Earnings Call: Q3 2020

Nov 25, 2020

Good morning and good afternoon. Welcome to Frontline's 3rd Quarter Earnings Call. This is my first call in the hot seat. I'm both excited and honored to serve our companies in this capacity. Frontline's long term strategies are well cemented by the Board, and we run a very professional organization that has easily adapted to this management transition. This has been a volatile quarter and an extraordinary year to date. I'm tempted to bring in black swans, but this seem to have become common to the shipping industry. The global COVID-nineteen pandemic has affected us all. And even though we still need to endure the situation a bit longer, there is no glimmer of hope in the horizon. Let's look at the highlights on Slide 3. Frontline came into Q3 2020 on a high note, but as the quarter progressed, freight rates started to correct. We still landed the quarter at good returns on a low to discharge basis, earning 49 $1,200 per day on our VLCCs, dollars 25,100 per day on our Suezmaxes and $12,800 per day on our LR2Aframaxes. This yielded a net income of $57,100,000 or 0 $0.29 per diluted share. Our adjusted net income came in at $56,400,000 rounded to $0.29 per diluted. We are very happy to report that FrontPlanet entered into 3 term loan facilities of up to 4 $85,200,000 Ingjer is with me here today, will elaborate more on our financing activities later in this presentation. So far in the Q4, we have booked 74% of our available VLCC days at $22,600 per day, 61 percent of our available Suezmax days at $12,600 per day and 65 percent of our LR2Aframax days at $13,800 per day. The book's earnings are uncertainties going forward. Frontline has therefore decided to refrain from paying dividend this quarter to preserve and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4 and look at the income statement. TransAlta achieved total operating revenues, net leverage expenses of $178,000,000 in the 3rd quarter and also an adjusted EBITDA of $108,000,000 in the 3rd quarter. From tariff Corp. Net income of $57,000,000 or also $0.29 per share in the 3rd quarter. The adjusted net income this quarter decreased decreased about $160,000,000 compared to the previous quarter, and that was primarily primarily due to drydock of 4 vessels. We also recorded a 13 point $9,000,000 increase in ship operating expenses. That was mainly due to increase in dry docking costs of 4.8 $300,000 also increase in repairs and maintenance of 2 $800,000 additional crew costs due to COVID-nineteen. In addition, we also had a reduction of 12,400,000 dollars as a result of that we in the 2nd quarter saw a little steep. Let's then take a look at loan facilities in a total amount of approximately $920,000,000 during 2020. Whereof $725,000,000 out of that was done to refinance done to also, we have completed 2 financings of $196,000,000 to finance new vessels. All these loan facilities were done at very attractive terms, with LIBOR plus 190 basis points or even better, maintaining our competitive cost structure. In November 2020, the company entered into 3 new term loan proceeds in a total amount of $485,000,000 where 2 of these facilities were to refinance to existing term loan facilities maturing in the Q2 of 2021. And then the 3rd facility was in the amount of $133,000,000 to partially finance 4 LR2 tankers under construction. The details the refinancing of the 2 facilities refers that we had 1 senior secured terminal facility done with strong banking group consisting of the largest global shipping banks in an amount of up to $250,700,000 to refinance the $466,500,000 facility, which was maturing in April 2021. The new facility matured in May 2025 and has an amortization profile of 18 years. The facility was fully drawn down in November 2020 and $236,800,000 of the refinance facility has been recorded as long term debt as of September 30, 2020. Further, we went into 1 senior secured facility with ING and Credit Suisse in an amount of up to $108,000,000 to refinance the $109,200,000 facility, which matured in June 2021. This new facility matures now in November 2025 and has an amortization profile of 17 years. The facility was also fully drawn down in November 2020, and $78,600,000 of the refinance facility has been recorded as long term debt as of September 30, 2020. The slide shows debt maturities prior to refinancing in the gray column and following the refinancing in the blue column. You will notice that following the refinancing, we had no material debt maturities until 20 23, and the debt maturities from 2025 onwards have increased substantially. Lastly, we also entered into a senior secure treatment facility with Sextin and Simozor in an amount of $133,700,000 to partially finance the remaining cost of $142,300,000 for the 4 LR2 tankers under construction. The facility will have a tender of 12 years and amortization profile of 17 years. And following that, the new billing program is fully funded. Let's then take a look at the balance sheet on Slide 6. The main happenings in the Q3 affecting the balance sheet were that we entered into the 2 new loan facilities, which I went through, to refinance the 2 loan facilities with total balloon payments of $324,400,000 which were due in April 2021 June 2021. This led to that short term debt and current portion of long term debt decreased with $311,000,000 and long term debt increased with $293,000,000 Further, we paid $97,000,000 in dividends, and we earned adjusted net income of $6,400,000,000 At the end of September 30, 20 20, Translarna had $432,000,000 in cash and cash equivalents, including the undrawn amount under our senior secured loan activity, securities and minimum cash requirements. Then let's then take a closer look at the cash based dividend rate and the OpEx on Slide 7. We estimate that the average cash cost breakeven rates for the Q4 2020 will be approximately $21,900 per day for the leases, dollars $20,104 per day for the Suezmax tankers and $15,700 per day for the LR2 tankers. The fleet average estimate is $19,500 per day. These rates are the all in daily rates that our vessels must earn to cover the budgeted operating costs and drydock, the estimated interest expenses, TC and Baywater Tire installments on loans and G and H vessels. The Suezmax tanker cash cost per deal rate in the Q4 2020 is impacted by that we would drive dock 4 Suezmax tankers in the 4th quarter. We'll also dry dock 1 LR2 tanker in the 4th quarter. As already discussed, the Q3 OpEx was affected by increase in drydocking costs, increase in repairs and maintenance additional crew costs due to COVID-nineteen. As usual, we would like to draw your attention to Front end's cash flow generation potential. In the graph on the right hand side of the slide, we have shown incremental cash flow as the debt service per year and per share assuming $10,000 $20,000 $30,000 or $40,000 per day in achieved rates in excess of our cash breakeven rates. These numbers include vessels on time charter out and we are looking at the period of 365 days from October 1, 2020. As an example, with the fleet average cash cost per year and rate of $19,500 per day and assuming $30,000 on top of the average fleet TCE, then the fleet TCE would be 49 $500 per day, and TransAl will generate a cash flow per share asset of service of $3.42 With this, I'll leave the word to Lars again. Thank you, Inge. So let's move over to Slide 8 and recap the Q3 in the Tanker market. So global oil demand bottomed in May. In June, we're already in recovery and demand surplus surpassed supply amid deep cuts by OPEC and other key producers. The oil market switched from inventory build to inventory draws. This can be seen on the slide the bottom left with the yellow bars. Subsequently, OPEC plus increased production slightly, but kept the cap significantly below Jan 2020 levels, and the draw cycle continues. When in draw mode, it's normally the expensive barrel that draws first, and this is typically floating storage. The majority of OPEC cuts have been geographically centered around the Middle East Gulf. This has led to recovering economies, in particular in Asia, sourcing their oil from further afar. This incurs Longyear than of the quarter. Let's move to the next slide, Slide 9, and look at the fleet and order books. Tankers have continued to enter the market during the quarter, but many have been engaged directly from yard in product storage. This has limited the impact on crude spot markets. There was reports or there has been reports of significant delivery backlog due to the COVID-nineteen related disruption. But this backlog seems to have been cleared. There are recent speculations of mammoth orders clips of 510 vessels being placed in Asia. These are yet to be confirmed and not a part of this data set. However, as the chart indicates, there is room for fleet growth in both 2022 and more so in 2023, assuming 20 year old ships leave the competitive spot market and oil demand develops on trend in that time horizon. One of the big X factors for shipping going forward is obviously propulsion technology. Frontline follows these developments closely, leveraging on our extensive business platform, but there is also there is still a way to go to reach any conclusions. Let's move to Slide 10, where we try to explain one of these market reaching or passing the 20 year mark. Average recycling age for tankers is very close to this age, sometimes depending on the underlying freight rates. We are now in the market with high volumes of inventory still, in addition to a high amount of sanctioned oil volume. This seems to have supported the demand for tankers in the tail end of their effective lifespan. In the chart below, we illustrate this by comparing the average price achieved on tonnage transacted page close to 20 years and the reported price achieved for recycling. The disconnect is pronounced and likely explains the muted recycling activity. Selling for alternative use is currently the preferred option for the owners. I think it's important to note that for the competitive spot market where we operate, we are under scrutiny from wetting policies. So these vessels play an insignificant part of those balances. Let's move on to Frontline and our approach to ESG. Efficient, safe and transparent operations have been Frontline's core values for years. Efficient in order to save costs, but also fuel costs safe in order to safeguard our seafarers, the environment and our physical assets transparent in order for the investing community like yourselves to easily understand our business model. What we have found as we have familiarized ourselves with the relevant ESG framework for our industry the last couple of years is that for us, it's more about how we structure our communication on policies and routines we already have in place rather than enforcing completely new routines or altering the way we conduct assets. A central part of our business model is for technical management to be clustered or shared, if you wish, with other listed companies we are familiar with. In this, we gain economies of scale as we share knowledge and practices for more than 2 30 vessels. This collaboration gives us an impressive leverage to shape and influence the standards we expect to be met, both on social aspects and on governance. But we also share synergies when it comes to applying technology to optimize performance, both in the traditional manners as in speed and consumption, but also with respect to our environmental footprint. Frontline is, although potentially a bit under communicated, very well positioned to comply with the stricter social and governance framework the shipping industry has to get comfortable with going forward. So let's move to Slide 12 and the tanker market outlook. Increased oil supply is now key in order for the tanker market to balance. We were shielded for a period as tankers were employed by storage. Now we're dependent on volumes to come to the market and normal trading patterns resuming. The demand for tankers is still capped by the OPEC cuts, but we find it extremely encouraging to see oil prices perform strongly as the volumes offered increased significantly, particularly by the Libyan exports that resumed in October. This in isolation suggests oil demand might actually be firmer than the market in general respects. Looking at the benchmark Brent oil curve, we see the same tightening as expressed in a dramatic move from contango or carry, if you like, to near flattening of the curve. This signals inventory draws to accelerate and oil market potentially finding a balance at an earlier stage. It's obviously a bit early to call, but just to explain how these mechanisms work. If we are drawing in the territory of 3000000 to 4000000 barrels per day from inventories now. That's the volume needed from producers once inventory levels normalize, which in turn can be translated into increased tanking demand. Finally, let me sum up on Slide 13. So Frontline is financially strong. We have no material debt maturities until 2023. The company is very well positioned towards ESG related expectations. Despite extended regional lockdowns, oil demand continues to recover. Crude oil price action indicates a change in oil market sentiment, and we expect freight market volatility to increase going forward. Thank Thank you. Ladies and gentlemen, we now begin the question and answer session. And your first question comes from the line of Randy Giveans from Jefferies. Please ask your question. Howdy team, frontline and congrats again on your promotion Lars. Thank you very much, Randy. So first question around the dividend, you brought it back last year, paid a $0.10 dividend despite a loss following 3Q 2019 results. You increased this to 40 or 70% of net income following the Q1, fell in the Q2 and now you cut it to 0 despite a $0.29 gain. So I guess why has the dividend payment bounced around so much over the last year and what will cause you to reintroduce the dividend? Clearly, it's not just positive net income. No, you're absolutely right. It's not only positive net income. We work in an extremely volatile market, and we also normally have quite a good visibility on our earnings going forward. For Q3, the earnings were good, but the our visibility or when we look into Q4, it doesn't look too great. And we are in the middle of a global pandemic, and the uncertainties are quite great going forward. So we decided to the cash and but we'll obviously return paying dividends the minute we see that the market has stabilized and potentially is ready to return to levels where we see that suited. Got it. Okay. So more of just a subjective outlook for the market? Well, our dividend policy is stated in such a manner that we like to use our discretion when we deem it needed. And in this particular case, we found that to be prudent. Got it. All right. And then I guess one more question for your quarter to date rates. The VLCC Suezmax is down from the Q3 for the Q4, which makes sense. However, your LR2 rates are ticking up, they're higher. So maybe what caused this and how many of your LR2 product tankers are operating in the crude trade? Well, we have 8 of our LR2s are operating in the crude trade. We have operating in the clean, of which one is on time charter. The estimated kind of top charter return for Q4 is probably in this instance more colored by the returns we've seen on the clean side. Okay. And then do you have an outlook for crude versus products here in the next 6 to 12 months? Which kind of sector do you see most or more attractive? I know I think you mentioned neither are very attractive. Well, it's a very good question. The thing is that we've come through 7 quarters where kind of the crude part of the equation has outperformed the clean trade. It's only the last quarter and a half where the clean product tankers have actually outperformed significantly. So it's really difficult to call. The dirty Aframaxes are obviously now being penalized by the fact that Russia has cut quite severely together with OPEC. And that's hurt the North Sea barrel or the Baltic barrels coming out of Russia. I think I would wait to make that call until the trade flows have normalized. Got it. All right. Well, I'll let you go. Thanks so much. Thank you. Thank you. And the next question comes from the line of Chris Zhang from Weber Research. Please go ahead, ask a question. Hi, Lars. Hi, Inger. How are you? Hi. We're good. Thank you. Great. Good to hear. I wanted to ask about the decision to sell C Team. Could you expand on that a little bit more? And would you guys also look to divest other JVs like your position in Clay Marine? Well, first of all, to take the C Team to look at that. C Team has been a really kind of good company for us to have more or less in house for a period of time. It's obviously not core business. Our business model is outsourcing services like CTEAM were offering. But it's obviously given us great knowledge, and it's also made us understand the market or the technical management market quite well. Us deciding us deciding to divest from that was more related to an opportunity that came rather than something that we strategically wanted to do quickly. So an opportunity arrived, and we found a solution where OSM will actually continue to run C Team almost in its original form and take care of our vessels kind of that are under management with them with the same mindset that they were already inside CGM. So it's more like kind of keeping to our strategies or keeping to our original strategy. With regards to Clean Marine, Clean Marine is an investment we're still holding. We are not kind of an active owner in that. We were more like having a listening post. So I think I will leave that. The scrubber market or EGC market is a little bit dormant, as probably understand. But the company is still working, and we're just basically looking at it more as a passive investment. Okay. Thanks. Yes, that makes sense. And just looking at the not so much guidance, but fixtures to date from Q4, the LR2s are a little bit higher than Suezmaxes. It hasn't typically ended this happened this way. And I guess how much of it is driven by the number of clean tankers versus dirty? Or I guess what factors are allowing the Suezmaxes to trade below LR2 or LR2s to trade above the Suezmaxes for Q4? Well, in the as I indicated when I summed up Q3, Q3 was a bit of an atypical quarter when it comes to how freight rates develop because in a normal market, Suezmaxes will perform a little bit kind of below VLCCs and then a lot of U. S. Tariffs will follow suit a little bit below that. But this year or this quarter, Suezmaxes have actually underperformed VLCCs by more than 50%. And this is a market kind of look. It's not for us in particular. With the OPEC cuts, we've seen that the longer ton miles have been prioritized or grown. And this has put the VLCCs in a much greater position due to their economies of scale. And this has penalized Suezmaxes in particular. So I think the rate is a reflection of how severe kind of little opportunity to trade during the quarter and quite kind of harshly hit markets. The LR2s have throughout the quarter outperformed channels. Okay. So storage for clean trade. Okay. And just one last quick question on drydocking. I know in your prepared remarks, you talked about the drydock schedule for Suez and one for LR2 in Q4. Can you tell me the number of Suezmaxes in Q4 that are coming to drydock? The number in Q4? Yes, 4. Great. And 1 dollar 2, yes. Great. Okay. 4 SOS, 1 LR2 in Q4. Thanks, guys. Have a great day. Thank you. Thank you. And your next question comes from the line of Jon Chappell from Evercore ISI. Please ask your question. Thank you. Good afternoon Lars and Inger. Good afternoon, Lars. Inger, first question for you, just quickly on the dividend. So completely prudent given your 4th quarter rates to date, but you guys are also able to refinance a lot of debt at very good terms at a very difficult time in the market. Were there any restrictions on dividend payouts or payout ratios as part of those new facilities that may have played a role in the decision to suspend this quarter? No. We don't have any dividend reductions in our other non facilities. So that's not that made any difference. Great. Okay. And then Lars, you're joining in an interesting time, and Frontline has a legacy of being aggressive when others can't be. So you're retaining cash through no dividend. You've Inger's done a great job shoring up the balance sheet. But you've mentioned the uncertainty and obviously the pandemic. Asset values dropping pretty aggressively. How do you kind of view 2021 in your role and in Frontline's role in the industry as far as acquiring assets, chartering in assets, just adding more leverage when others are just worried about survival? Well, as you said, it's our in our kind of DNA to be aggressive when those accounts. We also have a very strong shareholder in our box. So it's obviously we're looking it's obviously something we're very excited looking forward. Kind of right now, I think the uncertainties are a little bit too great, to be quite honest. Although we are upbeat, there are some risks kind of looking into the next couple of quarters. We think opportunities will probably arise as we churn and we have these levels, particularly on the freight side. And I think people will find that the frontline DNA hasn't really changed even if I'm in hot seats, to put it that way. Okay. Appreciate it. Thanks Lars. Thanks, Inger. Thank you. Thank you. And your question comes from the line of John Riordan from he's an independent investor. Please ask 2 things. One, you mentioned the unwind from the contango storage situation. Could you tell us what you think the percentage of that has occurred? And then secondly, Libya has gone from basically not exporting much of anything to I read the other day, it's over 1,000,000 barrels a day. Is that providing some support for rate wise for the Suez MAX market in the Eastern Mediterranean? Thank you. Two really great questions. Firstly, the floating storage. On my in our presentation on Slide 8, we have some data there from Clipper Data or Clipper Data. The way I look at or we look at storage is we look at vessel storing for an extended period of time. So we've put the bar at 21 days. And those levels peaked north of 100,000,000 barrels. Now we're down to 60,000,000 barrels. So there is a 40% decrease. How much oil when kind of that is finished is difficult to tell because it there's also something about the structure of not only in the cruise curve but also of the of observe. It's on its way down observe. It's on its way down, and I think we have at least taken off 40% to maybe even 50% of the floating storage. With regards to Libya, Libya has been really exciting and quite surprising actually. So they've managed to ramp up. And I the last numbers I saw was up to they've been able to add 1,200,000 barrels per day. This has indeed made it far more interesting to be a Suezmax charter than there have been for the last couple of months. So we do see a lot more cargoes appearing in the market. We also see opportunities arising. A lot of these barrels are or have been for a while now actually been going east. And that is like a perfect fit for the Suezmax size of vessels. So yes, it has supported the market in the Mediterranean significantly. Okay. Thank you very much. Thank you. Thank you. And your next question comes from the line of Craig Lewis from BTIG. Please ask a question. Yes. Hi. Thank you and good afternoon and Lars congrats on the position. I guess I just had a kind of a broad question. It was kind of talked about people focused on the dividend rightfully so. I guess I'll ask it differently. As I look at Frontline, the company looks like it trades on any depending on what valuation metric, I know you don't like to talk about NAV, but we could look at like something like more Wall Street y like EV to EBITDA and the company is at a premium and the company has been able to leverage that premium to grow and be opportunistic over time. So just kind of curious, what do you think drives that premium? So what drives our relative pricing to our pets is that Correct. So yes, like if you wanted to go out and buy a company, I mean, it's good to be at a premium if you want to do it. And so I'm just kind of curious how you think about that because it definitely gives you opportunities. So just kind of curious how you think about that. Well, I think it's first, there are many, many factors that decide on our pricing. Some are kind of maybe not in our making. It's we're a preferred stock. Our liquidity is high and so forth. We also have extremely low cash breakeven levels. We have a relatively high leverage, which gives you relatively quickly bang for the buck whenever the market moves. And historically, we have proven to be quite rewarding towards our shareholders. I know we've probably said this every quarter, at least ever since I joined Frontline in 2015, But when you invest in Frontline, you invest together with our main shareholder. You're not kind of a sole industry in a big corporation. And his history for being interested in returns on his dollars is as well known. So I think that's part of it, I would assume. But it's a difficult number to break down. Okay, great. And then just as I think about that, as you as the company is out there and clearly you kind of laid out the way to move forward and that, hey, the market is not good now, but there's reasons to be constructive in the out years. Is the company I mean, and realizing you have a pretty attractive fleet right now, good age, big. Should we be thinking are there going to be opportunities to come is there any M and A opportunities do you think that could develop over the next 6 to 12 months? Or it's kind of been all the same players for the last 5 plus years and you don't really see any potential for consolidation? There is always potential for consolidation, but there is always then again the question of price and opportunity, of course. The markets have actually consolidated, but maybe not in the way that investors would want to do. And that's more like in bigger pools are being built and kind of trading entities are growing and so forth. So the amount of kind of sole owners trading 3 or 4 ships has maybe not reduced, but at least their tonnage have been consolidated in a way. With regards to M and A, as you know and I know, there is always kind of the usual opportunities or suspects or whatever you'd like to call them. We are constantly monitoring them. And we are we're always kind of in the market to look at opportunities, but maybe not actually in this instant looking at how the market is performing right now. Okay. Thank you very much. Have a nice day. Thank you. And the next question comes from the Randy Giveans from Jefferies. Please ask your question. Hey, back for more with 2 quick modeling questions. First, for the loan facilities, we were down at LIBOR plus 190 basis points. So certainly pretty impressive there, Inger. But following those recent refis, is now the plan to maybe repay the remaining 60 dollars on the Hemant facility? And then also with the new recent refis in place, what is your weighted average interest expense and debt amort schedule through 2021 in terms of core repayments? Yes. With respect the did you talk about the ordinary installments? Was that the question? Yes. The last question? Yes. Okay. In 2021, the ordinary installments based on the current loan facilities we have is approximately $160,000,000 a year, evenly between the quarters. And it will be some slightly increase in these ordinary installments in 2021 as we then take delivery of the 4 LR2 tankers and drawdown on the new Sextin Sinostrade facility, which we talked through earlier in the presentation. Yes. And your other question was respect to the Storna facility. Was that the other question? Yes, the $60,000,000 remaining on the Hemen facility. We do have an agreement there in place saying that it matures in May 2021. So we plan to follow that agreement and then repay in May. Got it. All right. And then for the total weighted average interest expense, I see your interest expense came down pretty meaningfully from the Q2. Just trying to see where that runs up to in the 3rd or in the 4th quarter? Okay. In the Q3, I think the average cost was around 2.3%. And I think now in the Q4, it's slightly lower, but around the same level. Got it. All right. And then one more last modeling question before we can all get to Thanksgiving, operating expenses, they had a huge tick up in the 3rd quarter. I know you said most of that was due to some dry docking, some one time crewing costs. Just trying to get a sense for a good run rate there in the Q4 in 2020 1? As you said, it was a lot of there in the Q3. However, we have we have pointed to in the press release that we will also have kind of one off in the Q4 with respect to this crew cost in relation to COVID-nineteen of $1,500,000 However, that is, of course, down from this quarter, which was 4,800,000 dollars We also have stated that we will have 5 vessels drydocked in the 4th quarter. So I don't think you can expect that the cost will come any down from the Q3 with respect to drydocking in the Q4, it will probably be a bit higher. But otherwise, I don't think we will have any extraordinary items in Q4. With respect to 2021, I don't foresee that to be any extraordinary in a way. The only exception for the subject I have to make is, of course, the development of the COVID-nineteen pandemic in a way. We can't really foresee that. But it seems like the vaccine is coming in place and everything should be pretty normal after a while there as well. So it shouldn't be any cost related to crude changes and that sort of thing going into 2021. Sure. Let's hope so. That sounds good. Well, thanks so much. Have a good day. Thank you. And your next question comes from the line of George Berman from CL Securities. Please ask your question. Good morning, gentlemen. Good afternoon. Thanks for taking my call. I've got a few questions. Number 1, you used to be predominantly in the VLCC and Suezmax space. Recently, in the last few years, you moved into the LR2 Aframax area. Can you comment on the reasoning behind that, number 1? Yes. Over the years, the frontline fleet has diversified kind of into 3 key or core segments. The LR2 Aframax market or rather the LR2 market is like the VLCC of the clean trade. There have been for a long period of time a North America and in Northwest Europe. Obviously, that case stumbled a bit on the fracking revolution, meaning that U. S. Refineries ended up having a relatively cheap feedstock and they were able to maintain kind of run rates and margins for a prolonged period of time. So but the investment initially was out of the displacement between supply and demand on the product side. This is becoming kind of increasingly current again with India claiming to double their refining capacity within a relatively short time, And we see the tremendous growth of refining capacity in China, meaning in that China could become a significant exporter of both petroleum products. At the same time, as we see now refineries in Europe have struggled and are kind of to a larger extent shutting down. So that was that kind of is and was the key strategy behind. What we experienced obviously was that the clean markets didn't perform as expected. And the LR2 got engaged in the dirty trade, so drawing a little bit below 0.5 feet into the dirty trade. But these ships can be cleaned up and can move back to the Lotte market, yes. Okay, great. Next question, you did a pretty big deal last year with Trafigura. I believe it was for 10 Suezmax tankers, pretty new ones for 2019 built. Are there still several under time charter that you time chartered back to traffic over and at what rates are those? There's still 5 of them on time charter back to Trafigura with a profit sharing agreement. So and that's at the level is $28,400 per day. So they are good earners for you at the moment even though you don't profit here with them, right? Absolutely. Okay. Then concerning scrapping, you mentioned in your initial remarks that it looks like with the rate current rate environment that are many, many companies if they still transport they would do so at huge losses. Do you see any openings in the scrap yards recently that have enabled companies to scrap? And then you made a remark, other than scrapping, what would some company do in buying a 20, 25 year old VLCC or Suezmax tanker? Well, the firstly on the scrapping. As far as I understand, I affected by the global pandemic, meaning that they had to shut down. There is an increasing activity in the recycling market right now, and we see more and more vessels being sold for recycling, but not necessarily in our asset classes, to put it that way. There are a couple of Aframaxes that have gone, but very few seasons Suezmax is reported. And as I mentioned in my presentation, there is a disconnect between the price these vintage vessels are able to achieve for not necessarily trading but for storage and other activities than what the recycling company is willing to pay you for the steel. So with regards to what these tankers are used for, I think I would be a little bit kind of cautious to speculate. But obviously, there is oil that is are quite a large amount of sanctioned barrels in the world right now, and these need somewhere to be stored. Okay. And then lastly, maybe you can comment again, I read that you're divesting your Ship Management division and you look to book about a $7,000,000 gain here in the Q4 on the sale. What are the reasoning behind divesting this division, essentially taking your in house ship management to an outsourced version? Is that cost efficient for you, more cost efficient? Well, let me explain a little bit on our model. So we do have in house technical managers, but we do outsource the crewing and effectively the day to day handling of the vessels. So it means that we have an organization in house, a technical management department, a relatively large one actually that oversee third party technical managers. And C Team could be looked upon as a 3rd party technical manager. So indirectly, we were owning a company that we normally just outsource to, to build that way. So and this was maybe explains my comment about it not being kind of a core business. And divesting it was basically due to the fact that OSM came in and offered us an opportunity to continue to run kind of the company or the company will be continued to be run-in very much the same manner and to the same company going forward, just like any of the other third party technical managers that we employ. Okay, great. One last one, if I may. What is your average interest rate on the debt you're absorbing at this point in time? You mentioned that you had a very, very good debt facility there with a very good interest rate. And with rates basically worldwide close to 0, I'm wondering what kind of an advantage is that for your company at the moment and how long are those rates locked in for? I'll let Inger ask that question. Jose will answer that question. The new facilities which we have put in place now, we went through with respect to the tender of those facilities earlier in the call. So that was locked in for the margin was locked in for 5 years on those facilities. And obviously, we have also shown our, let's say, debt maturity profile in the presentation. So you can see how this is going to be mature going forward with different loan facilities. But so the average rate that we are, let's say, having on the loans today is the 190 basis points in margin and LIBOR on top of that, which is a very low level now. The 3 month LIBOR is around 30 basis points or 25 basis points in that area. That is what we are looking at. And in addition to that, of course, we have this Surna facility, which we talked about a bit earlier in the presentation, where we have a rate of 6 point 25%, which we pay on that $60,000,000 But that is a very small part of our total loan portfolio. So it doesn't really mean so much for the average in a way. So if LIBOR rates rise, your interest rates would your interest rate costs would also go up a little? Yes, it will. We do have interest rate swaps in place as well for $550,000,000 on a certain bit higher level than the 25 or 30 basis points, but even though they're very competitive. So we are not, let's say, totally exposed to raise in LIBOR rates. But to a certain extent, yes. Yes. And then maybe one quick last one. Concerning scrubbers, is your entire fleet now outfitted with scrubbers where necessary? No. We have about twothree of our fleet is fitted with scrubbers as it is right now. We kind of slowed down the pace of scrubber installing with the diminishing kind of the scrubber margin to put it that way, the spread between high and low sulfur fuel. Not to say that we won't we could easily reinitiate that program in the future. Do you expect I've recently heard reports about slow steaming. Would that be a positive effect on day rates and tanker demand? It could be. I'm not sure what context you kind of you're thinking about here. But first of all, during the Leiden leg, when we are in ballast, we can many times decide our own speeds. And in this earning environment, we will slow down as much as we can, to be quite honest. But there is also general discussion around when we measure our carbon footprint, how slow speeding could play a role in order for the tanker fleets to comply with the goals of IMO going forward. So but this is still kind of a bit up in the air. And I must admit, we haven't really looked deep into that as of yet. Okay, great. Thanks very much for your time here. Thank you. Thank you. And there are no further questions at this time. Please continue. Okay. Then I just wish to say thank you very much for this call and thank you for listening. Happy Thanksgiving to the ones joining us from the States and stay safe. Thank you.