Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): August 29, 2019 
 
Eagle Bulk Shipping Inc.
(Exact name of registrant as specified in its charter)
 
Republic of the Marshall Islands
001-33831
98-0453513
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(IRS employer identification no.)
 
 
 
 
300 First Stamford Place, 5th Floor
Stamford, CT 06902
 
(Address of principal executive offices, including zip code)
 
(Registrant's telephone number, including area code): (203) 276-8100
 
(Former Name or Former Address, if Changed Since Last Report): None

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
EGLE
The Nasdaq Stock Market LLC

 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[_]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[_]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[_]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[_]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
 





Item 7.01.    Regulation FD Disclosure.

As previously reported, on November 28, 2017, Eagle Bulk Shipco LLC (“Shipco”), a wholly-owned subsidiary of Eagle Bulk Shipping, Inc., a Republic of the Marshall Islands corporation (the “Company”), issued $200,000,000 in aggregate principal amount of 8.250% Senior Secured Bonds 2017/2022, pursuant to those certain Bond Terms (the “Bond Terms”), dated as of November 22, 2017, by and between Shipco, as issuer, and Nordic Trustee AS, a company existing under the laws of Norway (the “Bond Trustee”). Under the Bond Terms, Shipco is required to prepare and make available on the Company’s website unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and are attached to this Form 8-K as Exhibit 99.1.

The information in this Item 7.01 of this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01.    Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number
 
Description
 
 
 
 





  
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
EAGLE BULK SHIPPING INC.
 
(registrant)
 
 
 
Dated: August 29, 2019
By:
/s/ Frank De Costanzo
 
Name:
Frank De Costanzo
 
Title:
Chief Financial Officer
 
 
 


Exhibit
Exhibit 99.1





















EAGLE BULK SHIPCO LLC
AND SUBSIDIARIES

Fleet List

Responsibility Statement

Condensed Consolidated Financial Statements as of and for the Three and Six Months Ended
June 30, 2019 and 2018
(Unaudited)











TABLE OF CONTENTS

 
PART I
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 







Our Fleet

The 24 vessels in our owned fleet as of June 30, 2019 are fitted with cargo cranes and cargo grabs that enable our vessels to load and unload cargo in ports that do not have shore-side cargo handling infrastructure in place. Our owned vessels are flagged in the Marshall Islands and are employed on time and voyage charters. Our owned fleet as of June 30, 2019 included the following vessels:
Vessel
 
Class
 
Dwt
 
Year Built
 
 
 
 
 
 
 
Bittern
 
Supramax
 
57,809

 
 
2009
Canary
 
Supramax
 
57,809

 
 
2009
Cardinal
 
Supramax
 
55,362

 
 
2004
Crane
 
Supramax
 
57,809

 
 
2010
Crested Eagle
 
Supramax
 
55,989

 
 
2009
Crowned Eagle
 
Supramax
 
55,940

 
 
2008
Egret Bulker
 
Supramax
 
57,809

 
 
2010
Goldeneye
 
Supramax
 
52,421

 
 
2002
Hawk I
 
Supramax
 
50,296

 
 
2001
Jaeger
 
Supramax
 
52,483

 
 
2004
Kestrel I *
 
Supramax
 
50,351

 
 
2004
Oriole
 
Supramax
 
57,809

 
 
2011
Osprey I
 
Supramax
 
50,206

 
 
2002
Owl
 
Supramax
 
57,809

 
 
2011
Petrel Bulker
 
Supramax
 
57,809

 
 
2011
Puffin Bulker
 
Supramax
 
57,809

 
 
2011
Roadrunner Bulker
 
Supramax
 
57,809

 
 
2011
Sandpiper Bulker
 
Supramax
 
57,809

 
 
2011
Shrike
 
Supramax
 
53,343

 
 
2003
Singapore Eagle
 
Ultramax
 
63,386

 
 
2017
Skua
 
Supramax
 
53,350

 
 
2003
Stamford Eagle
 
Ultramax
 
61,530

 
 
2016
Stellar Eagle
 
Supramax
 
55,989

 
 
2009
Tern
 
Supramax
 
50,209

 
 
2003

* The Company entered into a memorandum of agreement to sell the vessel for gross proceeds of $7.3 million. The vessel is scheduled to be delivered to the buyers during the third quarter of 2019.
















3
                            





Responsibility Statement

We confirm, to the best of our knowledge, that the condensed consolidated financial statements as of and for the three and six months ended June 30, 2019 and 2018 have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit for the Issuer and the Company taken as a whole.


Stamford, CT USA, 29 August 2019

The Management of Eagle Bulk Shipco LLC

/s/ Gary Vogel
 
President and Chief Executive Officer
(Principal Executive Officer)
Gary Vogel
 
 
 
 
 
/s/ Frank De Costanzo
 
Vice President, Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer)
Frank De Costanzo
 
 


4
                            






INDEX TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
 
 
 
 
 
 
 








5
                            







EAGLE BULK SHIPCO LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
June 30, 2019
 
December 31, 2018
ASSETS:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
8,944,257

 
$
19,273,740

Accounts receivable
 
11,076,122

 
9,145,026

Accounts receivable - related party
 
894,376

 
2,620,894

Prepaid expenses
 
1,499,177

 
1,342,765

Inventories
 
6,329,553

 
8,411,747

Vessels held for sale
 

 
8,458,444

Other current assets
 
927,063

 
421,944

Total current assets
 
29,670,548

 
49,674,560

Noncurrent assets:
 
 
 
 
Vessels and vessel improvements, at cost, net of accumulated depreciation of $85,936,835 and $80,546,985, respectively
 
313,337,851

 
330,215,290

Restricted cash
 
26,789,061

 
10,878,968

Deferred drydocking costs, net
 
8,674,312

 
6,386,377

Deferred financing costs - Super Senior Revolver Facility
 
194,864

 
285,342

Other Assets
 
17,106,838

 
8,545,916

Total noncurrent assets
 
366,102,926

 
356,311,893

Total assets
 
$
395,773,474

 
$
405,986,453

LIABILITIES & STOCKHOLDER'S EQUITY:
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
4,200,376

 
$
6,521,222

Accrued interest
 
1,460,583

 
1,489,917

Other accrued liabilities
 
7,889,440

 
3,687,075

Unearned charter hire revenue
 
1,050,798

 
1,871,261

Current portion of long-term debt - Norwegian Bond Debt
 
8,000,000

 
8,000,000

Total current liabilities
 
22,601,197

 
21,569,475

Noncurrent liabilities:
 
 
 
 
Norwegian Bond Debt, net of debt discount and debt issuance costs
 
179,151,901

 
182,469,155

Total noncurrent liabilities
 
179,151,901

 
182,469,155

Total liabilities
 
201,753,098

 
204,038,630

 
 
 
 
 
Stockholder's equity:
 
 
 
 
Common shares, zero par value, 100 shares authorized and issued

 

 

Paid-in Capital
 
360,092,997

 
365,592,997

Accumulated Deficit
 
(166,072,621
)
 
(163,645,174
)
Total Stockholder's equity
 
194,020,376

 
201,947,823

Total liabilities and Stockholder's equity
 
$
395,773,474

 
$
405,986,453


        
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

        


6



 

EAGLE BULK SHIPCO LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(Unaudited)

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Revenues, net
 
$
24,302,868

 
$
32,095,302

 
$
55,085,182

 
$
71,144,160

 
 
 
 
 
 
 
 
 
Voyage expenses
 
5,055,599

 
6,051,346

 
16,079,883

 
15,633,514

Vessel expenses
 
10,579,409

 
12,304,847

 
21,484,577

 
24,749,789

Depreciation and amortization
 
5,065,297

 
5,183,584

 
9,852,248

 
10,455,624

General and administrative expenses
 
3,635,995

 
3,838,100

 
7,403,776

 
7,552,722

Gain on sale of vessels
 
(966,802
)
 

 
(5,073,349
)
 

Total operating expenses
 
23,369,498

 
27,377,877

 
49,747,135

 
58,391,649

 
 
 
 
 
 
 
 
 
Operating income
 
933,370

 
4,717,425

 
5,338,047

 
12,752,511

 
 
 
 
 
 
 
 
 
Interest expense
 
4,519,567

 
4,432,729

 
8,910,638

 
8,897,490

Interest income
 
(216,422
)
 
(15,128
)
 
(462,517
)
 
(22,879
)
Other expense/(income), net
 
78,669

 
(39,811
)
 
(682,627
)
 
42,871

Total other expenses, net
 
4,381,814

 
4,377,790

 
7,765,494

 
8,917,482

Net (loss)/income and comprehensive (loss)/income
 
$
(3,448,444
)
 
$
339,635

 
$
(2,427,447
)
 
$
3,835,029



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements



7



EAGLE BULK SHIPCO LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY        (Unaudited)
                

 
Common shares amount
 
Paid-in Capital
 
Accumulated Deficit
 
Total Stockholder's Equity
 
 
 
 
 
 
 
 
Balance at December 31, 2018

 
$
365,592,997

 
$
(163,645,174
)
 
$
201,947,823

Net income

 

 
1,020,997

 
1,020,997

Balance at March 31, 2019

 
$
365,592,997

 
$
(162,624,177
)
 
$
202,968,820

Net loss

 

 
(3,448,444
)
 
(3,448,444
)
Capital distribution to the Parent Company

 
(5,500,000
)
 

 
(5,500,000
)
Balance at June 30, 2019

 
$
360,092,997

 
$
(166,072,621
)
 
$
194,020,376


 
Common shares amount
 
Paid-in Capital
 
Accumulated Deficit
 
Total Stockholder's Equity
 
 
 
 
 
 
 
 
Balance at December 31, 2017

 
$
365,592,997

 
$
(174,094,047
)
 
$
191,498,950

Cumulative effect of accounting change *

 

 
(556,014
)
 
(556,014
)
Net income

 

 
3,495,394

 
3,495,394

Balance at March 31, 2018

 
$
365,592,997

 
$
(171,154,667
)
 
$
194,438,330

Net income

 

 
339,635

 
339,635

Balance at June 30, 2018

 
$
365,592,997

 
$
(170,815,032
)
 
$
194,777,965



*The opening accumulated deficit has been adjusted on January 1, 2018 in connection with the adoption of Accounting Standards Update 2014-09.    


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements



















8




EAGLE BULK SHIPCO LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
For the Six Months Ended
 
 
June 30, 2019

 
June 30, 2018

Cash flows from operating activities:
 
 
 
 
Net (loss)/income
 
$
(2,427,447
)
 
$
3,835,029

Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
8,128,698

 
8,601,726

Amortization of deferred drydocking costs
 
1,727,225

 
1,853,898

Amortization of debt discount and debt issuance costs
 
794,306

 
633,656

Net unrealized (gain)/loss on fair value of derivatives
 
(535,500
)
 
196,020

Drydocking expenditures
 
(4,381,868
)
 
(2,232,804
)
Gain on sale of vessels
 
(5,073,349
)
 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable and accounts receivable - related party
 
(204,578
)
 
3,412,498

Prepaid expenses
 
(156,412
)
 
(565,275
)
Inventories
 
2,082,194

 
483,554

Accounts payable
 
(901,742
)
 
87,496

Accrued interest
 
(29,335
)
 
(46,833
)
Other current assets
 
30,381

 
(321,914
)
Accrued expenses
 
2,472,910

 
(927,116
)
Unearned revenue
 
(820,463
)
 
(227,490
)
Net cash provided by operating activities
 
705,020

 
14,782,445

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Vessel purchases and improvements
 
15,876

 
(316,811
)
Cash paid for scrubbers and ballast water treatment systems
 
(8,271,653
)
 

Proceeds from sale of vessels
 
22,631,367

 

Net cash provided by/(used) in investing activities
 
14,375,590

 
(316,811
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Repayment of Norwegian Bond Debt
 
(4,000,000
)
 

Capital distribution to the Parent Company
 
(5,500,000
)
 

Other financing costs
 

 
(1,095,748
)
Net cash used in financing activities
 
(9,500,000
)
 
(1,095,748
)
Net increase in cash and cash equivalents and restricted cash
 
5,580,610

 
13,369,886

Cash and cash equivalents and restricted cash at beginning of period
 
30,152,708

 
7,744,005

Cash and cash equivalents and restricted cash at end of period
 
$
35,733,318

 
$
21,113,891

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
8,115,667

 
8,310,667

Non-cash accruals for Scrubbers and ballast water systems included in Accounts payable and other accrued liabilities
 
$
3,009,200

 
$


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


9




EAGLE BULK SHIPCO LLC AND SUBSIDIARIES    
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General Information:

The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipco LLC ("Shipco" or "Issuer"), a limited liability company organized under the laws of Marshall Islands on September 20, 2016, and its wholly owned vessel owning subsidiaries (collectively, the "Company"). 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 bulk carriers, which are considered to be Handymax class of vessels and the Company operates its business in one business segment. The operations of the vessels are managed by Eagle Bulk Management LLC, a wholly owned subsidiary of Eagle Bulk Shipping Inc. (the "Parent Company").  Shipco is a wholly owned subsidiary of the Parent Company.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

As of June 30, 2019, the Company owned and operated a modern fleet of 24 oceangoing vessels, 22 Supramax and 2 Ultramax, with a combined carrying capacity of 1,338,945 dwt and an average age of approximately 11.0 years.

There are no charterers for the Company that individually accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2019 and 2018.

Share capital as of June 30, 2019 consists of 100 authorized and issued shares with no par value. The shares were issued to the Parent Company as its sole member.    

Significant Accounting Policies

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. 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 not to separate the lease and non-lease components included in the time charter revenue because 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

10



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 Statements of Operations for the three and six months ended June 30, 2019 and 2018.
Time charter in contracts
The Company did not have any time charter in contracts as of January 1, 2019 and for the three and six months ended June 30, 2019 which would have resulted in recognition of right-of-use assets and the corresponding 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 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 did not have any time charter in contracts less than 12 months on the date of adoption and for the three and six months ended June 30, 2019.
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.
    In connection with its adoption of ASC 842, the Company elected the "package of 3" practical expedients permitted under the transition guidance, which exempts the Company from reassessing:
whether any expired or existing contracts are or contain leases.
any expired or existing lease classifications
initial direct costs for any existing lease.

Additionally, the Company elected, consistent with 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 instead as a single lease component for the purposes of the recognition and measurement requirements of ASC 842.

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 delays that exceed the agreed to laytime at the ports visited, with the amounts recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime which is known as despatch and results in a reduction of 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 control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage

11



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, 2019 and 2018 is not material.
The Company recognized $2.8 million and $1.9 million, respectively, of revenue for the three and six months ended June 30, 2019 relating to performance obligations satisfied in prior periods.
The following table shows the revenues earned from time charters and voyage charters for the three and six months ended June 30, 2019 and 2018:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2019

 
June 30, 2018

 
June 30, 2019

 
June 30, 2018

 
 
 
 
 
 
 
 
 
Time charters
 
$
14,814,696

 
$
19,250,327

 
$
27,546,719

 
$
34,954,497

Voyage charters
 
9,488,172

 
12,844,975

 
27,538,463

 
36,189,663

 
 
$
24,302,868

 
$
32,095,302

 
$
55,085,182

 
$
71,144,160


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. As of June 30, 2019, the Company recognized $0.1 million of deferred costs which represents bunker expenses and charter-hire expenses incurred prior to commencement of loading. These costs, are recorded in Other current assets on the Condensed Consolidated Balance Sheet.
There have been no material changes from the “Critical Accounting Policies” previously disclosed in our Annual Report for the year ended December 31, 2018, filed with the SEC on March 13, 2019 except for the new accounting pronouncements adopted as of January 1, 2019.

Note 2. Vessels and vessel improvements

As of June 30, 2019, the Company’s operating fleet consisted of 24 drybulk vessels.

On May 2, 2019, the Company signed a memorandum of agreement to sell the vessel Thrasher for $9.8 million, after broker commissions and associated selling expenses. The vessel was delivered to the buyer in the second quarter of 2019. The Company recorded a gain of approximately $1.0 million in its condensed consolidated statements of operations for the three and six months ended June 30, 2019.
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 six months ended June 30, 2019.
On December 13, 2018, the Company signed a memorandum of agreement to sell the vessel Condor, a 2001 built Supramax, for $12.8 million, net of selling expenses and commissions. 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 six months ended June 30, 2019.

During 2018, the Company entered into a series of agreements to purchase 16 exhaust gas cleaning systems which are to be retrofitted on 16 of the 25 Norwegian Bond security vessels (the "Shipco Vessels"). The projected cost, including the installation, is approximately $2.2 million per Shipco Vessel. The retrofitted Shipco Vessels will be able to burn high sulfur fuel after the implementation of the sulfur emission cap regulation set forth by the International Maritime Organization ("IMO") which will become effective on January 1, 2020. The Company recorded $15.0 million in Other assets in the condensed consolidated balance sheet as of June 30, 2019.


12



During 2018, the Company entered into a contract for the installation of ballast water treatment systems ("BWTS") on 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 $2.1 million in Other assets in the condensed consolidated balance sheet as of June 30, 2019.

Vessel and vessel improvements consist of the following:
    
Vessels and vessel improvements, at December 31, 2018
 
$
330,215,290

Purchase of Vessels and Vessel Improvements
 
(15,876
)
Sale of vessel
 
(8,732,865
)
Vessel depreciation expense
 
(8,128,698
)
Vessels and vessel improvements, at June 30, 2019
 
$
313,337,851


    

Note 3. Debt

Long-term debt consists of the following:
 
 
June 30, 2019
 
December 31, 2018
Norwegian Bond Debt
 
$
192,000,000

 
$
196,000,000

Debt discount and debt issuance costs - Norwegian Bond Debt
 
(4,848,099
)
 
(5,530,845
)
Norwegian Bond Debt, net of debt discount and debt issuance costs
 
187,151,901

 
190,469,155

Less: Current Portion - Norwegian Bond Debt
 
(8,000,000
)
 
(8,000,000
)
Total long-term debt
 
$
179,151,901

 
$
182,469,155


Norwegian Bond Debt

On November 28, 2017, Shipco issued $200.0 million in aggregate principal amount of 8.25% 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 were used to repay amounts outstanding including accrued interest under various debt facilities of a wholly-owned subsidiary of the Parent Company 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 24 security vessels (the "Shipco Vessels") in the Company’s fleet, and was 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 Parent Company and the Issuer or its subsidiaries.

Pursuant to the Bond Terms, interest on the Norwegian Bonds will accrue at a rate of 8.250% per annum on the nominal amount of each of the Norwegian 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 Norwegian 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 Norwegian 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:
    

13



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 75.0% and its subsidiaries’ free liquidity including the availability under the Super Senior Facility must at all times be at least $12.5 million. Shipco is in compliance with its financial covenants as of June 30, 2019.

During the first half of 2019, the Company sold three vessels, Thrasher, Condor and Merlin, for combined net proceeds of $22.6 million. Additionally, the Company sold one vessel, Thrush, in 2018 for net proceeds of $10.8 million. 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 from the sale of these vessels as restricted cash in the Condensed Consolidated Balance Sheet.

On November 6, 2018, the Company received 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. As of June 30, 2019, the Company used $6.7 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 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 Facility, 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 June 30, 2019.

As of June 30, 2019, the availability under the Super Senior Facility was $15.0 million.

14




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 24 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 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. The Company is in compliance with its financial covenants as of June 30, 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.

Interest rates

For the three and six months ended June 30, 2019, 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 8.92%. Additionally, we paid commitment fees of 40% of the margin on the undrawn portion of the Super Senior Revolver Facility.

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 8.80%.

Interest expense consisted of:

 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Norwegian Bond Debt interest and commitment fees under Super Senior Facility
$
4,073,833

 
$
4,109,500

 
$
8,116,333

 
$
8,263,834

Amortization of deferred financing costs
445,734

 
323,229

 
794,305

 
633,656

Total Interest Expense
$
4,519,567

 
$
4,432,729

 
$
8,910,638

 
$
8,897,490


Note 4. Related Party transactions

On December 8, 2017, Shipco entered into a commercial and technical management agreement with Eagle Bulk Management LLC, a wholly-owned subsidiary of the Parent Company, for performance of technical and commercial services to

15



28 vessels owned by Shipco at a fee of $150,000 per vessel per annum for commercial management services and $135,000 per vessel per annum for technical management services. In addition, Shipco is required to pay 1% of the purchase or sale price of every new vessel purchased or sold. Shipco also entered into an overhead sharing agreement which provides for an additional fee allocation of cash general and administrative expenses of Eagle Bulk Management LLC, less the technical and commercial management fees already paid, based on relative vessel ownership days of Shipco to the total consolidated vessel ownership days of the Parent Company and all of its subsidiaries. The term of the agreements shall continue thereafter until terminated in writing by one of the parties. The agreement may be terminated with or without cause by any party upon 30 days' prior written notice to other parties.

For the three and six months ended June 30, 2019, the Company incurred $1.8 million and $3.5 million, respectively for technical and commercial management fees to Eagle Bulk Management LLC for the Shipco vessels. Additionally, the Company incurred $1.6 million and $3.5 million, respectively as additional fee allocation as per the overhead sharing agreement for the three and six months ended June 30, 2019. Additionally, the Company incurred $0.2 million in fees for the sale of the vessels Condor, Merlin and Trasher. As of June 30, 2019, the Company owed $1.1 million to Eagle Bulk Management LLC which is included in the accounts payable in the condensed consolidated balance sheet. As of June 30, 2019, Accounts receivable - related party consisted of $0.9 million.
 
For the three and six months ended June 30, 2018, the Company incurred $2.0 million and $3.9 million, respectively for technical and commercial management fees to Eagle Bulk Management LLC for the 28 vessels. Additionally, the Company incurred $1.6 million and $3.2 million, respectively as additional fee allocation as per the overhead sharing agreement. As of June 30, 2018, the Company owed $1.0 million to Eagle Bulk Management LLC which is included in accounts payable in the condensed consolidated balance sheet.        



Note 5. Derivative Instruments and Fair Value Measurements

Forward freight agreements, bunker swaps and freight derivatives
 
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:

 
 
 
For the three months ended
 
For the six months ended
Derivatives not designated as hedging instruments
Location of (gain)/loss recognized
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
FFAs
Other expense
 
$
78,669

 
$
(39,811
)
 
(682,627
)
 
$
42,871

Total
 
 
$
78,669

 
$
(39,811
)
 
$
(682,627
)
 
$
42,871


Derivatives not designated as hedging instruments
Balance Sheet location
 
June 30, 2019
 
December 31, 2018
FFAs - Unrealized gain
Other current assets
 
$
535,500

 
$


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. The Company posted $776,820 cash collateral related to derivative instruments under its collateral security arrangements as of June 30, 2019.


16



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 their short-term nature thereof.
 
Debt-the carrying amounts of borrowings under the Norwegian Bond Debt (prior to application of the discount and debt issuance costs) including the revolving credit agreement 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 and money-market accounts.
 
Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include debt balances under the Norwegian Bond Debt.

Level 3 - Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

Assets and liabilities measured at fair value:

 
 
 
Fair Value
 
Carrying Value
 
Level 1
 
Level 2
June 30, 2019
 
 
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents 1
$
35,733,318

 
$
35,733,318

 
$

Liabilities
 
 
 
 
 
Norwegian Bond Debt *
$
187,151,901

 
$

 
$
192,240,000

    
 
 
 
Fair Value
 
Carrying Value
 
Level 1
 
Level 2
December 31, 2018
 
 
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents 1
$
30,152,708

 
$
30,152,708

 
$

Liabilities
 
 
 
 
 
Norwegian Bond Debt *
$
190,469,155

 
$

 
$
195,040,000


1 Includes restricted cash of $26.8 million at June 30, 2019 and $10.9 million at December 31, 2018.
* The fair value of the Norwegian Bond Debt is based on the last trade on June 25, 2019 and December 21, 2018 on Bloomberg.com.

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.

17



 


Note 7. Issuer only condensed financial statements

EAGLE BULK SHIPCO LLC (ISSUER ONLY)

CONDENSED BALANCE SHEETS
(Unaudited)


 
 
June 30, 2019
 
December 31, 2018
ASSETS:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
8,933,858

 
$
19,263,334

Accounts Receivable - Related party
 
894,376

 
2,620,894

Prepaid expenses
 
59,188

 
42,509

Other Current Assets
 
776,820

 

Total current assets
 
10,664,242

 
21,926,737

Noncurrent assets:
 
 
 
 
Investment in subsidiaries
 
345,128,167

 
360,940,259

Restricted cash
 
26,789,061

 
10,878,968

Deferred financing costs - Super Senior Revolver Facility
 
194,864

 
285,342

Total noncurrent assets
 
372,112,092

 
372,104,569

Total assets
 
$
382,776,334

 
$
394,031,306

LIABILITIES & STOCKHOLDER'S EQUITY:
 
 
 
 
Current liabilities:
 
 
 
 
Accrued interest
 
$
1,460,583

 
$
1,489,917

Other accrued liabilities
 
143,474

 
124,411

Current portion of long-term debt - Norwegian Bond Debt
 
8,000,000

 
8,000,000

Total current liabilities
 
9,604,057

 
9,614,328

Noncurrent liabilities:
 
 
 
 
Norwegian Bond Debt, net of debt discount and debt issuance costs
 
179,151,901

 
182,469,155

Total noncurrent liabilities
 
179,151,901

 
182,469,155

Total liabilities
 
188,755,958

 
192,083,483

 
 
 
 
 
Stockholder's equity:
 
 
 
 
Common shares, zero par value, 100 shares authorized and issued
 

 

Paid-in Capital
 
360,092,997

 
365,592,997

Accumulated Deficit
 
(166,072,621
)
 
(163,645,174
)
Total Stockholder's equity
 
194,020,376

 
201,947,823

Total liabilities and Stockholder's equity
 
$
382,776,334

 
$
394,031,306















18








            
EAGLE BULK SHIPCO LLC (ISSUER ONLY)

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)


 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
 
 
 
 
 
 
 
 
Interest expense
 
$
4,519,567

 
$
4,432,729

 
$
8,910,638

 
$
8,897,490

Interest income
 
(216,422
)
 
(15,128
)
 
(462,517
)
 
(22,879
)
Other income/(expense), net
 
78,669

 
(39,811
)
 
(682,627
)
 
42,871

Total other expenses, net
 
4,381,814

 
4,377,790

 
7,765,494

 
8,917,482

Equity in net income of subsidiaries
 
933,370

 
4,717,425

 
5,338,047

 
12,752,511

Net (loss)/income and comprehensive (loss)/ income
 
$
(3,448,444
)
 
$
339,635

 
$
(2,427,447
)
 
$
3,835,029




































19










EAGLE BULK SHIPCO LLC (ISSUER ONLY)

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
For the Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
Net cash provided by operating activities
 
$
(731,475
)
 
$
4,238,563

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Dividends received from subsidiaries
 
15,812,092

 
10,598,677

Net cash provided by investing activities
 
15,812,092

 
10,598,677

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Other financing costs
 

 
(1,095,748
)
Capital distribution to the Parent Company
 
(5,500,000
)
 

Debt repayment Norwegian Bond Debt
 
(4,000,000
)
 

Net cash used in financing activities
 
(9,500,000
)
 
(1,095,748
)
 
 
 
 
 
Net increase in cash and cash equivalents and restricted cash
 
5,580,617

 
13,741,492

Cash and cash equivalents and restricted cash at beginning of period
 
30,142,302

 
7,391,945

Cash and cash equivalents and restricted cash at end of period
 
$
35,722,919

 
$
21,133,437

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
8,115,667

 
$
8,310,667


Notes to the Unconsolidated Condensed Financial Statements

Basis of Presentation

In the Issuer-only condensed financial statements, the Eagle Bulk Shipco LLC investment in subsidiaries is accounted for under the equity method of accounting. The paid-in capital represents capital contributions by the Parent Company.

As per the Bond Terms, the Parent Company is allowed dividend distribution up to 75% of the net income of Shipco upon satisfaction certain criteria as defined in the Bond Terms. The Company paid $5.5 million to the Parent Company as dividend distribution which represents 50% of the net profit earned by the Company for the year ended December 31, 2018.
    

Note 8. Subsequent Events

On July 18, 2019, the Company signed a memorandum of agreement to sell the vessel Kestrel for gross proceeds of $7.3 million. The vessel is scheduled to be delivered to the buyer during the third quarter of 2019. The Company expects to record a gain of approximately $1.0 million in its condensed consolidated statements of operations for the three and nine months ending September 30, 2019.


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Subsequent events have been evaluated by the Company through August 29, 2019, the date these condensed consolidated financial statements were available to be issued.



21