Cool Company Ltd

OSE:CLCO

Earnings Call Analysis

Strong Performance in Q4 Bolstered by Seasonal Tailwinds and High Demand

CoolCo delivered a robust performance in the fourth quarter of 2023, with record-setting time charter equivalent rates of $87,300 per day, driven by strong contracted revenues and seasonal tailwinds. This positivity was echoed by an increase in revenue, EBITDA, and adjusted net income figures. The company's operational efficiency is underlined by the successful offsetting of backlog consumption through the announcement of a new 12-month charter, further solidifying future earnings prospects. Additionally, shareholders are set to benefit from a generous dividend yield of 14%, reflecting the company's confidence in its financial health despite current market pressures.

Investing in Vessel Upgrades Amidst Challenging Market Conditions

CoolCo is navigating a transformative landscape with strategic foresight, banking on improving its fleet efficiency. This strategy is exemplified by the charter of the Husky, which includes an upgrade to LNGe specs, promising additional earnings potential. The company is also adeptly managing its chartering schedule to avoid the seasonal dips in rates, showcased by the planned rechartering activities slated for the second half of the year, which are expected to command better rates. Moreover, CoolCo is confident in generating significant contracts for its new vessels, a testament to its proactive market positioning and the expected balance in supply and demand dynamics.

Favorable Outlook Amidst Expansion of Global LNG Supply

Looking ahead, the company envisions a promising scenario fueled by a growing global LNG supply, slated to increase by over 110 million tonnes per annum by the end of 2026. Combined with a shift toward more environmentally friendly energy sources in key markets like China and India, CoolCo anticipates a steady demand for its modern, efficient fleet. The expected retirement of less efficient steam turbine vessels due to their prohibitive operational costs should further enhance the competitive landscape in favor of CoolCo's modern ships.

Record Quarter Earnings and Commitment to Shareholder Returns

Financially, the fourth quarter saw CoolCo reaching new heights, with record operating revenues of $97.1 million and an operating margin of 57%. The disciplined approach to operating expenses yielded significant savings, affirming the company's capability to enhance its financial efficiency. Net income did face unrealized mark-to-market valuation swings on interest rate swaps, yet the company managed an adjusted net income of $34.2 million. The commitment to shareholder returns continues unabated, with the board approving a $0.41 per share dividend, marking a payout of roughly 64% of the adjusted fourth quarter net income.

Healthy Cash Flow and Strategic Deleveraging

CoolCo has prudently managed its cash flow dynamics throughout the year. The company's focus on deleveraging strategies is unwavering, as evidenced by their refinancing arrangements and upsizing of existing facilities to ensure smooth repayment profiles. With 85% of its net debt at a fixed interest rate, CoolCo has insulated itself against the whims of market interest rates, prioritizing financial stability and predictability. The refinancing initiatives, set to close in March, are set to provide greater financial breathing space, eliminating any near-term maturities and strengthening the company's liquidity position.

Anticipated Volatility Mitigation Through Fleet Optimization

Managing fleet composition has emerged as a key focal point for CoolCo. With significant CapEx allocated to upgrading its fleet to LNGe specifications and optimizing its vessel portfolio, CoolCo continues to pursue opportunities that ensure operational agility. It is strategically increasing its fleet size through new vessel commitments that are projected to be accretive to earnings. The divestment of less profitable vessels, paired with the synchronizing of leaseback arrangements, has been done with a clear focus on optimizing the overall financial and operational footprint.

Proactive Market Engagement and Growth Strategy

CoolCo's leadership is actively engaging in the market to explore opportunities that align with their growth objectives. The company's forward-looking approach is highlighted by its agility in adapting to market trends, responsiveness to global demand shifts, and fostering of strategic partnerships. Transparency and timeliness in communication, especially regarding new vessel charters and market developments, remain a priority to ensure all stakeholders are informed and confident in CoolCo's trajectory.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen and welcome to the Cool Company Ltd. Q4 2023 Business Update Conference Call. [Operator Instructions] This call is being recorded on Wednesday, February 28, 2024.

I would now like to turn the conference over to Richard Tyrrell. Please go ahead.

[Richard Tyrrell, executive]

Thank you, Eric, and good day, everybody. Thank you for joining the CoolCo fourth quarter 2023 results call.

Let's get started by turning through the first couple of pages and taking a look at Page 3, Cool Company at a glance for the quarter. On the left, we have the headlines. Time charter equivalent increased to $87,300 per day, a record level that was driven by our contracted revenues and seasonal tailwinds.

This fed into higher revenue, higher EBITDA and higher net income if you adjust for the mark-to-market losses on interest rate swaps. The natural consumption of backlog over the quarter as a result of the passage of time was offset by the announcement of a 12 month charter for one of our open vessels after the end of the quarter.

As a result of our strong operational performance, the Board announced a dividend of $0.41 per share for the fourth quarter of 2023. This equates to a dividend yield of 14% at the current share cost.

The shares have been under pressure since the end of the quarter because some of the factors you see on the right-hand side of the page. We'll get into these as we go through the presentation. But in summary, the warm winter has resulted in falling gas prices and charter is seeking to sublet any excess capacity in their fleets. These sublets have weighed on rates and resulted in negative sentiment, but we do see them clearing the market and our shipping demand increases with longer shipping distances as we move through the year, we expect rates to bounce back.

Shipping businesses have started to increase because of the distributions in the Panama Canal and the Red Sea. Current LNG prices are expected to spur demand in the more distant markets that are even further away than normal because of these disruptions. And this is positive for our modern ships. It's not so great for small and less efficient steam turbine vessels and it's hard to envisage how they stay in the market. This last point, along with the new LNG supply that is now visibly coming is expected to balance the shipping market.

Turning to Page 4. As you would expect, we have seen an increase in the rates in the fourth quarter driven by one vessel trading in the spot market at an opportune time and another vessel on a variable rate contract. A favorable ballast bonus also played a part in the results. In addition to this, I am pleased to announce that the increase in revenue has more than flowed into EBITDA because of a solid cost performance.

We've had some movements in the fleet between this quarter and the comparison quarter in 2022 with the arrival of the ING vessels in the fourth quarter of 2022 and the disposal of the Seal in the first quarter of 2023. But nonetheless, the results stand out as the highest since CoolCo's formation. John will get into the numbers in more detail shortly. But before he does, I wanted to say a few words about the market and our expectations going forward.

Please turn to Page 5, where you will see the story of the past 3 years. 2021 was a cold winter in Asia and you can just see the LNG prices coming off their peak on the left-hand side of the chart. Wind the clock forward and the market rose in anticipation of another cold winter in 2022. And while this didn't really materialize, it shows the tendency of the market to anticipate based on most recent history.

By January 2022, gas prices were falling, only to be disrupted by the Ukrainian shock. This worsened during the summer as Europe scrambled to fill storage, culminating with the sabotage of the Nord Stream gas pipeline that at the time still provided a material amount of supply.

The peak LNG price shown on this chart is almost 10x the low price. To put this into perspective, cargo values have ranged from $30 million to $300 million over this period, a factor that at its highs convinced charterers to maintain additional length in their shipping fleets.

Gas prices dropped heading into the autumn of 2022 and the winter of 2023, but still remained elevated, something that's prompted price-sensitive markets to focus on coal for the next season. This year or last year, now 2023 has seen much less volatility in prices. And our expectation is that this will result in increases in LNG shipments to far away markets, those markets being predominantly in the East. Such markets will consume their stockpiles of coal this year and are looking forward to using more environmentally friendly gas in the future.

Turning to Page 6. And of course, there has been a recent lack of volatility in the gas markets and that has created a negative sentiment towards shipping. But even in this market, we were very pleased to announce the charter of the Husky earlier this month. The Husky is on a 12-month charter, during which time it will be upgraded to LNGe specs during a dry dock that you can see from the chart.

The level of this charter is decent and it has a nice feature in that we will share the upside from the upgrades with the charter. Conservatively, these are anticipated to be worth a few thousand dollars a day above and beyond what is shown on the chart.

While Husky is coming off a very healthy Ukraine-driven contract and a lucrative period in the spot market and the contract it is moving on to is at a lower level, the decrease is offset by the Kelvin that is about to start its 3-year time charter at higher levels than those of which it was previously chartered as can be seen in the line that is dashed and in turquoise on the right-hand side.

The next point I'd like to make on these slides is that we expect the market to be improving by the time our next available vessels come available for recharter. We spent quite some efforts making sure that these vessels don't come available at this time of year when rates can be low and we believe that rates will be significantly better by the time they become available and are rechartered in the second half of this year.

The spot chart on the left shows how this is typically the case for our 2 FTE vessels and will provide further support for this case when we go through the next pages. The chart on the right shows how spot rates and the knowledge that a considerable number of new vessels are delivering over the coming years has depressed the term business in a way that was not seen last year.

Liquidity for long-term charters has been hit by the charter as being able to bridge needs with sublets and defer decisions, but there remain enough requirements for me to be confident of fixing our new buildings before delivery. I don't have an announcement for you today, but it will most certainly be enough to be material enough to warrant its own announcement outside the normal results schedule when it happens.

Turning to Page 7. And here we show how the new supply of LNG will soak up much of the forthcoming shipping. The chart on the left reflects CoolCo's view on forthcoming projects. It totals more than 110 million tonnes per annum of LNG between now and the end of 2026, with shipping needs of approximately 2 to 3 vessels per and TPA depending on how much LNG goes to Asia versus the Atlantic. I won't get into the ins and outs of specific projects, but in general, it's fair to say that the projects are led by large and established LNG players and these are on schedule with Novatek's Atlantic LNG 2 being the only wildcard.

What it is important to appreciate is that most of these incremental volumes will have to go East given the peak demand in Europe is already behind us. This is very good news for shipping and we're not concerned about demand. Lower gas prices are a major facilitator and the key markets are really gearing up to take the products. The table on the right shows some key steps that have been taken in China, India and Vietnam, Thailand, the Philippines and Bangladesh. These changes are providing the industry with confidence around the levels of demand and this is something that's supported by anecdotal evidence from our business development activities.

The other part of the equation of the newbuilds and possible retirements. And Page 8 provides an update on this picture. You can see a fairly straight line of deliveries over the same period as we plot it on the previous page. And whereas the deliveries are potentially on a more steady trajectory compared to an S-curve in supply, the overall picture is reasonably well balanced. Importantly, most of the vessels are fixed known volumes and CoolCo vessels are the first to deliver amongst those still to be fixed. As expressed before, we remain confident of fixing these vessels before delivery.

On the other side of the coin, we're expecting many more retirements in the coming years compared to what we've seen previously. A number of our steam turbine vessels received a new lease of life as a result of the high rates seen after the Russian invasion of the Ukraine. However, this is not a trend that we see continuing, given the high cost of keeping these vessels on the water in the face of lower rates.

Is it worth spending up to $10 million on a dry dock for an off-contract vessel when spot rates for steam turbines are as low as $25,000 per day? We don't see how anyone can make that work. These vessels are typically smaller than newbuilds, but even if they're not replaced on quite a one-for-one basis, their retirements still amount to a significant addition -- additional demand for more modern tonnage.

So that concludes my market overview and I'd now like to pass the baton on to John, who will take you through the quarter in more detail.

[Johannes Boots, executive]

Thank you, Richard. I will provide a financial overview for the fourth quarter and the full year of '23. So turning to Slide 9. In our Q4 earnings release today, we announced a solid fourth quarter with some metrics reaching record levels in the history of CoolCo.

Time and voyage charter revenues for the quarter were $89.3 million, resulting in an average time charter equivalent rate of $87,300 per day across our fleet of 11 vessels, also a record. The improvement versus the last quarter is primarily attributed to higher floating and spot rates during the winter season on 2 of our vessels.

Fourth quarter total operating revenues generated $97.1 million, which is inclusive of noncash amortization of net intangible liabilities of $4.5 million and $2.3 million from third-party vessel management revenues. This number is above the guidance range provided during our third quarter earnings presentation in late November. This is mainly because of one vessel operating in the spot market that finished off the quarter -- the fourth quarter on the favorable spot rate that was not committed at the time of providing the guidance. Full year time and voyage charter revenues were $347 million and full year total operating revenues were $379 million.

Operating income for the quarter reached a healthy $55.1 million, an improvement of 14% compared to the third quarter of '23. The fourth quarter operating margin relative to the fourth quarter revenues was very strong and reached a level of 57% margin. We're also very pleased to report that our vessel operating expenses for the quarter came in at $16,600 per day per vessel, which was roughly $2,000 per day per vessel better than the 2 previous quarters, mainly due to the timing of main engine overhauls and lower purchasing activities on acquired vessels.

Operating income also included $18.9 million in depreciation and amortization, along with $5.4 million in administrative expenses, which includes a combination of third-party fleet management expenses and routine corporate overhead. Adjusted EBITDA for the third quarter of '23 was $69.4 million compared to $62.8 million for the third quarter of '23, also a healthy improvement.

Moving on to the next slide, the net income bridge. The net income chart on the left illustrates the transition from Q3 to Q4. Reported net income for the fourth quarter was $22.4 million compared to $39.2 million in the third quarter, primarily reflecting a $23 million unrealized mark-to-market valuation swing on our interest rate swaps. This was partially offset by roughly $4 million in higher revenues and the aforementioned OpEx savings. The mark-to-market swing was the result of a significant market interest rate drop from the end of Q3 to the end of Q4.

The fourth quarter net income in the chart on the right adjusts for recurring noncash elements and equaled $34.2 million, a record quarter for the company if one excludes the nonrecurring gain on the sale of the Seal vessel during the first quarter of last year. The noncash amortization of net intangible assets and liabilities is associated with the revaluation of charter agreements related to the spinoff from Golar and the subsequent acquisitions in late '22. Excluding such noncash items, the approved dividend of $0.41 per share represents approximately a 64% payout of fourth quarter net income.

Turning to Slide 11, the cash flow bridge for the full year. This chart shows the starting and ending cash and the cash movements during the entire year. Excluding newbuild CapEx related borrowings and sale proceeds from the Seal, the free cash flow to equity in the circled area was around $84 million. We declared a cumulative $88 million in dividends for '23. So we effectively distributed slightly higher in dividends than the free cash flow available to equity holders.

Also for the full year, we paid $114 million for the exercise of the newbuild option and $67 million in subsequent milestone payments to the shipyard, totaling $181 million. We also spent $16 million in advanced payments for the previously announced LNGe upgrades. In addition, we upsized the $570 million facility by $70 million back in June of last year. And during the fourth quarter, we borrowed $40 million under our newbuild sale and leaseback pre-delivery finance facility, which together with the upside adds up to $110 million in new borrowings during the year.

Turning to Slide 12. We are reiterating our dividend policy that we announced back in October 2022. On a quarterly basis, our free cash flow to equity shows a bit of variability due to the semiannual debt repayments on one of our facilities. However, on a cumulative basis since inception of our dividend policy, you will see that we paid out slightly higher than our free cash flow to equity. The basis for calculating free cash flow to equity is adjusted EBITDA minus regular debt service plus interest income.

The Board has approved a dividend payout of $0.41 per share with an ex-dividend date that is set for March 8 and a record date of March 11. The dividend will be distributed to DTC-registered shareholders on or around March 18, followed by Norwegian-registered shareholders approximately 3 days later on or around March 21.

Turning to Slide 13 on the financing. In this morning's press release, we were very pleased to announce that we have received commitments from several quality commercial banks to refinance our sale and leaseback facility maturing in the first quarter of 2025 by upsizing the existing $520 million bank facility. Because this existing sale and leaseback debt has a very low interest rate, we structured the refinancing with a delayed drawdown to ensure that we maintain the benefit of this low interest rate through the interim period. Alongside this upsize, the banks have also committed to make some changes to the financial covenants, the main one being a relaxation of the cash covenant, which will become 4% of total debt.

As you can see on the chart, once the upsize is closed, which we expect in March, we have no debt maturities for the next 3 years.

Turning to Slide 14. On this slide, we showed a split between commercial and current sale and leaseback debts. We have fixed our interest rate for about 85% of our net debt with an average interest rate well below 6%, even on a pro forma basis, which includes the newbuild debt. The table at the bottom shows the split between realized and unrealized mark-to-market gains and losses, which on our income statement are combined in one line item. Our cumulative realized swap results since inception of our swap program in July 2022, we're well in the money with $11 million in net gains. So our hedging program has paid off well so far. The unrealized gains as of the end of the year were approximately $5 million.

For those modeling CoolCo quarter-to-quarter, please take note of this significant and largely unrealized mark-to-market swing in our quarterly earnings reporting.

So in summary on this financing slide, no debt maturities until February '27. We're freeing up between $50 million and $100 million in cash as part of the upsize and the amendments and an interest rate that is substantially fixed and well below 6%.

Moving on to the next slide with an overview of the backlog. This slide highlights the revenues for 2024 are committed for approximately 95% with one open vessel in late July and another one late November. While this open day percentage will obviously increase over time, the time charter equivalent rate from our backlog is approximately $76,000 per day per vessel.

And on average, we maintain roughly 4.6 years of backlog per operating vessel, including options. This includes the options exercised to the maximum extent. Of particular significance on the chart to the right is the cash flow generated by our backlog, calculated as contracted revenue backlog minus direct operating expenses, which surpasses our net debt. This underscores a robust level of coverage even before accounting for any future chartering activity related to our open days.

Turning to Slide 16, first half year guidance. On this slide, we reiterate our February 7 selected revenue guidance for the first half of this year. In '24, we anticipate 4 drydockings, 1 in the second quarter and 3 in the third quarter. Currently, we expect these drydockings to begin and end within the relevant quarter, but the exact dates may change depending on the timing of cargo deliveries and our client needs. These drydockings will result in some unpaid drydocking time.

As Richard mentioned, the Kool Husky will undergo upgrades with a sub-cooler and an air lubrication system to enhance performance and reduce emissions.

With the financial overview concluded, I'm handing the call back to Richard.

[Richard Tyrrell, executive]

Thanks, John. I think it's time to open up the lines to lines for questions. Eric, if you could please do that for us?

[Operator]

[Operator Instructions] Your first question comes from the line of Frode Morkedal with Clarksons Securities.

[Frode Morkedal, analyst]

On this 1H charter you announced in February, which I assume is the Husky you showed on this chart, it was a bit hard to read on the line there. But I guess also based on the revenue guidance for Q2 you provided, I guess, you are able to back out that the charter rate needs to be above $80,000 per day. Are you able to confirm this?

[Richard Tyrrell, executive]

Yes. The chart is accurate, Frode and your math is also accurate. Thanks for that question. It's an important clarification because I think a few people have had it at a somewhat lower level.

[Frode Morkedal, analyst]

Yes. It's a really strong charter rate, obviously. And I guess is this charter rate inclusive of the, let's say, the benefit of the [indiscernible] CapEx later this year?

[Richard Tyrrell, executive]

No, that's in addition.

[Frode Morkedal, analyst]

Okay. Interesting. I guess more broadly, can you discuss how you are able to share the CapEx with the customer through a higher rate for these LNGe investments?

[Richard Tyrrell, executive]

It's not so much sharing the CapEx. The CapEx is on us. It's more of a question of how we get paid and in this particular contract it made sense to share the upside. It will be the first vessel that had these upgrades. So there's an inevitable uncertainty around certain elements of the performance.

And the agreement we've come to with Santos is that we share the improvements. And I think that's a very fair agreement and it also very much aligns us with charter. So we obviously want to improve our performance as far as possible. And that's for their benefit and it's also for our benefit because of this mechanism.

[Operator]

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

[Liam Burke, analyst]

Could we go in a little detail about your 2 newbuilds? You're talking to several charterers and they're looking at unmet -- I guess, right out of your press release, unmet transportation requirements. Would that translate into longer time charters? Or would they be spot market type agreements?

[Richard Tyrrell, executive]

These vessels are going to be more targeted at the long-term market. Now we're relatively agnostic on whether the long term means 5 years or whether it means 15 years. I think there's a sort of a rate sensitivity as you go from one end of that scale to the other. But we are very much focused on those kinds of opportunities.

Now within the customer universe for those vessels, we've found that the traditional customers who will charter vessels through the cycle, they are still there and they have RFP processes, which are quite structured. And obviously, we participate in those.

I think the fact that the market has been a bit softer more broadly has put off some people who have a stated need from doing anything immediately. And some of the more traders or big portfolio players might fall into that camp. So overall, the level of inquiry is down somewhat because of that. But it is still there and we are still seeing these inquiries from people who will charter through the cycle and they basically view it as winning some and losing some.

[Liam Burke, analyst]

Fair enough. And with the disruption in both the Panama and Suez Canals, are you seeing charters more anxious to grab on to carrier assets? Or is this just a function of short-term supply demand?

[Richard Tyrrell, executive]

Very much so. We haven't seen a sort of immediate step change because at least so far, in general, the Atlantic volumes have stayed in the Atlantic and the Pacific volumes have stayed in the Pacific. But what we are seeing for next year or for this coming year, people are looking at their cargoes. They're looking at their schedules. And they're saying, well, wait a minute, if we have to go around the Cape of Good Hope, we're going to need an extra ship. So there are people who are really starting to pay attention to this issue now and it will be positive for demand going forward.

[Operator]

[Operator Instructions] The next question comes from the line of Mike Webber with Webber Research.

[Michael Webber, analyst]

So Richard, just a couple here. I wanted to follow up on first question on the Husky. And based on your answer, I think I know what the implication is. But you touched on the [ relic ] and then kind of the alignment between the -- yourselves at charter. But with regards to the ALS system that you guys are upgrading or introducing to that later on this year for a trial, how do the economics work associated with that and your charterer in terms of potential fuel savings?

[Richard Tyrrell, executive]

Yes. The way to think about it is that we have a level of a performance switch, which goes sort of across the speed range. So if you're going below natural boil-off speed or basically just stationary, then you're going to get a lot of utility out of the relic. If you're going faster than the natural boil-off speed, you're going to be getting your value, somewhat less value, but still a few percentage points out of the ALS.

So what we're doing is that we're benchmarking the performance of the vessel before the drydock and then we're benchmarking -- or we're then comparing that to the performance of the -- the actual performance of the vessel after the drydock and calculating the benefit and sharing it between us.

[Michael Webber, analyst]

Got you. So they're effectively tethered together. Okay. That's helpful. Just a follow-up on the Red Sea. If I think about the dynamics in place now where you've got obviously -- well, I guess maybe first and foremost, right, in terms of the rerouting, we're starting to see now around the Cape of Good Hope. Do you think we've seen the majority of that impact yet in terms of longer ton miles? Or do you think that's still ahead of us?

[Richard Tyrrell, executive]

I think it's still ahead of us. And as I mentioned, I think so far, in general, LNG has stayed within its basin. So a lot of the LNG out of the U.S. has been targeted at the Atlantic Basin coming into Europe and within the Pacific Basin, probably Australian volumes going up to Asia, going up to Japan and Korea, China and those markets. Qatari volumes, obviously, there's a bit of a sort of split. Some of them go East and some of them go West. But we haven't seen a lot of LNG switching basins.

And the interesting thing about the volumes that are coming, they're going to have to go East because Europe is kind of full. And a lot of these volumes are coming in the -- coming out of the Gulf. And the primary destination will be the East. And unfortunately, right now, the East is difficult to get to because of these canal issues.

[Michael Webber, analyst]

Yes. And if I think about QP's volumes there, obviously, they're expanding with their NFE push, which actually looks on time, if not early as opposed to most of the stuff in the U.S. and they're actively marketing some of those volumes or some of their legacy volumes. Are you starting to see, at least in conversations with potential charterers any kind of mix shift in terms of who you're talking to there? And I guess the thought process is shifting towards more of an FOB focus there in terms of people setting up their transportation capacity for longer-term volumes that might be coming online in 1 to 2 years from now or 2 to 3 years from now?

[Richard Tyrrell, executive]

Yes. I mean we are -- I think this is the reason why we have quite good visibility on the needs going forward. What we have less control over is sort of the timing of when people feel the need to pull the trigger. So we do have a strong sense of how many ships are going to be needed over time.

And that's what gives us the confidence in the newbuilds. I mean, of course, if you're a kind of charterer who's got a little bit more of a kind of trading mentality right now, you look at the market and you think, well, maybe I can wait and take us up that for a little while. If you are a charterer that's got a much more, I guess, more conservative approach and you're seeking to match your volumes with your -- shipping with your volumes than you do what you've always done, which is a RFP-type process and secure your shipping.

[Michael Webber, analyst]

Yes. Okay. That makes sense. One more for me and I'll turn it over. We saw newbuild prices inched down in January for the first time in a while. We're still up more than 20%, I think, over the last 3 years. Just curious on a relative basis, how do you think about returns on newbuild programs here versus, say, where we were a year ago? I mean, how attractive or unattractive you might find them?

[Richard Tyrrell, executive]

Yes. I mean I think the -- well, the new book cost right now, let's start with that because that's pretty well established. And we've seen them as highest, 270 recently. But I think in reality, with discounts, it's probably more like 260, maybe even slightly below that. But the prices are elevated. And today's cost of financing in order to turn a buck on your equity, you need to have a certain rate. So that's a positive thing for us because it kind of anchors things at a decent level.

I think that rate is above $100,000 a day. Do I think you're necessarily going to get that if you go out into the market tomorrow? I mean, no, not quite. So there's, I think, a potential for a bit of a standoff while the bid offer spread comes together.

[Michael Webber, analyst]

Okay. That makes sense. I lied. I've got one more on your balance sheet. But on -- with regards to that -- your -- the facility that you've got maturing in '27, my presumption would be that that was probably the first place you've looked in terms of upsizing and the collateral pool might not have been -- might have been more fully baked into the advanced rate on that facility. Is there room to expand that in a similar way that you did the 2029 facility? Or is that more or less tapped?

[Richard Tyrrell, executive]

Yes, I know, John, you've got to take one. So let me pass this on to John.

[Johannes Boots, executive]

I mean, we did consider that one as well, but it had a much shorter maturity than the May '29 one. And that's the main reason we upsized the May '29 facility. But is there room in the February '27? Yes, as long as we have collateral to it, the banks, I'm sure are willing to lend. But -- and what's the point, right? It's only 3 years. So we'd rather term it out a bit longer. Does that answer your question?

[Michael Webber, analyst]

[indiscernible]. Yes. Yes. Okay. No, it just seems like a more complicated conversation because you need an extension on it.

[Operator]

I would now like to turn the call back over to Richard Tyrrell for closing remarks. Please go ahead.

[Richard Tyrrell, executive]

I think without any further ado, I'd just thank everybody for joining the call and look forward to reporting back with developments as they come in. Many thanks, Eric.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.