Genco Shipping & Trading Ltd

NYSE:GNK

Earnings Call Analysis

Genco's Strong Q4 Performance and Optimistic Q1 Outlook

Genco Shipping & Trading Limited reported a strong finish to 2023, with a significant quarter-over-quarter increase in dividends and net income. Adjusted net income for Q4 reached $0.43 per share, and dividends grew by an impressive 173%, culminating in a $0.41 per share payout. The company saw a considerable 50% rise in net revenues compared to Q3, while maintaining a stable cost structure. Looking ahead, Q1 shows promise with 81% of available days already at an average rate of over $18,700 per day, marking a 34% increase from Q4 levels.

Genco Shipping's Strong Finish to 2023

Genco Shipping & Trading Limited concluded 2023 on a high note, delivering its most robust quarterly performance of the year. The company capitalized on a comprehensive value strategy prioritizing dividends, deleveraging, and growth, which cemented its reputation for top-notch corporate governance among public shipping firms. The final quarter saw Genco achieving an adjusted net income of $0.43 per share and declaring a 173% increased dividend at $0.41 per share, highlighting both robust profitability and strong shareholder returns.

Projected Momentum and Future Earnings

Looking ahead, Genco's leadership anticipates this upward trend to persist into the first quarter of 2024. With 81% of available shipping days fixed at rates exceeding $18,700 per day, the company expects a 34% climb from the previous quarter's levels, signaling continued growth and performance strength.

Strategic Capital Allocation and Deleveraging Efforts

Genco's strategy execution is evidenced by a balanced capital allocation, which includes $170 million paid in dividends, $236 million invested in vessel acquisition, and a substantial debt reduction of $249 million. These figures reflect the company's commitment to financial stability and responsible capital management.

Generous Dividends and Shareholder Value

The company's dividend strategy over an 18-quarter period returned $5.155 per share to shareholders, which equals to 29% of the current share price. These substantial dividends underscore Genco's focus on delivering ongoing shareholder value.

Fleet Modernization and Cost Efficiencies

Genco's calculated fleet renewal in November 2023 involved the procurement of two modern Capesize vessels and the sale of three older ones. This strategy not only revitalized the fleet but also promises reduced operating costs, with anticipated dry dock savings in the vicinity of $10 million, bolstering both earnings and cash flow capacity for the coming year.

Fiscal Prudence and Liquidity

The company's financial health is marked by an industry-leading low net loan to value ratio, minimal cash flow breakeven rates, and a substantial $300 million in undrawn revolver credit. This positions Genco solidly for robust financial flexibility and strategic agility in maneuvers across industry cycles.

The Risk/Reward Balance in An Industry-Leading Model

Genco's low leverage and high dividend payout model are seen as industry-leading in the drybulk shipping market. The company's model is tailored to manage the inherent volatility of the shipping industry, aiming to strike an optimal balance between risk and reward. By adhering to this model, Genco intends to continue delivering considerable returns to shareholders while also seeking opportune moments to expand the fleet and improve earnings potential throughout varying market cycles.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2023 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com.

To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. [Operator Instructions] A replay of the conference will be accessible anytime during the next 2 weeks by dialing 1 [phone] and entering the pass code 373966.

At this time, I will now turn the conference over to the company. Please go ahead.

[Peter Allen, executive]

Good morning. Before we begin our presentation, I note that in this conference call, we'll be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words in terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance.

These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2022, and the company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC.

At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

[John Wobensmith, executive]

Good morning, everyone. Welcome to Genco's Fourth Quarter 2023 Conference Call. In addition to reviewing our Q4 2023 and year-to-date highlights, we want to use this opportunity to provide an update on the progress we are making 3 years into our comprehensive value strategy as well as on the industry's current fundamentals. We will then open up the call for questions. For additional information, please also refer to our earnings presentation posted on our website.

Starting on Page 5, 2023 marked another strong year for Genco. We took concrete steps to drive sustainable long-term value while achieving the top corporate governance rating across 64 public shipping companies for the third consecutive year. We also made progress enhancing the company's ability to thrive through all industry cycles as we executed across the 3 pillars of our comprehensive value strategy focused on dividends, deleveraging and growth.

We ended 2023 with our strongest quarter of the year, as outlined on Slide 6. For the fourth quarter, we achieved adjusted net income of $0.43 per share and declared a $0.41 per share dividend, representing 173% quarter-over-quarter increase to the dividend. Complementing the sizable returns we provided shareholders during the quarter, we also continued to delever while executing several key strategic growth initiatives. This included increasing our earnings capacity by implementing the next phase of our fleet renewal program. Additionally, we closed on a $500 million revolving credit facility that meaningfully increased our borrowing capacity, reduced margin, extended maturities and enhanced our ability to take advantage of opportunistic growth.

Turning to the fleet. Performance was strong in the fourth quarter and underscores the meaningful operating leverage of Genco's asset base and the importance of our barbell approach to fleet composition. During the quarter, our operating leverage was evident as Capesize rates spiked to multiyear highs in December, enabling us to increase Q4 TCE by 44% and achieve our highest TCE of the year at over $17,000 per day. We also generated our lowest cash flow breakeven rate for the year, resulting in significant margin expansion and an increased Q4 dividend, which I mentioned a moment ago. Notably, in the fourth quarter, we once again achieved time charter equivalent benchmark outperformance and are pleased to have exceeded our internal benchmarks for the year by $1,300 per day while generating adjusted EBITDA of over $100 million.

Looking ahead, we expect the positive momentum and our strong performance to continue in the first quarter. For Q1, 81% of our available days are fixed at over $18,700 per day, an increase of 34% versus Q4 levels. This strong performance is notable, especially considering that Q1 has historically been the seasonal low point in the drybulk freight market.

On Page 7, we look back on the development of our comprehensive value strategy based on our ongoing progress in 2023. In April 2021, management and the Board laid out a clear path and related objectives to transfer Genco into a low leverage, high dividend-yielding company with significant financial flexibility to provide shareholders with returns and opportunistically grow through the drybulk shipping cycles. Since that time, we have made significant progress towards these goals and importantly, have balanced our capital allocation priorities, having paid $170 million in dividends, acquired $236 million of vessels and paid down $249 million in debt.

Moving to Slide 8. We have declared compelling dividends over the last 4.5 years, including 9 since the announcement of our value strategy. Over this 18-quarter period, cumulative dividends to shareholders amount to $5.155 per share or 29% of the current share price.

Further supporting our ability to pay sustainable dividends is our recent success executing the next steps of our fleet renewable strategy as displayed on Slide 9. In November 2023, we purchased 2 2016-built scrubber-fitted Capesize vessels for $86 million while divesting 3 2009 and 2010 Capesize vessels. This trade further modernized our Capesize fleet and reduced the risk profile while also increasing 2024 earnings and cash flow capacity. Following the sales of the 3 older Capes, we expect 2024 dry dock savings of approximately $10 million as we avoided the expensive third special surveys for these ships.

In line with our barbell approach to fleet composition noted on Slide 10, we'll continue to evaluate further opportunities in the sale and purchase market to renew our fleet. Turning to Slide 11. We believe Genco is in a highly advantageous position going forward. Specifically, based on our success lowering our debt outstanding by 55% over the last 3 years, we have an industry-low net loan to value, an industry-low cash flow breakeven rate and nearly $300 million in undrawn revolver availability. This provides significant financial flexibility and optionality for the company going forward in a cyclical and capital-intensive business.

As such, we believe that Genco is well positioned to operate in both up and down markets as shown on Slide 12. With approximately $1 billion in fleet value and taking into consideration our scale and operating leverage, we expect Genco's fleet to significantly benefit from a rising market. With that said and given our access to capital, we are also able to take advantage of countercyclical opportunities to buy vessels to increase our earnings power much like we did prior to the recent Capesize rally in early Q4. Going forward, a key priority for Genco is continuing to be good stewards of capital for shareholders and continuously evaluating capital allocation priorities.

On Slide 13, we summarize the key tenets of our approach to capital allocation: First, maintain low financial leverage to lower cash flow breakeven levels based on the significant operating leverage inherent in the business; the second, pay compelling quarterly dividends consistently to shareholders; the third, opportunistically grow the asset base; and the fourth is to employ a barbell approach to fleet composition by maintaining a fleet of Capesize vessels for upside potential while owning Ultramax and Supramax vessels with a more stable earnings stream.

We believe our low leverage, high dividend payout model executed in scale is industry-leading in the drybulk shipping public markets. Given the volatility and the cyclicality of drybulk shipping, we also believe it creates the optimal risk/reward balance to provide sizable returns to shareholders, opportunistically grow the fleet and enhance our earnings power through the cycles.

I will now turn the call over to Peter Allen, our Chief Financial Officer.

[Peter Allen, executive]

Thank you, John. On Slides 15 through 17, we highlight key financial metrics of the company. Specifically for Q4 2023, Genco recorded net income of $4.9 million or $0.12 and $0.11 basic and diluted earnings per share, respectively, which includes a noncash special impairment charge of $13.6 million relating to the agreed upon sale of 3 older, less fuel-efficient Capesize vessels. Excluding this noncash charge, adjusted net income was $18.6 million or $0.43 basic and diluted earnings per share. Adjusted EBITDA for Q4 totaled $37.1 million, bringing the full year 2023 total to $101.5 million.

During Q4, our net revenues increased by 50% as compared to Q3, while our recurring cost structure remained approximately flat over the period, illustrating a high degree of operating leverage inherent in the business. This operating leverage is best displayed by our Capesize vessels, specifically those on index-linked contracts. These ships achieved an average TCE of over $33,000 per day in Q4, 91% higher than in Q3, directly benefiting from the rapid rise in the Capesize market at year-end. With such operating leverage, there is less of a need for financial leverage to achieve strong returns.

On Slide 18, we highlight the trajectory of our debt outstanding over the last 3 years and our continued voluntary debt repayments. Through the end of 2023, we have paid down nearly $250 million of debt, meaningfully reducing our leverage. Given our 100% revolving credit facility, we will continue to actively manage our debt balance to save on interest expense while opportunistically drawing down for vessel purchases given our nearly $300 million of undrawn capacity.

During the fourth quarter, we closed on a $500 million revolving credit facility, which is a key step in the continued development of our capital allocation approach. This facility increased our borrowing capacity by over $150 million, lower pricing on margin by 30 to 60 basis points from the previous facility and extended maturity to the end of 2028. This 100% revolving credit facility structure provides further flexibility and aligns well with our value strategy as the RCF structures enables Genco to continue to voluntarily pay down debt, in line with our medium-term goal of 0 net debt without losing the capacity to draw down to fund growth.

To this point, we took advantage of the company's meaningful liquidity position to opportunistically acquire 2 modern high-specification Capesize vessels. We'll continue to assess additional sale and purchase transactions in the market in line with our fleet renewal strategy.

As of December 31, 2023, our cash position was about $47 million, and our debt outstanding was $200 million, bringing our net debt level to $153 million and net loan-to-value ratio to 15%. With $295 million of undrawn revolver availability, our total liquidity position at the end of the year was $342 million. Following the completion of the agreed-upon vessel sales in the first quarter, we anticipate our net loan-to-value ratio to reduce to 10%.

Moving to Slide 19, we highlight our transparent dividend policy, which targets a distribution based on 100% of excess quarterly cash flow, excluding maintenance and withholding for future investments. The nature of our variable quarterly dividend and our fleet's operating leverage enables shareholders to directly benefit from freight rate increases as our Q4 dividend increased by 173% to $0.41 per share. Our Q4 2023 dividend represents an annualized yield of approximately 9% on the current share price, nearly double the 2-year U.S. Treasury rate of approximately 4.7%.

Looking ahead to Q1 2024 on Slide 20, we anticipate our cash flow breakeven rate, excluding extraordinary annual meeting-related expenses, to be $9,752 per vessel per day, well below our Q1 TCE estimates to date of $18,724 per day for 81% fixed, pointing to another strong quarter.

I will now turn the call over to Michael Orr, our drybulk Market Analyst, to discuss industry fundamentals.

[Michael Orr, executive]

Thank you, Peter. As depicted on Slide 22, after an atypically soft third quarter, the drybulk market increased meaningfully in the fourth quarter with Capesize vessels reaching multiyear highs of over $50,000 per day in December. These strong rates continued into a historically softer period, leading up to the Lunar New Year in February. Capesize rates reached a 15-year high for this time of year, driven by continued tightness in the Atlantic Basin. Currently, Capesize and Supramax rates remain at firm levels of approximately $23,000 and $13,000 per day, respectively.

Slides 23 and 24 highlight the aforementioned seasonality of the drybulk freight market, which has historically seen a reduction of cargo availability, particularly from Brazil due to poor weather conditions and scheduled maintenance, coupled with the timing of new building deliveries in the Lunar New Year. However, various geopolitical events continue to impact the drybulk freight market as highlighted on Slides 25 and 26.

In October, low water levels in the Panama Canal impacted the number of ships that could transit resulting in heavy delays and rerouting of vessels. One of these options was to divert vessels through the Suez Canal. However, in December, attacks on commercial vessels in the region led many shipping companies to no longer transit the Southern Red Sea and Gulf of Aden area, further disrupting the efficiency of the global drybulk fleet. Approximately 7% of drybulk trade transits through the Suez Canal. Larger-scale tonnage rerouting over an extended period of time could increase ton mile demand for drybulk shipping, all else equal.

Regarding the Chinese steel complex on Slide 27 and 28, China's iron ore port inventories have been building over the last several months from very low levels, but still remain well off of 2022 highs. China's iron ore imports rose by 7% in 2023 year-over-year, supporting iron ore prices, which remain firm at approximately $120 per ton. China's steel production was flat year-over-year in 2023, however, India grew substantially at 12%, while ex China output increased on a year-over-year basis for the last 6 months.

Looking ahead to 2024, the World Steel Association forecasts Chinese production to remain at 2023 levels while the rest of the world is expected to see growth of 4%, potentially signaling an increase in demand from developed countries in support from the secondary trade routes outside of Asia.

In terms of the grain trade, the end of Q1 represents the start of the South American grain season, which typically sees an increase in Brazilian soybean exports, which is [ supported by 2 minor ] bulk rates. As shown on Slide 29, the USDA is forecasting another strong crop out of Brazil.

Regarding the supply side outlined on Slides 30 to 32, net fleet growth in 2023 was 3%. The historically low order book as a percentage of the fleet as well as near-term and longer-term environmental regulations are expected to keep net fleet growth low in the coming years. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis for our constructive view of the drybulk market going forward.

I will now turn the call back over to John for closing remarks.

[John Wobensmith, executive]

Thank you, Michael. Before we turn to Q&A, there are a few key points that I'd like to highlight. First, we are executing a clear plan and doing so with a commitment to strong corporate governance. We've made demonstrable progress executing across the 3 pillars of our comprehensive value strategy. Second, our strong operating and financial results for the fourth quarter and full year demonstrate the strength of our industry-leading commercial platform and our significant operating leverage. We are pleased to outperform benchmarks and increase the TCE by 44% from third quarter levels. Finally, we believe the key steps we are taking are positioning us to create value both today and for the long term.

This concludes our presentation, and we would now be happy to take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Omar Nokta from Jefferies.

[Omar Nokta, analyst]

And thanks for outlining obviously, the strategy, as you've been -- has been ongoing now for 3-plus years or so. I wanted to ask just about the drybulk market overall. Clearly, things have been -- and as you were touching on just now in the presentation, things have been much healthier than expected. Definitely going into 4Q, there were not expectations for rates to jump as they did. And so far here in the first quarter, things have been much, much healthier as well.

And just wanted to dive just a bit deeper, just kind of maybe from your perspective, if you could just give us a sense of what do you think is really behind this market. Is it demand? Is demand really the driver here? You obviously talked about the Red Sea, the Panama Canal. Is that also having an issue on the margin? Or how would you characterize this market, say, today versus last year at this time when things were looking fairly soft?

[John Wobensmith, executive]

So obviously, great question, Omar. I think you have to start with the supply side, which is, again, continues to be very low in terms of percentage of the fleet on order. We're going to have even lower deliveries this year versus last. And then as we get into 2025, deliveries slow down even further. And again, they're from very low levels to begin with. So we have a very good supply-demand balance.

This first quarter, though, and we really started to see it towards the middle of the fourth quarter, we've seen actual increased volumes on iron ore, bauxite, coal. I think the -- certainly, the El Nino effect that has created dry weather in the iron ore areas in Brazil have enabled Vale to increase production from what would normally be a seasonal low because it would typically be the rainy season when in fact, it's been pretty dry.

So we've seen increased iron ore. We've seen increased bauxite out of West Africa. Coal shipments have been strong. We are about to come into peak grain season for the Southern Hemisphere. Things look very, very good there in both Brazil and Argentina. Argentinean corn had a pretty bad year last year. This year looks like it's going to be close to a record on the corn side. So that all looks positive.

But then you talk about some of the inefficiencies. I think the Panama Canal is probably causing greater inefficiencies than the Red Sea, though, certainly, the vessels avoiding the Red Sea are part of the story as well. But when I look at it, fundamentally, I believe the market is being driven by low supply. Demand has been up, volumes have been up. And then we do have some inefficiencies that have been created around the Panama Canal and the Red Sea area -- Southern Red Sea area.

[Omar Nokta, analyst]

That's helpful context kind of broadly on the market. And then just maybe as a follow-up, I wanted to ask on your fleet renewal strategy. You sold the 3 older Capes, you acquired the 2 newer ones. Obviously, we've seen asset values fairly firm, it looks like, and they continue to push higher. Just wanted to ask if you can maybe touch a bit on what we're seeing or what you're seeing in the sale and purchase market? And also, is that influencing in any way how you're looking at fleet renewal today versus, say, 2 months ago?

[John Wobensmith, executive]

I would tell you there is a flurry of activity, particularly in the Capesize sector. But the smaller midsized vessels are moving off the shelf, so to speak, as well. But what's happening in Capes is -- it's -- I would call it a little bit of a frenzy to be quite honest with you, in the S&P market. The 2 ships that we bought, those 2016s, which we paid $43 million, they're probably easily worth $50 million today. And that's a very short period of time. That's up 16%, 17% in 1.5 months. And it's very difficult to find eco vessels as well. And we've also seen a lot of Newcastlemaxes being sold.

I think it's -- I think as -- on the ship owning side, we all appreciate it. I'm not so sure if it's filtered on down to the rest of the world yet in terms of what values are being paid on ships, but it's definitely moved up significantly over the last 30 to 60 days.

I would also tell you, just in general, the sentiment in -- particularly in the Capesize markets moved up, those again, going back to the 2 ships that we just bought, we were able to fix those vessels on index-linked deals at 128% of the BCI. So very firm percentage numbers over and above the benchmark index. And then plus scrubber economics obviously on top of that. So it's -- there's a lot of positivity right now.

On the fleet renewal side, as long as we can trade out of older ships for similar relative values as newer ships, we'll continue to do that. So I would tell you, again, particularly in the Capesize sector, it's very difficult to find highly -- eco high fuel-efficient vessels, which is what we're focused on.

[Operator]

Your next question comes from the line of Liam Burke Burt from B. Riley.

[Liam Burke, analyst]

John, the index-linked charters for the 5 Capes have worked out pretty well for you. They run about a year. How are you looking -- do you see opportunities to add more Capes to the -- to those fixtures? Or do you just prefer to keep the breast of the Cape fleet in the spot market?

[John Wobensmith, executive]

Yes. So look, the index deals are effectively in the spot market, right, because they're earning a daily rate basis for BCI. We do have 3 vessels: the Endeavor, the Resolute and the Defender rolling off somewhere around April, maybe a little bit later from their index deals. So I think we'll look to do -- probably renew a couple of those.

In general, you know we like being direct with our customers, but we also believe in a portfolio approach particularly in the Capesize sector. And when you can earn 128% of the BCI plus scrubber, that is -- those are very firm numbers. So yes, I think we'll do a little renewal. I don't see us expanding much beyond what we've done today.

[Liam Burke, analyst]

Okay. It's more of a macro question. But in the presentation, you discussed the replenishment of inventories on the iron ore side in China. With production being flat, the rest of the world picking up the slack in terms of iron ore demand, are you seeing that this early in the year? Or are you just seeing your iron ore trade replenishing Chinese inventories?

[John Wobensmith, executive]

I would say for the most part, it's replenishing Chinese inventories, but we do expect that as we have a recovery ex China on the steel side, we'll see more iron ore flow.

You're correct that production levels are projected to be flat this year, you'll start to see production growth again next year. So I think that's positive. But don't lose sight of the fact, particularly for the Capes, the growth that's coming this year in the bauxite trade and most likely a continued strong coal market.

[Operator]

Your next question comes from the line of Ben Nolan from Stifel.

[Benjamin Nolan, analyst]

So going back to asset values and whatnot, and John, you were talking about a frenzy market. It seems like usually when the market is in frenzy, it's better to be a seller than a buyer, although you did say the appetite is especially true for the more modern eco ships, which are harder to find.

Do you think -- I mean, is this the kind of environment where you can look at some of your maybe older assets and maybe not even match them up yet with a new asset to pair against, but take advantage of just the strong appetite? Or is the appetite maybe not quite as strong for some of the kind of 15-year-old type assets?

[John Wobensmith, executive]

No, I think the appetite is strong across the board. I just think it's a lot more challenging to find the newer ships. And yes, that would be something that we would look at, though, I would tell you, we don't have an interest per se in shrinking the fleet from these numbers. We're very constructive on not just assets values but the overall markets because of the low supply situation. For the next few years in terms of what we can see, we like being in drybulk shipping. So in terms of shrinking the fleet as a rule, I don't see us doing that. But of course, we're going to take advantage of opportunities even if it may mean short-term selling some older ships and then medium, longer-term, replacing them.

[Benjamin Nolan, analyst]

Got it. Okay. That's helpful. And then from a macro perspective, I'm curious, especially given all of the grain coming out of Brazil, which tends to be a very long haul grain voyage anyway. With the issues in Panama Canal now, with issues in the Red Sea, are you -- are we starting to see any shift in sort of the appetite of ship type? Is there a growing preference maybe to move some of that grain on, I don't know, on a Kamsarmax as opposed to Supramax? Or are you seeing anything along that front just to take advantage of the scale for the longer distances?

[John Wobensmith, executive]

I wouldn't say there's a shift, but Panamaxes and Kamsarmax have traditionally carried grain out of that area. But I wouldn't say there's actually a shift. I mean I think the -- this time of year in that area, the Kamsarmaxes and the Ultramax market, Supramax market are fairly well linked. They're using all types of vessels to move that grain.

And again, in terms of Brazil, you're talking about another record crop off of last year projected on soybeans. Corn is down but very slightly. And then again, the Argentinean corn is going to move up. I mean, I think we only made maybe about 27 million tons last year, but it's going to be 45 million, 46 million tons this year. So again, that's -- that's going to be a record crop. I was actually down there last week. I saw it for myself. It is -- there's a lot of corn coming out of Argentina over the next few months.

[Operator]

[Operator Instructions] Your next question comes from the line of Sherif Elmaghrabi from BTIG.

[Sherif Elmaghrabi, analyst]

First, regarding the leverage on the Ranger and the Reliance, is the thought to pay that down over time? I realize you have some cash from vessel sales coming in Q1. Or could we see those ships secured under a new facility?

[Peter Allen, executive]

Sherif, thanks for your question. Yes. So like John mentioned earlier, we paid $86 million for those 2 ships in aggregate. We tapped the revolver and drew down $65 million. So in a bucket, that was 75% loan-to-value. But obviously, the leverage position of the company is very significantly lower than that pro forma 10%. As we're getting the sale proceeds from those 3 ships, we're going to actively manage our debt position to reduce interest expense and flow through the bottom line.

The great thing about our new revolver is that there's no term loan component to it. So we can pay down debt, not lose borrowing capacity. And then if we do see an opportunity like the company saw in Q4, we can then tap the revolver to draw down. So I think to your point, there will be some active management of our debt from the current level of $200 million as those proceeds come in.

[Sherif Elmaghrabi, analyst]

That's helpful. And then you highlighted a handful of demand drivers for the recent market strength, and I think Omar's question touched on this. But a chunk of it seems to be the impact of Canal [ displace ] on fleet supply. So do you think a full year of Canal disruptions or maybe the better part of the year has been priced into vessel values? It sounds like the positive impact of El Nino in Brazil could also be a drag in the Panama Canal, for example.

[John Wobensmith, executive]

Again, the Panama Canal is real in terms of creating fleet inefficiencies. It's hard to -- it's hard to put a percentage of the fleet that's necessarily being taken out. But as I said, it's real. But again, I go back to the cargo floats. I mean we've seen iron ore and bauxite up over last year's levels. So those are real meaningful numbers, particularly when you have such a low order book and such a low delivery schedule, it creates a tremendous amount of leverage by just moving up incrementally on the demand side.

[Operator]

Your next question comes from the line of Bendik Nyttingnes from Clarkson Securities.

[Bendik Nyttingnes, analyst]

Just wanted to touch up on the Capesize as well, I guess, building on the questions of some of the other guys. You talked about the lower-than-normal seasonal factors and the trends in the secondhand market. How do you view potentially locking in some of your Capes with current FFA values at around $27,000 for the remainder of the year?

[John Wobensmith, executive]

So in the past, we have definitely locked ships away for 1 to 2 years, even 3 years at a time, particularly as you brought up in the Capesize sector. We think that is a good way to manage risk. We're still relatively -- we're still bullish on the Capesize market. So I would say it's a little too early to lock in but it is certainly something that we're looking at. And as I said, we've done it in the past. And from time to time, we think it's the right move to take some risk off the table in the Capes.

The other thing I would point out is the index deals that we've recently done as well as the past index deals have options for us to fix periods of time within those transactions. So -- and we've done that. We actually did that a little bit in -- for the month of February in the first quarter. But obviously, that was very short term and it and it was just to sort of get through the month of February. But we have that option to lock longer term.

[Bendik Nyttingnes, analyst]

That's great color. And also, if I could just touch upon the fleet renewal as well. You've been quite active on the Cape side, but when should we expect to see some of the same for Supramaxes or if at all?

[John Wobensmith, executive]

You will. We're focused on some of the 58s. It's hard to put a definitive time frame on it, except that I would say I expect it to happen this year. Keep in mind that we have bought 11 Ultras since 2018. So this has been an ongoing process. But now with where vessel values are, they seem to be firming. The momentum from the Capes are moving down into the midsized vessels. So it's starting to make sense on the valuation front for our -- some of our older 58s. So it's definitely on the table. Just a little hard to give you the exact timing, but I certainly believe this year.

[Operator]

As there are no further questions at this time, this concludes our conference call for today. We thank you for your participation and ask that you please disconnect your lines.

[John Wobensmith, executive]

Thank you.