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 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
one
business segment.
As of
March 31, 2019
, the Company owned and operated a modern fleet of
46
oceangoing vessels, including
32
Supramax and
14
Ultramax vessels with a combined carrying capacity of
2,668,588
deadweight tonnage ("dwt") and an average age of approximately
8.8 years
. Additionally, the Company charters-in
three
61,400
dwt, 2013 built Ultramax vessels for an average remaining period of approximately
two
years. In addition, the Company charters-in third-party vessels on a short to medium term basis.
For the
three
months ended
March 31, 2019
and
2018
, 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 that 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
2018
Annual Report on Form 10-K, filed with the SEC on March 13, 2019.
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.
As of January 1, 2019, we adopted ASU No. 2016-02, "Leases," as amended ("ASC 842" or the "new lease standard”). ASC 842 increases transparency and comparability among organizations by requiring a lessee to record right-of-use assets and related lease liabilities on its balance sheet when it commences an operating lease. The Company adopted ASC 842 using the modified retrospective transition method of adoption. Under this method, the cumulative effect of applying the new lease standard is recorded with no restatement of any comparative prior periods presented. As provided by ASC 842, the Company elected to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As a result, prior periods as reported by the Company have not been impacted by the adoption. As required by ASC 842, the Company's disclosures around its leasing activities have been significantly expanded to enable users of our condensed consolidated financial statements to assess the amount, timing and uncertainty of cash flows arising from lease arrangements. Please refer to Note 2. Recent 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, fair value of right-of-use asset and lease liability and the fair value of derivatives. Actual results could differ from those estimates.
Note 2. Recent Accounting Pronouncements
Adoption of new accounting standards
The Company adopted the accounting standards described below during the first quarter of 2019:
Leases
On January 1, 2019, the Company adopted ASC 842. ASC 842 revises the accounting for leases. Under the new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. The new lease standard will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The accounting applied by a lessor under the new guidance will be substantially equivalent to current lease accounting guidance.
The following are the type of contracts that fall under ASC 842:
Time charter out contracts
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 and 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 Company determined that all time charter contracts are considered operating leases and therefore fall under the scope of ASC 842 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.
The transition guidance associated with ASC 842 allows for certain practical expedients to the lessors. The Company elected to not separate the lease and non-lease components included in the time charter revenue because (i) the pattern of revenue recognition for the lease and non-lease components (included in the daily hire rate) is the same. The daily hire rate represents the hire rate for a bare boat charter as well as the compensation for expenses incurred running the vessel such as crewing expense, repairs, insurance, maintenance and lubes. Both the lease and non-lease components are earned by passage of time.
The adoption of ASC 842 did not materially impact our accounting for time charter out contracts. The revenue generated from time charter out contracts is recognized on a straight-line basis over the term of the respective time charter agreements, which are recorded as part of revenues, net in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2019 and 2018.
Time charter in contracts
The Company charters in vessels to supplement our own fleet and employs them both on time charters and voyage charters. The time charter in contracts range in lease terms from
30
days to
2.5
years. The Company elected the practical expedient of ASC 842 that allows for time charter in contracts with an initial lease term of less than
12
months to be excluded from the operating lease right-of-use assets and lease liabilities recognized on our Condensed Consolidated Balance Sheet as of January 1, 2019. The Company recognized the operating lease right-of-use assets and the corresponding lease liabilities on the Condensed Consolidated Balance sheet for time charter in contracts greater than 12 months on the date of adoption of ASC 842. The Company will continue to recognize the lease payments for all operating leases as charter hire expense on the condensed consolidated statements of operations on a straight-line basis over the lease term.
Under ASC 842, leases are classified as either finance or operating arrangements, with such classification affecting the pattern and classification of expense recognition in an entity's income statement. For operating leases, ASC 842 requires recognition in an entity’s income statement of a single lease expense, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Right-of-use assets represent a right to use an underlying asset for the lease term and the related lease liability represents an obligation to make lease payments pursuant to the contractual terms of the lease agreement.
At lease commencement, a lessee must develop a discount rate to calculate the present value of the lease payments so that it can determine lease classification and measure the lease liability. When determining the discount rate to be used at lease commencement, a lessee must use the rate implicit in the lease unless that rate cannot be readily determined. When the rate implicit in the lease cannot be readily determined, the lessee should use its incremental borrowing rate. The incremental borrowing rate is the rate that reflects the interest a lessee would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment. The Company determined that the time charter in contracts do not contain an implicit borrowing rate. Therefore, the Company arrived at the incremental borrowing rate by determining the Company's implied credit rating and the yield curve for debt as of January 1, 2019. The Company then interpolated the yield curve to determine the incremental borrowing rate for each lease based on the remaining lease term on the specific lease. Based on the above methodology, the Company's incremental borrowing rates ranged from
5.05%
to
6.08%
for the
five
lease contracts for which the Company recorded operating lease right-of-use assets and corresponding lease liabilities.
The Company has time charter in contracts for
three
Ultramax vessels which are greater than 12 months as of the date of adoption of ASC 842. The brief description of the contracts is below:
(i) The Company entered into an agreement effective April 28, 2017, to charter in a
61,400
dwt, 2013 built Japanese vessel for approximately
four
years (having the same redelivery dates as the aforementioned cancelled time charter contract) with options for
two
additional years. The hire rate for the first four 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. The Company determined that it will not exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset. In addition, the Company’s fair value below contract value of time charters acquired of
$1.8 million
as of December 31, 2018, which related to the unamortized value of a prior charter with the same counterparty that had been recorded at the time of the Company’s emergence from bankruptcy was offset against the corresponding right of use asset on this lease as of January 1, 2019.
(ii) 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 first year option and
$14,750
per day for the second year option. The Company took delivery of the vessel in the third quarter of 2018. The Company determined that it will not exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset.
(iii) On December 9, 2018, the Company entered into an agreement to charter-in a
62,487
dwt 2016 built Ultramax vessel for
two
years. The hire rate for the vessel until March 2020 is
$14,250
per day and
$15,250
per day thereafter. The Company took delivery of the vessel in the fourth quarter of 2018. The Company determined that it will not exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset.
Office leases
On October 15, 2015, the Company entered into a new commercial lease agreement as a subtenant for office space in Stamford, Connecticut. The lease is effective from January 2016 through June 2023, with an average annual rent of
$0.4 million
. The lease is secured by a letter of credit backed by cash collateral of
$74,917
which amount is recorded as restricted cash in the accompanying condensed consolidated balance sheets. In November 2018, the Company entered into a lease office agreement in Singapore, which expires in October 2021, with an average annual rent of
$0.3 million
. The Company determined the
two
office leases to be operating leases and records the lease expense as part of General and administrative expenses in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2019 and 2018.
Adoption of ASC 842
The Company adopted ASC 842 on January 1, 2019, which resulted in the recognition of operating lease right-of-use assets of
$28.7 million
and related lease liabilities for operating leases of
$30.5 million
in Total Assets and Total Liabilities, respectively, on our Condensed Consolidated Balance Sheet on January 1, 2019.
In connection with its adoption of ASC 842, the Company elected the "package of 3" practical expedients permitted under the transition guidance which are described below in which the Company is:
|
|
•
|
Allowed not to reassess whether any expired or existing contracts are or contain leases.
|
|
|
•
|
Allowed not to reassess any expired or existing lease classifications.
|
|
|
•
|
Allowed not to reassess initial direct costs for any existing leases.
|
Additionally, the Company elected the practical expedient allowed under the transition guidance of ASC 842 to not separate the lease and non-lease components related to a lease contract and to account for them as a single lease component for the purposes of the recognition and measurement requirements of ASC 842.
The Company elected not to use the practical expedient of hindsight in determining the lease term and in assessing the impairment of the Company's operating lease right-of-use assets.
Prior to January 1, 2019, the Company recognized lease expense in accordance with then-existing U.S. GAAP (“prior GAAP”). Because both ASC 842 and prior GAAP generally recognize operating lease expense on a straight-line basis over the term of the lease arrangement and the Company only has operating lease arrangements, there were no material differences between the timing and amount of lease expense recognized under the two accounting methodologies during the three months ended March 31, 2019 and 2018.
Lease Disclosures Under ASC 842
The objective of the disclosure requirements under ASC 842 is to enable users of an entity’s financial statements to assess the amount, timing and uncertainty of cash flows arising from lease arrangements. In addition to the supplemental qualitative leasing disclosures included above, below are quantitative disclosures that are intended to meet the stated objective of ASC 842.
Operating lease right-of-use asset and lease liabilities as of March 31, 2019 and January 1, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
Description
|
Location in Balance Sheet
|
March 31, 2019
|
|
January 1, 2019 **
|
Assets:
|
|
|
|
|
Chartered-in contracts greater than 12 months *
|
Operating lease right-of-use assets
|
$
|
23,031,702
|
|
|
$
|
26,144,409
|
|
Office leases
|
Operating lease right-of-use assets
|
2,402,191
|
|
|
2,560,593
|
|
|
|
$
|
25,433,893
|
|
|
$
|
28,705,002
|
|
Liabilities :
|
|
|
|
|
Chartered-in contracts greater than 12 months
|
Current portion of operating lease liabilities
|
$
|
13,138,079
|
|
|
$
|
13,802,149
|
|
Office leases
|
Current portion of operating lease liabilities
|
636,967
|
|
|
693,203
|
|
|
|
$
|
13,775,046
|
|
|
$
|
14,495,352
|
|
|
|
|
|
|
Chartered-in contracts greater than 12 months
|
Operating lease liabilities
|
$
|
11,377,720
|
|
|
$
|
14,160,374
|
|
Office leases
|
Operating lease liabilities
|
1,765,223
|
|
|
1,867,390
|
|
|
|
$
|
13,142,943
|
|
|
$
|
16,027,764
|
|
* The Company netted
$1.8 million
which was previously recorded as fair value on time charters acquired in the Condensed Consolidated Balance Sheet as of December 31, 2018 against the Operating lease right-of-use asset upon adoption of ASC 842 on January 1, 2019.
** The Operating lease right-of-use asset and Operating lease liabilities represent the present value of lease payments for the remaining term of the lease. The discount rate used ranged from
5.05%
to
6.08%
. The weighted average discount rate used to calculate the lease liability was
5.48%
.
The table below presents the components of the Company’s lease expense and sub lease income on a gross basis earned from chartered-in contracts greater than 12 months for the three months ended March 31, 2019:
|
|
|
|
|
|
|
Description
|
Location in Statement of Operations
|
|
Amount
|
|
|
|
|
Lease expense for chartered-in contracts less than 12 months
|
Charter hire expenses
|
|
$
|
8,360,743
|
|
Lease expense for chartered-in contracts greater than 12 months
|
Charter hire expenses
|
|
3,131,163
|
|
|
|
|
$
|
11,491,906
|
|
|
|
|
|
Lease expense for office leases
|
General and administrative expenses
|
|
$
|
178,000
|
|
|
|
|
$
|
178,000
|
|
|
|
|
|
Sub lease income from chartered-in contracts greater than 12 months *
|
Revenues, net
|
|
$
|
3,082,752
|
|
* The Sub lease income represents only time charter revenue earned on the chartered-in contracts greater than 12 months. There is additional revenue of
$0.8 million
earned from voyage charters on the same chartered in contracts which is recorded in Revenues, net in our Statement of Operations in the condensed consolidated financial statements for the three months ended March 31, 2019. Additionally, there is revenue earned from time charters from chartered-in contracts less than 12 months which is included in Revenues, net in our Statement of Operations for the three months ended March 31, 2019. Please see Note 2. Recent Accounting Pronouncements to the condensed consolidated financial statements for additional details on time charter revenue earned.
The Company did
no
t enter into any operating leases greater than 12 months for the three months ended March 31, 2019.
The weighted average remaining lease term on our chartered-in contracts greater than 12 months is
28.6
months.
The table below provides the total amount of lease payments on an undiscounted basis on our chartered-in contracts and office leases greater than 12 months as of March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
Year
|
Chartered in contracts greater than 12 months
|
Office leases
|
Operating leases
|
|
|
|
|
Discount rate upon adoption
|
5.37
|
%
|
5.80
|
%
|
5.48
|
%
|
|
|
|
|
Nine months ending December 31, 2019
|
$
|
10,569,508
|
|
$
|
535,680
|
|
$
|
11,105,188
|
|
2020
|
10,068,473
|
|
725,421
|
|
10,793,894
|
|
2021
|
5,622,630
|
|
716,405
|
|
6,339,035
|
|
2022
|
|
483,048
|
|
483,048
|
|
2023
|
|
244,878
|
|
244,878
|
|
|
$
|
26,260,611
|
|
$
|
2,705,432
|
|
$
|
28,966,043
|
|
|
|
|
|
Present value of lease liability
|
$
|
24,515,799
|
|
$
|
2,402,190
|
|
$
|
26,917,989
|
|
|
|
|
|
Lease liabilities - short term
|
$
|
13,138,079
|
|
$
|
636,967
|
|
$
|
13,775,046
|
|
Lease liabilities - long term
|
11,377,720
|
|
1,765,223
|
|
13,142,943
|
|
Total lease liabilities
|
$
|
24,515,799
|
|
$
|
2,402,190
|
|
$
|
26,917,989
|
|
|
|
|
|
Discount based on incremental borrowing rate
|
$
|
1,744,812
|
|
$
|
303,242
|
|
$
|
2,048,054
|
|
The future minimum commitments under the leases for office space as of December 31, 2018 are as follows:
|
|
|
|
|
|
2019
|
|
$
|
714,794
|
|
2020
|
|
728,212
|
|
2021
|
|
707,630
|
|
2022
|
|
483,048
|
|
2023
|
|
244,878
|
|
Total
|
|
$
|
2,878,562
|
|
The office rent expense for the three months ended March 31, 2018 was
$152,423
.
Revenue recognition
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 months ended March 31, 2019 and 2018 is not material.
The following table shows the revenues earned from time charters and voyage charters for the three months ended March 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
Time charters
|
$
|
27,504,191
|
|
|
$
|
29,323,219
|
|
Voyage charters
|
49,885,406
|
|
|
50,047,390
|
|
|
$
|
77,389,597
|
|
|
$
|
79,370,609
|
|
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.
Accounting standards issued but not yet adopted
The FASB has issued accounting standards that have not yet become effective and may impact the Company’s condensed consolidated financial statements or related disclosures in future periods. These standards and their potential impact are discussed below:
Fair Value Measurement Disclosures — In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU No. 2018-13"). ASU No. 2018-13, which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP disclosure requirements pertaining to fair value measurements, with an emphasis on Level 3 disclosures of the valuation hierarchy. ASU No. 2018-13 is effective on January 1, 2020, with early adoption permitted. The adoption of ASU No. 2018-13 is currently not expected to have a material impact on the Company's condensed consolidated financial statements.
Financial Instrument Credit Losses — In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU No. 2016-13"). ASU No. 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU No. 2016-13 is effective on January 1, 2020, with early adoption permitted. We are currently evaluating the potential impact of ASU No. 2016-13 on our condensed consolidated financial statements.
The FASB continues to work on a number of other significant accounting standards, which, if issued, could materially impact the Company's accounting policies and disclosures in future periods. As these standards have not yet been issued, the effective dates and potential impact are unknown.
Note 3. Vessels
Vessel and Vessel Improvements
As of
March 31, 2019
, the Company’s owned operating fleet consisted of
46
drybulk vessels.
On January 4, 2019, the Company signed a memorandum of agreement to sell the vessel Merlin, a 2001 built Supramax, for
$6.1 million
after brokerage commissions and associated selling expenses. The vessel was delivered to the buyers on January 23, 2019. The Company recorded a gain of
$1.9 million
in its condensed consolidated statements of operations for the three months ended March 31, 2019.
On December 21, 2018, the Company signed a memorandum of agreement to acquire a 2015 built Ultramax vessel for
$20.4 million
and paid a deposit of
$2.0 million
in 2018. The Company took delivery of the vessel, the Cape Town Eagle on January 11, 2019.
On December 13, 2018, the Company signed a memorandum of agreement to sell the vessel Condor, a 2001 built Supramax, for
$6.1 million
after brokerage commissions and associated selling expenses. The vessel was delivered to the buyer on January 7, 2019. The Company recorded a gain of
$2.2 million
in its condensed consolidated statement of operations for the three months ended March 31, 2019.
On September 4, 2018, the Company entered into a series of agreements to purchase up to
37
Scrubbers, which are to be fitted on the vessels. The agreements are comprised of firm orders for
19
Scrubbers and up to an additional
18
units, at the Company’s option. On November 20, 2018, the Company announced that it had exercised its option to purchase
15
of the
18
optional Scrubbers, and on January 23, 2019, the Company announced that it had exercised the remaining
three
options. The projected costs, including installation, is approximately
$2.2 million
per scrubber system. The Company intends to complete the installation of majority of
37
vessels prior to the January 1, 2020 implementation date of the new sulphur emission cap regulation, as set forth by the International Maritime Organization (“IMO”). The Company recorded
$26.1 million
of scrubber system costs in Other assets in the Condensed Consolidated Balance Sheet as of March 31, 2019.
On August 14, 2018, the Company entered into a contract for the installation of ballast water treatment systems ("BWTS") on
all
of our owned vessels. The projected costs, including installation, is approximately
$0.5 million
per BWTS. The Company intends to complete the installation during scheduled drydockings. The Company recorded
$2.0 million
for BWTS in Other assets in the Condensed Consolidated Balance Sheet as of March 31, 2019.
Vessel and vessel improvements consist of the following:
|
|
|
|
|
Vessels and vessel improvements, at December 31, 2018
|
$
|
682,944,936
|
|
Advance paid for purchase of Cape Town Eagle at December 31, 2018
|
2,040,000
|
|
Purchase of Vessels and Vessel Improvements
|
18,465,609
|
|
Vessel depreciation expense
|
(8,107,332
|
)
|
Vessels and vessel improvements, at March 31, 2019
|
$
|
695,343,213
|
|
Note 4. Debt
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Norwegian Bond Debt
|
$
|
196,000,000
|
|
|
$
|
196,000,000
|
|
Debt discount and debt issuance costs - Norwegian Bond Debt
|
(5,182,274
|
)
|
|
(5,530,845
|
)
|
Less: Current Portion - Norwegian Bond Debt
|
(8,000,000
|
)
|
|
(8,000,000
|
)
|
Norwegian Bond Debt, net of debt discount and debt issuance costs
|
182,817,726
|
|
|
182,469,155
|
|
New Ultraco Debt Facility
|
153,440,000
|
|
|
—
|
|
Debt issuance costs - New Ultraco Debt Facility
|
(3,342,231
|
)
|
|
—
|
|
Less: Current Portion - New Ultraco Debt Facility
|
(20,194,684
|
)
|
|
—
|
|
New Ultraco Debt Facility, net of debt discount and debt issuance costs
|
129,903,085
|
|
|
—
|
|
New First Lien Facility
|
—
|
|
|
60,000,000
|
|
Debt discount and debt issuance costs - New First Lien Facility
|
—
|
|
|
(1,060,693
|
)
|
Less: Current Portion - New First Lien Facility
|
—
|
|
|
(10,750,000
|
)
|
New First Lien Facility, net of debt discount and debt issuance costs
|
—
|
|
|
48,189,307
|
|
Original Ultraco Debt Facility
|
—
|
|
|
82,600,000
|
|
Debt discount and debt issuance costs - Original Ultraco Debt Facility
|
—
|
|
|
(1,248,885
|
)
|
Less: Current portion - Original Ultraco Debt Facility
|
—
|
|
|
(10,426,230
|
)
|
Original Ultraco Debt Facility, net of debt discount and debt issuance costs
|
—
|
|
|
70,924,885
|
|
Total long-term debt
|
$
|
312,720,811
|
|
|
$
|
301,583,347
|
|
New Ultraco Debt Facility
On January 25, 2019, Ultraco Shipping LLC ("Ultraco"), a wholly-owned subsidiary of the Company, entered into a new senior secured credit facility, as the borrower (the "New Ultraco Debt Facility"), with the Company and certain of its indirectly vessel-owning subsidiaries, as guarantors (the “Guarantors”), the lenders party thereto, the swap banks party thereto, ABN AMRO Capital USA LLC ("ABN AMRO"), Credit Agricole Corporate and Investment Bank, Skandinaviska Enskilda Banken AB ( PUBL) and DNB Markets Inc., as mandated lead arrangers and bookrunners, and ABNAMRO, as arranger, security trustee and facility agent. The New Ultraco Debt Facility provides for an aggregate principal amount of
$208.4 million
, which consists of (i) a term loan facility of
$153.4 million
and (ii) a revolving credit facility of
$55.0 million
. The proceeds from the New Ultraco Debt Facility were used to repay the outstanding debt including accrued interest under the Original Ultraco Debt Facility (as defined below) and the New First Lien Facility (as defined below) in full and for general corporate purposes. Subject to certain conditions set forth in the credit agreement, Ultraco may request an increase of up to
$60.0 million
in the aggregate principal amount of the Term Facility Loan. Outstanding borrowings under the New Ultraco Debt Facility bear interest at LIBOR plus
2.50%
per annum. The Company paid
$3.1 million
as debt issuance costs to the lenders.
The New Ultraco Debt Facility matures on the earlier of (i)
five
years from the initial borrowing date and (ii) February 15, 2024 (the “Maturity Date”). Pursuant to the terms of the facility, Ultraco must repay the aggregate principal amount of
$5.1 million
in quarterly installments for the first year and
$6.5 million
in quarterly installments from the second year until the Maturity Date. Additionally, there is a semi-annual catch up amortization payments from excess cash flow with a maximum cumulative payable of
$4.6 million
, with a final balloon payment of all remaining outstanding debt to be made on the Maturity Date.
Accrued interest on amounts outstanding under the New Ultraco Debt Facility 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 Ultraco and the Lenders. Ultraco
must prepay certain specified amounts outstanding under the credit agreement if an Ultraco Vessel (as defined below) is sold or becomes a total loss or if there is a change of control with respect to the Company, Ultraco or any Guarantor.
Ultraco’s obligations under the New Ultraco Debt Facility are secured by, among other items, a first priority mortgage on
21
vessels owned by the Guarantors 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 “Ultraco Vessels”), an assignment of certain accounts, an assignment of certain charters with terms that exceeds 12 months, an assignment of insurances, an assignment of certain master agreements, and a pledge of the membership interests of Eagle Ultraco and each Guarantor. In the future, Ultraco or the Guarantors may grant additional security to the Lenders from time to time.
The New Ultraco Debt Facility contains financial covenants requiring the Company, on a consolidated basis excluding Shipco and any of Shipco’s subsidiaries (each, a “Restricted Subsidiary”) and any of the vessels owned by any Restricted Subsidiary to maintain a minimum amount of free cash or cash equivalents in an amount not less than the greater of (i)
$0.6
million per owned vessel and (ii)
7.5%
of the total consolidated debt of the Company and its subsidiaries, excluding any Restricted Subsidiary, which currently consists of amounts outstanding under the New Ultraco Debt Facility. The New Ultraco Debt Facility also requires the Company to maintain a liquidity reserve of
$0.6
million per Ultraco Vessel in an unblocked account. Additionally, the credit agreement requires the Company, on a consolidated basis excluding any Restricted Subsidiary and the vessels owned by any Restricted Subsidiary, to maintain (i) a ratio of minimum value adjusted tangible equity to total assets ratio of not less than
0.30
:1, (ii) a consolidated interest coverage ratio of not less than a range varying from
1.50
to 1.00 to
2.50
to 1.00, and (iii) a positive working capital. The credit agreement also imposes operating restrictions on Ultraco and the Guarantors, including limiting Ultraco’s and the Guarantors’ ability to, among other things: 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. The credit agreement allows for the Company to pay dividends upon satisfaction of certain conditions set forth in the credit agreement. The Company is in compliance with its financial covenants as of March 31, 2019.
Finally, the credit agreement 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.
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
25
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
8.25%
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
$4.0
million, 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
|
|
100.0
|
%
|
Prior to the First Call Date, the Issuer may redeem some or all of the outstanding Bonds at a price equal to
100.0%
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
101.0%
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
75.0%
and its subsidiaries’ free liquidity must at all times be at least
$12.5
million. Shipco is in compliance with its financial covenants as of March 31, 2019.
In 2018, the Company signed a memorandum of agreement to sell the vessel Thrush for
$10.8 million
after brokerage commissions and associated selling expenses. Pursuant to the Bond Terms governing the Norwegian Bond Debt, the proceeds from the sale of vessels are to be held in a restricted account to be used for the financing of the acquisition of additional vessels by Shipco. As a result, the Company recorded the proceeds of the sale of Thrush as restricted cash at December 31, 2018 in the condensed consolidated financial statements.
On November 6, 2018, the Company received the approval for an amendment to the Bond Terms to allow for the proceeds from the sale of the Shipco vessels for partial financing of Scrubbers on Shipco vessels.
During the first quarter of 2019, the Company sold
two
vessels, Condor and Merlin for net proceeds of
$12.8 million
after brokerage commissions and associated selling expenses. Pursuant to the Bond Terms governing the Norwegian Bond Debt, the proceeds from the sale of vessels are to be held in a restricted account to be used for the financing of the acquisition of additional vessels by Shipco. As a result, the Company recorded the proceeds of the sale of Condor and Merlin as restricted cash at March 31, 2019 in the Condensed Consolidated Balance Sheet.
As of March 31, 2019, the Company used
$4.5 million
of proceeds received from sale of Shipco vessels for financing of Scrubbers.
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.
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
$15.0
million. 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
$0.2
million as other financing costs in connection with the transaction which was recorded as deferred financing costs on the Condensed Consolidated Balance Sheet at March 31, 2019.
As of March 31, 2019, the availability under the Super Senior Facility is
$15.0
million.
The outstanding borrowings under the Super Senior Facility 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
25
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
$12.5
million. 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
$100.0
million is outstanding under the Bond Terms. Shipco is in compliance with its financial covenants as of
March 31, 2019
.
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.
New First Lien Facility
On December 8, 2017, Eagle Shipping LLC, a wholly-owned subsidiary of the Company ("Eagle Shipping") entered into a credit agreement ( the "New First Lien Facility"), which provided for (i) a term loan facility in an aggregate principal amount of up to
$60.0 million
(the “Term Loan”) and (ii) a revolving credit facility in an aggregate principal amount of up to
$5.0 million
(the “Revolving Loan”). Outstanding borrowings under the New First Lien Facility bore 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.
On January 25, 2019, the Company repaid the outstanding balances of the Term Loan and the Revolving Loan together with accrued interest as on that date and discharged the debt under the New First Lien Facility in full from the proceeds of the New Ultraco Debt Facility. The Company accounted for the above transaction as a debt extinguishment. As a result, the Company recognized
$1.1 million
representing the outstanding balance of debt issuance costs as loss on debt extinguishment in the Condensed Consolidated Statement of Operations for the three months ended
March 31, 2019
.
Original Ultraco Debt Facility
On June 28, 2017, Ultraco, a wholly-owned subsidiary of the Company, entered into a credit agreement (the “Original Ultraco Debt Facility”), by and among Ultraco, as borrower, certain wholly-owned vessel-owning subsidiaries of Ultraco, as guarantors (the “Ultraco Guarantors”).
On January 25, 2019, the Company repaid the outstanding balance of the of the Original Ultraco Debt facility and discharged the debt in full from the proceeds of the New Ultraco Debt Facility. The Company accounted for the above transaction as a debt extinguishment. As a result, the Company recognized
$1.2 million
representing the outstanding balance of debt issuance costs as loss on debt extinguishment in the Condensed Consolidated Statement of Operations for the three months ended
March 31, 2019
.
Interest Rates
For the
three
months ended
March 31, 2019
, 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 this period was approximately
8.96%
.
For the three months ended
March 31, 2019
, the interest rate on the New Ultraco Debt Facility was
4.15%
including a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and commitment fees of
40%
of the margin on the undrawn portion of the revolver credit facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount for this period was
5.26%
.
For the three months ended
March 31, 2019
, the interest rate on the New First Lien Facility, which was repaid on January 25, 2019, ranged from
5.89%
to
6.01%
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
6.45%
.
For the three months ended
March 31, 2019
, the interest rate on the Original Ultraco Debt Facility, which was repaid on January 25, 2019, was
5.28%
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
6.80%
.
For the three months ended
March 31, 2018
, interest rates on our outstanding debt under the Norwegian Bond Debt was
8.25%
. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was
8.87%
. The 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
5.44%
. The interest rates on the Original Ultraco Debt Facility was
4.64%
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
5.29%
.
The following table summarizes the Company’s total interest expense for:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
New First Lien Facility interest
|
$
|
293,545
|
|
|
$
|
816,967
|
|
New Ultraco Debt Facility interest
|
1,458,570
|
|
|
—
|
|
Norwegian Bond Debt interest
|
4,042,500
|
|
|
4,125,000
|
|
Original Ultraco Debt Facility interest
|
362,257
|
|
|
799,674
|
|
Amortization of debt discount and debt issuance costs
|
503,716
|
|
|
490,095
|
|
Commitment fees on revolving credit facilities
|
101,415
|
|
|
29,333
|
|
Total Interest Expense
|
$
|
6,762,003
|
|
|
$
|
6,261,069
|
|
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 Ultraco Debt Facility
|
Total
|
Nine months ending December 31, 2019
|
$
|
8,000,000
|
|
$
|
15,146,013
|
|
$
|
23,146,013
|
|
2020
|
8,000,000
|
|
24,649,394
|
|
32,649,394
|
|
2021
|
8,000,000
|
|
26,134,297
|
|
34,134,297
|
|
2022
|
172,000,000
|
|
26,134,297
|
|
198,134,297
|
|
2023
|
—
|
|
26,134,297
|
|
26,134,297
|
|
Thereafter
|
—
|
|
35,241,702
|
|
35,241,702
|
|
|
$
|
196,000,000
|
|
$
|
153,440,000
|
|
$
|
349,440,000
|
|
Note 5. Derivative Instruments
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing this market 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 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 Condensed 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Derivatives not designated as hedging instruments
|
Location of (gain)/loss recognized
|
|
2019
|
|
2018
|
FFAs
|
Other (income)/expense
|
|
$
|
(1,170,288
|
)
|
|
$
|
54,934
|
|
Bunker Swaps
|
Other (income)/expense
|
|
(1,267,967
|
)
|
|
45,445
|
|
Total
|
|
|
$
|
(2,438,255
|
)
|
|
$
|
100,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives
|
Derivatives not designated as hedging instruments
|
Balance Sheet location
|
|
March 31, 2019
|
|
December 31, 2018
|
FFAs - Unrealized gain
|
Other current assets
|
|
$
|
2,400,435
|
|
|
$
|
669,240
|
|
Bunker Swaps - Unrealized gain
|
Other current assets
|
|
297,646
|
|
|
—
|
|
Bunker Swaps - Unrealized loss
|
Fair value of derivatives
|
|
—
|
|
|
(929,313
|
)
|
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
March 31, 2019
and
December 31, 2018
, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $
1.7
million and
$0.8
million, respectively, which is recorded within Other current assets in the Condensed Consolidated Balance Sheets.
Note 6. 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 and the New 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 and the New Ultraco Debt Facility.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
79,998,349
|
|
|
$
|
79,998,349
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
Norwegian Bond Debt
(2)
|
190,817,726
|
|
|
—
|
|
|
196,000,000
|
|
The New Ultraco Debt Facility
(3)
|
150,097,769
|
|
|
—
|
|
|
153,440,000
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
78,163,638
|
|
|
$
|
78,163,638
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
Norwegian Bond Debt
(2)
|
190,469,155
|
|
|
—
|
|
|
195,040,000
|
|
New First Lien Facility
(4)
|
58,939,307
|
|
|
—
|
|
|
60,000,000
|
|
Original Ultraco Debt Facility
(4)
|
81,351,115
|
|
|
—
|
|
|
82,600,000
|
|
|
|
|
|
|
|
(1) Includes non-current restricted cash aggregating
$19.3
million at
March 31, 2019
and
$11.0
million at December 31, 2018.
(2) The fair value of the Bonds is based on the last trade on March 31, 2019 and December 21, 2018 on Bloomberg.com.
(3) The fair value of the liabilities is based on the required repayment to the lenders if the debt was discharged in full on
March 31, 2019
.
(4 ) The New First Lien Facility and the Original Ultraco Debt Facility were discharged in full at the fair value mentioned in this table on January 25, 2019 as part of the debt refinancing transaction. Please see Note 4. Debt to the condensed consolidated financial statements.
Note 7. 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 condensed consolidated financial condition or results of operations.
Note 8. Income Per Common Share
The computation of basic net income per share is based on the weighted average number of common shares outstanding for the
three
months ended
March 31, 2019
and
2018
. Diluted net income 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
March 31, 2019
does not include
2,750
stock awards,
348,625
stock options and
152,266
warrants, as their effect was anti-dilutive. Diluted net income per share for the three months ended
March 31, 2018
does not include
2,140
stock awards,
1,402,906
stock options and
152,266
warrants, as their effect was anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net income
|
|
$
|
29,483
|
|
|
$
|
52,745
|
|
Weighted Average Shares - Basic
|
|
71,283,301
|
|
|
70,452,814
|
|
Dilutive effect of stock options and restricted stock units
|
|
787,567
|
|
|
1,079,050
|
|
Weighted Average Shares - Diluted
|
|
72,070,868
|
|
|
71,531,864
|
|
Basic income per share
|
|
$
|
—
|
|
|
$
|
—
|
|
Diluted income per share
|
|
$
|
—
|
|
|
$
|
—
|
|
Note 9. 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. The Company withheld shares related to restricted stock awards that vested in 2018 at the fair market value equivalent to the maximum statutory withholding obligation and remitted that amount in cash to the appropriate taxation authorities.
On January 2, 2019, the Company granted
781,890
restricted shares as a company-wide grant under the 2016 Plan. The fair value of the grant based on the closing share price on December 31, 2018 was
$3.7 million
. The shares will vest in equal installments over a
three
year term. Additionally, the Company granted
28,200
common shares to its board of directors. The fair value of the grant based on the closing share price of December 31, 2018 was
$0.1 million
. The shares vested immediately. The amortization of the
above grant is
$0.6 million
which is included in general and administrative expenses in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2019.
As of
March 31, 2019
and December 31,
2018
, stock awards covering a total of
1,833,936
and
1,496,953
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
March 31, 2019
and December 31,
2018
, vested options covering
1,617,169
and
1,506,461
of the Company’s common shares, respectively, are outstanding with exercise prices ranging from
$4.28
to
$505.00
per share.
As of March 31, 2019 and December 31, 2018, unvested options covering
681,127
and
791,835
of the Company's common shares, respectively, are outstanding with exercise prices ranging from
$4.28
to
$5.56
per share. The options vest and become exercisable in
four
equal installments beginning on the grant date. All options expire within
five 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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|
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|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Stock awards /Stock Option Plans
|
$
|
1,445,469
|
|
|
$
|
3,510,911
|
|
The future compensation to be recognized for all the grants issued for the nine month period ending
December 31, 2019
, and the years ending December 31,
2020
and
2021
will be
$3.4 million
,
$1.6 million
and
$0.4 million
, respectively.
Note 10. Subsequent Events
On May 2, 2019, the Company signed a memorandum of agreement to sell the vessel Thrasher for gross proceeds of
$10.1 million
. The vessel is expected to be delivered to the buyers in the second quarter of 2019. The Company expects to record a gain of approximately
$0.8 million
in its condensed consolidated statements of operations.