Eagle Bulk Shipping Earnings Call Nuggets: Cash Installments and Chartering Rates

Eagle Bulk Shipping, Inc. (NASDAQ:EGLE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Cash Installments

Natasha Boyden – Global Hunter Securities: Soph, maybe you can help me. I’m just a little bit confused on one point. On Page 18 in the presentation, you say you have $5.5 million of delayed cash installments through 2021. In the press release it says the balance is $53.7 million through 2021. What am I missing there?

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Sophocles N. Zoullas – Chairman and CEO: Okay, what’s happened on March 28, part of KLC process of amending the rehabilitation plan, they convert 90% of the long-term receivable to equity and the remainder 10% which is about $5.1 million will be in cash. So, the $53 million that you have plus the $2 million that we have in addition of long-term receivable which totals $55 million convert to 10%, long-term receivable and 90% of that to equity. Natasha, just as we mentioned that just happened on Thursday, last week.

Natasha Boyden – Global Hunter Securities: Just again to clarify. So, you’re saying the 90% is equity, it’s not cash?

Sophocles N. Zoullas – Chairman and CEO: Yes.

Natasha Boyden – Global Hunter Securities: Also just remaining on the KLC agreement here I guess, can you just talk about how this was arrived at sort of the time period of eight years. I think in the press release, again you say it’s sort of back end loaded. How was that arrived at and – that’s basically the question. How did you really decide on that?

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Sophocles N. Zoullas – Chairman and CEO: Sure. I would say we were a little bit subjected to the court system in Korea and Seoul, so there was a little bit of – if you want to know the truth there is a little bit of a black box for us sitting here in New York. But it was a very complex process that, as you know, went over a period of over 12 months and involved all the interested parties in Korea Lines. It involved multiple court hearings over multiple months, but was ultimately punctuated with a decision that Adir just mentioned on March 28 that we think will be the final, if you will, the final deal for Korea Lines. But again our visibility on this wasn’t tremendous just because it was all being done in Korea…

Natasha Boyden – Global Hunter Securities: So, the 8-year period, I guess, was that court implemented or was that an idea that KLC arrived at?

Sophocles N. Zoullas – Chairman and CEO: That was something, I would say, that was done between Korea Lines, the bankruptcy administrator and the Korean courts. So, we didn’t have any input in that.

Natasha Boyden – Global Hunter Securities: Can you just talk a little bit about – just shifting gears (indiscernible), there has been space with fairly high profile newbuild orders recently and I am just wondering if you’ve seen any of that trickle down to the Handy-Supramax segment?

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Sophocles N. Zoullas – Chairman and CEO: That’s a great question. We’ve been very aware of that. And as you know the couple of orders have all been pretty much in the Capesize market and there has been really one player who has been very active and taken a lot of the press coverage of his ordering activity. We haven’t seen that in our market to answer your question directly, and we also think, if you look at the global picture for newbuild orders, the order book is significantly reducing, even taking into consideration the new ordering. So, I would say, the market can handle one or two big guys coming in and doing in big orders. We just don’t want 10 doing it.

Chartering Rates

Seth Lowery – Citi: So, this is (Seth Lowery) in for Chris. If I could say on the KLC settlement, I was just wondering, do you have – I mean, if you were to say mark-to-market the new KLC equity stake, do you have estimate for how much that could be? And then, I was also wondering, is there a potential to monetize that stake in the near future or are there any restrictions for doing that?

Sophocles N. Zoullas – Chairman and CEO: Yeah, we have restriction to trading later this year. I think like with any public equity, that is going to be free for trading. It’s a little bit – you tell me where the stock market in Seoul is, I’ll tell you where the share prices are. So, we are waiting as you are to see how this stock trades. We believe that having a stake in the Company after this restructuring will have some value and over time as the market and dry bulk recovers; we believe the value of our share in that company will also recover. But we don’t have a lot more visibility than you do right now and we’re waiting to see how the stock will trade as it starts to trade and as we are able to trade our security later this year if you want to.

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Seth Lowery – Citi: Are you free to sell out the market or is there any restrictions for selling in their stock market with given the level of the ownership stake you have?

Sophocles N. Zoullas – Chairman and CEO: We will be free to selling in the market. We are not sure yet if there would be any lock-up period or not.

Seth Lowery – Citi: If I could switch gears to your fleet then it seems like – it seems like you guys continue to execute your strategy of chartering your vessels optimistically and keeping your durations short in order to gain leverage to improving fundamentals. But is seems like there is a fair amount of your vessels at least for this quarter that ended charters in January and subsequently you re-chartered of I think to notes that up to six months, I’m just wondering have all those vessels been chartered? Are there any layup? Do you think it makes sense to layup any of the vessels? Finally, are the market rates that you’ve gotten, I guess for this next chartering period post January comparable to the previous short-term charter rates you’ve achieved?

Sophocles N. Zoullas – Chairman and CEO: Great series of questions. If I miss anything feel free to remind me if I didn’t shed all of those points. So, it was funny in 2006, ’07, and ’08 when the market was really great and people were pushing us to buy capes and buy old ships and we stayed true to our mantra that we want to stay laser focused on Supramaxes and having a five year old fleet. I told people and I said the reason for it is when the markets collapse and this is a cyclical industry, it will happen eventually. This is the best asset class to be in because they outperform the bigger ships and then can generate the most cash in a bad market in real terms, nobody believed me five years ago. And it’s been true for all of 2012. It’s been true so far for 2013. This – if you want to be in dry bulk, the type of ship you want is a young Supramax. So, specifically, we have not laid up of or do not intend to lay up any of our fleet, because A, it’s the right type of ship in this kind of market, and B, it’s a very young fleet, and C, I would say, because we have a branded product, we have as a service provider, we can do a lot of deals with end users, that Supramax owners, if they only had one, two or three or four ships couldn’t do, that creates real value, the sort of firm value, if you will of Eagle Bulk that other people can’t replicate. So, we remain positive on our asset class, partly because of how the ships are flexible but also because of their age and the composition of the fleet, and we continue to believe that these ships will be outperforming going forward. What – to answer one of your other questions, the charters we did in the sort of Christmas period into January and maybe even the beginning of February, as I noted in my remarks, the real low point in Q1 was reached sometime in February. Those will be reflected as lower charter rates. It’s really been from mid – from the second half of February through now that we’ve seen this pick-up of 45% in charter rates that has been a real breath of fresh air in the market, and we think we are doing the right strategy having an office in Singapore where about two-thirds of our ships are deployed gives us the flexibility to do these COAs and stay close to our end-users which we find very helpful, and we’re going to continue to stay short with the market rates this low until we see things in the teens again, and then we’re going to start to go longer in tenure.

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Natasha Boyden – Global Hunter Securities: Soph, maybe you can help me. I’m just a little bit confused on one point. On Page 18 in the presentation, you say you have $5.5 million of delayed cash installments through 2021. In the press release it says the balance is $53.7 million through 2021. What am I missing there?

Sophocles N. Zoullas – Chairman and CEO: Okay, what’s happened on March 28, part of KLC process of amending the rehabilitation plan, they convert 90% of the long-term receivable to equity and the remainder 10% which is about $5.1 million will be in cash. So, the $53 million that you have plus the $2 million that we have in addition of long-term receivable which totals $55 million convert to 10%, long-term receivable and 90% of that to equity. Natasha, just as we mentioned that just happened on Thursday, last week…

Natasha Boyden – Global Hunter Securities: Just again to clarify. So, you’re saying the 90% is equity, it’s not cash?

Sophocles N. Zoullas – Chairman and CEO: Yes.

Natasha Boyden – Global Hunter Securities: Also just remaining on the KLC agreement here I guess, can you just talk about how this was arrived at sort of the time period of eight years. I think in the press release, again you say it’s sort of back end loaded. How was that arrived at and – that’s basically the question. How did you really decide on that?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Sophocles N. Zoullas – Chairman and CEO: Sure. I would say we were a little bit subjected to the court system in Korea and Seoul, so there was a little bit of – if you want to know the truth there is a little bit of a black box for us sitting here in New York. But it was a very complex process that, as you know, went over a period of over 12 months and involved all the interested parties in Korea Lines. It involved multiple court hearings over multiple months, but was ultimately punctuated with a decision that Adir just mentioned on March 28 that we think will be the final, if you will, the final deal for Korea Lines. But again our visibility on this wasn’t tremendous just because it was all being done in Korea.

Natasha Boyden – Global Hunter Securities: So, the 8-year period, I guess, was that court implemented or was that an idea that KLC arrived at?

Sophocles N. Zoullas – Chairman and CEO: That was something, I would say, that was done between Korea Lines, the bankruptcy administrator and the Korean courts. So, we didn’t have any input in that.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Natasha Boyden – Global Hunter Securities: Can you just talk a little bit about – just shifting gears (indiscernible), there has been space with fairly high profile newbuild orders recently and I am just wondering if you’ve seen any of that trickle down to the Handy-Supramax segment?

Sophocles N. Zoullas – Chairman and CEO: That’s a great question. We’ve been very aware of that. And as you know the couple of orders have all been pretty much in the Capesize market and there has been really one player who has been very active and taken a lot of the press coverage of his ordering activity. We haven’t seen that in our market to answer your question directly, and we also think, if you look at the global picture for newbuild orders, the order book is significantly reducing, even taking into consideration the new ordering. So, I would say, the market can handle one or two big guys coming in and doing in big orders. We just don’t want 10 doing it.

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