NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis 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). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership, charter and operation of dry bulk vessels. The Company’s fleet is comprised of Supramax and Ultramax dry bulk carriers which are considered to be Handymax class of vessels and the Company operates its business in
one
business segment.
As of
June 30, 2018
, the Company owned and operated a modern fleet of
47
oceangoing vessels, including
35
Supramax and
12
Ultramax vessels with a combined carrying capacity of
2,693,430
deadweight tonnage ("dwt") and an average age of approximately
8.6 years
. Additionally, the Company charters-in a
61,400
dwt, 2013 built Ultramax vessel for a remaining period of approximately
three
years. In addition, the Company charters-in third-party vessels on a short to medium term basis.
For the
three and six
months ended
June 30, 2018
and
2017
, the Company’s charterers did not individually account for more than
10%
of the Company’s gross charter revenue during those periods.
The 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 which apply to interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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
2017
Annual Report on Form 10-K, filed with the SEC on March 12, 2018.
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 are not necessarily indicative of the results that may be expected for the entire year.
We adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09" or "ASC 606") as of January 1, 2018 utilizing the modified retrospective method of transition. ASC 606 impacted the timing of recognition of revenues from certain ongoing spot voyage charters as well as timing of recognition of certain voyage related expenses. Under ASC 606, revenue is recognized beginning from the commencement of loading until the completion of discharge at the discharge port instead of recognizing revenue from the discharge of the previous voyage so long as an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured.
With the adoption of ASC 606, we recognize as an asset any costs incurred prior to commencement of loading because these costs are incurred to fulfill a contract and are directly related to a contract or an anticipated contract that we can specifically identify. These costs are amortized over the term of the contract on a straight-line basis as the performance obligations are met.
We recorded an adjustment of approximately
$0.8 million
to increase our opening accumulated deficit and increase our unearned revenue and other current assets on our Condensed Consolidated Balance Sheet on January 1, 2018. Please refer to Note 2 "Recently Adopted Accounting Pronouncements" for further information.
The 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. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are residual value of vessels, the useful lives of vessels, the value of stock-based compensation and the fair value of derivatives. Actual results could differ from those estimates.
Note 2. Recently Adopted Accounting Pronouncements
Revenue Recognition
Our shipping revenues are principally generated from time charters and voyage charters. In a time charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or non hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges, canal tolls during the hire period. The performance obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to the Company. The charterer generally pays the charter hire in advance of the upcoming contract period. The time charter contracts are considered operating leases and therefore do not fall under the scope of ASC 606 because (i) the vessel is an identifiable asset (ii) the Company does not have substantive substitution rights and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.
Voyage charters
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 95% freight paid within three 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 as per the charter party clause 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. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses. and the revenue is recognized on a straight line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606 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 or despatch paid by the Company for the three and six months ended June 30, 2018 is not material.
The following table shows the revenues earned from time charters and voyage charters for the three and six months ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
Time charters
|
$
|
37,355,472
|
|
|
$
|
66,678,691
|
|
Voyage charters
|
37,583,228
|
|
|
87,630,618
|
|
|
$
|
74,938,700
|
|
|
$
|
154,309,309
|
|
Contract costs
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. These costs are considered contract fulfillment costs because the costs are direct costs related to the performance of the contract and are expected to be recovered. The costs incurred during the period prior to commencement of loading the cargo, primarily bunkers, are deferred as they represent setup costs and recorded as a current asset and are amortized on a straight-line basis as the related performance obligations are satisfied.
In May 2014, the FASB issued ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Under ASC 606, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations of the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfied a performance obligation. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized.
We adopted the provisions of ASC 606 on January 1, 2018 using the modified retrospective approach. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for periods prior to January 1, 2018. Under the modified retrospective approach, the Company recognized the cumulative effect of adopting this standard as an adjustment amounting to
$0.8 million
to increase the opening balance of Accumulated Deficit as of January 1, 2018. The Company recognized
$0.8 million
of deferred costs which represents the costs such as bunker expenses and charter hire expenses on chartered-in vessels, incurred prior to commencement of loading are recorded in other current assets and
$1.6 million
of unearned charter hire revenue which represents the Company's obligation to satisfy performance obligations under the contract for which the Company has received consideration from the customer.
The adoption of ASC 606 impacted the timing of recognition of revenue for certain ongoing spot voyage charter contracts, related voyage expenses and charter hire expenses. Under ASU 2014-09, revenue is recognized from when the vessel commences loading through the completion of discharge at the discharge port instead of recognizing revenue from the discharge of the previous voyage provided an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured. Any expenses incurred during the ballast portion of the voyage (time spent by the vessel traveling from discharge port of the previous voyage to the load port of the subsequent voyage) such as bunker expenses, canal tolls and charter hire expenses for chartered-in vessels are deferred and are recognized on a straight-line basis over the charter period as the Company satisfies the performance obligations under the contract.
Further, the adoption of ASC 606 impacted the accounts receivable and unearned revenue on our Condensed Consolidated Balance Sheet as of June 30, 2018. Under ASC 606, receivables represent an entity's unconditional right to consideration, billed or unbilled. The Company determined that the performance obligations on its spot voyage charters do not begin to be satisfied unless the vessel arrives at the load port and commences loading the cargo. This impacted the amount of accounts receivable and unearned revenue recorded in our Condensed Consolidated Balance Sheet.
The following table presents the impact of the adoption of ASC 606 on our Condensed Consolidated Balance Sheet at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
As Reported
|
|
Balances without Adoption of ASC 606
|
|
Effect of Change
|
Assets
|
|
|
|
|
|
Accounts receivable
|
$
|
13,072,691
|
|
|
$
|
13,982,571
|
|
|
$
|
(909,880
|
)
|
Other current assets
|
2,540,427
|
|
|
2,178,304
|
|
|
362,123
|
|
Liabilities
|
|
|
|
|
|
Unearned charter hire revenue
|
4,901,453
|
|
|
4,709,434
|
|
|
192,019
|
|
The following table presents the impact of the adoption of ASC 606 on our Condensed Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
As Reported
|
|
Balances without Adoption of ASC 606
|
|
Effect of Change
|
|
As Reported
|
|
Balances without Adoption of ASC 606
|
|
Effect of Change
|
Revenue,net
|
$
|
74,938,700
|
|
|
$
|
75,293,766
|
|
|
$
|
(355,066
|
)
|
|
$
|
154,309,309
|
|
|
$
|
153,827,542
|
|
|
$
|
481,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
17,204,964
|
|
|
17,236,431
|
|
|
31,467
|
|
|
39,719,556
|
|
|
39,505,136
|
|
|
(214,420
|
)
|
Charter hire expenses
|
10,108,258
|
|
|
10,128,774
|
|
|
20,516
|
|
|
20,376,322
|
|
|
20,161,169
|
|
|
(215,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
3,450,767
|
|
|
3,753,850
|
|
|
(303,083
|
)
|
|
3,503,512
|
|
|
3,451,318
|
|
|
52,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
Diluted income per share
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
The cumulative effect of changes made to our opening Consolidated Balance Sheet on January 1, 2018 for the adoption of ASC 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Effect of Adoption of ASC 606
|
|
January 1, 2018
|
Assets
|
|
|
|
|
|
Other current assets
(1)
|
$
|
785,027
|
|
|
$
|
796,508
|
|
|
$
|
1,581,535
|
|
Liabilities
|
|
|
|
|
|
Unearned charter hire revenue
(2)
|
5,678,673
|
|
|
1,583,618
|
|
|
7,262,291
|
|
Stockholders' equity
|
|
|
|
|
|
Accumulated deficit
|
(427,164,813
|
)
|
|
(787,110
|
)
|
|
(427,951,923
|
)
|
(1)
Under ASC 606, the contract fulfillment costs are deferred as a current asset and amortized as the related performance obligations are satisfied. The adjustment to other current assets includes bunker expenses of
$0.6 million
incurred to arrive at the load port for the voyages in progress as of January 1, 2018 and
$0.2 million
of charter hire expenses on third party chartered-in vessels which were chartered-in to fulfill the performance obligations under the voyage contract.
(2)
Under ASC 606, unearned charter hire revenue represents the consideration received for undelivered performance obligations. The Company recorded
$1.5 million
as the unearned revenue on voyages in progress as of January 1, 2018. The Company recognized this revenue in the first quarter of 2018 as the performance obligations are met.
The adoption of ASC 606 had no impact on net cash provided by operating activities, investing activities and financing activities for the
three and six
months ended
June 30, 2018
.
In November 2016, the FASB issued ASU 2016-18. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash and restricted cash equivalents. Therefore, the restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this accounting standard as of January 1, 2018 and retrospectively applied to the six months ended June 30, 2017, and
$74,917
of restricted cash has been aggregated with cash and cash equivalents in both the beginning-of-period and end-of-period line items at the bottom of the statements of cash flows for each period presented.
Note 3. Vessels
Vessel and Vessel Improvements
As of
June 30, 2018
, the Company’s owned operating fleet consisted of
47
dry bulk vessels.
On December 19, 2017, the Company, through its subsidiary Eagle Bulk Ultraco LLC, signed a memorandum of agreement to acquire a 2015 built Ultramax vessel for
$21.3 million
. The Company took delivery of the vessel, the New London Eagle on January 9, 2018.
On August 30, 2017, the Company signed a memorandum of agreement to sell the vessel Avocet for
$9.6 million
after brokerage commissions and associated selling expenses. The vessel was delivered to the buyers in the second quarter of 2018. The Company recorded a gain of
$0.1 million
in its condensed statement of operations for the three and six months ended June 30, 2018.
On March 23, 2018, the Company signed a memorandum of agreement to sell the vessel Thrush for
$10.9 million
after brokerage commissions and associated selling expenses. The vessel is expected to be delivered to the buyers in the third quarter of 2018. The Company expects to recognize a gain of
$0.4 million
. As of June 30, 2018, the Company reported the carrying amount of the vessel as a current asset in its condensed consolidated balance sheet.
On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for
$21.3 million
. The Company is expected to take delivery of the vessel, Hamburg Eagle in the fourth quarter of 2018.
Vessel and vessel improvements consist of the following:
|
|
|
|
|
Vessels and Vessel Improvements, at December 31, 2017
|
$
|
690,236,419
|
|
Advance paid for purchase of New London Eagle at December 31, 2017
|
2,201,773
|
|
Purchase of Vessels and Vessel Improvements
|
20,301,806
|
|
Transfer to Vessels held for sale
|
(10,354,855
|
)
|
Vessel depreciation expense
|
(15,961,078
|
)
|
Vessels and Vessel Improvements, at June 30, 2018
|
$
|
686,424,065
|
|
Note 4. Debt
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Norwegian Bond Debt
|
$
|
200,000,000
|
|
|
$
|
200,000,000
|
|
Debt discount and debt issuance costs - Norwegian Bond Debt
|
(5,618,518
|
)
|
|
(6,049,671
|
)
|
Less:Current portion of Norwegian Bond Debt
|
(8,000,000
|
)
|
|
(4,000,000
|
)
|
Norwegian Bond Debt, net of debt discount and debt issuance costs
|
186,381,482
|
|
|
189,950,329
|
|
New First Lien Facility *
|
60,000,000
|
|
|
65,000,000
|
|
Debt discount and debt issuance costs - New First Lien Facility
|
(1,196,414
|
)
|
|
(1,241,815
|
)
|
Less:Current portion of New First Lien Facility
|
(6,450,000
|
)
|
|
—
|
|
New First Lien Facility, net of debt issuance costs and debt discount
|
52,353,586
|
|
|
63,758,185
|
|
Ultraco Debt Facility
|
69,800,000
|
|
|
61,200,000
|
|
Debt discount and debt issuance costs - Ultraco Debt Facility
|
(1,173,490
|
)
|
|
(1,224,838
|
)
|
Less:Current portion of Ultraco Debt Facility
|
(5,362,713
|
)
|
|
—
|
|
Ultraco Debt Facility, net of debt issuance costs and debt discount
|
63,263,797
|
|
|
59,975,162
|
|
Total long-term debt
|
$
|
301,998,865
|
|
|
$
|
313,683,676
|
|
* Includes loan balances on term loan and revolver loan facility under the New First Lien Facility as of December 31, 2017. The revolver loan of
$5.0 million
under the New First Lien Facility was repaid in the first quarter of 2018.
Norwegian Bond Debt
On November 28, 2017, Eagle Bulk Shipco LLC, a wholly-owned subsidiary of the Company ("Shipco" or "Issuer") issued
$200,000,000
in aggregate principal amount of
8.250%
Senior Secured Bonds ( the "Bonds" or the "Norwegian Bond Debt"), pursuant to those certain bond terms (the "Bond Terms"), dated as of November 22, 2017, by and between the Issuer and Nordic Trustee AS, as the Bond Trustee. After giving effect to an original issue discount of approximately
1%
and deducting offering expenses of
$3.1 million
, the net proceeds from the issuance of the Bonds were approximately
$195.0 million
. These net proceeds from the Bonds, together with the proceeds from the New First Lien Facility and cash on hand, were used to repay all amounts outstanding including accrued interest under various debt facilities outstanding at that time and to pay expenses associated with the refinancing transactions. Shipco incurred
$1.3 million
in other financing costs in connection with the transaction.
The Norwegian Bond Debt is guaranteed by the limited liability companies that are subsidiaries of the Issuer and the legal and beneficial owners of
28
security vessels (the "Shipco Vessels") in the Company’s fleet, and are secured by mortgages over such security vessels, a pledge granted by the Company over all of the shares of the Issuer, a pledge granted by the Issuer over all the shares in the Vessel Owners, certain charter contract assignments, certain assignments of earnings, a pledge over certain accounts, an assignment of insurances covering security vessels, and assignments of intra-group debt between the Company and the Issuer or its subsidiaries.
Pursuant to the Bond Terms, interest on the Bonds will accrue at a rate of
8.250%
per annum on the nominal amount of each of the Bonds from November 28, 2017, payable semi-annually on May 29 and November 29 of each year (each, an “Interest Payment Date”), commencing May 29, 2018. The Bonds will mature on November 28, 2022. On each Interest Payment Date from and including November 29, 2018, the Issuer must repay an amount of
$4,000,000
, plus accrued interest thereon. Any outstanding Bonds must be repaid in full on the Maturity Date at a price equal to
100%
of the nominal amount, plus accrued interest thereon.
The Issuer may redeem some or all of the outstanding Bonds at any time on or after the Interest Payment Date in May 2020 (the “First Call Date”), at the following redemption prices (expressed as a percentage of the nominal amount), plus accrued interest on the redeemed amount, on any business day from and including:
|
|
|
|
|
|
|
|
Period
|
|
Redemption Price
|
First Call Date to, but not including, the Interest Payment Date in November 2020
|
|
104.125%
|
Interest Payment Date in November 2020 to but not including, the Interest Payment Date in May 2021
|
|
103.3%
|
Interest Payment Date in May 2021 to, but not including, the Interest Payment Date in November 2021
|
|
102.475%
|
Interest Payment Date in November 2021 to, but not including, the Interest Payment Date in May 2022
|
|
101.65%
|
Interest Payment Date in May 2022 to, but not including, the Maturity Date
|
|
100%
|
Prior to the First Call Date, the Issuer may redeem some or all of the outstanding Bonds at a price equal to
100%
of the nominal amount of the Bonds plus a “make-whole” premium and accrued and unpaid interest to the redemption date.
If the Company experiences a change of control, each holder of the Bonds will have the right to require that the Issuer purchase all or some of the Bonds held by such holder at a price equal to
101%
of the nominal amount, plus accrued interest.
The Bond Terms contain certain financial covenants that the Issuer’s leverage ratio defined as the ratio of outstanding bond amount and any drawn amounts under the Super Senior Facility less consolidated cash balance to the aggregate book value of the Shipco Vessels must not exceed
75%
and its and its subsidiaries’ free liquidity must at all times be at least
$12,500,000
. Shipco is in compliance with its financial covenants as of June 30, 2018.
The Bond Terms also contain certain events of default customary for transactions of this type, including, but not limited to, those relating to: a failure to pay principal or interest; a breach of covenants, representation or warranty; a cross default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; and the impossibility or unlawfulness of performance of the finance documents.
The Bond Terms also contain certain exceptions and qualifications, among other things, limit the Company’s and the Issuer’s ability and the ability of the Issuer’s subsidiaries to do the following: make distributions; carry out any merger, other business combination, demerger or corporate reorganization; make substantial changes to the general nature of their respective businesses; incur certain indebtedness; incur liens; make loans or guarantees; make certain investments; transact with affiliates; enter into sale and leaseback transactions; engage in certain chartering-in of vessels; dispose of shares of Vessel Owners; or acquire the Bonds.
The Bonds were listed for trading on the Oslo Stock Exchange on May 15, 2018.
New First Lien Facility
On December 8, 2017, Eagle Shipping LLC, a wholly-owned subsidiary of the Company ("Eagle Shipping") entered into the New First Lien Facility, which provides for (i) a term loan facility in an aggregate principal amount of up to
$60,000,000
(the “Term Loan”) and (ii) a revolving credit facility in an aggregate principal amount of up to
$5,000,000
(the “Revolving Loan”). Outstanding borrowings under the New First Lien Facility bear interest at LIBOR plus
3.50%
per annum. Eagle Shipping paid
$1.0 million
to the lenders and incurred $
0.4 million
of other financing costs in connection with the transaction.
The New First Lien Facility matures on the earlier of (i)
five
years from the initial borrowing date under the Credit Agreement and (ii) December 8, 2022. With respect to the Term Loan, Eagle Shipping is required to make quarterly repayments of principal of
$2.15 million
beginning January 15, 2019, with a final balloon payment to be made at maturity. With respect to the Revolving Loan, Eagle Shipping must repay the aggregate principal amount of all borrowings outstanding on the maturity date. Accrued interest on amounts outstanding under the Term Loan and the Revolving Loan must be paid on the last day of each applicable interest period. Interest periods are for three months, six months or any other period agreed between Eagle Shipping and the Lenders. Finally, Eagle Shipping must prepay certain specified amounts outstanding under the New First Lien Facility if an Eagle Shipping Vessel (as defined below) is sold or becomes a total loss or if there is a change of control with respect to the Company, Eagle Shipping or any Guarantor.
Eagle Shipping’s obligations under the New First Lien Facility are secured by, among other items, a first priority mortgage on the
nine
vessels in Eagle Shipping’s fleet as identified in the Credit Agreement and such other vessels that it may from time to time include with the approval of the Lenders (the “Eagle Shipping Vessels”), an assignment of certain accounts, an assignment of certain charters with terms that may exceed 12 months, an assignment of insurances, an assignment of certain master agreements, and a pledge of the membership interests of each of Eagle Shipping’s vessel-owning subsidiaries. In the future, Eagle Shipping may grant additional security to the Lenders from time to time.
The New First Lien Facility contains financial covenants requiring Eagle Shipping to maintain minimum liquidity of
$500,000
in respect of each Eagle Shipping Vessel and to maintain a consolidated interest coverage ratio beginning for the fiscal quarter ending on June 30, 2019, of not less than a range varying from
1.50
to 1.00 to
2.50
to 1.00. In addition, the New First Lien Facility also imposes operating restrictions on Eagle Shipping and the Guarantors, including limiting Eagle Shipping’s and the Guarantors’ ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; sell assets; dissolve or liquidate; merge or consolidate with another person; make investments; engage in transactions with affiliates; and allow certain changes of control to occur. Eagle Shipping is in compliance with its financial covenants as of June 30, 2018.
The New First Lien Facility also includes customary events of default, including those relating to: a failure to pay principal or interest; a breach of covenant, representation or warranty; a cross-default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the occurrence of certain ERISA events; a judgment default; the cessation of business; the impossibility or unlawfulness of performance of the loan documents; the ineffectiveness of any material provision of any loan document; the occurrence of a material adverse effect; and the occurrence of certain swap terminations.
During the first quarter of 2018, Eagle Shipping repaid
$5.0 million
of the Revolving Loan.
As of June 30, 2018, the availability under the Revolving Loan is
$5.0 million
.
Super Senior Facility
On December 8, 2017, Shipco entered into the Super Senior Revolving Facility Agreement (the "Super Senior Facility"), by and among Shipco as borrower, and ABN AMRO Capital USA LLC, as original lender, mandated lead arranger and agent, which provides for a revolving credit facility in an aggregate amount of up to
$15,000,000
. The proceeds of the Super Senior Facility, which are currently undrawn, are expected, pursuant to the terms of the Super Senior Facility, to be used (i) to acquire additional vessels or vessel owners and (ii) for general corporate and working capital purposes of Shipco and its subsidiaries. The Super Senior Facility matures on August 28, 2022. Shipco incurred
$285,342
as other financing costs in connection with the transaction.
As of June 30, 2018, the availability under the Super Senior Facility is
$15,000,000
.
The outstanding borrowings under the Super Senior Facility will bear interest at LIBOR plus
2.00%
per annum and commitment fees of
40%
of the applicable margin on the undrawn portion of the facility. For each loan that is requested under the Super Senior Facility, Shipco must repay such loan along with accrued interest on the last day of each interest period relating to the loan. Interest periods are for three months, six months or any other period agreed between Shipco and the Super Senior Facility Agent. Additionally, subject to the other terms of the Super Senior Facility, amounts repaid on the last day of each interest period may be re-borrowed.
Shipco’s obligations under the Super Senior Facility are guaranteed by the limited liability companies that are subsidiaries of Shipco and the legal and beneficial owners of
28
vessels in the Company’s fleet (the “Eagle Shipco Vessel Owners”), and will be secured by mortgages over such vessels, a pledge granted by the Company over all of the shares of Shipco, a pledge granted by Shipco over all the shares in the Eagle Shipco Vessel Owners, certain charter contract assignments, certain assignments of earnings, a pledge over certain accounts, an assignment of insurances covering security vessels, and assignments of intra-group debt between the Company and Shipco or its subsidiaries. The Super Senior Facility ranks super senior to the Bonds with respect to any proceeds from any enforcement action relating to security or guarantees for both the Super Senior Facility and the Bonds.
The Super Senior Facility contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit Shipco’s and its subsidiaries’ ability to do the following: make distributions; carry out any merger, other business combination, or corporate reorganization; make substantial changes to the general nature of their respective businesses; incur certain indebtedness; incur liens; make loans or guarantees; make certain investments; transact other than on arm’s-length terms; enter into sale and leaseback transactions; engage in certain chartering-in of vessels; or dispose of shares of Eagle Shipco Vessel Owners. Additionally, Shipco’s leverage ratio must not exceed
75%
and its subsidiaries’ free liquidity must at all times be at least
$12,500,000
. Also, the total commitments under the Super Senior Facility will be cancelled if (i) at any time the aggregate market value of the security vessels for the Super Senior Facility is less than
300%
of the total commitments under the Super Senior Facility or (ii) if Shipco or any of its subsidiaries redeems or otherwise repays the Bonds so that less than
$100,000,000
is outstanding under the Bond Terms. Shipco is in compliance with its financial covenants as of June 30, 2018.
The Super Senior Facility also contains certain events of default customary for transactions of this type, including, but not limited to, those relating to: a failure to pay principal or interest; a breach of covenants, representation or warranty; a cross default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the cessation of business; the impossibility or unlawfulness of performance of the finance documents for the Super Senior Facility; and the occurrence of a material adverse effect.
Ultraco Debt Facility
On June 28, 2017, Eagle Bulk Ultraco LLC, a wholly-owned subsidiary of the Company ("Ultraco"), entered into a credit agreement (the “Ultraco Debt Facility”), by and among Ultraco, as borrower, certain wholly-owned vessel-owning subsidiaries of Ultraco, as guarantors (the “Ultraco Guarantors”), the lenders thereunder (the “Ultraco Lenders”), the swap banks party thereto, ABN AMRO Capital USA LLC, as facility agent and security trustee for the Ultraco Lenders, ABN AMRO Capital USA LLC, DVB Bank SE and Skandinaviska Enskilda Banken AB (publ), as mandated lead arrangers, and ABN AMRO Capital USA LLC, as arranger and bookrunner. The Ultraco Debt Facility provides for a multi-draw senior secured term loan facility in an aggregate principal amount of up to the lesser of (i)
$61,200,000
and (ii)
40%
of the lesser of (1) the purchase price of the
nine
Ultramax vessels ("Greenship Vessels") to be acquired by Ultraco and the Ultraco Guarantors pursuant to a previously disclosed framework agreement, dated as of February 28, 2017, with Greenship Bulk Manager Pte. Ltd., as Trustee-Manager of Greenship Bulk Trust, and (2) the fair market value of the Greenship Vessels. The proceeds of the Ultraco Debt Facility were used for the purpose of financing, refinancing or reimbursing a part of the acquisition cost of the Greenship Vessels. The outstanding borrowings under the Ultraco Debt Facility bear interest at LIBOR plus
2.95%
per annum. The Ultraco Debt Facility also provides for the payment of certain other
fees and expenses by Ultraco. Ultraco incurred
$0.9 million
to the lenders and
$0.5 million
as deferred financing costs in connection with the transaction.
On December 29, 2017, Ultraco entered into a First Amendment (the “First Amendment”) to the Ultraco Debt Facility to increase the commitments for the purpose of financing the acquisition of an additional vessel by New London Eagle LLC, a wholly owned subsidiary of Ultraco and additional guarantor under the Ultraco Debt Facility. The increase in the commitments was
$8.6 million
. Ultraco took delivery of the vessel in January 2018 and drew down
$8.6 million
. The Company paid
$0.1 million
as financing costs to the lender in connection with the transaction. The Company paid a deposit of
$2.2 million
for the purchase of the vessel as of December 31, 2017.
As of June 30, 2018, Ultraco has drawn
$69.8 million
of the credit facility relating to the acquisition of the
10
Ultramax vessels.
The Ultraco Debt Facility matures on the earlier of (i)
five
years after the delivery of the last remaining Greenship Vessel to occur and (ii) October 31, 2022. There are no fixed repayments until January 2019 (the "First Repayment Date"). Ultraco is required to make quarterly repayments of principal in an amount of
$1,787,571
beginning in the first quarter of 2019 with a final balloon payment to be made at maturity. The Ultraco Debt Facility allows for increased commitments, subject to the satisfaction of certain conditions and the obtaining of certain approvals, in an aggregate principal amount as of June 30, 2018, of up to the lesser of (i)
$30,200,000
and (ii)
40%
of the aggregate fair market value of any additional vessels to be financed with such incremental commitment.
Ultraco’s obligations under the Ultraco Debt Facility are secured by, among other items, a first priority mortgage on each of the ten Ultramax vessels ("Ultraco Vessels") and such other vessels that it may from time to time include with the approval of the Ultraco Lenders, an assignment of earnings of the Ultraco Vessels, an assignment of all charters with terms that may exceed 12 months, an assignment of insurances, an assignment of certain master agreements, and a pledge of the membership interests of each of Ultraco’s vessel-owning subsidiaries. In the future, Ultraco may grant additional security to the Ultraco Lenders from time to time.
The Ultraco Debt Facility contains financial covenants requiring Ultraco, among other things: (1) to ensure that the aggregate market value of the Ultraco Vessels (plus the value of certain additional collateral) is at all times not less than
150%
of the aggregate principal amount of debt outstanding (subject to certain adjustments); (2) to maintain cash or cash equivalents not less than (a) a liquidity reserve of
$600,000
in respect of each Ultraco Vessel and (b) a debt service reserve of
$600,000
in respect of each Ultraco Vessel, a portion of which may be utilized to satisfy the obligations under the Ultraco Debt Facility upon satisfaction of certain conditions; however, taking into account the requirements of 2(a) and 2(b), the cash or cash equivalents cannot be less than the greater of (i)
$7.5 million
or (ii)
12%
of the consolidated total debt of Ultraco and its subsidiaries; (3) to maintain at all times a ratio of consolidated tangible net worth to consolidated total assets of not less than
0.35
to 1.00; (4) to maintain a consolidated interest coverage ratio beginning after the second anniversary of June 28, 2017, of not less than a range varying from
2.00
to 1.00 to
2.50
to 1.00; and (5) to maintain a ballast water treatment systems reserve of
$4,550,000
, which may be released upon the satisfaction of certain conditions. In addition, the Ultraco Debt Facility also imposes operating restrictions on Ultraco and the Ultraco Guarantors, including limiting Ultraco’s and the Ultraco Guarantors’ ability to, among other things: pay dividends; incur additional indebtedness; create liens on assets; sell assets; dissolve or liquidate; merge or consolidate with another person; make investments; engage in transactions with affiliates; and allow certain changes of control to occur.
As a result of the receipt of extensions from the United States Coast Guard (the "USCG") regarding compliance with a USCG approved ballast water treatment systems ("BWMS"), the funds held in the ballast water treatment system reserve account were released for Ultraco's use in the third quarter of 2017.
The Ultraco Debt Facility also includes customary events of default, including those relating to: a failure to pay principal or interest; a breach of covenant, representation or warranty; a cross-default to other indebtedness; the occurrence of certain bankruptcy and insolvency events; the occurrence of certain ERISA events; a judgment default; the cessation of business; the impossibility or unlawfulness of performance of the loan documents; the ineffectiveness of any material provision of any loan document; the occurrence of a material adverse effect; and the occurrence of certain swap terminations.
Interest Rates
For the
three and six
months ended June 30, 2018, the interest rate on the Norwegian Bond Debt was
8.25%
. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was
8.79%
.
For the three months ended
June 30, 2018
, the interest rate on the New First Lien Facility was
5.55%
including a margin
over LIBOR applicable under the terms of the New First Lien Facility and commitment fees of
40%
of the margin on the undrawn portion of the revolver credit facility of the New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount for this period was
6.18%
.
For the six months ended June 30, 2018, interest rates on the New First Lien Facility ranged from
4.91%
to
5.55%
including a margin over LIBOR applicable under the terms of the New First Lien Facility and commitment fees of
40%
of the margin on the undrawn portion of the revolver credit facility of the New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount for this period was
5.82%
.
For the three months ended June 30, 2018, the interest rate on the Ultraco Debt Facility was
5.25%
including a margin over LIBOR and commitment fees of
40%
of the margin on the undrawn portion of the facility. The weighted average effective interest rate for this period was
5.83%
.
For the
six
months ended
June 30, 2018
, interest rates on the Ultraco Debt Facility ranged from
4.64%
to
5.25%
including a margin over LIBOR and commitment fees of
40%
of the margin on the undrawn portion of the facility. The weighted average effective interest rate for this period was
5.56%
.
For the three months ended June 30, 2017, interest rates on the First Lien Facility ranged from
4.98%
to
5.15%
including a margin over LIBOR applicable under the terms of the First Lien Facility and commitment fees of
40%
of the margin on the undrawn portion of the facility. The weighted average effective interest rate including the amortization of debt discount for this period was
5.58%
.
For the six-month period ended June 30, 2017, interest rates on our outstanding debt under the First Lien Facility ranged from
4.77%
to
5.15%
, including a margin over LIBOR and commitment fees of
40%
of the margin on the undrawn portion of the facility. The weighted average effective interest rate was
5.41%
.
For the three and six-month periods ended June 30, 2017, the interest rate on the Ultraco Debt Facility was
4.08%
including a margin over LIBOR applicable under the terms of the Ultraco Debt Facility which was entered into on June 28, 2017.
For the three and six-month periods ended June 30, 2017, the payment-in-kind interest rate on our Second Lien Facility was
15%
including a margin over LIBOR. The weighted average effective interest rate on our Second Lien Facility including the amortization of debt discount for these periods was
17.05%
.
Interest Expense consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2018
|
June 30, 2017
|
|
June 30, 2018
|
June 30, 2017
|
First Lien Facility
|
$
|
—
|
|
$
|
2,745,748
|
|
|
$
|
—
|
|
$
|
5,410,923
|
|
Norwegian Bond Debt
|
4,079,166
|
|
—
|
|
|
8,204,167
|
|
—
|
|
New First Lien Facility
|
859,229
|
|
—
|
|
|
1,676,193
|
|
—
|
|
Amortization of Debt issuance costs
|
480,257
|
|
1,456,986
|
|
|
970,352
|
|
2,901,948
|
|
Payment in kind interest on Second Lien Facility
|
—
|
|
2,642,327
|
|
|
—
|
|
4,977,219
|
|
Ultraco Debt Facility
|
938,026
|
|
13,655
|
|
|
1,737,701
|
|
13,657
|
|
Super Senior Facility - commitment fees
|
30,333
|
|
—
|
|
|
59,667
|
|
—
|
|
Total Interest Expense
|
$
|
6,387,011
|
|
$
|
6,858,716
|
|
|
$
|
12,648,080
|
|
$
|
13,303,747
|
|
Interest paid amounted to $
11,734,765
and $
5,338,742
for the
six
months ended
June 30, 2018
and
2017
, respectively.
First Lien Facility
On March 30, 2016, Eagle Shipping as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Company’s senior secured credit facility (the “Exit Financing Facility”), as guarantors, entered into the First Lien Facility (defined below) with the lenders thereunder and ABN AMRO Capital USA LLC, as agent and security trustee for the lenders. The First Lien Facility amended and restated the Exit Financing Facility in its entirety, provided for Eagle Shipping to be the borrower in the place of the Company, and further provided for a waiver of any and all events of default occurring as a result of the voluntary OFAC Disclosure (as defined in “Note 6. Commitments and Contingencies - Legal Proceedings” to the condensed consolidated financial statements). The First Lien Facility provided for a term loan in the amount of
$201,468,750
after giving effect to the entry into the First Lien Facility and the Second Lien Facility as well as a
$50,000,000
revolving credit facility (the "First Lien Facility"). The outstanding borrowings under the First Lien Facility bore interest at LIBOR plus
4.0%
per annum.
Eagle Shipping prepaid
$5,651,000
of the term loan during the year ended December 31, 2016 and
$13,021,000
of the term loan for the year ended December 31, 2017 pursuant to the terms of the First Lien Facility relating to mandatory prepayments upon sales of vessels. Additionally, Eagle Shipping also repaid
$5,000,000
of the revolving credit facility in the third quarter of 2017. On December 8, 2017, Eagle Shipping repaid the outstanding balance of the term loan of
$171,078,000
and the outstanding balance of the revolver loan of
$20,000,000
and discharged the debt under the First Lien Facility in full.
Second Lien Facility
On March 30, 2016, Eagle Shipping, as borrower, and certain of its subsidiaries that were guarantors of the Company’s obligations under the Exit Financing Facility, as guarantors, entered into a Second Lien Facility with certain lenders (the “Second Lien Lenders”) and Wilmington Savings Fund Society, FSB as agent for the Second Lien Lenders (the “Second Lien Agent”). The Second Lien Facility provided for a term loan in the amount of
$60,000,000
(the “Second Lien Facility”), and scheduled to mature on January 14, 2020. The term loan under the Second Lien Facility bore interest at a rate of LIBOR plus
14.00%
per annum with a
1.0%
LIBOR floor paid in kind quarterly in arrears. The payment-in-kind interest represents a non-cash operating and financing activity on the consolidated statements of cash flows for the three-month period ended March 31, 2017.
On December 8, 2017, in connection with the refinancing defined above, Eagle Shipping repaid the outstanding debt and accumulated payment-in-kind interest aggregating
$77.4 million
, and discharged the debt under the Second Lien Facility in full.
Scheduled Debt Maturities
The following table presents the scheduled maturities of principal amounts of our debt obligations, excluding the impact of any future vessel sales, for the next five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norwegian Bond Debt
|
New First Lien Facility
|
Ultraco Debt Facility
|
Total
|
Six months ended December 31, 2018
|
$
|
4,000,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,000,000
|
|
2019
|
8,000,000
|
|
10,750,000
|
|
8,937,855
|
|
27,687,855
|
|
2020
|
8,000,000
|
|
8,600,000
|
|
7,150,285
|
|
23,750,285
|
|
2021
|
8,000,000
|
|
8,600,000
|
|
7,150,285
|
|
23,750,285
|
|
2022
|
172,000,000
|
|
32,050,000
|
|
46,561,575
|
|
250,611,575
|
|
|
$
|
200,000,000
|
|
$
|
60,000,000
|
|
$
|
69,800,000
|
|
$
|
329,800,000
|
|
Note 5. Derivative Instruments and Fair Value Measurements
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing these markets as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized and realized gains and losses are recognized
as a component of other expense in the Condensed Consolidated Statement of Operations and Other current assets and Fair value of derivatives in the Consolidated Balance Sheets. Derivatives are considered to be Level 2 instruments in the fair value hierarchy.
The effect of non-designated derivative instruments on the condensed consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (gain)/loss
|
Derivatives not designated as hedging instruments
|
Location of (gain)/loss recognized
|
|
For the
Three Months Ended
|
|
For the
For the Six Months Ended
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
FFAs
|
Other income
|
|
$
|
36,625
|
|
|
$
|
(1,049,363
|
)
|
|
$
|
82,432
|
|
|
$
|
(788,715
|
)
|
Bunker Swaps
|
Other income
|
|
(776,981
|
)
|
|
(42,859
|
)
|
|
(722,409
|
)
|
|
3,052
|
|
Total
|
|
$
|
(740,356
|
)
|
|
$
|
(1,092,222
|
)
|
|
$
|
(639,977
|
)
|
|
$
|
(785,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
Balance Sheet location
|
|
Fair Value of Derivatives
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
FFAs
|
Fair value of derivatives
|
|
$
|
461,993
|
|
|
$
|
73,170
|
|
FFAs
|
Other current assets
|
|
117,360
|
|
|
—
|
|
Bunker Swaps
|
Other current assets
|
|
635,258
|
|
|
128,845
|
|
Cash Collateral Disclosures
The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined in the terms of respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of
June 30, 2018
and
December 31, 2017
, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $
891,344
and
$178,836
, respectively, which is recorded within other current assets in the condensed consolidated balance sheets.
Fair Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash, cash equivalents and restricted cash—
the carrying amounts reported in the condensed consolidated balance sheets for interest-bearing deposits approximate their fair value due to the short-term nature thereof.
Debt
—the carrying amounts of borrowings under the Norwegian Bond Debt, the New First Lien Facility and the Ultraco Debt Facility (prior to application of the discount and debt issuance costs) including the Revolving Loan approximate their fair value, due to the variable interest rate nature thereof.
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. Our Level 1 non-derivatives include cash, money-market accounts, certain short-term investments and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include our short-term investments and debt balances under the Norwegian Bond Debt, the New First Lien Facility and the Ultraco Debt Facility.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
June 30, 2018
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
76,956,034
|
|
|
$
|
76,956,034
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
Norwegian Bond Debt *
|
194,381,482
|
|
|
—
|
|
|
205,250,000
|
|
New First Lien Facility **
|
58,803,586
|
|
|
—
|
|
|
60,000,000
|
|
Ultraco Debt Facility **
|
68,626,510
|
|
|
—
|
|
|
69,800,000
|
|
* The fair value of the Bonds is based on the last trade on May 24, 2018 on Bloomberg.com.
** The fair value of the New First Lien Facility and the Ultraco Debt Facility is based on the required repayment to the lenders if the debt was discharged in full on June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
December 31, 2017
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
56,325,961
|
|
|
$
|
56,325,961
|
|
|
$
|
—
|
|
Short-term investment
|
4,500,000
|
|
|
|
|
4,500,000
|
|
Liabilities
|
|
|
|
|
|
Norwegian Bond Debt
(2)
|
193,950,329
|
|
|
—
|
|
|
200,990,000
|
|
New First Lien Facility
|
63,758,185
|
|
|
—
|
|
|
65,000,000
|
|
Ultraco Debt Facility
|
59,975,162
|
|
|
—
|
|
|
61,200,000
|
|
(1)
Includes non-current restricted cash aggregating
$74,917
at
June 30, 2018
and December 31, 2017.
(2)
The fair value of the Bonds is based on the last trade on December 21, 2017.
Note 6. Commitments 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. 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.
In November 2015, the Company filed a voluntary self-disclosure report with OFAC regarding certain apparent violations of U.S. sanctions regulations in the provision of shipping services for third party charterers with respect to the transportation of cargo to or from Myanmar (formerly Burma) (the “OFAC Disclosure”). At the time of such apparent violations, the Company had a different senior operational management team. Notwithstanding the fact that the apparent violations took place under a different senior operational management team and although the Company’s new Board of Directors and management have implemented robust remedial measures and significantly enhanced its compliance safeguards, there can be no assurance that OFAC will not conclude that these past actions warrant the imposition of civil penalties and/or referral for further investigation by the U.S. Department of
Justice. The report was provided to OFAC for the agency’s review, consideration and determination regarding what action, if any, may be taken in resolution of this matter. The Company will continue to cooperate with the agency regarding this matter and cannot estimate when such review will be concluded. While the ultimate impact of these matters cannot be determined, there can be no assurance that the impact will not be material to the Company’s financial condition or results of operations.
Other Commitments
On July 28, 2011, the Company entered into an agreement to charter in a
37,000
dwt newbuilding Japanese vessel that was delivered in October 2014 for
seven years
with an option for an additional
one year
. The hire rate for the first to seventh year is
$13,500
per day and
$13,750
per day for the eighth year option. On May 10, 2017, the Company signed an agreement to cancel this existing time charter contract. The Company agreed to pay a lump sum termination fee of
$1.5 million
relating to the cancellation. At the same time, the Company entered into an agreement with the same lessor, effective April 28, 2017 to charter in a
61,400
dwt, 2013 built Japanese vessel for approximately
three years
(having the same redelivery dates as the aforementioned cancelled charter) with options for
two
additional years. The hire rate for the first three years is
$12,800
per day and the hire rate for the first optional year is
$13,800
per day and
$14,300
per day for the second optional year.
On May 4, 2018, the Company entered into an agreement to charter-in a
61,425
dwt 2013 built Ultramax vessel for
three
years with an option for an additional
two
years. The hire rate for the first three years is
$12,700
per day and
$13,750
per day for the 1st year option and
$14,750
per day for the second year option. The Company expects to take delivery of the vessel in the third quarter of 2018.
On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for
$21.3 million
. The Company is expected to take delivery of the vessel, to be named Hamburg Eagle, in the fourth quarter of 2018.
Note 7. Income/(loss) Per Common Share
The computation of basic net income/(loss) per share is based on the weighted average number of common shares outstanding for the
three and six
months ended
June 30, 2018
and
2017
. Diluted net income/(loss) per share gives effect to stock awards, stock options and restricted stock units using the treasury stock method, unless the impact is anti-dilutive. Diluted net income per share as of
June 30, 2018
does not include
1,452
stock awards,
352,000
stock options and
152,266
warrants, as their effect was anti-dilutive. Diluted net loss per share for the three months ended
June 30, 2017
does not include
1,843,211
stock awards,
1,865,865
stock options and
152,266
warrants, as their effect was anti-dilutive.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
Net income/(loss)
|
$
|
3,450,767
|
|
|
$
|
(5,888,466
|
)
|
|
$
|
3,503,512
|
|
|
$
|
(16,956,914
|
)
|
Weighted Average Shares - Basic
|
70,515,320
|
|
|
70,329,050
|
|
|
70,484,240
|
|
|
67,996,330
|
|
Dilutive effect of stock options and restricted stock units
|
1,571,660
|
|
|
—
|
|
|
1,076,535
|
|
|
—
|
|
Weighted Average Shares - Diluted
|
72,086,980
|
|
|
70,329,050
|
|
|
71,560,775
|
|
|
67,996,330
|
|
Basic income/(loss) per share
|
$
|
0.05
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.25
|
)
|
Diluted income/(loss) per share
|
$
|
0.05
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.25
|
)
|
Note 8. Stock Incentive Plans
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered
5,348,613
shares of common stock, which may be issued under the 2016 Plan. The 2016 Plan replaced the post-emergence Management Incentive Program (the “2014 Plan”) and no other awards will be granted under the 2014 Plan. Outstanding awards under the 2014 Plan will continue to be governed by the terms of the 2014 Plan until exercised, expired, otherwise terminated, or canceled. As of December 31, 2016,
24,644
shares of common stock were subject to outstanding awards under the
2014 Plan. Under the terms of the 2016 Plan, awards for up to a maximum of
3,000,000
shares may be granted under the 2016 Plan to any one employee of the Company and its subsidiaries during any one calendar year, and awards in the form of options and stock appreciation rights for up to a maximum of
3,000,000
shares may be granted under the 2016 Plan. The total number of shares of common stock with respect to which awards may be granted under the 2016 Plan to any non-employee director during any one calendar year shall not exceed
500,000
, subject to adjustment as provided in the 2016 Plan. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan.
On January 4, 2018, the Company granted
948,500
restricted shares as a company wide grant to all employees. The fair value of the grant based on the closing share price on January 4, 2018 was
$4.5 million
. The shares will vest in equal installments over a
three
year term. Amortization of this charge utilizing the graded method of vesting, which is included in General and administrative expenses, for the three months ended March 31, 2018, was
$0.6 million
. Additionally, the Company granted
30,000
common shares to its board of directors. The fair value of the grant based on the closing share price on January 10, 2018 was
$0.1 million
. The shares vested immediately.
As of
June 30, 2018
and December 31,
2017
, stock awards covering a total of
2,519,805
and
1,716,928
of the Company’s common shares, respectively, are outstanding under the 2014 Plan and 2016 Plan. The vesting terms range between
one
to
three years
from the grant date. The Company is amortizing to stock-based compensation expense included in general and administrative expenses the fair value of non-vested stock awards at the grant date.
As of
June 30, 2018
and December 31,
2017
, options covering
2,290,211
and
2,301,046
of the Company’s common shares, respectively, are outstanding with exercise prices ranging from
$4.28
to
$505.00
per share. The options vest and become exercisable in
four
equal installments beginning on the grant date. All options expire within
seven years
from the effective date.
Stock-based compensation expense for all stock awards and options included in General and administrative expenses:
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For the
For the Three Months Ended
|
|
For the
For the Six Months Ended
|
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
Stock awards /Stock Option Plans
|
$
|
2,409,599
|
|
|
$
|
2,478,051
|
|
|
$
|
5,920,510
|
|
|
$
|
4,648,751
|
|
The future compensation to be recognized for all the grants issued for the six month period ending
December 31, 2018
, and the years ending December 31,
2019
and
2020
will be $
$3,337,906
, $
$2,585,709
and $
$648,078
, respectively.
Note 9. Subsequent Events
On July 20, 2018, the Company, through its subsidiary Eagle Bulk Holdco LLC, signed a memorandum of agreement to acquire a 2014 built Ultramax vessel for
$21.3 million
. The Company is expected to take delivery of the vessel, to be named Hamburg Eagle, in the fourth quarter of 2018.