Q3 2012 Navios Maritime Holdings Earnings Conference Call
Nov 20, 2012 AM EST
NM - Navios Maritime Holdings Inc
Q3 2012 Navios Maritime Holdings Earnings Conference Call
Nov 20, 2012 / 01:30PM GMT
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Corporate Participants
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* Angeliki Frangou
Navios Maritime Holdings Inc. - Chairman & CEO
* Ted Petrone
Navios Maritime Holdings Inc. - President
* Ioannis Karyotis
Navios Maritime Holdings Inc. - Senior VP of Strategic Planning
* George Achniotis
Navios Maritime Holdings Inc. - CFO
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Conference Call Participants
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* Natasha Boyden
Global Hunter - Analyst
* Seth Lowry
Citi - Analyst
* Urs Dur
Clarkson Capital Markets - Analyst
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Presentation
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Operator [1]
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Good morning, and thank you for joining us for this morning's Navios Maritime Holdings third quarter 2012 earnings conference call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; SVP of Strategic Planning, Mr. Ioannis Karyotis; and Chief Financial Officer, Mr. George Achniotis.
As a reminder, this conference call is also being webcast. To access the webcast, please go the investor section of Navios Holdings' website, www.navios.com. A copy of the presentation referenced in today's earnings call can also be found there.
Before I review the structure of this morning's call, I would like to read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the private Securities Litigation Reform Act of 1995 about Navios Holdings. Such forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings' management, and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Holdings' filings with the Securities and Exchange Commission.
The information set forth in this conference call should be understood in the light of such risks. Navios Holdings does not assume any obligation to update the information contained in this call.
Thank you.
The agenda for today's conference call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an industry overview. Next, Mr. Karyotis will go through an overview, including recent financials for Navios South American Logistics. Then Mr. Achniotis will review Navios Holdings' financial results. Lastly, we will open the call to take your questions.
I would now like to turn the call over to Navios Holdings' Chairman and CEO, Ms. Angeliki Frangou. Angeliki.
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [2]
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Thank you, Laura, and good morning to all of you joining us on today's call.
We are pleased to report our results for the third quarter of 2012. We had a solid quarter in a market environment that continues to be challenging. We have, therefore, focused on what we can control, the efficiency of our global fleet, and the stability of our balance sheet. As a result, we can continue returning capital to our shareholders through dividend payments and declared a $0.06 dividend for the third quarter of 2012 to shareholders of record on December 18.
Slide 2 shows our current corporate structure. The value of Navios Holdings primarily derives from four areas; the drybulk within Navios Holdings, and three principal operating subsidiaries. The whole continues to be valued at less than the sum of its parts. As you can see, the value of Navios Holdings' interest in the two public limited subsidiaries is $2.76 per share. The market values remaining two businesses at only $0.80 in total.
Navios Holdings' core fleet drybulk consists of 49 vessels in the water. This fleet has charters with creditworthy counterparties. Our strong creditworthy charter coverage should continue to provide great comfort to all our stakeholders.
The value of Navios Logistics is also growing. We have an experienced management team addressing the market opportunity. Together, we have transformed Navios Logistics into a key provider in the Hidrovia Region of South America. Ioannis Karyotis will address Navios Logistics' results in further detail later. The opportunity in South America is as large as it has ever been for us.
As you will have noticed from our press release, Navios Holdings entered into a restructuring agreement with its credit default insurer. We view this as a positive development. I would note that this was not something we sought, but something the credit default insurance company wanted, as it determined to gradually exit the insurance business in the maritime space. We believe that the net result is that Navios Holdings is stronger post the restructuring as Navios will receive upfront payments, cash payments, and enjoy market upside from the vessels relating to defaulted charters. We would not have had either of these advantages under the old insurance regime.
I also wanted to note that in the current low charter rate environment, it is not likely that we would be relying on credit default insurance for our new charters. Instead, we would internally manage the re-chartering risk of defaulting parties directly through the charter market.
Slide 3 summarizes the terms of this restructured insurance. Navios Holdings will receive $175.4 million cash payment. Of this amount, $164.4 million is attributable to defaulted charterers, for which Navios would have received payments over a year. By receiving these payments today in a lump sum as opposed to a longer period under the respective insurance agreements, we estimate that we received a net cash benefit of almost $26 million.
I also wanted to note that part of the cash compensation included $11 million. This amount was not attributable to any defaulting charter, but is simply a negotiated economic benefit to Navios Holdings.
Turning to the second element of the restructuring, we will continue to have $41.2 million of credit default insurance covering Navios Holdings' charter revenue. The terms of this insurance pretty much mirrors the terms of the old insurance on the related charters.
The table on the bottom of slide 3 summarizes the change in our credit default exposure. Under the old insurance policy, we had $207 million of credit default insurance coverage. When you add up the elements of the restructured insurance agreement, you can see that, in effect, we have more than 100% of this coverage ongoing.
Turning to slide 4, we wanted to elaborate on the benefits to Navios Holdings of restructuring the credit default insurance. First, we now have the upside, the market upside potential from the defaulted charters. Previously, Navios Holdings' rechartered vessels where the original charterer defaulted. To the extent that the vessel is now rechartered at for an amount greater than the certain daily mitigation rates, all of such excess will now be retained by the Navios Holdings.
These rates assumed at $15,000 per day for Capesize, $10,000 per day for Panamax, and $8,000 per day for Ultra Handymax vessels. There is a significant potential upside from rechartering vessels for which Navios Holdings received an undiscounted cash payment to restructure the credit default insurance. Navios Holdings estimates that it will earn annually $3.3 million for every $1,000 per day earned above the mitigation rates.
I also wanted to address the potential insurance payment by Navios Holdings to Navios Partners. As part of the restructuring process, Navios Holdings considered the impact of the restructured insurance on Navios Partners. Given our significant commitment to Navios Partners, and our large investment in Navios Partners, we thought that it was important to provide assurances to the existing cash flow of the entity.
As a result, we agreed to provide the insurance on a number of charters, aggregating $76.7 million in charter revenue, provided that the maximum cash payout on this policy would not exceed $20 million. The terms and conditions of this policy are about identical to the terms and conditions of the old policy.
Now turning to slide 5, we provide some credit analysis on the charters underlying the continued coverage from our AA rated credit default insurance provider. As you can see, 100% of the charter revenue covered by the insurance is investment grade by the respective rating agency.
Slide 6 shows our strong liquidity position. Our net debt to book capitalization was 49.7% at the end of the third quarter, reflecting a 110 basis point reduction in the nine months since the end of 2011. We had liquidity of $243.4 million, of which $173.4 million was cash.
Moreover, when you pro forma our balance sheet for the recent net cash infusion from our credit default insurance restructuring, the net debt to capitalization ratio falls by 680 basis points, or 13.7% to 42.9%. This reflects a 62% increase in pro forma liquidity to $395.5 million, and an 88% increase in pro forma cash to $325.5 million.
As demonstrated on slide 7, we believe that we are in a strong competitive position. Our balance sheet was strong at the end of the third quarter, and it was further enhanced by the cash payment from the credit default restructuring and repayment of debt. We have also substantially reduced cash break even, as in this difficult dry bulk market, we focused on the expense side of our business.
The restructured credit default insurance will reduce the Navios Holdings' G&A by 12%, or $6 million annually. We also continue to raise the bar on our operational performance as we seek to reduce operating cost. Our cash break even costs are 10% lower than 2011, and 17% lower than 2010.
Looking at our revenue coverage, you can see that we only have 288 open days for the balance of 2012. We will earn $288,000 of revenue for every $1,000 we earn per day. Assuming we only earn $12,000 per day, we will generate another $3.5 million of free cash flow.
The sum of our competitive positioning is as follows. We believe that we are a preferred commercial partner for industry participants. Our balance sheet is strong, and we have demonstrated a historical ability and willingness to honor our commitments. Consequently, potential commercial partners understand that they can engage with us with the comfort that we will provide a reliable service.
Charterers can secure long-term contracts with the security that we have neither technical nor commercial issues. Suppliers can provide equipment and lubricants with the understanding that they will be provided fair compensation for their goods and services.
Slide 8 sets forth Navios' cash break even after the restructured credit default insurance. Turning first to the cost side of the equation, we have a cash break even of $15,933 per day for 2012. This reduces to $15,751 in 2013.
Our revenue per day adjusted for the $175 million of insurance payment is $18,907 in 2012 [fixed], and $18,688 for 2013. Navios Holdings have 98% of available days for 2012, so we essentially know that will create substantial cash flow. Navios Holdings has fixed 34% for 2013.
If you refer to the chart at the bottom-right of the slide, you can see that, using the number of days fixed as the baseline, Navios Holdings is $145 million short of break-even. However, we have accelerated charter revenue from 2013 and beyond in the lump sum payment of $175.4 million. This was part of our contracted revenues that we have presented to you over time.
With our significant cash resources, our financial position for 2013 is secure with $13 million excess. And we have 9,880 days open for 2013. Thus, assuming a market of about $12,000 per day, we will create an additional $118.6 million.
I wanted to remind people that in this analysis, we include all operating expenses; dry dock expenses charter-in expenses for our charter-in fleet; G&A, including credit default insurance fees, as well as interest expense and capital repayments. I also wanted to say that we provide this conservative analysis to demonstrate that we are confident of our future.
At this point, I'd like to turn the call over to Mr. Ted Petrone, Navios' President, who will take you through Navios' operations and our industry perspective.
Ted.
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Ted Petrone, Navios Maritime Holdings Inc. - President [3]
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Thank you, Angeliki, and good morning, all. Please turn to slide 9. Our long-term core fleet consists of 49 vessels, totaling 5.1 million deadweight. We have 45 vessels in the water with an average age of 5.8 years.
Please turn to slide 10. Post the restructuring agreement with our credit default insurer, Navios' average charter-out rate for its core fleet is $18,907 a day for 2012, $18,688 a day for 2013, and $30,343 a day for 2014. 98% of Navios' fleet is chartered out for 2012, 33.7% for 2013, and 10.6% for 2014.
As depicted on the left side of slide 10, the dark blue portion of the bars represents pre-insurance restructuring levels. The differentials in the charter-out rate and contracted days reflect changes as a result of the acceleration of charter payments through the $175.4 million lump sum payment from the credit default insurer. This payment enhances our balance sheet and cash on hand.
Please turn to slide 11. We enjoy vessel operating expenses about 23% below the industry average in all asset classes. Navios' current daily OpEx is $4,387. The $1,285 daily savings per vessel in operating expenses aggregates over $14 million in annual savings, which goes directly to our bottom line.
Please turn to slide 12. In Q3, an oversupply of tonnage and continued economic weakness contributed to the BDI reaching the lowest quarterly average since 1998. The IMF's lowered world GDP forecast for 2013, and weaknesses in commodity demand, should keep freight under pressure for the near future.
Conversely, after having hit a three-year low, Chinese steel prices are showing signs of recovery, and the USDA has decreased its forecasted cuts in grain exports, both bringing positive news for dry bulk.
Subsequent to Q3, and in a reversal of recent trends, Capesize rates markedly improved in October as spot rates surged to a nine-month high of $18,388 a day on October 23.
Lower iron ore prices have cut China's domestic iron ore production, increasing Chinese import substitution. In contrast, the Panamax and Handymax rates remain under pressure as a result of reduced US and FSU grain exports and Indian iron ore shipments.
Lower charter rates should induce more scrapping this year and into next year, when an additional 11.6 million deadweight becomes 20 years old.
Please turn to slide 13. World GDP continues to be driven by developing economies. Developing economies now contribute a higher percentage of total world growth than the developed economies, representing over half of the global consumption of most commodities.
The IMF recently lowered its forecast for world growth to 3.3% for 2012 and 3.6% for 2013. Emerging economies are projected to grow at 5.3% in 2012, and 5.6% in 2013. The IMF now expects the Chinese economy to grow at 7.8% in 2012 and 8.2% 2013. India's economic growth is expected to be 4.9% in 2012 and 6% 2013.
Turning to slide 14. Currently, just over 50% of the world's population resides in urban areas. That figure is expected to grow to 67% by 2050, adding approximately 2.8 billion urban residents, with a large portion of urbanization occurring in the Asia Pacific region.
As you can see on the right-hand side graph, growth in income supports increased metal demand. The rise in global incomes and the shift in the global economy towards Asia should support world bulk trade by increasing movements of raw materials as shipping patterns adjust to the new global model.
Turning to slide 15, crude steel production in China through October totaled 594 million metric tons, or about 2% more than the same period last year. China imported 609 million metric tons of iron ore through October, about 9% more than the same period last year.
The chart on the upper-right depicts estimated iron ore mining capacity from Australia and Brazil, graphed against the decline of domestic Chinese iron ore mining. The substitution of imported iron ore for low quality domestic production is already occurring, as domestic production increased only 1% while imports have increased 9% year on year.
Turning to slide 16. Scrapping rates for older, less efficient vessels has continued to accelerate through November 16. 30.5 million deadweight tons have been scrapped. This represents an annual scrapping rate of about 35 million deadweight, or close to 6% of the fleet.
The current rate environment should keep scrapping levels high, as over 7.2% of the fleet is 25 years of age or older, and about 12.5% of the fleet is over 20 years old, providing about 84 million deadweight of scrapping potential.
Moving to slide 17. Non-deliveries continue to be a substantial part of the dry bulk order book. Through October, non-deliveries amounted to 27%, as new building deliveries were 88.4 million deadweight against an expected 120.6 million deadweight.
Fleet additions this year are expected to be about the same as 2011, but net deadweight growth should be lower after scrapping is taken into account. The total order book declined dramatically in 2013 and beyond to about 15% of the fleet.
Please turn to slide 18. We currently own 25.2% of Navios Partners, including a 2% GP interest. Navios Partners operates a fleet of 21 vessels equaling 2.3 million deadweight with an average age of 5.6 years. Since its inception in 2007, Navios Partners' fleet has grown by 261%.
Please turn to slide 19. Navios Partners provides significant cash flow to Navios Holdings. Since its start of operations, Navios Partners has grown distributions by almost 27%, and we received about $100 million in distributions from Partners.
In 2012, we expect to receive about $28.5 million in distributions. This is more than 100% of Holding's expected annual dividend.
Including Navios Acquisitions' dividend, Navios Holdings receives over 137% of the expected annual dividend from its ownership in these two companies.
Please turn to slide 20. We have an approximate 55% economic interest in Navios Maritime Acquisition. Navios Acquisitions' current fleet consists of 29 tankers, totaling 3.3 million deadweight. Navios Acquisition currently has 19 vessels in the water with an average age of 5.2 years.
We anticipate Navios Acquisitions' new building program for product tankers positions it to take advantage of the favorable long-term industry dynamics.
Please turn to slide 21. The Company is summarized on slide 21. Navios Acquisition has a large, modern and diversified tanker fleet worth more than $1 billion. Navios Acquisition has long-term contracted revenue that is well above the Company's low operating break even. This cash flow can sustain Navios Acquisition for a long period in distressed market conditions.
Navios Acquisition has profit-sharing arrangements in many contracts. These agreements limit the downside risk to the base rate, and allows Navios Acquisition to enjoy the upside volatility. For example, year to date, profit sharing has been triggered in all asset classes.
This concludes my presentation. I would now like to turn the call over to Ioannis Karyotis, Senior VP of Strategic Planning.
Ioannis?
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Ioannis Karyotis, Navios Maritime Holdings Inc. - Senior VP of Strategic Planning [4]
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Thank you, Ted. As you can see on slides 22 and 23, Navios Holdings owns 63.8% stake in Navios South American Logistics. Navios Logistics has three segments; all enjoying significant growth prospects.
Our dry port in Uruguay now has total static storage capacity of 460,000 metric tons, 94% of which has been contracted this year for a period of five years. The construction of a second conveyor belt to double our vessel-loading capacity is progressing, and is expected to be completed in the first half of 2013.
We have also expanded our liquid port terminal in Paraguay that now has total static storage capacity of 45,700 cubic meters, up from 35,600 cubic meters a year ago.
In the Barge business, we have acquired one push boat and six tank barges that were previously chartered in for an annual cost of $1.7 million. As a result, our voyage expenses will be reduced significantly.
Please turn to slide 24 to discuss the results of the third quarter and the nine months of 2012.
We had a strong third quarter in which we accelerated our EBITDA growth. Overall, revenue decreased by 6% compared to the same period last year to $65 million, while EBITDA for Q3 2012 increased to $13.2 million, 48% higher compared to Q3 of 2011.
Looking into the segments, EBITDA of Port Terminals in the third quarter increased by 66% to $6.9 million, a result of increased volumes and higher tariffs, mainly attributed to the new contracts in our dry port in Uruguay.
The 18% decrease in revenue of Port Terminals is attributed to lower sales of products in our liquid port in Paraguay, a low-margin activity that has relatively low impact on EBITDA, but can affect revenue.
Revenue in the Barge business increased 4% and EBITDA expanded more than 6 times to $4 million for $0.6 million in the third quarter of 2011, mainly due to the expansion of the barge fleet and the three additional iron ore convoys.
Cabotage business reported a 6% increase in revenue, while EBITDA decreased by 44% to $2.3 million from $4.1 million in the third quarter of 2011, mainly due to off hires of certain vessels.
Interest expense and finance cost net were $5.1 million in both the third quarter of 2012 and 2011. Depreciation and amortization expense increased to $7.2 million as compared to $5.5 million in Q3 of 2011. Our net result for the quarter was a net income of $0.9 million compared to a net loss of $1.5 million in the respective period last year.
Turning to the nine-month period ended September 30, 2012, revenue increased by 12% compared to the nine months of 2011 to $188.4 million. EBITDA grew 29% to $37.2 million, driven by the Port Terminals and the Barge business segments.
Interest expense and finance cost net were $15.2 million compared to $11.3 million in the nine months of 2011 due to the interest expense generated by the senior notes issued in April 2011. Depreciation and amortization expense increased to $20.1 million from $16.6 million in the nine months of 2011. As a result, net income was $0.9 million compared to $1 million in the same period last year.
Please turn to slide 25. Slide 25 provides selected balance sheet data as of September 30, 2012. Navios Logistics has a strong balance sheet. At the end of Q3, cash and cash equivalents were $59.6 million compared to $40.5 million at the end of 2011. Net debt to book capitalization was 30%, down from 35% at the end of 2011, and still conservative overall.
Now I would like to turn the call over to George Achniotis, Navios Holdings' Chief Financial Officer.
George.
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George Achniotis, Navios Maritime Holdings Inc. - CFO [5]
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Thank you, Ioannis; and good morning, all. Please turn to slide 26 for a review of the third quarter and nine-month financial highlights. I would like to draw your attention to the fact that for comparability purposes, we are presenting the consolidated results of 2011 on a pro forma basis to exclude the results of Navios Acquisition, which was deconsolidated at the end of Q1 2011.
Despite a 45% year-on-year reduction in the BDI, the TCE rate achieved in the quarter reduced by 18% at $18,785 per day, well above the market. This is a reflection of our prudent chartering strategy over the past few years.
Despite the 18% reduction in the TCE rate, EBITDA for Q3 reduced by less than 10% to approximately $61 million compared to $67 million in the same period last year. The reduction was partly mitigated by a 13% increase in the available days of the fleet due to the delivery of both owned and chartered-in vessels, and a 48% increase in the EBITDA contribution from Navios Logistics that Ioannis discussed earlier.
Net income for the period reduced from $16 million in 2011 to about $5 million in 2012. The reduction is mainly attributable to the reduction in EBITDA, higher depreciation due to the increase of the owned fleet in both Navios Holdings and Navios Logistics, and higher interested expense following the issuance of the $88 million add on to the 2017 secured bond in June.
Turning to the highlights of the results for the nine-month periods ended on September 30, EBITDA was adjusted for 2011 and 2012 to exclude the effect of certain one-off items, primarily the profit from the drop down of vessels to Navios Partners, expenses relating to the bond extinguishment in January of 2011, and a non-cash accounting loss on the deconsolidation of Navios Acquisition in Q1 2011.
Adjusted EBITDA decreased by approximately 8% to $184 million from $200 million in 2011. Similar to the quarterly results, the main reason for the decrease was the reduction in the TCE rate achieved in the period, and that was mitigated by higher available days in the fleet and significantly higher EBITDA contribution from Navios Logistics.
Net income for the nine months of 2012 and '11 was also affected by the one-off items discussed earlier. Excluding the effect of these items, adjusted net income for the nine months through September 2012 decreased to approximately $19 million compared to $48 million in 2011. The decrease is mainly attributable to a decrease in EBITDA, an increase in interest expense due to the new bonds issued by Navios Holdings and Navios Logistics, and the higher depreciation due to the increase in the number of owned vessels and barges.
Please turn now to slide 27 where the balance sheet highlights are presented.
The cash balance as of September 30, 2012, was over $173 million compared to about $177 million at the end of December 2011. The balance will increase substantially following the $175 million lump sum cash payment to be received as part of the agreement for the restructuring of the credit default insurance.
Long-term debt, including the current portion, reduced significantly from $508 million at the end of December 2011 to $353 million at the end of September 2012. The reduction is in line with our stated strategy to de-lever and strengthen the balance sheet in order to be able to weather the current distressed market and take advantage of distressed transactions that may become available.
Senior notes increased by $88 million since the year end following the issuance of the add-ons to the 2017 secured senior notes in June 2012. Despite the prolonged period of depressed rates and vessel values in the dry bulk market, our net debt to book capitalization ratio reduced to 49.7% from 50.8% at the end of December 2011, and will further reduce due to the restructuring of the credit default insurance.
Finally, I would like to note that we were in compliance with all our debt covenants at the end of the quarter.
Turning to slide 28, the Company continues to pay its uninterrupted dividend to its shareholders. A dividend for the third quarter of 2012 of $0.06 was declared to common shareholders as of December 18 to be paid on January 4. This represents a dividend yield of 6.7% based on yesterday's share price.
I would also like to point out that the total annualized cash dividend inflows from our ownership in Navios Partners and Navios Acquisition is approximately $34 million. This exceeds the annual dividend paid out by Navios Holdings by over $9 million.
This concludes my review of the financials. At this point, I will turn the call back over to Angeliki for his closing remarks. Angeliki.
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [6]
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Thank you, George, and we open the questions to -- the call to questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions). Natasha Boyden, Global Hunter.
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [2]
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Good morning, Natasha.
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Natasha Boyden, Global Hunter - Analyst [3]
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So on the [NM] call you -- Angeliki, I think you said that the restructured insurance would last another three years. Is that correct? Does that hold for Navios Holdings as well?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [4]
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Yes, and I want to correct that, because I made a mistake. It's actually December 31, 2016; it's actually four years.
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Natasha Boyden, Global Hunter - Analyst [5]
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I'm sorry. You said December 31, 2016?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [6]
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Yes, I made a mistake on the previous call.
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Natasha Boyden, Global Hunter - Analyst [7]
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Okay. And I think you also said on the call that this whole restructuring came about because the insurance company wanted to get out of the maritime insurance business. Is that also correct?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [8]
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Yes.
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Natasha Boyden, Global Hunter - Analyst [9]
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Okay. Did they give any sort of indication as to why they wanted to? Was it just too much with -- too much counterparty default, or what was --? Did they give any reason?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [10]
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I think it was not a major line of their business and I think they were just exiting that business. That was not a very major part of their insurance business.
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Natasha Boyden, Global Hunter - Analyst [11]
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Okay, fair enough. Now it always seems to appear that you still have coverage on the remaining case not defaulted, but I'm just wondering is -- does this new -- or the newly restructured insurance, I'm assuming that it does not extend to any new assets that you might purchase?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [12]
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Yes, but I want to repeat one thing. In today's market, if you fix, you are going to be -- will only be (inaudible) on a level [standing where you divided] your level of the cycles. There is very minimal value to the actual insurance.
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Natasha Boyden, Global Hunter - Analyst [13]
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Sure, that makes sense. And that brings me to my next question. Obviously, would be defaulted charters. I'm assuming that you are going to intend to trade the vessels either on a spot market or short-term charters. There's obviously no sense in putting them out on long-term charters at these levels?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [14]
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It doesn't make sense, and in that sense, we have a great benefit at Navios, from these Navios Holding -- from this arrangement.
Just realize that the lump sum payment we receive, which is $175 million, of which $164 million is before the charters, is nine vessels. This has an NPV, net present value of $25 million. It has -- we have $11 million excess cash, and if you really see -- we also keep the significant market upside in the sense for every $1,000 we fix above mitigating rate, you are looking at $3.3 million.
So if you take this -- this $175 million is actually contracted revenue that you will (inaudible) to see in our pages. In page 8 of our presentation, [used to give you here] a coverage forward.
So today, if you apply this $175 million, you can see that we have a [$70 million] share plus, and still 10,000 days available that provide you with a [12,000] average rate, will provide you about $120 million of additional cash.
So we are [treating] this growth of [recycling] with a very strong liquidity, and with the ability to grow it further as market recovers.
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Natasha Boyden, Global Hunter - Analyst [15]
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And the cash that you now -- the liquidity that you now have on the balance sheet, is that primarily going to go towards debt reduction?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [16]
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We have allocated about $25 million for cash -- for debt repayment. On the other side, looking that we have about $395 million liquidity, and in this part of the cycle, I think cash is king. Don't forget, we have major defaults of the biggest companies because of liquidity or debt maturity, so we're sitting in a very nice position.
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Natasha Boyden, Global Hunter - Analyst [17]
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Right. And lastly, with the remaining ships that you have under charter, have you had any indication from the counterparties that they would want to restructure those, or that they might default?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [18]
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No, we don't have actually. The counterparties that we are insuring is about -- they're all investment grade, and we have no indication whatsoever.
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Natasha Boyden, Global Hunter - Analyst [19]
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Okay, great. Thank you very much for your time.
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Operator [20]
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Christian Wetherbee, Citi.
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Seth Lowry, Citi - Analyst [21]
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[Seth Lowry] for Chris. If I could start off just asking a few points for clarification on the restructuring. The $41.2 million that's related to the pool insurance coverage, is that still with that same insurer, or is that a different credit default insurer?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [22]
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It is exactly the same insurer; is a similar policy with what we had in the past. It's just the amount is reduced. This covers only all the long-term charters.
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Seth Lowry, Citi - Analyst [23]
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So would you expect then to eventually exit from that insurance? Will that happen in four years, or is there any chance that will happen over the near term?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [24]
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No, it won't happen. Previously, the restructure [deal] is until December 31, 2016.
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Seth Lowry, Citi - Analyst [25]
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Okay. And then the migration rates that you give, is it fair to assume within this four-year period -- that's essentially how long you have to realize any upside potential in the market above those rates when you recharter the vessels, right?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [26]
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This is [in addition]. Listen, you have a NPV benefit of $25 million from the contracted revenues we've got in. Anything you will receive today above [mitigation] it is purely on your -- coming to your bottom line.
Let's take an example. The [10-year eight] is for Panamaxes over -- it's about [$35,000]; for [Capes] is about $45,000. You do realize this is an amazing potential upside to our bottom line. Then if we receive all the cash upfront today with the ability to release it on $400 million in the trough of the cycle.
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Seth Lowry, Citi - Analyst [27]
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Yes, okay. And then I guess -- well, actually, if I just touch on OpEx. I know there's a slight uptick next year in 2013. Is that a function of chartered-in costs, or is that in the [owned fully] OpEx?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [28]
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Sorry, it's -- actually, the cost goes down by about $200 from $15,953 to $15,751.
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Seth Lowry, Citi - Analyst [29]
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I just meant in the daily operating expenses [what is my] [$6,500, $7,100].
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [30]
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Yes, it's some charter-ins. That's why you have seen an uptick.
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Seth Lowry, Citi - Analyst [31]
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Okay. Thank you. I'll turn it over.
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Operator [32]
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Urs Dur, Clarkson Capital Markets.
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Urs Dur, Clarkson Capital Markets - Analyst [33]
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We've all gone through this restructuring pretty at length, and they're leaving the business, so we now have to model going forward, and you have all the new charter rates. So let's talk about the market going down the road as you see it. Can you discuss with us any current developments in the order book? Is it still declining? Can you discuss a little bit further on the scrapping situation? And what's your global macroeconomic view here?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [34]
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I think I'll let Ted discuss the scrapping and the rate, but the one thing that we'll say that in the current market environment, and covering the $400 million [drybulkers] to work, and having really -- get the benefit of the charterers asset valuation, in that sense, Navios start charter asset valuation, and we will have the benefit, we have the steel price and the contracted revenue, and we see that we materialize the full value of this.
So with that, I'd like to give it to Ted to give you the market perspective.
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Ted Petrone, Navios Maritime Holdings Inc. - President [35]
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Let's start with the order book. We're practically at the end of what has been a big growth spurt, but it looks like that really is over. Starting in Q4 this year going into next year, the order book really starts dropping off dramatically. As a matter of fact, you -- from next year onwards, you have total order book that's -- on paper is as much as delivered -- not even as much as delivering this year what was on order.
And when you take out the 27%, 30%, 35% non-deliveries, you've gotten down to about 100 million deadweight, which is close to what's over 20 years of age. You're about 84 million.
So we really see fleet growth slowing down, starting really about now in Q4. Having said that, all the research out there is showing us some very good growth rates for next year in tons, but also in ton miles.
Then again, we also have this whole idea of a lot of iron ore coming online again in one of our graphs we have shown for Brazil and Australia. So that could reduce the price -- continue to reduce the price of the iron ore, which brings a substitution effect. Also, coal is starting -- is really moving again. So we really have confidence going forward that the rates are going to be higher than they are today.
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Urs Dur, Clarkson Capital Markets - Analyst [36]
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Right, okay. And it's useful to have that part if you --. You probably covered it in the release, but what's the potential uses of all this cash now here?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [37]
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We will be repaying about $25 million in [Vantek], and the remaining is really in balances for working capital purposes. And in that sense, we will review market and assets going to the potential upside for this -- for the use of this cash. Don't forget we're always conservative anyway.
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Urs Dur, Clarkson Capital Markets - Analyst [38]
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Yes. Just to remind us all, regards to bank covenants and debt covenants, you're all fine there, and this cash payment in the near term even creates more room. Correct?
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [39]
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Exactly.
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Urs Dur, Clarkson Capital Markets - Analyst [40]
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Okay. I appreciate it. Thank you for your time.
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Operator [41]
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At this time, there are no further questions. I will now return the call to Ms. Frangou for any closing remarks.
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Angeliki Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [42]
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Thank you very much for attending our Q3 results.
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Operator [43]
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Thank you for participating in today's conference call. You may now disconnect.
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