UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from __________________ to __________________
Commission File Number 001-33831
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (203 ) 276-8100
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| ☒ | No | ☐ | ||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ | No | ☐ | ||||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | Non-Accelerated filer | ☐ | ||||||||||||||||
| Smaller reporting company | | Emerging growth company | ||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No | ☒ | ||||||||||||
Number of shares of registrant’s common stock outstanding as of May 6, 2021: 12,553,046
TABLE OF CONTENTS
| Page | ||||||||
| PART I | FINANCIAL INFORMATION | |||||||
| ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | |||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| PART II | OTHER INFORMATION | |||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| ITEM 5. | ||||||||
| ITEM 6. | ||||||||
Effective as of September 15, 2020, the Company completed a 1-for-7 reverse stock split (the “Reverse Stock Split”) of the Company's issued and outstanding shares of common stock, par value $0.01 per share, as previously approved by our Board of Directors (the "Board of Directors") and our shareholders. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and the number of shares issuable upon exercise of all of the Company’s outstanding warrants, the exercise price and number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock awards under the Company’s equity incentive plans. Furthermore, the conversion rate set forth in the indenture governing the Company’s Convertible Bond Debt was adjusted to reflect the Reverse Stock Split. No fractional shares of common stock were issued in connection with the Reverse Stock Split. Furthermore, if a shareholder held less than seven shares prior to the Reverse Stock Split, then such shareholder received cash in lieu of the fractional share. All references to common stock and all per share data relating to periods prior to the Reverse Stock Split that are contained in this Quarterly Report on Form 10-Q for the three months ended March 31, 2021 (the "Quarterly Report on Form 10-Q") have been retrospectively adjusted to reflect the Reverse Stock Split unless explicitly stated otherwise.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,” “project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements reflect management’s current expectations and observations with respect to future events and financial performance.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which have declined significantly from historic highs, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors which could include the following: (i) changes in demand in the drybulk market, including, without limitation, changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (ii) greater than anticipated levels of drybulk vessel newbuilding orders or lower than anticipated rates of drybulk vessel scrapping; (iii) changes in rules and regulations applicable to the drybulk industry, including, without limitation, legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union (the “EU”) or by individual countries; (iv) actions taken by regulatory authorities including without limitation the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”); (v) changes in trading patterns significantly impacting overall drybulk tonnage requirements; (vi) changes in the typical seasonal variations in drybulk charter rates; (vii) changes in the cost of other modes of bulk commodity transportation; (viii) changes in general domestic and international political conditions; (ix) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated dry docking costs); (x) significant deterioration in charter hire rates from current levels or the inability of the Company to achieve its cost-cutting measures; (xi) the duration and impact of the novel coronavirus ("COVID-19") pandemic, including the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus; (xii) the relative cost and availability of low and high sulfur fuel oil; (xiii) our ability to realize the economic benefits or recover the cost of the scrubbers we have installed; (xiv) any legal proceedings which we may be involved from time to time; and other factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”). This discussion also includes statistical data regarding world drybulk fleet and order book and fleet age. We generated some of this data internally, and some were obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
PART I: FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
(in U.S. dollars except share and per share data)
| March 31, 2021 | December 31, 2020 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS: | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash - current | |||||||||||
Accounts receivable, net of a reserve of $ | |||||||||||
| Prepaid expenses | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Noncurrent assets: | |||||||||||
Vessels and vessel improvements, at cost, net of accumulated depreciation of $ | |||||||||||
| Advances for vessel purchases | |||||||||||
| Operating lease right-of-use assets | |||||||||||
Other fixed assets, net of accumulated depreciation of $ | |||||||||||
| Restricted cash - noncurrent | |||||||||||
| Deferred drydock costs, net | |||||||||||
| Deferred financing costs | |||||||||||
| Fair value of derivatives asset - noncurrent | |||||||||||
| Advances for ballast water systems and other assets | |||||||||||
| Total noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES & STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued interest | |||||||||||
| Other accrued liabilities | |||||||||||
| Fair value of derivatives - current | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Unearned charter hire revenue | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent liabilities: | |||||||||||
| Norwegian Bond Debt, net of debt discount and debt issuance costs | |||||||||||
| Super Senior Facility, net of debt issuance costs | |||||||||||
| New Ultraco Debt Facility, net of debt issuance costs | |||||||||||
| Revolver loan under New Ultraco Debt Facility | |||||||||||
| Convertible Bond Debt, net of debt discount and debt issuance costs | |||||||||||
| Fair value of derivatives - noncurrent | |||||||||||
| Noncurrent portion of operating lease liabilities | |||||||||||
| Total noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
F-1
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(in U.S. dollars except share and per share data)
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Revenues, net | $ | $ | |||||||||
| Voyage expenses | |||||||||||
| Vessel operating expenses | |||||||||||
| Charter hire expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| General and administrative expenses | |||||||||||
| Other operating expense | |||||||||||
| Total operating expenses | |||||||||||
| Operating income/(loss) | ( | ||||||||||
| Interest expense | |||||||||||
| Interest income | ( | ( | |||||||||
| Realized and unrealized loss/(gain) on derivative instruments, net | ( | ||||||||||
| Total other expense, net | |||||||||||
| Net income/(loss) | $ | $ | ( | ||||||||
| Weighted average shares outstanding*: | |||||||||||
Basic* | |||||||||||
Diluted* | |||||||||||
| Per share amounts*: | |||||||||||
Basic income/(loss)* | $ | $ | ( | ||||||||
Diluted income/(loss)* | $ | $ | ( | ||||||||
*Adjusted to give effect for the 1-for-7 Reverse Stock Split that became effective as of September 15, 2020, see Note 1.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
F-2
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive income/(loss)
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Net income/(loss) | $ | $ | ( | ||||||||
| Other comprehensive income/(loss): | |||||||||||
| Net unrealized gain/(loss) on cash flow hedges | ( | ||||||||||
| Comprehensive income/(loss) | $ | $ | ( | ||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
F-3
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(in U.S. dollars except share and per share data)
| Common Stock | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated other comprehensive loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of shares due to vesting of restricted shares | ( | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedges | — | — | — | — | |||||||||||||||||||||||||||||||
| Fees for equity offerings | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Cash used to settle net share equity awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock* | Common Stock Amount* | Additional Paid-in Capital* | Accumulated Deficit | Accumulated other comprehensive loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares due to vesting of restricted shares | ( | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized loss on cash flow hedges | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Cash used to settle net share equity awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
*Adjusted to give effect for the 1-for-7 Reverse Stock Split that became effective as of September 15, 2020, see Note 1.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
F-4
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income/(loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of operating lease right-of-use assets | |||||||||||
| Amortization of deferred drydocking costs | |||||||||||
| Amortization of debt discount and debt issuance costs | |||||||||||
| Net unrealized gain on fair value of derivatives | ( | ( | |||||||||
| Stock-based compensation expense | |||||||||||
| Drydocking expenditures | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts payable | ( | ||||||||||
| Accounts receivable | ( | ( | |||||||||
| Accrued interest | |||||||||||
| Inventories | ( | ||||||||||
| Operating lease liabilities current and noncurrent | ( | ( | |||||||||
| Fair value of derivatives asset, other current and noncurrent assets | ( | ( | |||||||||
| Other accrued liabilities | ( | ||||||||||
| Prepaid expenses | ( | ||||||||||
| Unearned charter hire revenue | ( | ||||||||||
| Net cash provided by/(used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of vessels and vessel improvements | ( | ( | |||||||||
| Advances for vessel purchases | ( | ||||||||||
| Purchase of scrubbers and ballast water systems | ( | ( | |||||||||
| Proceeds from hull and machinery insurance claims | |||||||||||
| Purchase of other fixed assets | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayment of term loan under New Ultraco Debt Facility | ( | ( | |||||||||
| Repayment of revolver loan under Super Senior Facility | ( | ||||||||||
| Proceeds from revolver loan under New Ultraco Debt Facility | |||||||||||
| Proceeds from revolver loan under Super Senior Facility | |||||||||||
| Cash used to settle net share equity awards | ( | ( | |||||||||
| Equity offerings issuance costs | ( | ||||||||||
| Financing costs paid to lenders | ( | ||||||||||
| Other financing costs | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net (decrease)/increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
F-5
| SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Accruals for vessel purchases and vessel improvements included in Other accrued liabilities | $ | $ | |||||||||
| Accruals for scrubbers and ballast water treatment systems included in Accounts payable and Other accrued liabilities | $ | $ | |||||||||
| Accruals for debt issuance costs included in Other accrued liabilities | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
F-6
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
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, 2021, the Company owned and operated a modern fleet of 48 oceangoing vessels, including 25 Supramax and 23 Ultramax vessels with a combined carrying capacity of 2,877,107 deadweight tonnage ("dwt") and an average age of approximately 8.8 years. Additionally, the Company charters-in three Ultramax vessels on a long term basis with remaining lease terms of less than one year and also charters-in vessels on a short term basis for a period less than one year.
For the three months ended March 31, 2021 and 2020, 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 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.
Effective as of September 15, 2020, the Company completed a 1-for-7 reverse stock split (the “Reverse Stock Split”) of the Company's issued and outstanding shares of common stock, par value $0.01 per share, as previously approved by our Board of Directors (the "Board of Directors") and our shareholders. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and the number of shares issuable upon exercise of all of the Company’s outstanding warrants, the exercise price and number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock awards under the Company’s equity incentive plans. Furthermore, the conversion rate set forth in the indenture governing the Company’s Convertible Bond Debt was adjusted to reflect the Reverse Stock Split. No fractional shares of common stock were issued in connection with the Reverse Stock Split. Furthermore, if a shareholder held less than seven shares prior to the Reverse Stock Split, then such shareholder received cash in lieu of the fractional share. All references herein to common stock and per share data relating to periods prior to the Reverse Stock Split that are presented in these condensed consolidated financial statements and notes thereto have been retrospectively adjusted to reflect the Reverse Stock Split.
F-7
Note 2. Recent Accounting Pronouncements
Leases
The following are the type of contracts that fall under ASC 842:
Time charter-out contracts
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 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 months ended March 31, 2021 and 2020.
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 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 expenses 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
F-8
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 had time charter-in contracts for three Ultramax vessels which are greater than 12 months as of the date of adoption of ASC 842. A brief description of each of these 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 with options for 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. 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.
(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 was $14,250 per day and $15,250 per day thereafter. The Company took delivery of the vessel in the fourth quarter of 2018. On December 25, 2019, the Company renegotiated the lease terms for another year at a hire rate of $11,600 per day. The Company accounted for this as a lease modification on December 25, 2019 and increased its lease liability and right-of-use asset on its consolidated balance sheet as of December 31, 2019 by $4.5 million. During the first quarter of 2021, the Company decided to extend the lease term to its maximum redelivery date allowed under the charter party. Therefore, the lease liability and the corresponding right-of-use asset as of March 31, 2021 have been increased by $1.0 million to reflect the change in lease term from minimum redelivery date to maximum redelivery date allowed under the charter party. On May 4, 2021, the Company declared its option to extend the charter for another year till July 31, 2022 at a hire rate of $12,600 per day. The Company will update the lease liability and the corresponding right-of-use asset for the option period in its Condensed Consolidated Balance Sheet as of June 30, 2021.
Office leases
On October 15, 2015, the Company entered into a commercial lease agreement as a sublessee 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 cash collateral of $0.1 0.3 million. The Company determined the two
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.
F-9
Operating lease right-of-use assets and lease liabilities as of March 31, 2021 and December 31, 2020 are as follows:
| Description | Location in Balance Sheet | March 31, 2021 (1) | December 31, 2020 (1) | |||||||||||
| Noncurrent assets: | ||||||||||||||
| Chartered-in contracts greater than 12 months | Operating lease right-of-use assets | $ | $ | |||||||||||
| Office leases | Operating lease right-of-use assets | |||||||||||||
| Operating lease right-of-use assets | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||
| Chartered-in contracts greater than 12 months | Current portion of operating lease liabilities | $ | $ | |||||||||||
| Office leases | Current portion of operating lease liabilities | |||||||||||||
| Lease liabilities - current portion | $ | $ | ||||||||||||
| Office leases | Noncurrent portion of operating lease liabilities | $ | $ | |||||||||||
| Lease liabilities - noncurrent portion | $ | $ | ||||||||||||
(1) The Operating lease right-of-use assets and Operating lease liabilities represent the present value of lease payments for the remaining term of the lease. The discount rate used ranged from 2.81 % to 6.08 %. The weighted average discount rate used to calculate the lease liability was 5.08 %.
The table below presents the components of the Company’s lease expenses and sublease income on a gross basis earned from chartered-in contracts greater than 12 months for the three months ended March 31, 2021 and 2020.
| Three Months Ended | |||||||||||||||||
| Description | Location in Statement of Operations | March 31, 2021 | March 31, 2020 | ||||||||||||||
| Lease expense for chartered-in contracts less than 12 months | Charter hire expenses | $ | $ | ||||||||||||||
| Lease expense for chartered-in contracts greater than 12 months | Charter hire expenses | ||||||||||||||||
| Total charter hire expenses | $ | $ | |||||||||||||||
| Lease expense for office leases | General and administrative expenses | ||||||||||||||||
| Sublease income from chartered-in contracts greater than 12 months * | Revenues, net | $ | $ | ||||||||||||||
The cash paid for operating leases with terms greater than 12 months is $3.4 million and $3.6 million for the three months ended March 31, 2021 and 2020, respectively.
On December 22, 2020, the Company entered into an agreement to lease a Japanese-built Supramax scrubber-fitted vessel for a minimum period of 12 months and maximum period of 15 months with an option to extend to a minimum period of
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The weighted average remaining lease term on our operating lease contracts greater than 12 months is 8.7 months.
The table below provides the total amount of remaining lease payments on an undiscounted basis on our chartered-in contracts and office leases greater than 12 months as of March 31, 2021:
| Year | Chartered-in contracts greater than 12 months | Office leases | Total Operating leases | ||||||||
| Discount rate upon adoption | % | % | % | ||||||||
| Nine months ending December 31, 2021 | $ | $ | $ | ||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| $ | $ | $ | |||||||||
| Present value of lease liability | |||||||||||
| Lease liabilities - short term | $ | $ | $ | ||||||||
| Lease liabilities - long term | |||||||||||
| Total lease liabilities | $ | $ | $ | ||||||||
| Discount based on incremental borrowing rate | $ | $ | $ | ||||||||
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 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, 2021 and 2020 was $3.9 million and $1.9 million, respectively.
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The following table shows the revenues earned from time charters and voyage charters for the three months ended March 31, 2021 and 2020:
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Time charters | $ | $ | |||||||||
| Voyage charters | |||||||||||
| $ | $ | ||||||||||
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 March 31, 2021, the Company recognized $0.5 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.
Financial Instruments - Credit Losses
On January 1, 2020, the Company adopted ASC 2016-13, "Financial Instruments - Credit Losses" ("ASC 326"). The adoption of ASC 326 primarily impacted our trade receivables recorded on our Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. The Company maintains an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as voyage expense in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020. Upon adoption of ASC 326, the Company assessed collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considered historical collectability based on past due status and made judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considered customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. For the three months ended March 31, 2021, our assessment considered estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods. The allowance for credit losses on accounts receivable was $2.1 million as of March 31, 2021 and $2.4 million as of December 31, 2020.
Note 3. Vessels
Vessel and Vessel Improvements
As of March 31, 2021, the Company’s owned operating fleet consisted of 48 drybulk vessels.
During the fourth quarter of 2020, the Company entered into a series of memorandum of agreements to purchase three high specification scrubber-fitted Ultramax bulkcarriers for a total purchase price of $50.2 million excluding direct expenses of acquisition. The Company took delivery of the vessels during the first quarter of 2021.
During the first quarter of 2021, the Company entered into another series of memorandum of agreements to purchase four vessels. The first vessel is a high-specification scrubber-fitted Ultramax bulkcarrier that was purchased for a total purchase price of $15.0 million and warrant for 212,315 common shares of the Company. The remaining three vessels are 2011-built Crown-58 Supramax bulkcarriers that were purchased for a total purchase price of $21.2 million and warrants for 329,583 common shares of the Company. Common shares are issuable upon exercise of warrants on a pro-rata basis in connection with each vessel delivery. The warrants would be measured at fair value on the date of the memorandum of agreement and recorded as
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Vessel and vessel improvements on the condensed consolidated balance sheet when the Company takes delivery of the vessels. The fair value of the warrants for the total of 541,898 common shares is approximately $10.7 million. The above mentioned prices exclude direct expenses of acquisition. The Company paid and recorded $4.7 million on the above mentioned vessels as Advances for vessel purchases in the Condensed Consolidated Balance Sheet as of March 31, 2021. One of the vessels was delivered on April 12, 2021, and the remaining vessels are expected to be delivered during the second quarter of 2021.
During the third quarter of 2018, the Company entered into a contract for the installation of ballast water treatment systems ("BWTS") on 39 of our owned vessels. The projected cost, including installation, is approximately $0.5 million per BWTS. The Company intends to complete the installations during scheduled drydockings. The Company completed installation of BWTS on 15 vessels and recorded $7.2 million in Vessels and vessel improvements in the Condensed Consolidated Balance Sheet as of March 31, 2021. Additionally, the Company recorded $2.9 million as advances paid towards installation of BWTS on the remaining vessels as a Noncurrent asset in its Condensed Consolidated Balance Sheet as of March 31, 2021.
The Vessels and vessel improvements activity for the three months ended March 31, 2021 is below:
| Vessels and vessel improvements, at December 31, 2020 | $ | ||||
| Purchase of vessels and vessel improvements | |||||
| Advance paid for vessel purchase as of December 31, 2020 | |||||
| Scrubbers and BWTS | |||||
| Depreciation expense | ( | ||||
| Vessels and vessel improvements, at March 31, 2021 | $ | ||||
Note 4. Debt
| March 31, 2021 | December 31, 2020 | ||||||||||
| Convertible Bond Debt | $ | $ | |||||||||
| Debt discount and debt issuance costs - Convertible Bond Debt | ( | ( | |||||||||
| Convertible Bond Debt, net of debt discount and debt issuance costs | |||||||||||
| Norwegian Bond Debt | |||||||||||
| Debt discount and debt issuance costs - Norwegian Bond Debt | ( | ( | |||||||||
| Less: Current portion - Norwegian Bond Debt | ( | ( | |||||||||
| Norwegian Bond Debt, net of debt discount and debt issuance costs | |||||||||||
| New Ultraco Debt Facility | |||||||||||
| Revolver loan under New Ultraco Debt Facility | |||||||||||
| Debt discount and Debt issuance costs - New Ultraco Debt Facility | ( | ( | |||||||||
| Less: Current portion - New Ultraco Debt Facility | ( | ( | |||||||||
| New Ultraco Debt Facility, net of debt discount and debt issuance costs | |||||||||||
| Super Senior Facility | |||||||||||
| Debt issuance costs - Super Senior Facility | ( | ||||||||||
| Super Senior Facility, net of debt discount and debt issuance costs | |||||||||||
| Total long-term debt | $ | $ | |||||||||
Convertible Bond Debt
On July 29, 2019, the Company issued $114.1 million in aggregate principal amount of 5.00 % Convertible Senior Notes due 2024 (the “Convertible Bond Debt”). After deducting debt discount of $1.6 million, the Company received net proceeds of approximately $112.5 million. Additionally, the Company incurred $1.0 million of debt issuance costs relating to this transaction. The Company used the proceeds to partially finance the purchase of six Ultramax vessels and for general corporate purposes, including working capital.
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The Convertible Bond Debt bears interest at a rate of 5.00 % per annum on the outstanding principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2020. The Convertible Bond Debt may bear additional interest upon certain events, as set forth in the indenture governing the Convertible Bond Debt (the "Indenture").
The Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to its terms. The Company may not otherwise redeem the Convertible Bond Debt prior to the Maturity Date.
Each holder has the right to convert any portion of the Convertible Bond Debt, provided such portion is of $1,000 or a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity Date. The conversion rate of the Convertible Bond Debt after adjusting for the Reverse Stock Split effected on September 15, 2020 is 25.453 shares of the Company's common stock per $1,000 principal amount of Convertible Bond Debt (which is equivalent to a conversion price of approximately $39.29 per share of its common stock).
Upon conversion, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, to the holder, subject to shareholder approval requirements in accordance with the listing standards of the Nasdaq Global Select Market.
If the Company undergoes a fundamental change, as set forth in the Indenture, each holder may require the Company to repurchase all or part of their Convertible Bond Debt for cash in principal amounts of $1,000 or a multiple thereof. The fundamental change repurchase price will be equal to 100 % of the principal amount of the Convertible Bond Debt to be repurchased, plus accrued and unpaid interest. If, however, the holders instead elect to convert their Convertible Bond Debt in connection with the fundamental change, the Company will be required to increase the conversion rate of the Convertible Bond Debt at a rate determined by a combination of the date the fundamental change occurs and the stock price of the Company's common stock on such date.
The Convertible Bond Debt is the general, unsecured senior obligations of the Company. It ranks: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Bond Debt; (ii) equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company.
The Indenture also provides for customary events of default. Generally, if an event of default occurs and is continuing, then the trustee or the holders of at least 25 % in aggregate principal amount of the Convertible Bond Debt then outstanding may declare 100 % of the principal of and accrued and unpaid interest, if any, on all the Convertible Bond Debt then outstanding to be due and payable.
Share Lending Agreement
In connection with the issuance of the Convertible Bond Debt, certain persons entered into an arrangement (the "Share Lending Agreement") to borrow up to 511,840 shares of the Company’s common stock through share lending arrangements from Jefferies LLC (“JCS”), an initial purchaser of the Convertible Bond Debt, which in turn entered into an arrangement to borrow the shares from an entity affiliated with Oaktree Capital Management, LP, one of the Company’s shareholders. The number of shares under the Share Lending Agreement have been adjusted for the Reverse Stock Split. As of March 31, 2021, the fair value of the 0.5 million outstanding loaned shares was $18.5 million based on the closing price of the common stock on March 31, 2021. In connection with the Share Lending Agreement, JCS paid $0.03 million representing a nominal fee per borrowed share, equal to the par value of the Company’s common stock.
While the Share Lending Agreement does not require cash payment upon return of the shares, physical settlement is required (i.e., the loaned shares must be returned at the end of the arrangement). In view of this share return provision and other contractual undertakings of JCS in the share lending agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of borrowed shares, the loaned shares are not considered issued and outstanding for the purpose of computing and reporting the Company's basic and diluted weighted average shares or earnings per share. If JCS were to file bankruptcy or commence similar administrative, liquidating or restructuring proceedings, the Company will have to consider 0.5 million shares lent to JCS as issued and outstanding for the purposes of calculating earnings per share.
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New Ultraco Debt Facility
On January 25, 2019, Ultraco Shipping LLC ("Ultraco"), a wholly-owned subsidiary of the Company, entered into a senior secured credit facility, (the "New Ultraco Debt Facility"), which provides for an aggregate principal amount of $208.4 million, which consists of (i) a term loan facility of $153.4 million (the "Term Facility Loan") and (ii) a revolving credit facility of $55.0 million, which was fully drawn as of March 31, 2021. Subject to certain conditions set forth in the New Ultraco Debt Facility, 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.
On October 1, 2019, Ultraco, the Company, and certain initial and additional guarantors entered into a first amendment to the New Ultraco Debt Facility (the "First Amendment") to provide for incremental commitments and pursuant to which on October 4, 2019, Ultraco borrowed $34.3 million for general corporate purposes, including capital expenditures relating to the installation of scrubbers. The Company paid $0.4 million as debt issuance costs to the lenders.
On April 20, 2020, Ultraco, the Company, and certain initial and additional guarantors entered into a second amendment to the New Ultraco Debt Facility (the "Second Amendment") to provide for certain amendments to definitions of consolidated interest coverage ratio and consolidated earnings before interest, taxes and depreciation and amortization ("EBITDA"). The amendment provides that the calculation interest coverage ratio does not include amortization of debt discount, debt issuance costs and non-cash interest income. The definition of EBITDA has been updated to exclude stock based compensation from net income/(loss).
On June 9, 2020, Ultraco, the Company, and certain initial and additional guarantors entered into the Third Amendment (the "Third Amendment") to the New Ultraco Debt Facility to provide for incremental commitments and pursuant to which on June 12, 2020, Ultraco borrowed $22.6 million for general corporate purposes which was secured by two Ultramaxes already owned by the Company, the M/V Hong Kong Eagle and M/V Santos Eagle. The Company paid $0.4 million as debt issuance costs to the lenders. The Company incurred an additional $0.2 million as deferred financing costs in relation to the transaction.
The New Ultraco Debt Facility matures on January 25, 2024 (the “New Ultraco 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 $7.8 million in quarterly installments from the second year until the New Ultraco Maturity Date. Additionally, there are 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 New Ultraco Maturity Date.
Ultraco’s obligations under the New Ultraco Debt Facility are secured by, among other items, a first priority mortgage on 26 vessels owned by the Guarantors as identified in the New Ultraco Debt Facility and such other vessels that it may from time to time include with the approval of the Lenders (the “Ultraco Vessels”).
The New Ultraco Debt Facility contains financial covenants requiring the Company, on a consolidated basis excluding Shipco (as defined below) 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 New Ultraco Debt Facility 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 New Ultraco Debt Facility also imposes operating restrictions on Ultraco and the Guarantors. The Company was in compliance with its financial covenants under the New Ultraco Debt Facility as of March 31, 2021.
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 8.25 % Senior Secured Bonds (the "Bonds" or the "Norwegian Bond Debt"). 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
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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. Interest on the Bonds accrues at a rate of 8.25 % per annum and the Bonds will mature on November 28, 2022. The Norwegian Bond Debt is guaranteed by the Issuer's subsidiaries and secured by mortgages over 20 vessels (the "Shipco Vessels"), pledges of the equity of the Issuer and its subsidiaries and certain assignments.
The Issuer may redeem some or all of the outstanding Bonds on the terms and conditions and prices set forth in the bond terms. Upon a change of control of the Company, each holder of the Bonds has the right to require that the Issuer purchase all or some of the Bonds held by such holder at a price equal to 101 % of the nominal amount, plus accrued interest.
The bond terms contain certain financial covenants that the Issuer’s leverage ratio, defined as the ratio of outstanding bond amount and any drawn amounts under the Super Senior Facility less consolidated cash balance to the aggregate book value of the Shipco Vessels, must not exceed 75 %, and its subsidiaries’ free liquidity must at all times be at least $12.5 million. Shipco was in compliance with its financial covenants under the bond terms as of March 31, 2021.
During the year ended December 31, 2020, the Company sold five vessels, Goldeneye, Skua, Osprey, Hawk and Shrike for combined net proceeds of $23.2 five 40.4 two Ultramax vessels for $36.1 million and partial financing of scrubbers for $23.6 million.
The bond terms also contain certain customary events of default. The bond terms also contain certain customary negative covenants that may restrict the Company's and the Issuer's ability to take certain actions.
Super Senior Facility
On December 8, 2017, Shipco entered into the Super Senior Revolving Facility Agreement (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 are expected 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 $0.3 million as other financing costs in connection with the transaction.
As of March 31, 2021, the availability under the Super Senior Facility was $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.
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 20 vessels in the Company’s fleet (the “Eagle Shipco Vessel Owners”), and are secured by, among other things, mortgages over such vessels. 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, limit Shipco’s and its subsidiaries’ ability to, among other things, 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 was in compliance with its financial covenants under the Super Senior Facility as of
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March 31, 2021.
The Super Senior Facility also contains certain customary events of default customary to the transactions of this type.
Holdco RCF Credit Agreement
On March 26, 2021, Eagle Bulk Holdco LLC (“Holdco”), a wholly-owned subsidiary of Eagle Bulk Shipping Inc. (the "Company"), entered into a Credit Agreement (as the same may be amended or supplemented from time to time, the “ Holdco RCF Credit Agreement”) made by and among (i) Holdco, as borrower, (ii) the Company and certain wholly-owned vessel-owning subsidiaries of Holdco, as joint and several guarantors, (iii) the banks and financial institutions named therein as lenders (together with their successors and assigns, the “RCF Lenders”), (iv) Crédit Agricole Corporate and Investment Bank and Nordea Bank ABP, New York Branch, as mandated lead arrangers, (v) Crédit Agricole Corporate and Investment Bank, as arranger and (vi) Crédit Agricole Corporate and Investment Bank, as facility agent and security trustee for the RCF Lenders. Pursant to the Holdco RCF Agreement, the RCF lenders agreed to make available an aggregate principal amount of up to the lesser of (a) $35,000,000 and (b) 65 % of the Fair Market Value of the Initial Vessels (as defined below). Borrowings under the Holdco RCF Credit Agreement bear interest at a rate of 2.4 % plus LIBOR for the relevant interest period.
As of March 31, 2021, the availability under the Holdco RCF Credit Agreement was $24.0 million which would increase to $35.0 million when the Company takes delivery of M/V Rotterdam Eagle during the second quarter of 2021.
Borrowings under the Holdco RCF Credit Agreement are secured by two Ultramaxes already owned by the Company, the M/V Helsinki Eagle and the M/V Stockholm Eagle and one Ultramax to be delivered to the Company, the M/V Rotterdam Eagle (collectively, the “Initial Vessels”). A fee of $0.2 million was paid to the Holdco RCF Lenders.
The maturity date for the Holdco RCF Credit Agreement is December 31, 2021 on which day the aggregate principal outstanding amount of all loans outstanding should be paid in full.
The Holdco RCF Credit Agreement includes affirmative and negative covenants and events of default that are customary for transactions of this kind. Additionally, the Holdco RCF Credit Agreement includes a minimum consolidated liquidity covenant that requires the Company on a consolidated basis (but excluding Shipco and its subsidiaries (the “Restricted Subsidiaries”)) to maintain cash equivalents in an amount not less than the greater of (i) $600,000 per vessel owned directly or indirectly by the Company and its subsidiaries and (ii) 7.5 % of the consolidated total debt of the Company. The Holdco RCF Credit Agreement also requires the Company, on a consolidated basis (but excluding the Restricted Subsidiaries) to maintain, at all times, the ratio of its minimum value adjusted tangible equity of total assets of not less than 0.30 to 1. Finally, the Holdco RCF Credit Agreement requires the Company, on a consolidated basis (but excluding the Restricted Subsidiaries) to maintain, at all times, positive working capital. The Company was in compliance with its financial covenants under the Holdco RCF Credit Agreement as of March 31, 2021.
Interest Rates
2021
For the three months ended March 31, 2021, the interest rate on the Convertible Bond Debt was 5.0 10.14
For the three months ended March 31, 2021, the interest rate on the New Ultraco Debt Facility ranged from 2.62 % to 2.72 %, 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 and debt issuance costs for this period was 3.22 %.
For the three months ended March 31, 2021, the interest rate on our outstanding debt under the Norwegian Bond Debt was 8.25 8.84 %.
For the three months ended March 31, 2021, the interest rate on our outstanding debt under the Super Senior Facility was 2.24 2.58 %. Additionally, we pay commitment fees of 40 % of the margin on the undrawn portion of the Super Senior Revolver Facility.
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2020
For the three months ended March 31, 2020, the interest rate on the Convertible Bond Debt was 5.0 10.14
For the three months ended March 31, 2020, the interest rate on the New Ultraco Debt Facility ranged from 3.39 % to 4.68 % 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 5.52 %.
For the three months ended March 31, 2020, the interest rate on the Norwegian Bond Debt was 8.25 8.91 %.
For the three months ended March 31, 2020, the interest rate on our outstanding debt under the Super Senior Facility was 2.90 %. The weighted average effective interest rate including the amortization of debt issuance costs for this period was 3.00 %. Additionally, we pay commitment fees of 40 % of the margin on the undrawn portion of the Super Senior Revolver Facility.
The following table summarizes the Company’s total interest expense for:
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Convertible Bond Debt interest | $ | $ | |||||||||
| New Ultraco Debt Facility interest | |||||||||||
| Norwegian Bond Debt interest | |||||||||||
| Super Senior Facility interest | |||||||||||
| Amortization of debt discount and debt issuance costs | |||||||||||
| Commitment fees on revolving credit facilities | |||||||||||
| Total Interest expense | $ | $ | |||||||||
Scheduled Debt Maturities
The following table presents the scheduled maturities of principal amounts of our debt obligations as of March 31, 2021, which excludes any additional debt incurred under various debt facilities subsequent to March 31, 2021:
| Norwegian Bond Debt | New Ultraco Debt Facility | Convertible Bond Debt | Total | ||||||||||||||||||||
| Nine months ending December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| 2022 | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Note 5. Derivative Instruments
Interest rate swaps
During 2020, the Company entered into a series of interest rate swap agreements ("IRS") to effectively convert a portion of its debt under the New Ultraco Debt Facility excluding any amounts outstanding under the revolving credit facility from a floating to a fixed-rate basis. The IRS was designated and qualified as a cash flow hedge. The Company uses the IRS for the management of interest rate risk exposure, as the IRS effectively converts a portion of the Company’s debt from a floating to a fixed rate. The IRS is an agreement between the Company and counterparties to pay, in the future, a fixed-rate payment in exchange for the counterparties paying the Company a variable payment. The amount of the net payment obligation is based on
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the notional amount of the IRS and the prevailing market interest rates. The Company may terminate the IRS prior to their expiration dates, at which point a realized gain or loss would be recognized. The value of the Company’s commitment would increase or decrease based primarily on the extent to which interest rates move against the rate fixed for each swap.
Tabular disclosure of derivatives location
The following table summarizes the interest rate swaps in place as of March 31, 2021 and December 31, 2020.
| Interest Rate Swap detail | Notional Amount outstanding | |||||||||||||||||||
| Trade date | Fixed rate | Start date | End date | March 31, 2021 | December 31, 2020 | |||||||||||||||
| March 31, 2020 | % | July 27, 2020 | January 26, 2024 | $ | $ | |||||||||||||||
| April 15, 2020 | % | July 27, 2020 | January 26, 2024 | |||||||||||||||||
| June 25, 2020 | % | July 27, 2020 | January 26, 2024 | |||||||||||||||||
| $ | $ | |||||||||||||||||||
Under these swap contracts, exclusive of applicable margins, the Company will pay fixed rate interest and receive floating-rate interest amounts based on three-month LIBOR settings.
The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The effective portion of the swap is recorded in Accumulated other comprehensive loss. The estimated loss that is currently recorded in Accumulated other comprehensive loss as of March 31, 2021 that is expected to be reclassified into the earnings within the next twelve months is $0.5 million. No portion of the cash flow hedges was ineffective during the three months ended March 31, 2021.
The effect of derivative instruments on the Statement of Operations for the three months ended March 31, 2021 and 2020 is below:
| Derivatives designated as hedging instruments | Location of loss in Statements of Operations | Effective portion of loss reclassified from Accumulated other comprehensive income/(loss) | ||||||||||||
| Three Months Ended | ||||||||||||||
| March 31, 2021 | March 31, 2020 | |||||||||||||
| Interest rate swaps | Interest expense | $ | $ | |||||||||||
The following table shows the interest rate swap asset and liabilities as of March 31, 2021 and December 31, 2020:
| Derivatives designated as hedging instruments | Balance Sheet location | March 31, 2021 | December 31, 2020 | ||||||||||||||
| Interest rate swap | Fair value of derivatives - current/Current liabilities | $ | $ | ||||||||||||||
| Interest rate swap | Fair value of derivatives - noncurrent/Noncurrent liabilities | $ | $ | ||||||||||||||
| Interest rate swap | Fair value of derivatives asset - noncurrent/Noncurrent assets | $ | $ | ||||||||||||||
F-19
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, net 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. For our bunker swaps, the Company may enter into master netting, collateral and offset agreements with counterparties.
As of March 31, 2021, the Company has International Swaps and Derivatives Association ("ISDA") agreements with two applicable banks and financial institutions, which contain netting provisions. In addition to a master agreement with the Company supported by a primary parent guarantee on either side, the Company also has associated credit support agreements in place with the two counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral, when the market value of transactions covered by these agreements exceeds specified thresholds. The Company does not anticipate non-performance by any of the counterparties. As of March 31, 2021, no collateral had been received or pledged related to these derivative instruments.
As of March 31, 2021, the Company had outstanding bunker swap agreements to purchase 22,220 metric tons of high and low sulfur fuel oil with prices ranging between $