International Seaways - Earnings Call - Q3 2021

Transcript

Speaker 0

Welcome everyone to the International Seaways Third Quarter twenty twenty one Earnings Conference Call. My name is Victoria, and I will be coordinating your call today. I'll now hand over to James Moore, General Counsel from International Seaways to begin. James, please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to International Seaways' earnings release conference call for the 2021. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics: outlooks for the crude and product tanker markets changes in oil trading patterns forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products the effects of the ongoing coronavirus pandemic the company's strategy the anticipated cost savings and other synergies and benefits from our merger with Diamond S Shipping any plans to issue dividends our prospects purchases and sales of vessels, construction of newbuild vessels and other investments, anticipated and recent financing transactions, expectations regarding revenues and expenses, including vessel charter hire and G and A expenses, the estimated bookings and TCE rates in the 2021, in 2022 or in other periods estimated capital expenditures in the 2021, in 2022 or in other periods projected scheduled drydock and off hire days the company's consideration of strategic alternatives the company's ability to achieve its financing and other objectives and other economic, political and regulatory developments around the world.

Any such forward looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected future developments and other factors that management believes are appropriate to consider in the circumstances. Forward looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause International Seaway's actual results to differ from expectations include those described in quarterly reports on Forms 10 Q for the 2021, our 2020 annual report on Form 10 k, and in other filings that we have made or in the future may make with the US Securities and Exchange Commission. With that out

Speaker 2

of the way, I would like to

Speaker 1

turn the call over to our president and chief executive officer, miss Lois Abrocki. Lois?

Speaker 3

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways' earnings call to discuss our third quarter results. We have positioned Seaways to take best advantage as the tanker market recuperates. Rystad has the fourth quarter global oil demand growing by 3,000,000 barrels per day.

Worldwide oil inventories have destocked to pre COVID levels, and refinery margins have increased in both the East and the Western Hemispheres. OPEC plus continues to bring an additional 400,000 barrels per day of oil supply every month back onto the market. If we turn to Slide four of our deck, we recap the benefits we are realizing from our merger with Diamond S. We share our focus on fleet optimization and our success in returning capital to shareholders. Starting with the first bullet, the merger is both transformational and accretive to International Seaways.

We have nearly doubled our net asset value and tripled our fleet size. Seaways is now established as the largest U. S.-listed diversified tanker company. By bringing together these two leading U. S.-based tanker owners, both with a long term focus on customer relationships, both with deep cultures of achieving stringent safety standards and strong governance.

We are well on our way to delivering compelling strategic and financial benefits to all of our stakeholders. We solidified our power alley in the large crude sector with 28 combined Vease and Suezmaxes. And we created a new power alley with over 50 product carriers. Our increased scale, capability and operating leverage have significantly strengthened our ability to take advantage of the recovery in crude and product tanker demand for the benefit of shareholders. In the month of October, even as we just are beginning the rate recovery in the tanker sector, On vessel values, our fleet value rose by $50,000,000 equating to $1 per share.

This just illustrates the upside potential of our asset base. Our integration is progressing as planned, and the teams have come together well. We remain on track for achieving annual cost synergies of $23,000,000 and and revenue synergies of $9,000,000 We expect to achieve this within 2022 by sticking to our plan and our lean and scalable model. Turning to the next bullet. We have maintained a strong balance sheet.

Our diverse capital structure is a pillar of our success, and our progress in this critical area differentiates Seaway. Our loan to value is a solid 46%, and our access to capital is strong. We recently entered into a $375,000,000 facility of long term financing at attractive terms. And as we head into the emerging tanker market recovery, Jeff will discuss our financings in more detail later on the call. I would like to highlight that with our current total liquidity of roughly $300,000,000 we are well positioned to operate effectively in all tanker markets and to take advantage of attractive opportunities as they arise.

In the next bullet, we highlight our return of capital to shareholders. This remains a central part of our disciplined approach to capital allocation. Combining the $31,500,000 or $1.12 per share special dividend that we paid in the third quarter, as well as our regular quarterly dividend, we have now returned a total of $73,000,000 to shareholders since 2020. Our $50,000,000 share repurchase authorization remains in place to further act opportunistically for shareholders. Turning to our third quarter results.

Our net loss was $29,400,000 or $0.63 per share, excluding merger related costs and gains on vessel sales. In a sustained weak rate environment during the quarter, we generated an adjusted EBITDA of $8,000,000 At the quarter's end, we had $133,000,000 in cash and $173,000,000 in total liquidity. And as I noted earlier, current liquidity is approximately $300,000,000 Moving to the final bullet, we outlined our ongoing fleet optimization program, which is focused on monetizing older non core ships. Year to date, we have sold or agreed to sell 14 ships with an average age of seventeen years at attractive prices, reflecting the higher steel values that underlie ship values today. In addition to generating expected net proceeds of $83,000,000 after repayment of $57,000,000 of debt, we will also preserve approximately $12,000,000 of cash saved on dry docking and ballast water treatment system installations that will now be avoided.

The ships we have sold for recycling were sold in compliance with the Hong Kong Convention. Combined with enhancing our balance sheet, the additional liquidity provides further capital allocation flexibility for International Seaways. Details on the sales may be found in the appendix. Turning to Slide five. We update the oil supply and demand balance.

Oil production continues to increase. U. S. Hurricane related shutdowns have recovered and come back online. And OPEC plus is gradually and systematically ramping up their output.

With 7,300,000,000 vaccinations administered globally, up from just 4,000,000,000 a quarter ago, We are seeing stronger economic growth resuming in the world. And third quarter oil demand has improved to an estimated 97,800,000 barrels per day. This is up from 95,200,000 barrels per day in the second quarter, and it's almost 6,000,000 barrels per day up year over year of much needed demand recovery. The IEA has upwardly revised its 2022 expectation of oil demand. They now forecast an increased demand of 3,300,000 barrels per day in 2022 over 2021.

In the chart on the right hand side of the slide, consistent with the recovery in demand, oil inventories have rapidly declined in the world and are now below the 02/2016 to 2020 averages. These stock draws are needed to set the stage for the tanker market recovery and are very encouraging markers. Combined with the OPEC plus relaxing output cuts, and each month the surge in demand for oil as global economies reopen and start to grow, air travel rebounds, and vaccinations are administered globally, we are optimistic that all of these signals together are strengthening for our rate environment. On Slide nine, we look at ship supply. The overall tanker order book continues to be low, with tanker supply curves projecting fleet decline in the medium term.

Shown in the top right chart, elevated, no new there have been very few new buildings placed and no new buildings on the VLCC front since June. Ordering has been tempered by the combined uncertainty around propulsion ship type, higher steel input costs, and increased newbuilding prices. Recycling has the potential to limit fleet growth based on the aging VLCC fleet, And we have now seen 14 vessels have gone to the recycling market on the VLCC fleet. So we started the year very low, and the pace has picked up in the last couple of months. 17% of the existing VLCC fleet is now at least 17.5 years old, and 8% is at least 20 years old.

Then contrast this to the 9.5% VLCC order book. As ships age and reach their ballast water treatment system deadlines, substantial capital investment is required to keep them trading. Based on these dynamics, recycling activity has been building in the market, particularly given the current low spot rate environment and the record steel prices. I now want to turn the call over to Jeff to give us our financial review. Jeff?

Speaker 4

Thanks, Lois, and good morning, everyone. Let's move directly to reviewing the third quarter results in some more detail. Before turning to the slide, let me just summarize our consolidated results. For the third quarter, we had adjusted EBITDA of 8,000,000 Net loss for the third quarter was $68,000,000 or $1.44 per diluted share compared to net income of $14,000,000 or $0.50 per diluted share in the 2020. When excluding the impact of the disposal of vessels, including impairments and merger related charges, net loss was $29,000,000 or $0.63 per diluted share.

Now if you could turn to Slide eight. This slide summarizes the results of our business segments for Q3 twenty twenty one versus Q3 twenty twenty at the top of the page and on a last twelve months basis on the bottom. The decrease in Q3 and last twelve months revenue and EBITDA primarily results from the impact of lower average blended rates in both the crude oil and product sectors. Now turning to Slide nine, we provide a third quarter review and fourth quarter twenty twenty one earnings update. For a look at results in Q4 thus far, we booked 59% of our available q four spot days for VLCCs at an average of approximately $16,100 per day, 58% of our available Suezmax spot days at an average of $13,900 per day, 47% of our available Aframax LR2 spot days at an average of 11,100 per day, and 45% of our available Panamax spot days at an average of approximately $16,800 per day.

On the product side, we booked 46% of our fourth quarter MR spot days at an average of approximately $9,400 per day and 42% of our Handysize spot days at $7,300 per day. These fourth quarter rates are encouraging and consistent with our view of market fundamentals as we've seen a rebound in almost every asset class since the latter part of Q3. Now if you turn to Slide 10, the estimated cash cost TCE breakevens for the forward twelve months beginning in October 2021 are illustrated on this slide. International Seaways' overall breakeven rate is estimated to be $18,100

Speaker 0

per day over the next twelve months.

Speaker 4

International As always, these rates are the all in daily rates our own vessels must earn to carry to cover vessel operating costs, drydocking costs, cash G and A expense and debt service costs, which means scheduled principal amortization as well as interest expense. On this slide, we've also shown breakevens which exclude principal amortization. In this case, the cash breakeven for the next twelve months is estimated to be 12,200 per day. At this time, as I normally do, I'd like to reaffirm our cost guidance for the year for modeling purposes. For the fourth quarter, we expect regular daily OpEx, which includes all running costs, insurance, management fees, and other similarly related expenses for our various classes to be as follows.

For VLCCs, $8,800 per day. For Suezmax, 7,600 per day. For Aframax, 8,200. For Panamax, 7,900, for MRs, 7,200, and for Handymax, $7,400 per day. For details on projected dry dock, CapEx and off hire days by quarter, you can refer to Slide 17 in the appendix for an update.

Continuing with cost guidance, fourth quarter cash interest expense is expected to be about $12,000,000 per quarter, and cash G and A is expected to be about $9,000,000 As previously stated, full cost synergies are expected to be achieved in 2022. And finally, we expect about $6,000,000 in fourth quarter equity income from our FSO JV and twenty nine million dollars for quarterly depreciation and amortization. Now if we could turn to Slide 11 for our cash bridge. Moving from left to right, we began the third quarter with total cash and liquidity of $174,000,000 During the quarter, our adjusted EBITDA was 8,000,000 Equity income from JVs decreased cash by $6,000,000 and cash distributions from JVs were $3,000,000 from the FSO JV. We expended $15,000,000 on drydocking and CapEx and $14,000,000 on the second installment of our as part of our agreement to build three dual fuel LG VLCCs.

Next, we acquired $44,000,000 in cash related to the Diamond S shipping transaction, net of merger and integration related costs. We received $62,000,000 in proceeds from vessel sales. Cash interest and scheduled principal payments on our debt were $56,000,000. We also gained $20,000,000 from the issuance of a credit facility. And finally, taking into account the $31,500,000 special dividend issued in July prior to the merging merger and the $3,000,000 regular quarterly dividend in September, as well as negative effect of working capital and other charges in the quarter of 13,000,000.

The net result was that we ended the quarter with approximately $133,000,000 of cash and a $40,000,000 undrawn revolver yielding total liquidity of 173,000,000 As Lois noted, as of today, total liquidity stands at approximately $300,000,000. Now turning to slide 12, I'd like to briefly talk about our balance sheet. As of September 30, we had $2,400,000,000 of assets, which is reflective of the recent merger. This compares to $1,500,000,000 of assets as of June 30. As of the end of the quarter, we had $888,000,000 of long term debt.

As you can see on the bottom of the slide, our net debt to total capital at the close of the quarter was 45%, while our net loan to value of our fleet was 45.7%. Turning to Slide 13, we look at the pro form a combined company debt as of November, accounting for the merger and also recent financing activities. As we announced in October, we recently entered into lease financing arrangements with Ocean Yield ASA for the six VLCCs that previously collateralized our Cynosure credit facility. The net financing amount of $375,000,000 represents 90% of the fixed VLCC's fair market value. The proceeds of this refinancing were used to prepay the $228,000,000 outstanding loan balance under the Cynosure facility and, therefore, increased our overall liquidity by approximately $150,000,000 I'd like to take this opportunity to say that we appreciate the strong report support we've received of Cynosure, Export Import Bank of China, Bank of China and Citibank, who originally extended the project construction loans that we assumed in 2018 when we acquired these vessels.

However, we are very pleased to enter into this attractively priced long term debt facility to further diversify our capital structure with terms that harmonize well with those in our other corporate loans while also unlocking additional liquidity. As you can see, our total debt balance pro form a for our two most recent financings is approximately 1,240,000,000.00 with $40,000,000 currently undrawn on an overall $225,000,000 of revolving capacity. We expect to utilize some of the proceeds of the Ocean Yield financing to pay down revolvers, lowering interest while still maintaining higher liquidity. As we continue to maintain a healthy balance sheet, our debt reflects a highly competitive cost of capital and a long term maturity profile with the vast majority of debt due in 2024 or later. That concludes my remarks, I'd like to turn the call back to Lois for her closing comments.

Lois?

Speaker 3

Thanks a lot, Jeff. The steps we've taken to enhance our scale, our capability, and our operating leverage have put us in a favorable position to unlock significant value for shareholders. We will take advantage of the tanker market recovery that is underway. The completion of our transformational and accretive merger has doubled our market cap, tripled our fleet size and significantly strengthened our earnings power. Importantly, we have solidified our power alley in large crude, and we created one in the product sector.

During the quarter, in addition to concluding our merger, we executed on key strategic priorities, maintaining significant balance sheet strength during this downturn, and we kept optimizing our fleet, which we will continue to do as we disposed of ships that were on average 17 years old at a time in the cycle where secondhand values were buoyed by underlying steel prices. We distributed $38,000,000 in dividends to shareholders during the third quarter. This included the $1.12 per share special dividend as well as our regular quarterly dividend. This increased our total returns to shareholders since 2020 to $73,000,000 I want to pause for a minute as I do our conclusion and just acknowledge the silent and steady, reliable seafarers at International Seafarers. We're particularly proud to share that we reached the milestone of having seventy percent of our seafarers, both at home and on board of 2,500 strong vaccinated.

This is a number that we're working to increase every day. As we enter the fourth quarter, our prospects remain strong. We're encouraged by our fourth quarter bookings to date, which show improvement over the third quarter. We have significant liquidity of approximately $300,000,000 and a high quality fleet of product and crude tankers, and we are on track to achieve the synergies from our recent merger. That concludes my formal comments, and we'd like to turn it over to the operator to take questions.

Speaker 0

Thank you. We will now start a Q and A session. Our first question comes from Randy Giveans from Jefferies. Randy, please go ahead. Your line is open.

Speaker 5

Howdy, Lois and Jeff. How's it going?

Speaker 3

Very good, Randy. How are you today?

Speaker 5

Good. Good. Nice to see the quarter to date rate guidance at better than expected levels. So clearly, the market is improving here. But separate from that, you know, your balance sheet.

Right? Obviously, in great shape. Keeps getting better. I guess, what is the plan for some of the incremental liquidity from these recent sale and leasebacks and the vessel sales? I know, Jeff, you mentioned debt repayments kind of, going forward.

Is there a specific leverage ratio that you are targeting?

Speaker 3

Jeff, why don't you jump in there?

Speaker 4

Sure. Thanks, Lois. Yeah, Randy. Look. I think it's it's part of a big picture here that that that we you know, post the Diamond S merger, we have the benefits of scale in this regard are that we have lots of opportunities to to to do what I'll call balance sheet optimization.

We're doing fleet optimization, but we're also doing balance sheet optimization. So that's different facilities that are related to different assets, different loans to value, you know, increasing liquidity, as you mentioned. You know? So I think it's it's it's you know, you you caught us partway through. You know?

Stay tuned. There's there's more to come. It's just really exciting, frankly, to have the opportunity to use this sort of almost like a financial whiteboard and start to optimize the balance sheet. In terms of the last part of your question, I think Lois and I both mentioned that we're down to the mid forties in net loan to value. We feel really good about that after having completed a merger that doubles the size of our fleet in deadweight tons.

So that's naturally gonna work down to below 40 where it was before just in the course of of natural amortization and and capital allocation that we'll do. So, you know, I think we're in a good spot, but we'll probably look to to be lowering the leverage a bit from from here just to get into that below 40 area where we were premerger.

Speaker 5

K. That makes sense. And then you mentioned just now fleet optimization. And you've certainly done the right things to take advantage of the kind of current disconnect between high asset values, and low rates. Right?

Selling some of your older vessels, chartering in some vessels. So with that, are there still maybe, additional sales candidates remaining in the fleet? Are you kind of happy with your current ownership there? And is there another specific asset class you'd like to maybe gain some operating exposure through additional time charter ins?

Speaker 3

Yeah. Okay, Randy. So, you know, what you'll notice is, you know, where we've chartered in and where we have recycled ships is in that Panamax space. So the vessels that we recycled, you know, really performed extremely well, and we're actually approaching 20 years of age. And we've in chartered in that space where, you know, we want to make sure that we have enough commercial presence there to really take advantage of that niche where we earn a premium.

And then, you know, we we constantly, you know, look at the entire fleet and, you know, what we have coming up. And I think one of the things that that's been really good, I noted in my comments that, you know, for in the month of October, you know, you saw asset value start to pick up a little bit in in increase, and that's a very good position to just continue looking at the fleet all the time and and making those decisions on, you know, pruning and then still looking opportunistically in the market, you know, for potential in charters so that we are set up really well for the recovery.

Speaker 5

Got it. Makes sense. Well, looking forward to seeing the continued, development of the new and improved INSW. So thanks again.

Speaker 3

Thank you, Randy. Thanks.

Speaker 0

Thank you, Randy. Our next question comes from Omar Nokota from Clarkson Securities. Omar, please go ahead. Your line is open.

Speaker 2

Hi. Thank you. Hi, Lois. Jeff and David.

Speaker 3

How are you, Omar?

Speaker 2

I am good. I'm juggling juggling a few calls, so I apologize if I'm if I if I ask a question that's been you you addressed already. But I did wanna ask, Lois, I did hear you discussing just now the, you know, the the Panamaxes. The Yes. In regards to that niche trade that you're you're selling the older vessels, replacing them with the in charters.

Is that is that your your thought about your your thoughts going forward over the long term is to service that trade with Charter Ens, or do you see yourself investing in owning the assets outright for for for for for that area?

Speaker 3

You know, we are opportunistic. You know, a couple of years ago, we we picked up an individual vessel, the Guayquil, which added very nicely into that fleet. In this case, we had an opportunity to pull in a couple of charters. So, you know, we'll opportunistically, Omar. We're we're not wedded to one particular methodology, and we like to be sure that we we have enough presence there to defend, you know, defend what we think is a a great niche trade.

Hello?

Speaker 0

Sorry, Omar. We're not getting any audio. Oh, it appears that Omar has dropped his line.

Speaker 3

Oh, okay. Okay. Very good.

Speaker 4

We can always come back to him.

Speaker 0

No problem. When he comes back, we'll reconnect him. So in the meanwhile, we're going to move on to our next question from Mangusir from H. C. Weyworth Wright.

Please go ahead.

Speaker 6

Yeah. Good morning, Lois and and Jeff. Just a question on on The US exports. If you're seeing any changes there, you know, there's some estimates for next year with oil prices at seven year highs. I've seen estimates increasing 800,000 barrels for US production next year.

And I guess it's a matter of time maybe until we see that materializing more exports. But can you you have a presence there, and can you maybe talk a little bit about what you're seeing there as of late and if you see any indications that exports are picking up?

Speaker 3

No. Great question. You know, we we're stabilizing, right, you know, in crude exports out of The US Gulf somewhere around 3,000,000 barrels a day. But, you know, for sure, as rigs get that added back in The US Gulf and I think shale producers hedge their books forward, the prospects for increased production in 2022 are there. You know, they're they're projecting to be over 12,000,000 barrels per day in 2022, which, you know, is ideal for US crude production.

You know, our lightering unit is quite busy right now, and, you know, we look at them as something of a leading indicator. And we also understand some of that offshore production that had been offline due to IDA has been brought back online. So, you know, I think that the formal numbers from the EIA have steadied out around 3,000,000 barrels a day, but we look for that to, you know, to increase going forward here.

Speaker 6

Okay. And and but no discussions yet on contract for next year. You know, I guess that's typically a spot trade.

Speaker 3

Yes. Yes. Absolutely. That's typically a a spot trade, and, you know, you'll see the lifting vary. And and we, you know, we'd like to see more of the of the long b moves out of The US Gulf going east.

Speaker 6

Right. Good. Thank you. And just another question on on your MRs. I know you're you're dealing now with, you know, completing the I mean, I guess, the integration of the Diamond fleet.

Most of the ships are in the in Orient pool. Can you comment a little bit on the performance in the quarter, if there were any one off items, the performance of the ships in Noriant pool versus the ships that were not?

Speaker 3

Yes. So for sure, the third quarter is a transition quarter for us. And as soon as we concluded the merger, the the two things that we did from a commercial perspective was we did in in immediately, and we worked in close collaboration, you know, with the the former Diamond staff to move the Suezmaxes into Penfield. And I think that those doctors did quite well coming in at $1,010,700 dollars per day for the quarter. And on the MRs, we the duffels that we moved and we've had you know, we're ahead of schedule by three months, by a quarter on the technical transfers from Capital over to our providers.

And on that front, the vessels that we moved out of Capital, we put some of those with Noriant, and we put some of those with CPTA, which is our product carrier pool with Ultragaz. And coming in at $10,000 per day for the quarter, and you know, even the 9,400 looking forward into the fourth quarter, we feel that both of those pools are are performing up to our expectations.

Speaker 6

Okay. Thank you. That's all I had.

Speaker 0

Mhmm. Great. Thank you, Mangus. We will now move on to Liam Burke from B. Riley Financial.

Liam, please go ahead. Your line is open.

Speaker 7

Thank you. Good morning, Lois. Good morning, Jeff.

Speaker 3

Good morning, Liam.

Speaker 6

Hi, Liam.

Speaker 7

Lois, the OPEC production estimates are increasing, and I know there has been a capacity overcapacity on the VLCCs due to lower production. With new production numbers, do you see faster absorption of existing VLCC capacity?

Speaker 3

Yeah. You know, it it clearly, by you know, I mean, they're better, the, you know, the rates being booked at, you know, 16 in the fourth quarter, but that's clearly, you know, still quite anemic, you know, when when you look at things. But you you see that there's a higher cargo count, you know, not only out of the Middle Middle East, but really worldwide. And that's what we needed to see, you know, behind the scenes. You know, it's when I mentioned in the comments that, you know, year over year, today, we have 6,000,000 barrels per day higher demand than we did a year ago.

I mean, this is what we need to see for us to get to the tipping point of, you know, where where we go into that higher utilization rate, and and we really see where we get a a steadier base to build upon, you know, on on the entire fleet. And, particularly, I think the the because in in October, the Chinese really imported, you know, not even $9,000,000 a day. They had an eight in front of it. So, like, the least amount that they have in several months. Now we know that demand is increasing and that inventories have been pulled down.

So at some point, that will shift, and and and we will see those rates start to go up.

Speaker 7

Fair enough. And same with the VLCCs. You've got the two new builds with the existing contracts. Is there any possibility that you'd consider doing more of those types of deals?

Speaker 3

Yes. So it's three VLCCs that that we're building at Daiwu with the dual fuel LNG capability. And and, absolutely, you know, we we would look together, you know, with customers to I I think that's part of how take your owners, you know, we will look to be successful going forward, you know, to work in collaboration with customers to build on it. You know? And, ideally, you know, when you have a contract and you work closely with the customer, that really gives you enough confidence to be able to do that.

Speaker 7

Great. Thank you, Wallace.

Speaker 3

Thank you.

Speaker 0

Thank you, Liam. We will now move on to Ben Nolan from Stifel. Ben, please go ahead.

Speaker 8

Hi, guys. Good morning. Thank you for the update today. My name is Pranella Bull from Stifel asking a question on behalf of Ben Nolan. Mhmm.

So my first question relates to the sale leaseback transaction and the relation to liquidity. You guys talked about how this transaction has had a significant improvement on liquidity. Clearly, this flexibility can be used in a number of different ways. But should we think of this for now as just a defensive move to protect against the chance of a softer or longer market or just being opportunistic on capital availability?

Speaker 3

Jeff, why don't you jump in there?

Speaker 4

Yeah. So thank you, and and welcome to Seaway's call. Absolutely the latter. Opportunistic. You know, I I I had made some comments earlier on the call, and I would just underscore them that, you know, one of the benefits of the Diamond S merger in terms of the scale it provides Seaways is the opportunity to be opportunistic.

Sorry to to be without it there, but the opportunity to look at what's really attractive financing. So, you know, we're very selective when we look at the financing that are structured as leases. But this one, you know, ticks the boxes for us in terms of the long term attractively priced financing, you know, high loan to value, covenants that are completely harmonized with the rest of the of the debt or capital structure, And, you know, furthering the theme we've been on, which is diversifying our our capital sources is really important. So for us, that's it, you know, and it's very opportunistic. And what we're going to do in the short term is use that excess liquidity to pay down revolvers and save interest expense.

So, you know, we we got a good use of proceeds, reducing interest costs, increasing EPS, and increasing optionality for for capital allocation going forward. I hope that answers the question.

Speaker 8

Yes. Thank you. That helps. I also wanted to ask about the FSOs. Is there any update on how you guys are thinking about the long term strategic fit of the two FSOs in the current operating fleet?

Speaker 3

We we continue to have the same, you know, outlook on our FSOs where, you know, we're very happy with the fixed income they provide. And as of the 2022, they will be mortgage free, and International Seaways will receive $21,000,000 of free cash flow through that joint venture. However, we do continue to look at, you know, monetizing the assets with our partner, should we find someone who we feel so values that appropriately?

Speaker 0

Okay.

Speaker 8

Awesome. Thank you guys again. Thank you.

Speaker 4

Thank you.

Speaker 0

Thank you very much. We currently have no further questions. I will now pass over to Lois Zapotky for final remarks.

Speaker 3

So thank you everyone for joining International Seaways today. And we look forward to this tanker market recovery as we get deeper into the fourth quarter. Thank you very much.

Speaker 0

Thank you, everybody. You may now disconnect your lines.