter was $67.2 million, which was a significant increase from the $14.1 million, excluding costs related to the unsolicited BW LPG proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A accounted for most of the improvement. Compared to the prior quarter, EBITDA increased $7.3 million in spite of modestly higher costs from dry-docking. Turning to our financing costs. We look at cash interest expense on our debt, as the sum up the line items, interest expense, excluding deferred financing fees and other loan expenses and realized gain or loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $7.1 million, which was down about $300,000 from the prior quarter, largely due to continued debt paydown and somewhat lower LIBOR rates. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed, hedged in a small floating piece of 4.15%. For the coming quarter, with our new financings in place, we anticipate cash interest expense in roughly the same magnitude, approximately $7 million, as the lower LIBOR margin will be offset by slightly higher debt balances, given our lower amortization. For the quarter, we had cash outlays for capital costs associated with dry-dockings of roughly $9.6 million, or $4,398 per fleet day. Fleet Day is again calendar days, plus time charter in days, as those terms are used in our filings. Combined with amounts expensed during the quarter, our total dry-docking cash outlay was $11.3 million. We also managed to repurchase $32.2 million of stock since the last time we reported in February and that represents about 3 million shares. In total, we have now repurchased $49.3 million worth of stock, comprising 4.4 million shares, or roughly 8% of the shares outstanding prior to the announcement of the buyback in August. Turning briefly to our full year results. We reported total adjusted EBITDA of $232.8 million, the highest in our history, and adjusted net income of $130 million. To put those levels in historical context, our TCE per available day for fiscal year 2020 was 40,824 and our daily TCE in 2016, heretofore our best year, was 51,266. The increase in profits off a lower TCE reflects the improvements in our cost structure in the intervening years, as well as an increase in available days. For fiscal year 2020, we generated free cash flow, which we define as cash flow from operations less principal repayments before drydocking outlays of $110.3 million and $85.2 million after all drydocking outlays both expensed and capitalized. This equates to between $1.58 and $2.17 per share based on the shares currently outstanding. Our cash flow and liquidity remain strong. Since quarter-end through to May 26, 2020, our restricted and unrestricted cash and short-term marketable securities balance is up to over $148 million. In order to assist you in your modeling, please note that our quarter-ending debt balance excluding deferred financing fees of $646.1 million does not reflect the two transactions we completed in April. Those two transactions increased our total debt by $26.8 million, although our net debt was unchanged because we retained the cash proceeds of the debt increase for general corporate purposes. We expect, therefore, our debt balance at June 30, 2020, to be approximately $660 million again excluding deferred financing fees. Although we currently hold a 76 plus percent economic interest in Helios, we do not consolidate its balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it is used to provide some additional insight in order to give a more complete picture. As of Tuesday, May 25, 2020, the pool had roughly $13 million of cash on hand, reflecting the fact that the pool has just paid the distribution at the end of last week. We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months. And we believe that allows our company to make capital allocation decisions from a position of strength. We still have over $50 million remaining under our share buyback authorization and we all remain interested in accretive growth opportunities that meet our risk-reward criteria. With that, I'll pass it over to John Lycouris.

Thank you, Ted. Global LPG volumes during the first quarter of 2020 totaled 26.9 million metric tons, a 3.6% year-over-year increase, while U.S. seaborne export volumes for the first quarter reached a record high of 11 million metric tons, which is over a 30% increase from the same period last year. VLGC liftings from the U.S. reached over 50 both in March and April, while the Middle East Gulf lifting reached 70 in April. So that's the highest level since June 2019 for the Middle East. Even though May has not concluded yet, we expect about 66 VLGC liftings from the U.S., slightly higher than May last year, while the Middle East liftings were lower at 52 to 54, most likely on account of crude oil production cutbacks. Year-to-date seaborne exports of LPG from the U.S. were 5.3% higher than last year, while the Middle East has seen a 16.3% reduction year-on-year. On the supply side, U.S. NGL exports have continued strong in 2020 with capacity and infrastructure additions remaining on schedule during this year by all major export terminals. Several projects related to dock expansions, additional fractionation capacity, and pipeline commitments are all expected to complete during 2020 and early 2021, perhaps at a slower pace. The COVID-19 lockdowns and the oil price collapse over the last few months have led to poor market fundamentals in the U.S. and caused early production shut-ins, refinery cutbacks, deferred drilling, and reduced processing volumes, which supported Mont Belvieu NGL pricing and also absorbed NGL inventory volumes with satisfied record export demand from two countries, which we're preparing for lockdowns and for their inventory builds. Although Chinese LPG imports declined last quarter, mainly due to the COVID-19 lockdowns in that country. There was substantial demand growth from India, Japan, South Korea, and Indonesia during the same period. India imports grew 7.2% to 3.9 million metric tons while Japanese imports grew 13.2% to 3.1 million metric tons and Korean imports grew 36% to 2.2 million metric tons. Northwest Europe and Mediterranean demand for U.S. LPG is expected to recover now that the markets in Europe gradually return from lockdowns. And with crude oil prices recovering to above $30 levels, we find the propane to naphtha spreads starting to turn in favor of LPG cracking economics. The VLGC fleet order book stands at roughly 12% or about 35 vessels according to Clarksons. Only four ships have been ordered this year compared to seven at this time last year. The crude oil price collapse brought in lower bunker prices to the shipping markets. The absolute bunker fuel price levels and spreads we saw earlier this year have shrunk, but in relative terms, they have remained the same. High sulfur marine fuel oil with 3.5% sulfur content still trades at about a 25% to 30% discount to the new IMO 2020 0.5% sulfur compliant fuel, also called VLSFO. All our scrubber-equipped vessels will produce consistently higher TCEs as they continue to benefit from the relevant relative price discount spread of heavy marine fuel oil to those burning compliant fuel oils. Dorian remains committed to improving the environment, and I would note that scrubbers not only reduce sulfur oxides for vessel emissions, but also they deliver significant reductions in black carbon and particulate matter emissions, particularly when compared with the emissions produced by very low sulfur fuel oils, which are normally blended and unstable to comply with the IMO 2020 standards. We also continue to monitor closely and evaluate the potential for LPG as fuel. The current prices might marginally appear to make economics more attractive. However, it is difficult to make a long-term decision given the volatility in the underlying hydrocarbon prices and more significantly the capital investment required. Dorian LPG has currently in service nine scrubber-fitted vessels, seven of which were fitted with hybrid scrubbers during the last eight months, also completing their first special survey and their drydockings. Two of those vessels also installed new ballast water treatment systems. We have now commenced the retrofit work on our tenth hybrid scrubber vessel, which is scheduled to complete next month, including completion of the first special survey in dry-docking. Subject to market conditions in the second half of 2020, we are considering retrofitting scrubbers to those vessels which were originally committed when they are programmed to undergo their upcoming dry-docking special surveys. Thank you and now I'll pass it over to John.

Thank you. We're ready to take questions from anybody who wishes to question us.

Thank you. We will now begin the question-and-answer session. Our first question comes from Omar Nokta with Clarksons Plateau. Please proceed with your question.

Thank you. Hi everyone. Obviously, I would say impressive performance on the spot market and very good results overall. Really despite a lot of disruptions, John that you mentioned that we're seeing here these past few months. I have a couple of market-related questions, but also just wanted to ask about the refinancing. Here recently you guys have unlocked a good amount of cash with the sale-leaseback and you deferred maturities with the 2015 refi. Ted, you mentioned the annual repayments are now $53 million. From the 2019 10-K, you had $64 million due in fiscal 2021 and $203 million in fiscal 2022, are both years now basically the $53 million?

That's correct, Omar. Yes, the annual amortization is now down to about $53.3 million from $63.9 million, or $64 million. Most importantly, as part of the 2015 financing, we were able to extend the maturity on the commercial tranche of our large facility to 2025. So, yes, you're absolutely right.

Yes. And that amount of $53 million includes the leaseback as well?

It does.

Okay. Thank you. So, also just wanted to ask about clearly the market backdrop that we're in. Clearly, you guys had a very strong performance in the first quarter. And John, you mentioned bookings 75% of 2Q, I believe near $50,000 as we kind of think about how things are and clearly the markets dropped off into the low 20s per day. The OPEC+ cut, we think about in the crude market is called it 10 million barrels a day out of say global trade of 40 million barrels of crude. Can you give us maybe an order of magnitude of how this is affecting the LPG trade? John, I recall you had mentioned in your remarks about 42 liftings per month to 54. Can you mind just kind of going a little bit that again and giving some perspective?

The way the question on the – can you just repeat the last bit of your question?

Yes. Just basically trying to understand, when we think about the lost volumes that are coming as a result of say the OPEC cuts by themselves, what impact?

Okay. Okay. All right, Omar. Why don't we let Tim take that, because he can give you a more current view of what's going on and how it affects more – more specifically, how it has been affecting the market in the last few weeks. Tim?

Yes. Yes, I would say, of course, we're seeing these cuts also eating into the LPG volumes that are expected out of the U.S., as John mentioned earlier. It's a little bit early to say exactly how much because LPG both are written from the crude drilling and the LNG drilling and also the NGLs at the moment looks to be more profitable. So we're trying to figure out what – if that is directly related to the reductions that we will see out of the U.S. to the reduction in balance of rebuild but definitely see some changes. And we are already seeing that even though we have not seen cancellation yet. As I said, the NGLs actually seem to be a high-value comparator to the oil but as you can say that there's probably almost three were from oil that there will be a shortage in the LPG markets due to high demand. So we expect that the – you can say the reduction of the production will be somewhat offset also by at the moment you have high inventories that will be even through the year until the production starts recovering. But exactly how much, I mean you're mentioning 10 million barrels of crude per day. Exactly. What that is based on fuel price or oil prices and so on, it's quite uncertain projections at the moment I would say.

Yes. Okay. That’s…

That's what you think the price would be. Yes.

Yes. That makes sense. I guess maybe – just maybe thinking about the major listing. I believe John Lycouris had mentioned 52 or 54 liftings for May. How does that compare to say the prior May? And John, if you don't mind just to give a perspective?

It was 52. It was 52 liftings the prior May. Sorry, I have a chart somewhere. I will get it to you during the – but it was a little bit lower. We thought it was on the back of production cuts and perhaps towards – as we get into June, we will see whether this reduction in liftings will continue in the Middle East. We're just talking here. Tim talked about U.S. Gulf and I think you are talking about the Middle East and true enough, Middle East has seen lower liftings this May. But I'll give you the number for last year this May. If you carry on I will come back.

Okay.

But I think you can say, the U.S. from oil drills from the U.S. gives more LPG than when you have production cuts in the Middle East. So the ratio of LPG per barrels drilled is different from U.S. and the Middle East.

Got it. Okay. And then sorry to just one – maybe one more just on this, because there's a lot of moving parts and a lot of weather, you mentioned there aren't really cargo cancellations but obviously limited and things happening very quickly and very fluidly, we've seen in say the product tanker space and the MRs and then handy, there's a lot of logistical issues with access to voyages and waiting time. Is this something that's happening in the VLGC trade as well?

We saw a little bit on India when they closed down that they bought more cargoes to check in because they expected the demand to be higher when people were at home. So they bought extra cargoes, which resulted in more waiting time in India. And then eventually they deferred some of the cargoes back East where there is more storage and where we haven't seen those kinds of delays. But, yeah, you can see some charges for certain destinations where there will be a block up due to both lower offtake especially like India where it's taken off on trucks and going through bottle plants and whatever that is all not working efficiently in these times. So you could see congestions there. We are already seeing that.

Got it. Okay. Well, I really appreciate the color guys. Thank you very much, and best of luck for next quarter.

Omar, the liftings for May 2019 were 60 for the Middle East. And this looks like they are 50. Thanks, Omar.

Okay. Thanks. Thanks, guys.

Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

Hey guys. So I just want to touch back. I think Ted mentioned that the interest rate on some of the new loans that were refinanced, there's a component of it that's tied to an environmental beside principle type element. And I just wanted to figure out how material that is. And I think in the past you talked about there being 16 VLGCs that you could potentially retrofit for LPG propulsion. And I know some of your competitors are implementing that and pushing ahead with it. So just wondering if there's any incremental savings that might be material enough to push you towards LPG or whether you think you get enough benefit to realize those savings from scrubber retrofits alone? Or does this change the strategy at all in terms of how you approach the environment and just propulsion of the vessels?

Ted will provide specific details about the incentive percentage. We are monitoring one competitor that is retrofitting ships and others that are constructing LPG-fueled vessels. This remains a consideration for us as we have always been interested in LPG as an alternative fuel for our ships. While we have chosen to be second movers in this area, we are very much aware of current developments and are in contact with manufacturers and shipyards. We will see how things unfold. I'm uncertain if the banking incentive will be sufficient to encourage this shift, but Ted will update you on that.

The short answer to your question, Sean, is that there is a 10 basis point reduction in the commercial tranche of our facility, which accounts for about one-third of the total facility. This reflects how the banks are committing their resources, and we certainly support that. As with any business decision, economic factors will influence our choices. If the investment's economics are justified by future fuel savings, and as John mentioned, if we are confident in the technical aspects, we will definitely consider it. However, the financing differential loan will not be the main factor driving the decision.

Okay. And did the banks give you an indication of what they view as the most green-friendly, or is it not that specific yet?

No, at this point, LPG is generally seen as a bridge fuel in the sustainability sector. It is better than existing alternatives, but not as eco-friendly as options like wind, solar, or hydrogen, which are not viable at this time. The metric we use is a calculation of our year-over-year average efficiency ratio across the fleet, which is data we already collect. The IMO has established an improvement curve, and we calculate potential interest margin savings based on that. If we meet the existing benchmarks, we will benefit from additional interest savings.

Okay, thanks…

And I should be clear it's up to 5 basis points year one, 5 basis points year or two. So it's not 10 basis points all at one go. Although, we might try for that if we do a really good job on our emissions reductions.

It seems that you accelerated buybacks in your fiscal year 4Q, which corresponds to the first calendar quarter. If I examine the average price, it seems reasonable to assume that some buybacks occurred in January and February, while others were executed more recently. Considering the possibility of weaker VLGC rates and lower LPG exports, are you becoming more cautious about using the remaining $50 million of buyback authorization? Or do you plan to be more aggressive given the lower share price?

We've always been cautious and we look at it in terms of value and opportunity. So I think we will continue in the same way.

Hi. I am just following up on the question about kind of scrubbers and LPG dual fuel, what is the kind of cost differential for kind of adding those incremental scrubbers? I know I think you still have two plans for later this year versus possibly going on the dual fuel LPG side?

It's worth noting that the difference is significant, estimated to be in the high single digits in millions of dollars, likely between 6 to 10 million. According to recent reports, it appears to be over 9 million per ship, but we believe it could be slightly higher than that, possibly over 10 million. Our focus remains on monitoring how fuel costs and pricing evolve. In the meantime, the scrubber offers a satisfactory intermediate solution compared to compliant fuels.

Got it. Okay. And then just one more kind of general market question on possible expensing or just a completion I guess of the Mariner 2 and 2s and kind of coming out of Marcus Hook up there as well as kind of this Pembina project on the West Coast of Canada. Have you heard any updates about either of those for this year?

Tim, let Tim take that.

Tim are you?

Yes. As far as we know, the Mariner 2 is still on track and is expected to come online later this year. We have not been informed of any additional delays, although there have been several last-minute issues. Up until now, everything seems to be on schedule. Regarding the project in Canada, I have no updates. You may have noticed some price fluctuations and trading shutdowns that could affect things, but I don’t have specific figures on that.

All right. Thanks for the color.

Thanks, Randy.

Our next question comes from Eirik Haavaldsen with Pareto Securities. Please proceed with your question.

Hi.

Eirik Haavaldsen, your line is live.

Eirik?

Yes. Sorry about that. Hi. Just one question on the time chartering strategy. I mean, you added another one now. Can you first give an indication on the rate on that second one? And secondly, what is the strategy here? Is it always going to be to balance your charter-out coverage with new ships or the other way around? Because this is, obviously, adding a layer of risk to the setup in a way?

Yes, yes. I mean, I think Tim is perfectly able to give you what goes into our thinking with respect to charter-in and charter-out.

Yes. I think these ships that have been added this year have been done a while ago. One was new building, so contracted and termed off a few years ago. And the last one, at least, yes, six to eight months ago, I think, we concluded the contract. So I can see that the time charter-in has been more opportunistic, where we have seen where we thought the market would go and was confident to increase the exposure of it. And then we have chartered-out also, you can say, to balance this a little bit and lock in a margin or you haven't had any changes in the markets to charter-out. And also, you can say, the periods are different. So the time charter-out that is done through the pool is very short-term, so six to 18 months. And the time charter-out that we have done a story in a small you can say three-year or plus years where small like a financial decision to lock-in something.

And also I just want to add. Yes. And I just want to add, there is also a strategic element to chartering out. If a good customer requires a long-term charter, there is that aspect to it as well.

Understood. But, where is the three-year time charter today? And where was it back in February?

I can't provide more specifics due to confidentiality clauses. Currently, our rates are significantly below the market. If the market is in the 20s, our rates might be slightly above that, but not by much. We frequently receive this question, which highlights one of the challenges of quarterly reporting, as agreements like these can only be fully understood in hindsight. This includes both charter-outs and charter-ins. Last year, we had some ships chartered out which, by the end of the year, were significantly underperforming as the market surged to $60,000 to $70,000 while our rates were in the 20s. However, during the earlier part of that period, those ships were generating a solid cash flow cushion for us. Thus, it's challenging to evaluate these figures at a glance; they should be assessed consistently over time.

No, I agree on that. But just if we can maybe understand a little bit more the strategy because is this an intention to kind of continue to build on this expand the fleet via time charter-in agreements because obviously now with rates being a little bit lower than you can say there should be ample opportunity to charter in ships at rates that at least three months ago seemed attractive. I don't know I'm just trying to kind of understand.

Yes, Ted is pointing out to me. Yes. Ted is pointing out to me that we can disclose the number.

You can calculate it Eirik from the numbers that we've disclosed. So, it's fair to say that it's 24 to 26 a day, call it 25 in change or so 25-ish a day. You can extrapolate that from the number we've disclosed.

On your next question our chartering window is open and Tim can tell you I can tell your chartering people to give us a call or not.

Yes, I think as a strategy also, we took a longer-term time charter from a new building is that to have a mixed portfolio of owned and TCE tonnage. So, yes, if there are opportunities we can look at it if it really makes sense. And let's just say rates are probably lower than there was a couple of months ago.

Okay. Thank you.

Thanks Eirik.

Our next question comes from the line of Chris Tsung with Webber Research. Please proceed with your question.

Hey guys. How are you today?

Good.

So, I just kind of wanted to get a couple of questions on the scrubber program going in. I know there's a fine to retrofit 12. We've done 10. There's about two left for the rest of the year. I mean given the spread on bunker prices and the benefits you get from lower emissions in black smoke and everything. Are there plans to one to spend it because the spreads aren't there or maybe perhaps expand it to kind of meet my next question which is the sustainability metric that you guys are trying to hit on that refinancing?

We are doing one ship now. So, we have further two scrubbers to fit and several ships due for dry-docking this year. So, in time when the ships go to dry-dock, we will decide whether to fit them or not to fit them. We may fit them this year or we may defer and do it at a later time on ships that are dry-docking next year going forward. But we have it under review as you said the spread has closed in a lot. So, we're happy to have the scrubbers that we have on board because we still have the saving that they produce. And if the market is closed is $20,000 or close to $20,3000, $4,000 a day makes a lot more difference than it does between $50,000 and $55,000.

Yes. You also had another question, Chris, about the financing.

Yes. Thanks. Just one more on scrubber. Just I know last quarter, they were being done like around 35 – 33 to 35 days. And I know the shipyards were having trouble due to Corona, has there been any sort of delays, the one that's in drydocking on constitution is this – are we still aiming for like the 33, 35 days?

Is aimed to be at 40 days. That's the plan. We are hoping to do it sooner, Chris.

Okay. Makes sense. Thanks. And, yes, for the financing, I guess, I was wondering if you can go into a little bit more detail. I think Sean covered this earlier but for the average efficiency ratio, I mean, is it based off a certain benchmark or is in absolute unit, your specific unit gram of CO2 per tonne-mile that you guys are trying to achieve. I just want to get a sense of like what are the goals here that either you said or the bank has said that you guys are…

It's about - it's really IMO guidance, it's not the guidance of the bank set. It's about a 2.7% reduction per year. And it's based on the deadweight of the ship. There's a metric that the IMO puts together and we – and on a - for a ship of this much, deadweight, this is the kind of emissions that you ought to be targeting. When we filed the 10-K in a couple of weeks, the loan agreement will be appended as an exhibit, and there's a couple of pages that outline the terms there. And I think it's probably best that we not get into the details until we disclose, it not because there's anything so exciting or extend are but I don't need to file an 8-K in advance of filing my 10-K. So I think there's plenty of meat in there. I guess, I'd be - I guess to give all creditworthy - ours look similar to what international seaways did. That seems to be a market that seems to be kind of a market standard.

Chris, it's just based on the energy efficiency operational indicator or in short, called EOI, most of the people use that and it has to do with the CO2 emission per unit of transport work done, if you want to know. But you will see more details I'm sure in the press and in our filings.

All right. Yes, great. I mean, I know you guys - you've seen that we put out like a sustainability report in our corporate scorecard and a company that I'm digging as you right now. So I was excited about this sorry for more color than actually is necessary. And I guess just for like the last question that I have is the 40% LTV for margin reduction, is it sort of tethered to the NAV at the date that the deal was done? Or is it like more or less floating where it's above 41% or 40%, it goes up 10 basis points it was below then it drops down and it changes quarter-over-quarter?

Not quite. It's tethered to the actual LTV at every quarter based on the vessels in the security package and that amount of debt. There's a rate – there's sort of been no fall – no harm no fall range, which is between 40% and 60% or 59.999%. There's – it's 2.5 – 250 basis points. If it goes above 60 or below 40, that's when the benefits kick in. So there's sort of a wide range of LTV before there's a change in the margin.

I see, I see. A 20% band. Got it. Great. Thanks, guys. Thanks, everyone. That’s it for me.

Thanks, Chris.

Thanks.

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thank you all very much and have a good stay safe. Have a good summer and talk to you soon. Bye-bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.