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(Exact
name of Registrant as specified in its charter)
iRepublic of the Marshall Islands
i98-0453513
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i300 First Stamford Place, i5thfloor
iStamford,
iConnecticuti06902
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (i203)
i276-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $0.01 per share
iEGLE
iNew York Stock Exchange
iPreferred Stock Purchase Rights
iN/A
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
☐
iAccelerated filer
☒
Non-Accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
i☐
No
☒
Number
of shares of registrant’s common stock outstanding as of November 3, 2023: i9,932,094
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,”“estimate,”“project,”“intend,”“expect,”“plan,”“anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements reflect management’s current expectations and observations with respect to future events and financial performance.
Where
we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include market freight rates, which fluctuate based on various economic and market conditions, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the purchase price of our vessels and our vessels’ estimated useful lives and scrap value, general and administrative expenses, and financing costs related to our indebtedness. The accuracy of the
Company’s assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct, does not undertake any duty to update them and disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors which could include the following: (i) volatility of freight rates driven by changes in demand for seaborne transportation of drybulk commodities and in supply of drybulk shipping capacity;
(ii) changes in drybulk carrier capacity driven by levels of newbuilding orders, scrapping rates or fleet utilization; (iii) changes in rules and regulations applicable to the drybulk industry, including, without limitation, regulations of the International Maritime Organization and the European Union (the “EU”), requirements of the Environmental Protection Agency and other governmental and quasi-governmental agencies; (iv) changes in U.S., United Kingdom, United Nations and EU economic sanctions and trade embargo laws and regulations as well as equivalent economic sanctions laws of other relevant jurisdictions; (v) actions taken by regulatory authorities including, without limitation, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”); (vi) changes in the typical seasonal variations in drybulk freight rates; (vii) changes in national and international economic and political conditions including, without limitation, the current conflicts
between Russia and Ukraine and Israel and Hamas, the current economic and political environment in China and the environment in historically high-risk geographic areas such as the South China Sea, the Indian Ocean, the Gulf of Guinea and the Gulf of Aden; (viii) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (ix) the duration and impact of the novel coronavirus (“COVID-19”) pandemic and measures implemented by governments of various countries in response to the COVID-19 pandemic; (x) volatility of the cost of fuel; (xi) volatility of costs of labor and materials needed to operate our business due to inflation; (xii) any legal proceedings which we may be involved from time to time; and (xiii) other factors listed from time to time in our filings with
the Securities and Exchange Commission (the “SEC”).
We have based these statements on assumptions and analyses formed by applying our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. The Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company’s underlying
assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected. Risks and uncertainties are further described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 10, 2023 (the “Annual Report”), as updated by those risks described in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, filed with the SEC on August 4, 2023.
Common
stock, $ii0.01/ par value, ii700,000,000/
shares authorized, ii9,319,177/ and ii13,003,702/
shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
i93
i130
Additional
paid-in capital
i746,898
i966,058
Accumulated
deficit
(i162,418)
(i163,556)
Accumulated
other comprehensive income
i13,499
i16,549
Total
stockholders' equity
i598,072
i819,181
Total
liabilities and stockholders' equity
$
i1,158,573
$
i1,237,209
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. iBasis
of Presentation and General Information
The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the “Company,”“we,”“our” or similar terms). All dollar amounts are stated in U.S. dollars and are presented in thousands, on a rounded basis, using actual amounts, except for per share amounts and unless otherwise noted. Minor differences in totals or percentages may exist due to rounding.
The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership, charter and operation of drybulk vessels. The
Company’s fleet is comprised of Supramax and Ultramax drybulk carriers, and the Company operates its business in ione business segment.
As of September 30, 2023, the Company owned and operated a modern fleet of i52
ocean-going vessels, including i22 Supramax and i30 Ultramax vessels with a combined carrying capacity of i3.16
million deadweight tons (“dwt”) and an average age of approximately i10 years.
In addition to its owned fleet, the Company charters-in third-party vessels on both a short-term and long-term basis. As of September 30, 2023, the Company had ifour
Ultramax vessels on a long-term charter-in basis, with remaining lease terms ranging from ione month to inine months.
For each of the three and nine months ended September 30, 2023 and 2022, the
Company had no charterers which individually accounted for more than 10% of the Company’s gross charter revenue.
iThe accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC that apply to interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes normally included in consolidated
financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 10, 2023 (the “Annual Report”).
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented.
The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.
iThe
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include fair values of long-lived assets (primarily vessels and operating lease right-of-use assets), impairment of long-lived assets (primarily vessels and operating lease right-of-use assets), stock-based compensation and financial instruments (primarily derivative instruments and Convertible Bond Debt (as defined herein)), residual values of vessels, useful lives of vessels and estimated losses on accounts receivable. Actual results could differ from those estimates.
Note
2. iSignificant Accounting Policies and Pronouncements
The Company's significant accounting policies are described in Note 2. Significant Accounting Policies, in the notes to the consolidated financial statements included in the Annual Report. Included herein are certain updates to those policies.
F-8
Vessels
and Vessel Improvements, At Cost
Vessels are stated at cost, which consists of the contract price, and other direct costs relating to acquiring and placing the vessels in service. Major vessel improvements, such as scrubbers and ballast water treatment systems (“BWTS”), are capitalized and depreciated over the remaining useful lives of the vessels. Depreciation is calculated on a straight-line basis over the estimated useful lives of the vessels based on the cost of the vessels reduced by the estimated scrap value of the vessels as discussed below. The Company estimates the useful life of the Company's vessels to be i25
years from the date of initial delivery from the shipyard to the original owner.
Effective January 1, 2023, we increased our estimated vessel scrap value from $i300 per light weight ton (“lwt”) to $i400
per lwt. This change was driven by increases in i15-year average scrap price trends sourced from a third-party data provider as well as similar increases by certain of our industry peer companies. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of our vessel assets. We expect depreciation to decrease by approximately $i4.0 million
for the year ended December 31, 2023 solely as a result of the prospective change in this estimate. iThe impact of this change on Net (loss)/income and basic and diluted net (loss)/income per share for the three and nine months ended September 30, 2023 is as follows:
iIn March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions
that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. ASU 2020-04 is optional and effective for all entities as of March 12, 2020 and may be applied prospectively to contract modifications made on or before December 31, 2024 (as extended by ASU 2022-06, Deferral of the Sunset Date of Topic 848). In June 2023, the
Company modified certain interest rate swap agreements to coincide with the Global Ultraco Refinancing (as defined below). The Company utilized certain expedients under ASU 2020-04 to conclude that the modifications should be accounted for as continuations of the existing swap agreements, which had no impact on our condensed consolidated financial statements. See Note 4. Debt and Note 5. Derivative Instruments, for additional information on the Global Ultraco Refinancing and the Company’s outstanding interest rate swap agreements, respectively.
In December 2022, the Company entered into a memorandum of agreement to acquire a high-specification 2015-built Ultramax bulkcarrier for total consideration of $i24.3 million.
The Company paid a deposit of $i3.6 million on this vessel as of December 31, 2022. The vessel was delivered to the Company in February 2023.
In January 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built
scrubber-fitted Ultramax bulkcarrier for total consideration of $i30.1 million. The vessel was delivered to the Company in May 2023.
In February 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $i30.1 million.
The vessel was delivered to the Company in May 2023.
In February 2023, the Company entered into a memorandum of agreement to sell the vessel Jaeger (a 2004-built Supramax) for total consideration of $i9.0 million. The vessel was delivered to the buyer in March 2023.
F-9
In
April 2023, the Company entered into memorandums of agreement to sell the vessels Montauk Eagle, Newport Eagle and Sankaty Eagle (each, a 2011-built Supramax) for total consideration of $i49.8 million. The Montauk Eagle and Newport Eagle were delivered to the buyer in May 2023. The Sankaty Eagle was delivered to the buyer in July 2023.
i
Activity
in Vessels and vessel improvements for the nine months ended September 30, 2023 is as follows:
Less:
Current portion – Global Ultraco Debt Facility
(i49,800)
—
(i49,800)
(i49,800)
—
(i49,800)
Total
long-term debt
$
i350,600
$
(i8,719)
$
i341,881
$
i292,069
$
(i7,387)
$
i284,682
/
Global
Ultraco Debt Facility
On May 11, 2023, Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along with certain of its wholly-owned, vessel-owning subsidiaries as guarantors, amended and restated its Credit Agreement originally dated October 1, 2021 (the “Original Global Ultraco Debt Facility”) pursuant to an Amended and Restated Credit Agreement dated as of May 11, 2023 (the “Global Ultraco Refinancing” and, as amended, the “Global Ultraco Debt Facility”) with the lenders party thereto and Crédit Agricole Corporate and Investment Bank (“Credit
Agricole”) as security trustee, structurer, sustainability coordinator and facility agent (collectively, the “Lenders”). The Company paid fees of $i3.5 million to the Lenders in connection with the Global Ultraco Refinancing.
F-10
The Global Ultraco Refinancing provided for additional loan capacity of up to $i175.0 million,
thereby increasing the aggregate principal amount of senior secured credit facilities under the Global Ultraco Debt Facility to $i485.3 million (from $i310.3 million under the Original Global Ultraco Debt Facility). Additional amounts provided under the Global Ultraco
Refinancing included (i) an additional term loan of up to $i75.0 million, thereby increasing the aggregate principal amount of term loans under the Global Ultraco Debt Facility to $i300.3 million (the “Term Facility”) and (ii) an additional revolving credit
facility in an aggregate principal amount of $i100.0 million, thereby increasing the aggregate principal amount of revolving credit facilities available under the Global Ultraco Debt Facility to $i185.0 million
which shall be reduced beginning on September 15, 2023 and every ithree months thereafter, by itwenty-one consecutive reductions of $i5.445 million
(the “Revolving Facility”). Proceeds from the Global Ultraco Refinancing are to be used for general corporate and working capital purposes, including, but not limited to vessel purchases, capital improvements, stock buybacks or equity repurchases, retirement of debt and other strategic initiatives.
During the nine months ended September 30, 2023, the Company borrowed $i75.0 million under the Term Facility and $i125.0 million
under the Revolving Facility and repaid $i37.4 million under the Term Facility.
As of September 30, 2023 and December 31, 2022, the undrawn portion of the Revolving Facility was $i54.6
million and $i100.0 million, respectively.
In August 2023, the Company entered into ithree
interest rate swaps for a total notional amount of $i75.0 million to fully hedge the SOFR-based floating interest rate exposure on amounts borrowed under the Term Facility. See Note 5. Derivative Instruments, for additional details.
Pursuant to the Global Ultraco Debt Facility, the Term Facility and the Revolving Facility mature and are repayable in full on September 28, 2028 (the “Loan Maturity Date”). The Term Facility will be repaid in itwenty-two
quarterly installments of $i12.45 million beginning on June 15, 2023, with a final balloon payment due on the Loan Maturity Date. Outstanding borrowings under the Global Ultraco Debt Facility bear interest at a rate equal to the sum of (i) Term SOFR (as defined in the Global Ultraco Debt Facility) for the relevant interest period, (ii) a credit spread adjustment of i26.161
basis points per annum to achieve parity between the SOFR-based benchmark rate on the Global Ultraco Debt Facility and the LIBOR-based benchmark rate on the Original Global Ultraco Debt Facility and (iii) the applicable margin, which ranges between i2.05% and i2.75%
based on the consolidated net leverage ratio of the Company and certain sustainability-linked criteria.
The Global Ultraco Debt Facility is secured by, among other items, a first priority mortgage on i52 of the Company’s owned vessels, as identified in the Global Ultraco Debt Facility, and such other vessels that the
Company may, from time to time, include with the approval of the Lenders (collectively, the “Eagle Vessels”). The Global Ultraco Debt Facility contains standard affirmative and negative covenants as well as certain financial covenants. The financial covenants require the Company, on a consolidated basis, to maintain at all times (a) (i) cash and cash equivalents or (ii) undrawn Revolving Facility commitments up to iseven months prior to the Loan Maturity Date not less than the greater
of (i) $i0.6 million per vessel owned directly or indirectly by the Company and its subsidiaries or (ii) i7.5%
of consolidated total debt; (b) a debt to capitalization ratio of not greater than i0.60:1.00; and (c) positive working capital (excluding the current portions of operating lease liabilities and long-term debt). Additionally, the Company has to ensure that the aggregate fair market value of the Eagle Vessels is not less than i140%
of the aggregate principal amounts outstanding under the Global Ultraco Debt Facility. As of September 30, 2023, the Company was in compliance with all applicable financial covenants under the Global Ultraco Debt Facility.
Prior to the Global Ultraco Refinancing, on October 1, 2021, Eagle Ultraco, along with certain of its vessel-owning subsidiaries as guarantors, entered into the Original Global Ultraco Debt Facility with the lenders party thereto. The Original Global Ultraco Debt Facility provided for an aggregate principal amount of $i400.0 million,
which consisted of (i) a term loan facility in an aggregate principal amount of $i300.0 million and (ii) a revolving credit facility in an aggregate principal amount of $i100.0 million.
The
Original Global Ultraco Debt Facility had a maturity date of October 1, 2026. Outstanding borrowings bore interest at a rate of LIBOR plus i2.10% to i2.80% per annum, depending on certain metrics such as the
Company's financial leverage ratio and meeting sustainability linked criteria. Repayments of $i12.45 million were due quarterly and began on December 15, 2021, with a final balloon payment of all outstanding principal and accrued interest due upon maturity. As a result of the sale of the vessels Newport Eagle, Montauk Eagle and Sankaty Eagle, the aggregate principal amount available under the revolving credit facility was reduced from $i100.0 million
to $i85.0 million.
F-11
The Original Global Ultraco Debt Facility was secured by i49
of the Company's vessels. The Original Global Ultraco Debt Facility contained certain standard affirmative and negative covenants along with financial covenants. Through the date of the Global Ultraco Refinancing, the Company was in compliance with all applicable covenants under the Original Global Ultraco Debt Facility.
The Global Ultraco Refinancing was accounted for as a modification under Accounting Standards Codification (“ASC”) 470, Debt. As such, a new effective interest rate was determined based on the carrying value of the term facility just prior to the Global Ultraco Refinancing, including unamortized discount and debt issuance costs, as well as fees paid to the Lenders attributable to the
Term Facility in connection with the Global Ultraco Refinancing. In addition, an amount of previously unamortized debt issuance costs and fees paid to lenders attributable to the revolving credit facility under the Original Global Ultraco Debt Facility as well as fees paid to the Lenders and third party costs attributable to the Revolving Facility in connection with the Global Ultraco Refinancing shall be deferred and amortized over the term of the Revolving Facility in a manner consistent with the Revolving Facility’s contractual reduction in capacity.
Prior to the Global Ultraco Refinancing, in October 2021, the Company entered into ifour
interest rate swaps for the notional amount of $i300.0 million of the term facility under the Original Global Ultraco Debt Facility to hedge the Original Global Ultraco Debt Facility’s LIBOR-based floating interest rate. In June 2023, the Company modified its then outstanding interest rate swap agreements to replace the underlying benchmark interest rate from LIBOR to SOFR with all other material terms remaining unchanged. See Note 5. Derivative Instruments, for additional details.
Convertible
Bond Debt
On July 29, 2019, the Company issued $i114.1 million in aggregate principal amount of i5.0%
Convertible Senior Notes due 2024 (the “Convertible Bond Debt”). After deducting debt discount of $i1.6 million, the Company received net proceeds of approximately $i112.5
million. Additionally, the Company incurred $i1.0 million of debt issuance costs relating to this transaction. The Company used the proceeds to partially finance the purchase of isix
Ultramax vessels and for general corporate purposes, including working capital.
The Convertible Bond Debt bears interest at a rate of i5.0% per annum on the outstanding principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, which commenced on February 1, 2020. The Convertible Bond Debt may bear additional interest upon certain events, as set forth in the indenture governing the Convertible
Bond Debt (the “Indenture”).
The Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to its terms. From time to time, the Company may, subject to market conditions and other factors and to the extent permitted by law, opportunistically repurchase the Convertible Bond Debt in the open market or through privately negotiated transactions. The Company may not otherwise redeem the Convertible Bond Debt prior to the Maturity Date.
Each holder has the right to convert any portion of
the Convertible Bond Debt, provided such portion is of $i1,000 or a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity Date. The conversion rate of the Convertible Bond Debt after adjusting for a 1-for-7 reverse stock split effected on September 15, 2020 (the “Reverse Stock Split”) and the Company's cash dividends declared through September 30,
2023 is i31.5446 shares of the Company's common stock per $ii1,000/
principal amount of Convertible Bond Debt, which is equivalent to a conversion price of approximately $i31.70 per share of common stock (subject to further adjustment for any future dividends).
Upon conversion of the remaining bonds, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s
election, to the holder (subject to shareholder approval requirements in accordance with the Indenture).
If the Company undergoes a fundamental change, as set forth in the Indenture, each holder may require the Company to repurchase all or part of their Convertible Bond Debt for cash in principal amounts of $i1,000
or a multiple thereof. The fundamental change repurchase price will be equal to i100% of the principal amount of the Convertible Bond Debt to be repurchased, plus accrued and unpaid interest. If, however, the holders instead elect to convert their Convertible Bond Debt in connection with the fundamental change, the Company will be required to increase the conversion rate of the Convertible Bond Debt at a rate determined by a combination of the date the fundamental change occurs and the stock price of the
Company's common stock on such date.
F-12
The Convertible Bond Debt is a general, unsecured senior obligation of the Company. It ranks: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Bond Debt; (ii) equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of the
Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company.
The Indenture also provides for customary events of default. Generally, if an event of default occurs and is continuing, then the trustee or the holders of at least i25%
in aggregate principal amount of the Convertible Bond Debt then outstanding may declare i100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Bond Debt then outstanding to be due and payable.
As of January 1, 2022, in accordance with the adoption of ASU 2020-06 under the modified retrospective approach, the Convertible Bond Debt no longer required bifurcation and separate accounting of its conversion feature that was previously separately accounted for as an equity component. As such,
an adjustment to beginning retained earnings of $i8.7 million was recorded within Accumulated deficit and a $i20.7 million reduction to Additional paid-in capital was recorded to reverse the equity component and an offsetting $i12.0 million
was recorded within Convertible Bond Debt, net of debt discount and debt issuance costs as a reversal of the debt discount. See Note 2. Significant Accounting Policies, in the notes to the consolidated financial statements included in the Annual Report for additional discussion of the impact of ASU 2020-06 on the accounting for the Convertible Bond Debt and the condensed consolidated financial statements upon adoption on January 1, 2022.
Share Lending Agreement
In connection with the issuance of the Convertible Bond Debt, certain persons entered into an arrangement (the “Share Lending Agreement”) to borrow up to i511,840
shares of the Company’s common stock through share lending arrangements from Jefferies LLC (“JCS”), an initial purchaser of the Convertible Bond Debt. In connection with the foregoing, the Company entered into an agreement with an affiliate of JCS to lend up to i511,840 newly issued shares of the Company’s common stock. The number
of shares loaned under the Share Lending Agreement have been adjusted for the Reverse Stock Split. As of September 30, 2023, the fair value of the i511,840 outstanding loaned shares was $i21.5 million
based on the closing price of the common stock on September 30, 2023. In connection with the Share Lending Agreement, JCS paid $i0.03 million representing a nominal fee per borrowed share, equal to the par value of the Company’s common stock.
While the Share Lending Agreement does not require cash payment upon return of the shares, physical settlement is required (i.e., the loaned shares must be returned at the end of the arrangement).
In view of this share return provision and other contractual undertakings of JCS in the Share Lending Agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of borrowed shares, the loaned shares are not considered issued and outstanding for the purpose of computing and reporting the Company's basic and diluted weighted average shares or net income per share. If JCS were to file bankruptcy or commence similar administrative, liquidating or restructuring proceedings, the Company will have to consider i511,840
shares lent to JCS as issued and outstanding for the purposes of calculating net income per share.
Interest Expense
i
A summary of interest expense for the three and nine months ended September 30, 2023 and 2022 is as follows:
Amortization
of debt discount and debt issuance costs
i812
i535
i1,958
i1,627
Total
interest expense
$
i7,714
$
i4,236
$
i16,005
$
i13,021
(1)Interest
expense on the Term Facility under the Global Ultraco Debt Facility includes a reduction of $i2.5 million and $i0.7 million
of interest from interest rate derivatives designated as hedging instruments for the three months ended September 30, 2023 and 2022, respectively and a reduction of $i7.0 million and $i0.3 million
of interest from interest rate
/
F-13
derivatives designated as hedging instruments for the nine months ended September 30, 2023 and 2022, respectively. See Note 5. Derivative Instruments, for additional information.
The following table presents the weighted average effective interest rate on the Company’s debt obligations, including the amortization of debt discounts and debt
issuance costs and costs associated with commitment fees on revolving facilities for the three and nine months ended September 30, 2023 and 2022, but excludes the impact on interest from interest rate derivatives designated as hedging instruments. iIn addition, the following table presents the range of contractual interest rates on the Company’s debt obligations, excluding the impact of costs associated with
commitment fees on revolving facilities for the three and nine months ended September 30, 2023 and 2022.
The following table presents the weighted average effective interest rate on the Company’s debt obligations, including the impact on interest from interest rate derivatives
designated as hedging instruments as well as amortization of debt discounts and debt issuance costs and costs associated with commitment fees on revolving facilities for the three and nine months ended September 30, 2023 and 2022.
(1)This
amount represents the aggregate principal amount of the Convertible Bond Debt outstanding that would be payable in cash upon maturity if no holder of the Convertible Bond Debt elects conversion pursuant to the Indenture.
/
(2)Represents amounts payable based on the amount outstanding under the Revolving Facility as of September 30, 2023 and the timing of contractual reductions in capacity of the Revolving Facility. The amount and timing of actual repayments may change as a result of additional future borrowings or repayments under the Revolving Facility.
Note 5.
iDerivative Instruments
The Company uses interest rate swaps to manage its exposure to interest rate risk on its debt. Generally, the Company enters into interest rate swaps with the objective of effectively converting debt from a floating-rate to a fixed-rate obligation. As of September 30, 2023, the Company’s
outstanding interest rate swaps were designated as hedging instruments and qualified as cash flow hedges.
F-14
The Company uses forward freight agreements (“FFAs”) and bunker swaps to manage its exposure to changes in charter hire rates and market bunker prices, respectively. Generally, the Company enters into FFAs with the objective of effectively fixing charter hire rates for future charter transactions and the Company enters into bunker swaps with the objective of effectively fixing forecasted bunker transactions.
The Company utilizes these derivative instruments to economically hedge these risks and does not designate them as hedging instruments.
For derivative instruments that are not designated as hedging instruments, changes in the fair value of the instruments and the gain or loss ultimately realized upon settlement of the derivative are reported in Realized and unrealized loss/(gain) on derivative instruments, net in the Condensed Consolidated Statements of Operations.
As of September 30, 2023, the Company has International Swaps and Derivatives Association agreements with ifive
financial institutions which contain netting provisions. In addition to a master agreement with the Company supported by a primary parent guarantee on either side, the Company also has associated credit support agreements in place with the ione counterparty which, among other things, provide the circumstances under which either party is required to post eligible collateral when the market value of transactions covered by these agreements exceeds specified
thresholds.
Interest rate swaps
In June 2023, the Company modified its then outstanding interest rate swap agreements to replace the underlying benchmark interest rate from LIBOR to SOFR with all other material terms remaining unchanged. As discussed in Note 2. Significant Accounting Policies and Pronouncements, the Company utilized certain expedients under ASU 2020-04 to account for these modifications as continuations of existing agreements which had no impact on our condensed consolidated financial statements.
i
As
of September 30, 2023, the Company had the following outstanding interest rate swaps that were designated and qualified as cash flow hedges.
Range of Fixed Rates
Weighted Average Fixed Rate
Notional Amount Outstanding
i0.62%
to i4.47%
i1.69%
$
i275,400
The
effect of these derivative instruments on the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 is as follows:
The
effect of these instruments on the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2023 and 2022 is as follows:
Derivatives
in Cash Flow Hedging Relationships
Gain/(Loss) Recognized in Other Comprehensive Income/(Loss)
Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
Further
information on the effect of these instruments on the Condensed Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2023 and 2022 is as follows:
Accumulated other comprehensive income, beginning balance
$
i14,725
$
i12,737
$
i16,549
$
i1,886
Gain
recognized in Other Comprehensive Income/(Loss)
i1,276
i5,173
i3,997
i15,709
Gain
reclassified from Other Comprehensive Income/(Loss) into earnings
(i2,502)
(i619)
(i7,047)
(i304)
Accumulated
other comprehensive income, ending balance
$
i13,499
$
i17,291
$
i13,499
$
i17,291
/
Of
the amount recorded in Accumulated other comprehensive income as of September 30, 2023, $i8.7 million is expected to be reclassified into earnings within the next twelve months.
As of September 30, 2023, the Company had outstanding bunker swap agreements to purchase i3,550 metric tons of low sulphur fuel oil with prices ranging between $i469
and $i634 with contracts expiring between October and December 2023. The Company does not expect non-performance by any of the counterparties to the Company’s bunker swap transactions.
F-16
The
effect of these derivative instruments on the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 is as follows:
The
effect of these instruments on the Condensed Consolidated Statements of Operations, which is presented in Realized and unrealized loss/(gain) on derivative instruments, net for the three and nine months ended September 30, 2023 and 2022 is as follows:
On June 22, 2023, the Company entered into a Rights Agreement (the “Rights Agreement”) with Computershare Trust Company, N.A., a national banking corporation, as rights agent. In connection therewith, the Company’s Board of Directors (the “Board”) declared a dividend of ione
preferred share purchase right (“Right”) for each outstanding share of the Company’s Common Stock, $i0.01 par value. The dividend was payable on July 3, 2023 to shareholders of record as of the close of business on such date (the “Right Record Date”). In addition, ione
Right will automatically attach to each share of Common Stock issued between the Right Record Date and the date when the Rights become exercisable. The Rights will expire at the earlier of (i) 5:00 P.M., New York City time, on the third anniversary of the date of the declaration of the dividend of Rights and (ii) 5:00 P.M., New York City time, on the first anniversary of the date of the declaration of the dividend of Rights if Shareholder Approval (as defined in the Rights Agreement) has not been received prior to such time, unless such date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Board.
Each Right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, $i0.01 par value (“Preferred Shares”), for $i180.00, subject to adjustment under certain conditions, once the Rights become exercisable.
Each one one-thousandth
of a Preferred Share, if issued:
•will not be redeemable;
•will entitle the holder to quarterly dividend payments equal to the dividend paid on ione share of Common Stock;
•will entitle the holder upon liquidation to receive either $i1.00
or an amount equal to the payment made on ione share of Common Stock;
•will have ione
vote and vote together with the Common Stock, except as required by law; and
•if shares of Common Stock are exchanged via merger, consolidation or a similar transaction, will entitle the holder to a payment equal to the payment made on ione share of Common Stock.
The Rights will not be exercisable until:
•i10
business days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of i15% or more of the outstanding Common Stock, or, if earlier;
•i10
business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group Commences (as defined in the Rights Agreement) a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person.
Common Stock Repurchase – Related Party
On June 22, 2023, the Company entered into an agreement to purchase i3,781,561
shares of Common Stock from OCM Opps EB Holdings Ltd. (the “Seller”), a related party, for $i58.00 per share, or an aggregate purchase price of $i219.3 million (the “Share Repurchase”). The Share Repurchase
closed on June 23, 2023. The shares purchased, which comprised the Seller’s entire ownership position of Common Stock as of the date of the Share Repurchase, represented i28% of the outstanding Common Stock as of that date and were immediately retired. The Company incurred $i3.6 million
of fees and transaction costs with third parties in direct connection with the Share Repurchase.
Common Stock Repurchase Program
On October 4, 2021, the Company announced a share repurchase program under which the Company may purchase up to $i50.0 million of the
Company’s Common Stock. The timing, volume and nature of transactions under this program will be at the Board’s discretion and may be made through open market transactions or privately negotiated transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. This program has no expiration date and may be suspended or terminated by the Company at any time without prior notice. As of September 30, 2023, ino shares have been repurchased
under this program.
F-18
Dividends
On March 2, 2023, the Board declared a cash dividend of $i0.60 per share to be paid on March 23, 2023 to shareholders of record at the close of business on March 15, 2023.
On
May 4, 2023, the Board declared a cash dividend of $i0.10 per share to be paid on May 25, 2023 to shareholders of record at the close of business on May 17, 2023.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
ii
Cash,
cash equivalents and restricted cash—Carrying values reported in the Condensed Consolidated Balance Sheets approximate fair value due to their highly liquid and short-term nature.
Collateral on derivatives—Carrying values reported in the Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature.
Derivative assets and liabilities—The fair values of derivative assets and liabilities, which include interest rate swaps, FFAs and bunker swaps, are estimated using observable inputs for similar instruments as of the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.
Long-term Debt—The fair value
of Convertible Bond Debt, which is traded in the over-the-counter market, is estimated based on quoted prices in markets that are not active on identical instruments. The carrying amount of the Term Facility under the Global Ultraco Debt Facility approximates its fair value, due to its variable interest rates.
The carrying values of other financial assets and liabilities (primarily accounts receivable, accounts payable and other accrued expenses) approximate their fair value due to their relative short-term nature.
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
•Level
1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active or other observable inputs.
(1)Carrying
value represents outstanding principal amount and excludes debt discounts and debt issuance costs.
(2)Fair value is based on the required repayment to the lenders if the debt was discharged in full on September 30, 2023 and December 31, 2022, as applicable.
(3)Fair value is based on pricing data (including observable trade information) sourced from Bloomberg.com.
Note 8. iCommitments
and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the ordinary course of its business, principally personal injury and property casualty claims. Generally, we expect that such claims would be covered by insurance, subject to customary deductibles. The Company evaluates these legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows.
Certain routine commercial claims have been asserted against the
Company that relate to contractual disputes with certain of our charterers. The nature of these disputes involve disagreements over losses claimed by charterers during or as a result of the performance of certain voyage charters, including but not limited to delays in the performance of the charters and off-hire during the charters. The related legal proceedings are at various stages of resolution.
In March 2021, the U.S. government began investigating an allegation that one of the Company’s vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. The investigation of this alleged violation of environmental laws is ongoing, but at this time we do not believe that this matter will have a material impact on the
Company, our financial condition or results of operations. We have posted a surety bond as security for any potential fines, penalties or associated costs that may be incurred, and the Company is cooperating fully with the U.S. government in its investigation of this matter.
We have not been involved in any legal proceedings, other than as disclosed above, which we believe may have, or have had, a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened, other than as described above, which we believe may have a significant effect on our business, financial position and results of operations or liquidity. However, these proceedings, even if lacking merit, could result in the expenditure of significant financial
and managerial resources.
In accordance with U.S. GAAP, the Company accrues for contingent liabilities when it is probable that such a liability has been incurred and the amount of loss can be reasonably estimated. The Company evaluates its outstanding legal proceedings each quarter to assess its contingent liabilities and adjusts such liabilities, as appropriate, based on management’s best judgment after consultation with counsel. The Company reversed $ii0.8/ million
in costs associated with contingent liabilities for the three and nine months ended September 30, 2023 and incurred $ii0.3/ million
in costs associated with contingent liabilities for the three and nine months ended September 30, 2022, respectively. There is no assurance that the Company’s contingent liabilities will not need to be adjusted in the future.
Time charter-out contracts are accounted for as operating leases. The Company records revenue generated from time charter-out contracts on a straight-line basis over the term of the respective time charter agreements as Revenues, net in the Condensed Consolidated Statements of Operations. See Note 10. Revenue, for additional details.
i
A
summary of lease payments expected to be received on fixed time charter-out contracts, net of commission, assuming no off-hire days, other than those related to scheduled interim or special surveys of the related vessel and excluding any voyage expenses associated with such contracts, as of September 30, 2023 is as follows:
Time charter-in contracts are accounted for as operating leases. The Company records operating lease cost for time charter-in contracts as Charter hire expenses in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Due to the volatility of freight rates, the Company generally concludes that it is not reasonably certain to exercise any options to extend the lease term at lease commencement.
As
of September 30, 2023, the Company chartered-in, on a long-term basis, ifour Ultramax vessels. Details of modifications of or new long-term time charter-in contracts for the nine months ended September 30, 2023 are as follows:
In October 2018, the
Company entered into an agreement to charter-in a i62,487 dwt, 2016-built Ultramax vessel for itwo years. The hire rate for the first year was $i14,250
per day and the hire rate for the second year was $i15,250. The Company took delivery of the vessel in December 2018. In December 2019, the Company entered into a lease addendum which replaced the original lease’s second year’s hire rate with a new hire rate of $i11,600
per day from March 1, 2020 through July 31, 2021 and added an option to extend the lease term for an additional year at a hire rate of $i12,600 per day from August 1, 2021 through July 31, 2022. In May 2021, the Company exercised its option for the additional year. In March 2022, the
Company entered into a lease addendum that extended the lease term at a hire rate of $i23,888 per day from August 1, 2022 through June 1, 2023 and added an option to extend the lease term at a hire rate of $i25,888
per day from June 2, 2023 through July 1, 2024. In March 2023, the Company entered into a lease addendum that replaced the hire rate from June 1, 2023 to May 1, 2024 from $i25,888 per day to $i17,500
per day and added an option to extend the lease term at a hire rate of $i19,500 per day from May 1, 2024 to April 1, 2025. The lease is expected to terminate in May 2024.
In September 2021, the Company entered into an agreement to charter-in a i64,539
dwt, 2022-built Ultramax vessel for itwelve months with an option to extend for an additional ithree months at a hire rate of $i11,250
per day plus i57.5% of the BSI and an option to extend for an additional year at a hire rate of $i10,750 per day plus i57.5%
of the BSI. The Company took delivery of the vessel in May 2022. In March 2023, the Company entered into a lease addendum that extended the lease term for itwelve months at a hire rate of $i8,500
plus i57.5% of the BSI and added an option to extend the lease term for an additional itwelve months at a hire rate of $i9,500
plus i57.5% of the BSI. The lease is expected to terminate in April 2024.
F-21
In December 2020, the Company entered into an agreement to charter-in a i63,634
dwt, 2021-built Ultramax vessel for itwelve months with an option to extend for an additional ithree months at a hire rate of $i5,900
per day plus i57% of the BSI and an option to extend for an additional eleven to ithirteen months at a hire rate of $i6,500
per day plus i57% of the BSI. The Company took delivery of the vessel in July 2021. In May 2022, the Company exercised its option for the additional eleven to ithirteen
month period. In August 2023, the Company entered into a lease addendum that extended the lease term for ten to itwelve months at a hire rate of $i6,300 plus i58%
of the BSI with an option to extend for an additional ten to itwelve months at a hire rate of $i7,500 plus i58%
of the BSI. The lease is expected to terminate in July 2024.
Office leases
Office leases are accounted for as operating leases. The Company records operating lease cost for office leases as General and administrative expenses in the Condensed Consolidated Statements of Operations.
A summary of Operating lease right-of-use assets and operating lease liabilities balances, by asset type, and certain additional quantitative information related to the Company’s operating leases as of September 30, 2023 and December 31, 2022 is as follows:
A
summary of the components of the Company’s lease expenses and sub-lease income for the three and nine months ended September 30, 2023 and 2022 is as follows:
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The
charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or “dead” freight. The voyage contract generally has standard payment terms of i95% freight paid within ithree
days after completion of loading. The voyage charter party generally has a “demurrage” or “despatch” clause. As per this clause, the charterer reimburses the Company for any potential delays exceeding the allowed laytime at the ports visited which is recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime known as despatch, resulting in a reduction in revenue.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606, Revenue Recognition, because the
Company, as the shipowner, retains the control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage, net of despatch incurred, for the three and nine months ended September 30, 2023 was $i2.6 million and $i5.2
million, respectively. The amount of revenue earned as demurrage, net of despatch incurred, for the three and nine months ended September 30, 2022 was $i7.8 million and $i26.5
million, respectively.
i
The following table shows the revenues earned from time charters and voyage charters for the three and nine months ended September 30, 2023 and 2022:
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. Costs directly related to a contract that are incurred prior to commencement of loading cargo, primarily bunkers, are recognized
as an asset and are expensed on a straight-line basis as the related performance obligation is satisfied. As of September 30, 2023 and December 31, 2022, the Company recorded $i0.6 million and $i0.5
million, respectively, of contract fulfillment costs in Other current assets in the Condensed Consolidated Balance Sheets.
Note 11. iNet Income per Common Share
For the three and nine months ended September 30, 2023 and 2022, Net (loss)/income is equal to Net (loss)/income
available to common shareholders.
For the three and nine months ended September 30, 2023 and 2022, the Convertible Bond Debt is not considered a participating security and is therefore not included in the computation of Basic net (loss)/income per share. Additionally, the Company determined that as it relates to the Convertible Bond Debt, it does not overcome the presumption of share settlement, and therefore, the Company applied the if-converted method and included the potential shares to be issued upon conversion of Convertible Bond Debt in the calculation of Diluted net (loss)/income per share, unless the impact of such potential shares is anti-dilutive.
F-24
i
The
following table presents Basic and Diluted net (loss)/income per share for the three and nine months ended September 30, 2023 and 2022:
The
following table presents a summary of potentially dilutive securities that were not included in the computation of Diluted net (loss)/income per share for the three and nine months ended September 30, 2023 and 2022 because to do so would have been anti-dilutive:
On December 15, 2016, the Company’s shareholders approved the Eagle Bulk Shipping Inc. 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered i764,087
shares of common stock for potential issuance under the 2016 Plan. On June 7, 2019, the Company’s shareholders approved an amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional i357,142 shares to a maximum of i1,121,229
shares of common stock. On June 14, 2022, the Company’s shareholders approved a second amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional i300,000 shares to a maximum of i1,421,229
shares of common stock. The 2016 Plan permits the granting of restricted stock, unrestricted stock, restricted stock units (“RSUs”), performance condition awards, incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalents and other equity-based or equity-related awards (collectively, “Awards”).
i
A summary of restricted stock and RSU activity under the 2016 Plan for the nine months ended September 30, 2023 is as
follows:
The
fair value as of the respective vesting dates of restricted stock and RSUs for the nine months ended September 30, 2023 was $i6.6 million. The majority of restricted stock and RSUs that vested during the nine months ended September 30, 2023 were net share settled. For the nine months ended September 30,
2023, i37 thousand shares were withheld by the Company and $i2.0
million was paid to taxing authorities for employee tax obligations.
Stock-based
compensation expense related to unvested awards yet to be recognized as of September 30, 2023 totaled $i7.3 million and is expected to be recognized, on a weighted average basis, over i2.0
years.
Note 13. iSupplemental Cash Flow Information
Cash paid for interest for the nine months ended September 30, 2023 and 2022 totaled $i22.1 million
and $i12.9 million, respectively.
Cash received from/(paid for) interest rate swap agreements for the nine months ended September 30, 2023 and 2022 totaled $i7.1 million
and $(i0.1) million, respectively.
i
A summary of non-cash investing and financing activities for the nine months ended September 30, 2023 and 2022 is as follows:
Accruals and accounts payable for the purchase of BWTS
$
i57
$
i3,916
Accruals
and accounts payable for transaction costs in connection with repurchase of Common Stock
i201
i—
Accruals
for dividends payable
i852
i1,551
Accruals
for the purchase of vessels and vessel improvements
i61
i—
Accruals
for the purchase of other fixed assets
i104
i—
/
Note
14. iSubsequent Events
On November 2, 2023, the Company's Board of Directors declared a cash dividend of $i0.10 per share to be paid on or
about November 22, 2023 to shareholders of record at the close of business on November 14, 2023. The aggregate amount of the dividend is expected to be approximately $i1.0 million, which the Company anticipates will be funded from cash on hand at the time the payment is to be made.
F-26
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the Company’s financial condition and results of operations for the three and nine months ended September 30, 2023 and 2022. This section should be read in conjunction with the condensed consolidated financial statements included elsewhere in this report and the notes to those financial statements and the audited consolidated financial statements and the notes to those financial statements for the fiscal year ended December 31, 2022, which were included in
our Annual Report on Form 10-K, filed with the SEC on March 10, 2023 (the “Annual Report”). For further discussion regarding our results of operations for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, please refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences
can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements.”
This discussion may also include statistical data regarding the global drybulk industry, including fleet size, fleet age and order book. We generated some of this data internally, and other data was obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this Quarterly Report on Form 10-Q.
All dollar amounts are stated in United States (“U.S.”) dollars unless otherwise noted. Certain numerical information in this report is presented on a rounded basis using actual amounts. Minor differences in totals or percentages may exist due to rounding.
Business Overview
Eagle
Bulk Shipping Inc. (“Eagle” or the “Company”) is a U.S.-based, fully integrated shipowner-operator, providing global transportation solutions to a diverse group of customers including miners, producers, traders and end users. Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, the Company focuses exclusively on the versatile midsize drybulk vessel segment and owns one of the largest fleets of Supramax/Ultramax vessels in the world. The Company performs all management services in-house (strategic, commercial, operational, technical, and administrative) and employs an active management approach to fleet trading with the objective of optimizing revenue performance and maximizing earnings on a risk-managed basis. Typical cargoes we transport include both major
bulk cargoes, such as iron ore, coal and grain and minor bulk cargoes such as fertilizer, steel products, petcoke, cement, and forest products.
As of September 30, 2023, we owned and operated a modern fleet of 52 Supramax/Ultramax dry bulk vessels, with an aggregate carrying capacity of 3.16 million dwt and an average age of 10 years.
In addition to its owned fleet, the Company charters-in third-party vessels on both a short-term and long-term basis. As of September 30, 2023, the Company had four Ultramax vessels on a long-term charter-in basis, with remaining lease terms ranging from one month to nine months.
We
carry out the commercial, technical and strategic management of our fleet through our wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company which maintains its principal executive offices in Stamford, Connecticut.
Corporate Information
We maintain our principal executive offices at 300 First Stamford Place, 5th Floor, Stamford, Connecticut06902. Our telephone number at that address is (203) 276-8100. Our website
address is www.eagleships.com. Information contained on our website does not constitute part of this Quarterly Report on Form 10-Q and is not incorporated by reference to the Quarterly Report on Form 10-Q.
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Business Strategy
•Focus on the most versatile drybulk vessel segment
We
focus on owning and operating vessels within the midsize Supramax/Ultramax segment. We consider this vessel segment to be the most versatile amongst the various drybulk asset classes due to the optimal size and specifications of Supramax/Ultramax ships, which allows us to carry the most diversified cargo mix when compared to other sizes of drybulk carriers. With a size ranging from 50,000 to 65,000 dwt and a length of approximately 200 meters, Supramax/Ultramax vessels are able to accommodate large cargo quantities and call on the majority of ports around the globe. In addition, these vessels are equipped with onboard cranes and grabs, giving them the ability to load and discharge cargoes without the need for shore-based port equipment/infrastructure. We believe the versatility and flexibility of Supramax/Ultramax vessels provide for improved risk-adjusted returns throughout the cycles.
•Employ
an active management strategy for fleet trading
We employ an active management strategy for fleet employment with the objective of optimizing revenue performance and maximizing earnings on a risk-managed basis. Through the execution of various commercial strategies employed across our global trading desks in the United States, Europe and Asia, the Company has been able to achieve optimal TCE (as defined herein) results and outperform the relevant market index on a consistent basis.
•Execute on fleet renewal and growth
Since 2016, and through the date of this Quarterly Report, we have executed on a comprehensive fleet renewal program
totaling 58 vessel transactions. We have acquired 33 modern vessels and sold 25 of our oldest and least-efficient vessels. We believe these transactions have vastly improved our fleet makeup, enabling us to generate incremental revenue on a per ship basis; we have been able to maintain our fleet age profile at an optimized level, increase our cargo-carrying capacity per ship and improve our fleet emissions profile (as measured by fuel consumption per dwt).
•Perform technical management in-house
We perform all technical management services relating to vessel maintenance, vessel repairs and crewing.
•Implement a prudent approach to balance sheet management
We
believe the long-term success of our Company is contingent on maintaining a prudent approach to balance sheet management, including working capital optimization, diversifying capital sources, lowering cost of capital, limiting interest rate exposure and optimizing the debt profile.
•Emphasize Environmental, Social and Governance (“ESG”) factors
We published our first comprehensive ESG Sustainability Report in 2020. The document was prepared in accordance with the Marine Transportation Framework, established by the Sustainability Accounting Standards Board. Our reports are available for download on our companywebsite.
Business Outlook
The impact of recent developments in Ukraine and the Middle East
As a result of the conflict between Russia and Ukraine, the U.S., EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities owned or controlled by such designated persons or entities. This conflict has become a multi-year war and humanitarian crisis. While it is difficult to estimate the impact of this conflict and current or future sanctions on the
Company’s business and financial position, these events and related sanctions could adversely impact the Company’s operations. In the near term, we have seen, and expect to continue to see, increased volatility in both Russian and Ukrainian exports in the Black Sea region, as well as Russian exports in the Baltic and Far East regions due to these geopolitical events. In addition, the volatility of market prices for fuel has increased as a result of related supply disruptions from this conflict. Continued volatility in fuel prices could have an unpredictable impact on the Company’s operations and liquidity.
2
The
conflict between Russia and Ukraine may also impact our ability to continue to source and retain crew from these countries. In response to this risk, we have established and may expand relationships with manning agencies outside of Russia and Ukraine, including in Asia. We have incurred and expect to continue to incur increased operating expenses related to Russian and Ukrainian crew procurement, travel costs to repatriate Russian and Ukrainian crew members on board our vessels and to expatriate crew members sourced from other regions. In response to this risk, the Company recruited one new third-party manning agency during 2022 and another during 2023 in order to diversify our crew nationality exposure and increase our sourcing from the Philippines.
For more information regarding the risks relating to the conflict between Russia and Ukraine,
including economic sanctions levied as a result of it, see Part I, Item 1A, “Risk Factors” of the Annual Report. The conflict between Russia and Ukraine may impact our ability to retain and source crew, and in turn, could materially and adversely affect our operating results.
In October 2023, the war between Israel and Hamas in Gaza has created political and potential economic uncertainty in the Middle East. To date, the war between Israel and Hamas has not had a direct material impact on the Company’s business, financial condition or results of operations. However, we will continue to monitor the direct and indirect impacts of these circumstances on our business and financial results.
Operations
We carry out the commercial, technical and strategic
management of our fleet through our wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company, which maintains its principal executive offices in Stamford, Connecticut. We also maintain offices in Copenhagen (Denmark) and Singapore.
The two central aspects to the operation of our fleet include:
•Commercial operations, which involve chartering and operating a vessel; and
•Technical operations, which involve maintaining, crewing and repairing a vessel.
Each of the Company’s vessels serve the same type of customer, have similar operation and maintenance requirements, operate in the same regulatory environment, and are subject
to similar economic characteristics. Based on this, the Company has determined that it operates in one reportable segment which is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk vessels.
Commercial Management
We perform the commercial management of our fleet, including obtaining employment for our vessels and maintaining relationships with the charterers of our vessels. We have three offices across the globe located in the U.S., Europe and Asia, which allows for 24-hour market coverage. We believe that due to our management team’s experience in operating drybulk vessels, we have access to a broad range of charterers and can employ our fleet efficiently in diverse market conditions allowing us to achieve high utilization rates.
Being
an active owner-operator means effectively seeking to operate our own vessels when possible, as compared with time chartering them to other operators, all with a view toward achieving higher-than-market net charter hire income. In doing so, we believe we can take advantage of rapidly changing market conditions and obtain better operational efficiencies from our fleet.
Technical Management
We have established in-house technical management capabilities, through which we provide technical management services to all vessels in our fleet.Technical management includes managing day-to-day operation of the vessel and machinery; performing general maintenance; ensuring regulatory and classification society compliance; supervising the general efficiency of the vessel; arranging the hire of qualified officers and crew;
planning, arranging and supervising drydocking and repairs; purchasing supplies, spare parts, lubes and new equipment; and appointing supervisors and technical consultants.
3
Value of Assets and Cash Requirements
The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market value of our fleet may be below book value when market conditions are weak and exceed book value when markets are strong. In common with other shipowners, we may consider asset redeployment which at times may include the sale of vessels at less than their book value.
Critical Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is based upon our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”). The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Significant estimates include fair values of long-lived assets (primarily vessels and operating lease right-of-use assets), impairment of long-lived assets (primarily vessels and operating lease right-of-use assets), stock-based compensation and financial instruments (primarily derivative instruments and Convertible Bond Debt (as defined herein)), residual values of vessels, useful lives of vessels and estimated
losses on accounts receivable. Actual results could differ from those estimates.
Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and results of operations and require subjective or complex judgments. Our unaudited interim condensed consolidated financial statements do not include all of the information on critical accounting policies normally included in consolidated financial statements prepared in accordance with U.S. GAAP. Accordingly, a description of our critical accounting policies, which can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report, should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in the
Company’s Quarterly Reports on Form 10-Q. There have been no material changes from the “Critical Accounting Policies” disclosed in the Annual Report, except as follows.
Effective January 1, 2023, we increased our estimated vessel scrap value from $300 per lwt to $400 per lwt. This change was driven by increases in 15-year average scrap price trends sourced from a third-party data provider. The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of our vessel assets. We expect depreciation to decrease by approximately $4.0 million for the year ended December 31, 2023 solely as a result of the prospective change in this estimate.
In
order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
•Ownership days: We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
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•Owned available days: We define owned available days as the number of ownership
days less the aggregate number of days that our owned vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel improvements or special surveys and other reasons which prevent the vessel from performing under a charter party in a period. The shipping industry uses owned available days to measure the number of days in a period during which vessels should be capable of generating revenues.
TCE (Non-GAAP Measure)
Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a company and the trades in which those vessels operate. In the drybulk sector of the shipping industry, rates for the transportation of drybulk cargoes such as ores, grains, steel, fertilizers, and similar commodities, are determined by market forces such as the supply and demand for such commodities, the
distance that cargoes must be transported, and the number of vessels available or expected to be available at the time such cargoes need to be transported. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally due to scrapping.
The mix of charters between voyage charters and time charters also affects revenues. Because the mix between voyage charters and time charters significantly affects shipping revenues and voyage expenses, vessel revenues are benchmarked based on time charter equivalent (“TCE”), which is a non-GAAP measure.
TCE is commonly used in the shipping industry primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts
while charter hire rates for vessels on time charters generally are expressed in such amounts. The Company defines TCE as revenues, net less voyage expenses and charter hire expenses, adjusted for realized gains/(losses) on FFAs and bunker swaps, the subtotal of which is divided by the number of owned available days. TCE provides additional meaningful information in conjunction with Revenues, net, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their performance. The Company’s TCE should not be considered an alternative to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented
in accordance with U.S. GAAP. The Company’s calculation of TCE may not be comparable to those reported by other companies.
The following table represents the reconciliation of TCE, a non-GAAP measure, from Revenues, net as recorded in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022.
(in
thousands, except for Owned available days and TCE)
For the three months ended September 30, 2023, the Company reported a net loss of $5.2 million, or basic and diluted net loss per share of $0.55. For the comparable quarter of 2022, the Company reported net income of $77.2 million, or basic and diluted net income per share of $5.94 and $4.77, respectively.
For the nine months ended September 30, 2023, the Company reported net income of $16.1 million, or basic and diluted net income per share of $1.38 and $1.36, respectively. For the nine months ended September 30,
2022, the Company reported net income of $224.7 million, or basic and diluted net income per share of $17.31 and $13.86, respectively.
Revenues
Our revenues are derived from time and voyage charters and our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the net charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including:
•the duration of our charters;
•our decisions relating to vessel acquisitions and disposals;
•the amount of time that we spend positioning our
vessels;
•the amount of time that our vessels spend in drydock undergoing repairs;
•maintenance and upgrade work;
•the age, condition and specifications of our vessels;
•levels of supply and demand in the drybulk shipping industry; and
•other factors affecting spot freight rates for drybulk carriers.
Revenues, net for the three months ended September 30, 2023 were $82.6 million compared to $185.3 million for the comparable quarter of 2022. Revenues, net decreased $102.7 million primarily due to lower rates on both time and voyage charters, driven
by a decline in the drybulk market.
Revenues, net for the nine months ended September 30, 2023 were $289.2 million compared to $568.4 million for the nine months ended September 30, 2022. Revenues, net decreased $279.2 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Voyage expenses
To the extent that we employ our vessels on voyage charters, we incur expenses that include but are not limited to bunkers, port charges, canal tolls and cargo handling operations, as these expenses are borne by the vessel owner on voyage charters. As is common in the shipping industry, we pay commissions ranging from 1.25% to 5.00% of the total daily charter hire rate of each charter to unaffiliated
ship brokers and in-house brokers associated with the charterers, depending on the number of brokers involved with arranging the charter. We record such broker commissions as voyage expenses.
Voyage expenses for the three months ended September 30, 2023 were $23.8 million compared to $40.8 million for the comparable quarter of 2022. Voyage expenses decreased $17.0 million primarily due to a $15.0 million reduction in bunker consumption expenses primarily due to decreases in voyage charters and bunker prices and a $1.2 million decrease in broker commissions due to lower freight rates driven by a decline in the drybulk market.
Voyage expenses for the nine months ended September 30, 2023 were $82.7 million compared to $120.7 million for the nine months ended September 30,
2022. Voyage expenses decreased $38.0 million primarily due to a $25.4 million reduction in bunker consumption expenses due to decreases in voyage charters and bunker prices, a $9.1 million reduction in port expenses due to a decrease in voyage charters and a $3.5 million decrease in broker commissions due to lower freight rates driven by a decline in the drybulk market.
6
Vessel operating expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores and related inventory, tonnage taxes, pre-operating costs associated with the delivery of acquired vessels, including providing
the newly acquired vessels with initial provisions and stores, discretionary spending associated with hold and hull upgrades and other miscellaneous expenses.
Vessel operating expenses for the three months ended September 30, 2023 were $28.8 million compared to $33.1 million for the comparable quarter of 2022. Vessel operating expenses decreased $4.3 million primarily due to a $2.6 million decrease in repair costs, a $0.8 million decrease in lube costs driven by lower purchase volume and a $0.5 million decrease in the cost of stores and spares driven by lower purchases.
Vessel operating expenses for the nine months ended September 30, 2023 were $91.1 million compared to $88.2 million for the nine months ended September 30, 2022. Vessel
operating expenses increased $2.9 million primarily due to a $3.2 million increase in crewing costs driven by higher compensation and increased crew changes as a result of crewing manager transitions and a $1.4 million increase in costs driven by certain repairs and discretionary spending on upgrades to six vessels, including newly acquired ships, partially offset by a $1.3 million decrease in lube costs driven by lower purchase volume and a $0.4 million decrease in the cost of stores and spares driven by lower purchases.
Charter hire expenses
Charter hire expenses for the three months ended September 30, 2023 were $6.9 million compared to $19.8 million for the comparable quarter of 2022. Charter hire expenses decreased $12.9 million primarily due to decreases in both charter hire rates as a result of a decline in the drybulk market
and chartered-in days.
Charter hire expenses for the nine months ended September 30, 2023 were $31.0 million compared to $63.8 million for the nine months ended September 30, 2022. Charter hire expenses decreased $32.8 million primarily due to decreases in both charter hire rates as a result of a decline in the drybulk market and chartered-in days.
Chartered-in days, which is the aggregate number of days in a period during which the Company chartered-in vessels, for the three months ended September 30, 2023 and 2022 were 589 and 1,000, respectively. Chartered-in days for the nine months ended September 30,
2023 and 2022 were 2,315 and 3,102, respectively.
Depreciation and amortization
We depreciate the cost of our vessels on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. We estimate the scrap rate to be $400 per lwt to compute each vessel’s residual value.
We amortize drydocking costs on a straight-line basis over the period through the date the next drydocking is required to become due, generally 30 months for vessels that are 15 years old or more and 60 months for vessels that are less than 15 years old.
Depreciation
and amortization for the three months ended September 30, 2023 was $15.5 million compared to $15.4 million for the comparable quarter of 2022. Depreciation and amortization increased $0.1 million primarily due to a $0.8 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods and a $0.1 million increase in deferred drydocking cost amortization due to higher drydocking expenditures, partially offset by $0.9 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023.
Depreciation and amortization for the nine months ended September 30, 2023 was $45.0 million compared to $45.2 million for the nine months ended September 30,
2022. Depreciation and amortization decreased $0.2 million primarily due to a $2.9 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023, partially offset by a $1.6 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods, a $0.7 million increase in deferred drydocking cost amortization due to higher drydocking expenditures and a $0.3 million increase in depreciation from an increase in installed vessel improvements.
7
General and administrative expenses
Our general and administrative expenses
include onshore vessel administration related expenses, such as legal and professional expenses, administrative and other expenses including payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors fees, and directors and officers insurance. General and administrative expenses also include stock-based compensation expenses.
General and administrative expenses for the three months ended September 30, 2023 were $10.7 million compared to $9.7 million for the comparable quarter of 2022. Excluding stock-based compensation expense of $1.7 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively, general and administrative expenses for the three months ended September 30,
2023 were $9.0 million compared to $8.2 million for the comparable quarter of 2022. General and administrative expenses increased $1.0 million primarily due to a $0.6 million increase in professional fees and a $0.2 million increase in stock-based compensation expense.
General and administrative expenses for the nine months ended September 30, 2023 were $32.9 million compared to $29.6 million for the nine months ended September 30, 2022. Excluding stock-based compensation expense of $5.7 million and $4.5 million for the nine months ended September 30, 2023 and 2022, respectively, general and administrative expenses for the nine months ended September 30, 2023 were $27.2 million
compared to $25.1 million for the nine months ended September 30, 2022. General and administrative expenses increased $3.3 million primarily due to a $1.1 million increase in stock-based compensation expense, a $1.1 million increase in employee-related costs and other small increases across professional fees, corporate travel and office expenses.
Other operating expense
Other operating expense for the three months ended September 30, 2023 and 2022 was $0.7 million and $2.5 million, respectively. Other operating expense for the three months ended September 30, 2023 was primarily comprised of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels
may have improperly disposed of ballast water that entered the engine room bilges during a repair. Other operating expense for the three months ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize.
Other operating expense for each of the nine months ended September 30, 2023 and 2022 was $0.9 million and $2.6 million, respectively. Other operating expense for the nine months ended September 30, 2023 was primarily comprised of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. Other operating expense for the nine months
ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize.
Gain on sale of vessels
For the three months ended September 30, 2023, the Company recorded a gain on the sale of the vessel Sankaty Eagle of $4.9 million. For the three months ended September 30, 2022, the Company recorded a gain on the sale of the vessel Cardinal of $9.3 million.
For the nine months ended September 30, 2023, the
Company recorded a gain on the sale of the vessels Jaeger, Montauk Eagle, Newport Eagle and Sankaty Eagle of $19.7 million. For the nine months ended September 30, 2022, the Company recorded a gain on the sale of the vessel Cardinal of $9.3 million.
Interest expense
Interest expense for the three months ended September 30, 2023 and 2022 was $7.7 million and $4.2 million, respectively. Interest expense increased $3.5 million primarily due to the impact of increased amounts outstanding under the Global Ultraco Debt Facility and higher interest rates.
Interest expense for the nine months ended September 30,
2023 and 2022 was $16.0 million and $13.0 million, respectively. Interest expense increased $3.0 million primarily due to the impact of increased amounts outstanding under the Global Ultraco Debt Facility and higher interest rates.
8
The Company entered into certain interest rate swap agreements in October 2021 and August 2023 to fix the interest rate exposure on then-outstanding term loans under the Global Ultraco Debt Facility. As of September 30, 2023, the interest rate risk on the entire $275.4 million of aggregate principal amount of term loans
outstanding under the Global Ultraco Debt Facility is hedged through these swaps, which carry a weighted-average fixed rate of 169 basis points. As of September 30, 2023, amounts outstanding under the Revolving Facility are not hedged.
Interest income
Interest income for the three months ended September 30, 2023 and 2022 was $1.5 million and $0.9 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Interest income for the nine months ended September 30, 2023 and 2022
was $5.1 million and $1.1 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Realized and unrealized loss/(gain) on derivative instruments, net
Realized and unrealized loss/(gain) on derivative instruments, net for the three months ended September 30, 2023 was a loss of $0.1 million compared to a gain of $11.3 million for the comparable quarter of 2022. The $11.4 million decrease was due to market movements as well as lower FFA and bunker swap activity.
Realized and unrealized loss/(gain) on derivative instruments, net for the nine months ended September 30, 2023 was a gain of $2.3 million
compared to a gain of $13.3 million for the nine months ended September 30, 2022. The $11.0 million decrease was due to market movements as well as lower FFA and bunker swap activity.
Refer to Note 5. Derivative Instruments, to the condensed consolidated financial statements for further information.
Effects of Inflation
The Company believes that its business typically benefits during periods of elevated inflation and positive demand growth, as higher charter rates and net revenues more than offset increases in costs relating to vessel operating expenses, drydocking, and general and administrative expenses.
Liquidity
and Capital Resources
Our principal sources of funds include operating cash flows and borrowings under long-term debt and revolving credit facilities. Our principal uses of funds include (i) capital expenditures to establish and grow our fleet, maintain the quality and efficiency of our vessels and comply with international shipping standards and environmental laws and regulations, (ii) funding working capital requirements and (iii) making principal and interest payments on our debt.
Our ability to generate sufficient cash depends on many factors, some of which are outside of our control. For additional discussion regarding risks that may negatively impact our cash flows, see “Item 1A. Risk Factors.”
We
believe that our current financial resources, together with the undrawn revolving facility available under the Global Ultraco Debt Facility and cash generated from operations, will be sufficient to meet our ongoing business needs and other obligations over the next twelve months and for the foreseeable future thereafter.
Summary of Liquidity and Capital Resources
As of September 30, 2023, our cash and cash equivalents including noncurrent restricted cash was $116.5 million compared to $189.8 million as of December 31, 2022.
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The following table presents
summarized cash flow information for the nine months ended September 30, 2023 and 2022:
Net cash (used in)/provided by investing activities
(27,831)
4,090
Net cash used in financing activities
(81,434)
(135,198)
Net
(decrease)/increase in cash, cash equivalents and restricted cash
(73,300)
111,383
Cash, cash equivalents and restricted cash at beginning of period
189,754
86,222
Cash, cash equivalents and restricted cash at end of period
$
116,454
$
197,605
Net
cash provided by operating activities for the nine months ended September 30, 2023 was $36.0 million, compared to $242.5 million for the nine months ended September 30, 2022. The decrease is primarily due to a decrease in net income driven by lower freight rates.
Net cash used in investing activities for the nine months ended September 30, 2023 was $27.8 million, compared to net cash provided by investing activities of $4.1 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company paid (i) $81.8 million to purchase three vessels and other
vessel improvements, (ii) $2.1 million to purchase BWTS and (iii) $0.7 million to purchase other fixed assets. These uses of cash were partially offset by $56.6 million in net proceeds from the sale of four vessels. During the nine months ended September 30, 2022, the Company received net proceeds of $14.9 million from the sale of one vessel and paid (i) $5.7 million to purchase BWTS, (ii) $4.1 million as an advance for the purchase of a vessel, (iii) $0.8 million to purchase vessel improvements and (iv) $0.3 million to purchase other fixed assets.
Net cash used in financing activities for the nine months ended September 30, 2023 was $81.4 million, compared to $135.2 million for the nine months ended September 30,
2022. During the nine months ended September 30, 2023, the Company (i) paid $222.7 million to repurchase Common Stock, inclusive of fees, (ii) repaid $37.4 million of term loan under the Global Ultraco Debt Facility, (iii) paid $15.8 million in dividends and (iv) paid $2.0 million for taxes related to net share settlement of equity awards. These uses of cash were partially offset by (i) $123.4 million of proceeds, net of debt issuance costs, from the Revolving Facility under the Global Ultraco Debt Facility and (ii) $73.1 million of proceeds, net of debt issuance costs, from the Term Facility under the Global Ultraco Debt Facility. During the nine months ended September 30, 2022, the Company (i)
paid $81.6 million in dividends, (ii) repaid $37.4 million of term loan under the Global Ultraco Debt Facility, (iii) paid $14.2 million to repurchase $10.0 million in aggregate principal amount of Convertible Bond Debt, and (iv) paid $2.4 million for taxes related to net share settlement of equity awards.
As it relates to amounts paid for taxes related to net share settlement of equity awards, the Company withholds a number of shares earned by employees with a value equal to amounts paid.
Global Ultraco Debt Facility - Revolving Facility (3)
125,000
122,059
—
—
$
504,519
$
495,472
$
341,869
$
334,482
(1)$104.1
million of principal amount outstanding of Convertible Bond Debt is classified as current as of September 30, 2023.
(2)$49.8 million of principal amount outstanding under the Global Ultraco Debt Facility is classified as current as of September 30, 2023 and December 31, 2022.
(3)As of September 30, 2023 and December 31, 2022, the undrawn revolving facility under the Global Ultraco Debt Facility was $54.6 million and $100.0 million, respectively.
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See
Note 4. Debt, to the condensed consolidated financial statements included herein for a summary of our credit agreements.
Capital Expenditures
Our capital expenditures primarily relate to the purchase of vessels as well as regularly scheduled drydocking and other vessel improvements, which are expected to enhance their revenue earning capabilities, efficiency and/or safety and to comply with international shipping standards and environmental laws and regulations. Certain vessel improvement costs and costs incurred in connection with drydocking are necessary to comply with international shipping standards and environmental laws and regulations, while others are discretionary in nature and evaluated on a business case-by-case basis.
During the fourth quarter of 2022, the
Company entered into a memorandum of agreement to acquire a high-specification 2015-built Ultramax bulkcarrier for total consideration of $24.3 million. The vessel was delivered to the Company during the first quarter of 2023.
On January 30, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
On February 28, 2023, the
Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
Although the Company has some flexibility regarding the timing of vessel drydockings, the timing of costs are relatively predictable. In accordance with statutory requirements, we expect vessels less than 15 years old to be drydocked every 60 months and vessels older than 15 years to be drydocked every 30 months. We intend to fund drydocking costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility. In addition, drydocking typically requires us to reposition
vessels from a discharge port to shipyard facilities, which will reduce our owned available days and revenues during that period.
Drydocking costs incurred are deferred and amortized through depreciation and amortization on the condensed consolidated statements of operations on a straight-line basis over the period through the date the next drydocking is required to become due. During the nine months ended September 30, 2023, five of our vessels completed drydock and we incurred $10.6 million for drydocking costs. During the nine months ended September 30, 2022, eight of our vessels completed drydock and we incurred $18.5 million for drydocking costs.
Vessel improvements generally include systems and equipment intended to enhance a vessel’s efficiency and revenue earning capability.
We intend to fund these costs through cash from operations, cash on hand or amounts available under the Global Ultraco Debt Facility.
Vessel improvements are capitalized and depreciated over the remaining useful life of the vessel.
The following table represents certain information about the estimated costs for anticipated vessel drydockings and vessel improvements in the next four quarters, along with the anticipated off-hire days:
(1)We intend to fund these costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility.
(2)Actual duration of off-hire days will vary based on the age and condition of the vessel, yard schedules and other factors. Projected off-hire days includes an allowance for unforeseen events.
(3)Projected costs for
vessel improvements are primarily comprised of costs for ballast water treatment systems.
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Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Other Contingencies
See Note 8. Commitments and Contingencies, to our condensed consolidated financial statements for a discussion of our contingencies related to legal proceedings. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position
and cash flows could be material and adverse and could change in the future.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the market risk disclosure set forth in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in the Annual Report. For additional information regarding our use of derivative financial instruments, including interest rate swaps, forward freight agreements and bunker swaps, see Note
5. Derivative Instruments, to our condensed consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30,
2023.
Changes in Internal Controls
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act) occurred during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II: OTHER INFORMATION
ITEM
1 – LEGAL PROCEEDINGS
From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of our business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources. Information about legal proceedings is set forth in Note 8. Commitments and Contingencies, to our condensed consolidated financial statements and is incorporated by reference herein.
ITEM 1A – RISK FACTORS
There
have been no material changes from the “Risk Factors” previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023 (the “Annual Report”), as updated by the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2023 as filed with the SEC on August 4, 2023. The risks described in the Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, results of operations, earnings, financial condition, cash flows and stock price.
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Common stock repurchase activity during the three months ended September 30, 2023 was as follows ($ in thousands, except for per share amounts):
Periods
Total
Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
During the quarterly period ended September 30, 2023, no director or officer of the Companyiiadopted/
or iiterminated/ any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy
the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in the Exchange Act).
The following materials from Eagle Bulk Shipping Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three and nine months ended September
30, 2023 and 2022, (iv) Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022, and (vi) Notes to Condensed Consolidated Financial Statements (unaudited).
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
