Eagle Bulk Shipping Inc (EGLE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2009 Eagle Bulk Shipping, Incorporated earnings conference call. My name is Francine and I am your operator for today.

(Operator Instructions). Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Chairman and CEO of Eagle Bulk Shipping Incorporated, Sophocles Zoullas. Please precede, sir.

Thank you and good morning. I would like to welcome everyone to Eagle Bulk Shipping's third quarter 2009 earnings call. To supplement our remarks today, I encourage participants to access a slide presentation that is available on our website at www.eagleships.com.

Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance, and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of our risks and uncertainties that may have a direct bearing on our operating results, our performance, and our financial condition.

Please note on slide two, the agenda for the call will follow our usual format. After my opening remarks, I will discuss our third quarter highlights and provide a Company update and a summary of recent events in the dry bulk market. Both with regard to demand and supply before turning over the call to Alan Ginsberg who will review the Company's financial performance. I will then end the management discussion with some concluding remarks before taking questions.

Please turn to slide four for a review of our third quarter 2009 results. The message for the quarter was continued steady cash flow and operating excellence, and chartering strategies that set the stage to maximize future cash flow as we are starting to take delivery of our newbuild vessels.

During the quarter, our net income was $3.9 million or $0.06 per share, as adjusted for one time non-cash charges related to amendments to debt. Our net time charter revenues were $41.6 million and EBITDA was $25 million.

We also maintained superior fleet utilization of 99.7%. During the quarter, we benefitted from four vessels entering into Baltic Supramax Index based charters, which I will review in more detail later on.

Finally, we established in-house technical management capabilities to manage both Eagle Bulk vessels as well third party vessels.

Please turn to slide six for a charter update. It is important to note that Eagle Bulk maintains a balanced chartering strategy, as we enter our fleet growth phase with significant revenues from both fixed rate and profit sharing charters, as well as upside potential from index charters and open days.

During the quarter we placed the Cardinal on a one-year charter at $16,250 per day, which places our 2010 fixed coverage at 63%, including five vessels on charters that are tied to the Baltic Supramax Index with floor rates ranging between $8,500 and $10,500 per day.

Additionally, more profit sharing charters will come online with the chartered newbuilds that are starting to deliver into the fleet. We believe this balanced chartering strategy strikes an optimal approach, positioning the Company to provide revenue stability coupled with upside potential to our shareholders as dry bulk demand picks up.

Please turn to slide seven for a review of our newbuilding program. It is important to point out that our newbuild orders that were placed in 2006 and 2007 before the run up in asset values, are now delivering into the fleet and generating cash flow and EBITDA growth.

During the quarter we took delivery of the Bittern, which commenced a 10-year time charter with minimum contracted revenues of $62 million excluding profit sharing. Before the end of this quarter, we expect to take delivery of the Canary with minimum associated contracted revenues of $61 million, as well as the Thrasher also with $61 million of minimum contracted revenues.

During 2010 and 2011, we have 19 additional vessels scheduled for delivery, 16 which have long-term charters attached. In total, the contracted revenues from the newbuilds stands at $730 million, which provides Eagle Bulk with a conservative profile for the newbuild program, as these vessels were not speculative orders and the contracts were executed at prices that are in line with today's newbuild prices.

We expect to use existing cash, undrawn availability from our syndicated bank facility, and operating cash flow to fund the vessels delivering into the fleet.

Slide eight highlights the unique benefits that Supramax vessels have to realize changes in commodity movements. As we have said in the past the Supramax advantage is that these ships are the most flexible dry bulk type, and quickly benefit from changes in trade flows of the commodities that are most in demand.

As a result, as demand for dry bulk vessels improved during the quarter, our ships moved from minor bulk trades to major bulk trades. In fact, during the quarter, we realized the highest movement of our fleet into the major bulk trades, as 69% of the cargoes we carried were iron ore, coal, or grains.

Traditionally, ships moving into major bulk trades has been a bullish indicator for the dry bulk market, and signals an improvement in demand for dry bulk commodities. Please turn to slide 10 for an update of the dry bulk market.

A widely watched gauge of industrial production and raw materials demand, the Purchasing Managers Index clearly indicates the beginning of a global recovery is underway, as all five major regions consisting of the US, China, India, Euro Zone, and Brazil, point to expansion for the first quarter since the global crisis hit the shipping markets in the end of last year.

The graph of each region clearly shows the distress in the markets that started across all regions one year ago, and hit bottom in January this year. Since then, we have noticed a continuing improvement in demand that now shows all five regions in positive territory.

Slide 11 illustrates the evolution of this recovery in China as Q3 growth was supported by infrastructure investment and record bank lending. Although lending slowed down in August from its torrid pace earlier in the year, we noticed an increase in lending again in September. Urban fixed asset investment also climbed 33.3% in the first nine months, as $586 billion of stimulus were entered into the market for road, rail, and power plant construction.

It is important to point out that although emergency short-term loans of six months or less were not renewed as the Chinese economy stabilized. Medium and long-term loans that drive economic activity continued at a healthy pace. In fact, half of the medium and long-term loans in the first half of this year were directed to infrastructure and real estate, which are expected to continue to benefit the dry bulk market.

Slide 12 goes into more detail regarding China's demand for commodities which is characterized by resource intensive growth and lack of reserves. An analysis of the coal, iron ore, and steel markets in China gives an important insight into China's demand. Currently China accounts for 43% of global coal consumption versus 14% of the world's proven coal reserves and 44% of global iron ore consumption versus 9% of the world's proven iron ore reserves, which are considered lower quality relative to Brazil and Australia.

September alone, iron ore imports rebounded 30% month-on-month to a record high of 64.6 million tons. Turning to the steel market, China's crude steel production rose 29% in September to 50.7 million tons, which is the second highest level on record.

The graph on the right clearly shows not only the strong increase in coal imports into China starting in the beginning of this year but the fact that for the first time, China has become a net importer of coal in 2009. Supramaxes continue to be beneficiaries of this coal movement.

Please turn to slide 13 for a discussion of the Indian market. As I've said in the past, we believe the Indian importance and influence on the dry bulk market is often overlooked, since large ships such as Capesize vessels, have trouble trading to this country since they are too large to enter the majority of its ports.

However, India's demands for increased power generation creates a huge demand for coal, which benefits the demand for Supramaxes to that region. Projections estimate that demand for electricity exceeds supply all the way out to 2022, as over 40% of the Indian population still doesn't have access to electricity. As a result, coal imports are expected to continue to increase for the foreseeable future.

Please turn to slide 14 for an update of the dry bulk order book. The key message on this slide is that Supramaxes continue to benefit more than Capesize and Panamax vessels from slippage. The graph on the right clearly shows the although Capesize and Panamax markets have benefited from 29% and 24% respective slippage in the first nine months of this year, Supramaxes have had 47% reduced deliveries.

We attribute this trend to the fact that larger ships are being built at more established yards. We expect this trend to continue and Supramaxes to experience a lower percentage of deliveries than larger ships.

Looking through 2012, an extensive analysis conducted by the American Bureau of Shipping, suggests that almost 1,000 bulk carriers can be considered at risk. Recently, China's National Development and Reform Commission announced that 50% of the order book this year at Chinese shipyards would be either cancelled or delayed. And just last week, the Secretary General of the China Association of National Shipbuilding Industry, spoke at the China Shipbuilding Summit, and said he expected one third of Chinese shipyards would go idle.

We will continue to closely monitor the development of the order book as it continues to be a primary concern, but deliveries are considerably falling behind schedule, or are being cancelled.

The scrapping update on slide 15 indicates that although scrapping has slowed down with the increase in dry bulk demand, year-to-date scrapping continues at a historically high level. So far about 224 dry bulk vessels have been sold for scrap this year.

Importantly, 185 of the 224 ships were sub Panamax size. Similar to the trend in slippage we expect greater scrapping in smaller size vessels, which improves the demand supply balance more than in larger ships.

Lastly, it is significant to note that approximately 2,500 vessels are over 20 years old and becoming candidates for removal from the market. I will now turn over the call to Alan who will review our financial performance.

Thank you, Soph. Slide 17. I'd like to offer a brief recap on our second quarter results of operations. Let me state that operationally this was a steady quarter. Net revenues for the quarter were $41.6 million. Net revenues for the nine months were approximately $150 million.

All vessels were on time charter during the quarter. Our utilization rate for the quarter and for the nine months -- first nine months of the year was a sterling 99.7%. Vessel operating costs were slightly under budget for the quarter. EBITDA as adjusted for exceptional items under the terms of our credit agreement, was $25 million for the quarter and $96 million for the nine months.

Finally, third quarter net income, adjusted for one time non-cash charge related to the write-off of a portion of our deferred finance costs was $3.9 million or $0.06 per weighted average diluted share.

Slide 18, on to our balance sheet. I wish to point out the total cash and cash equivalents are just over $95 million at September 30th. As Soph mentioned earlier, we took delivery of the Bittern on October 20th, and we expect to take delivery of two more vessels by the end of the year. Estimated CapEx for the fourth quarter is approximately $69 million.

With that, I will turn it back to Soph, who will complete the presentation.

In conclusion, slide 20 summarizes Eagle Bulk's optimized positioning in the dry bulk market. Steady cash flow from fixed charter coverage continues to provide a stable financial base for the company. An upside potential has already started this quarter with index based charters and newbuilding deliveries that provide EBITDA growth.

Operating performance continues with strong utilization for the fleet. And we start to leverage our strong operating and technical performance with new in-house technical management capabilities, for our own vessels as well as third party vessels.

Looking forward, we expect EBITDA growth to continue, as seven vessels will deliver within the next five months. Five vessels with minimum contracted revenues at $259 million, and two open vessels to take advantage of current dry bulk demand.

I would now like to turn the over the call to the operator for questions. Thank you.

(Operator Instructions). Our first question comes from the line of Doug Mavrinac of Jefferies & Company.

Thank you, operator. Good morning Soph and Alan.

Good morning, Doug.

Good morning, Doug.

Good morning. I just have a few questions for you guys. First off, you talked about the transition in cargoes moved or commodities moved. You guys always have such good color as far as what's going on beyond the iron ore and the coal markets because of how many different commodities that you do move. Was there anything else that you saw that was interesting in terms of an increase in a certain amount of commodity, or a certain type of commodity moved during the quarter versus the previous quarter that made you kind of take note?

Or do you think that the biggest change in commodity movement has to do with the number of smaller ships moving up to the major bulk commodity trades?

I think, Doug, it's the latter part of your question is what we noticed. I mean minor bulks were basically steady, and the major bulks just took off in the quarter. I mean if you look at that slide eight and you compare -- that shows that fleet and the cargos and the deployment of fleet with the different commodities, and you compare it to prior quarters, you see this big shift of our ships into the major bulk trades.

And as I said earlier what it really was driven by was a huge spike in coal and iron ore, and believe it or not, also in grains. So the message is steady on minor bulks but a real pick up in demand on major bulks.

Okay. Okay. Excellent. Thank you. And then you just segued into my next question, and that has to do with the grain market. You know we've read a lot about how the US harvest has been later this year due to bad weather and what not. Have you seen I guess maybe less grain exports out of the US than you would have normally expected this year?

And would that possibly mean that the normal seasonal pick up may just be just a little bit later this year than normal, and could be coming around the corner?

What you said on a macro level is very accurate, but I'll tell you with our ships -- our trading ships what we've noticed for Supramax, and I'll also comment that Panamaxes have been beneficiaries of this too. There's been a big pick up in demand for ships into the US Gulf region for -- primarily for grain exports.

What happened was I think people didn't fully anticipate the demand for ships in the US Gulf so there was a shortage there which really created a spike for rates in the Atlantic. So I would say there is demand for grain. And you have to remember, irrespective of what the harvest is in the US, there are grain reserves that will basically create shipments 12 months a year irrespective of the harvest.

So 20 years ago, you used to see these harvests as huge impact on how much cargo moves, but now the dynamics of the grain market have slightly changed. So that because of the grain reserves you get more steady shipments on a 12 month cycle.

Okay. Okay. Excellent, very interesting. Thank you. Then just a final question that relates to I guess the order book, and really, when we look at an update on your fleet in terms of newbuildings or whatnot, we've seen that some of the newbuildings have been pushed back.

Can you talk about maybe the circumstances around that? And then, also whether or not it's just a real world example of that -- from a bigger picture standpoint, that we are going to see further delivery delays and it's going to be industry wide.

Well, we've -- I think we were one of the first companies out that about a year ago to point out that we thought that there was going to be a lot of slippage and a lot of cancellations. And given that we have offices in Japan and China, we feel pretty close to the newbuild market.

And I think what's interesting, when you look at the ships delivering into the Eagle fleet from the yards that we're building our ships at, it's showing you really the bifurcation of the newbuilding market. The -- if you will, the top level yards that irrespective of market conditions are capable of delivering good ships on time, which is what's happening with the Eagle ships coming out of China and out of Japan.

But then, you see -- and you see these reports of huge slippage and cancelations and deferments at other shipyards. Now, the percentage of top notch shipyards is a small fraction of the global order book for dry bulk vessels. So, as we continue -- we haven't changed our view Doug, that the slippage factor will continue.

It's currently running in our market at about 47%, and I think if you want to use about say half, a 50% metric going forward. That's what we expect to continue in terms of slippage or cancelation.

Okay. Perfect, great. Thank you very much Soph.

Our next question comes from the line of Natasha Boyden of Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen.

Good morning, Natasha.

Morning, Natasha.

Just want to followup on Doug's question about your -- the newbuildings but particularly your newbuildings. Have you been in any sort of negotiations with the shipyards regarding potential cancellations or right now you're comfortable with where your newbuild program is going?

I would say we're comfortable with our program. As you know, again we were probably one of the -- I think we were the first company to really react to the -- we'll call it the post Lehman Brothers world and its impact on the shipping industry. And we did what we thought was a good deal with our shipyard back in Q4 of last year.

Right now, we're very busy and very focused on growing the Company 90% by taking delivery of these ships, and putting them on these above market long-term charters of profit shares. That's really what we're focused on right now.

Okay. All right, and then in terms of the banks and where they're going with their financing, in your discussions with them, have they -- have you noticed that there is any more willingness to issue debt here or are they still pretty much in a lock down mode?

I think again, it's a tale of two markets. I think the public companies probably have an edge over private companies in being able to access the debt markets. I think the bigger companies that have good relationships with their lenders probably have better access to debt than others. I think the markets generally are still constrained, but debt is available for the right companies.

Okay, and given what some of your peers have been doing particularly in the bond market, etc, is that something you would consider or do you still prefer equity?

Well, our view there Natasha, is our cost of funding is 6% to 6.5%. The bond market seems to be in the 9% to 12% range. So we're pretty comfortable where we are today.

That being said, you know I've always said on all of our calls that we want to keep all of the tools in our toolbox available. So, you know we won't take it off the table but right now we're pretty comfortable with where we are.

And as I said in the presentation, if you look at the availability under our revolver, the cash on our balance sheet, and even minimal projections of where the charter rates will be to generate free cash flow for the newbuilds, it's a self funding program, if you will. And that's really our position today.

Okay. That's helpful. And then Alan, just a quick question for you. Your G&A looked like it went down a little bit, more than a little bit in 3Q. What was the reason behind that? And what's a good run rate going forward?

I think you can use the fourth quarter run rate by annualizing the first three quarters. I think rather than focus on what was a little bit lower in the third quarter, there were expenses in the second quarter, generally around things like the annual meeting, proxies that you just don't -- that fell in the second quarter that we didn't have in the third.

So there isn't there anything in particular in the third quarter that I'd want to highlight.

Okay. All right. Well that's very helpful. Thank you very much.

Our next question comes from the line of Urs Dur with Lazard Capital Markets.

Hi guys.

Yes, hi, Urs.

Hi. Most of my questions have been answered, but maybe if both of you or Soph, if you could give some color on what it looks like for next year, despite a shrinking order book for acquisitions, assets prices, even the concept of possible public M&A. What are you seeing in the growth area for next year for yourselves or any players?

Okay, I think that's a great question.

Sort of trend question.

I think that's a great question. The -- I mean I think what's happened here is we've uniquely positioned Eagle irrespective of the market giving opportunities to dry bulk companies or not, that we're going to grow to 90% growth rate with all this associated revenue, with the charters of the newbuild program. Which was really hard-wired into our strategy to be able to deliver growth irrespective of what the market does.

And our primary focus is on delivering that 90% growth rate over the next, say 20 months.

Now to answer your specific question -- what's happened with the pick up in demand, and pick up in charter rates, you're seeing a pick up in asset values, corresponding asset values. So what happens is, with regards to acquisitions, ships are starting to look a little bit expensive again.

So, the Eagle view is right now prices are moving up not down, and we'd rather sit on the sidelines and basically grow at 90% growth rate with the ships that we have coming online. If the market unexpectedly turns down and prices go down again, we'll take a look but we think prices are going up.

So, with regards to public -- on public M&A, you know I've said it as early as 2005, I said don't expect it anytime soon, but for those of you on the call with a medium term time horizon, I think public on public M&A is coming. It's just a matter of when.

All right. Well, all my others have been asked so, thanks guys.

You're welcome.

Our next question comes from the line of Scott Burk of Oppenheimer.

Hi, good morning, Sophocles and Alan.

Yes, hi Scott.

I just had a follow up on the grain question. You know during grain season you would normally expect to see an increase in grain shipments. How does the shift towards grain shipments this third quarter compare to the shift in say last year, or the last couple of years.

Well, I can't speak really to the specifics of other companies, but if you look at our chart, the one that we put up every quarter, what you'll see, and we saw it again -- this is very interesting. We saw it in the spring with the South American grain harvest, where we had a spike in grain shipments. And if you look at our Q3 slide that we just presented today --

Yes.

We did three quarters of a million tons of grain. It was our number one commodity in the quarter. So, call it the Argentine season in the spring, that was a huge spike in demand in grain, we saw it again in this quarter.

The grain market is tricky to read going forward, but for 2009, it's been a big swing factor for Panamaxes and for Supramaxes.

Okay. And also kind of along the same lines, I was wondering did you see any shift in terms of location. Specifically, I'm more thinking about the iron ore and the coal trades as to where your vessels were trading. Specifically, wondering if you're seeing a -- any change in ex -- demand outside of China for iron ore or coal.

Well, sure. What's happening -- and I'll say more in the coal market than in the iron ore market. Coal has become a big demand commodity in China, which has been a huge sort of structural shift in the way coal moves in that region.

So what we have noticed on our ships is that coal is moving from say short haul, more into slightly longer haul. So you're seeing coal coming from places like South Africa, where you didn't see it as much maybe a year or two ago.

So it's not just that coal demand in terms of tons is increasing but its coming from further away too.

Interesting. And then I had a question on operating expenses. You talk about establishing in-house technical capabilities, and I'm sorry if I missed it the very beginning of the call, but does that mean you're going to start operating your own ships in terms of like personnel on the ships, or is that just managing more of a spot oriented fleet.

Well, we -- and this is from day one, so, Eagle has always had its own people on board, i.e. the crew or Eagle employees. That's never changed.

The big change is that Eagle, our office here in New York now has certified by American Bureau of Shipping to do full technical management of both Eagle ships and third party ships. So, we are now -- in fact, we've started taking in a couple of ships and we're running them fully in house.

Is that -- so you're no longer working with -- say V.Ships or some of the other contractors?

No, the plan is never to take everything in house, but to, A, use it as an effective additional benchmarking tool.

Okay.

B, to be closer to our assets and be closer to managing our assets. And C, giving Eagle the opportunity through third party deals to broaden our footprint on the dry bulk market.

Okay. And along those lines, are any of those vessels associated with your Delphin partnership yet?

As we announced in August, this does definitely benefit that partnership, but it also gives Eagle visibility and access to deal flow that would require the acquirer to have technical management capabilities. And we didn't have it before, and now we do.

Okay, and is there any change to the operating cost structure as a result of this?

Too early to tell, because we just started running our ships in house, but you know after a couple of quarters we'll be able to have an effective benchmarking analysis. But we believe that will be the case.

Okay and then just one final question about the delays of the ships that you announced. I mean they're only being delayed a quarter or two, or it looks like just a quarter. But does that have any impact on the charters that they're going on once they deliver?

No.

Okay. All right, thank you very much.

You're welcome.

And our next question comes from the line of Daniel Burke from Clarkson and Johnson Rice.

Hi, I wanted to return to the cost of funding question. You mentioned 6% to 6.5%. Could you talk about your interest rate hedges? Do you intend to continue to replace those as they roll? Or are you going to maybe move forward with layering on some incremental hedges that carry you closer to the conclusion of the 2014 period?

Right now Daniel, we're about 92% hedged for the fourth quarter, and the hedges start rolling off in earnest next year. Right now we've stayed short. We're monitoring closely. I expect at some point we will pull the trigger, and probably hedge out closer to the maturity of the loan, because I think everyone in the world thinks at some point interest rates are going up.

Right now we're staying short.

Great, I appreciate that. And then Alan, another simple one, what was capitalized interest in the quarter? Can you give that today or do we need to wait for the Q?

I think you'll see it in the Q.

Okay and then just the last question I had was with regard to the in house technical management program. How many Eagle vessels do you envision carrying under your own technical management say in a year's time? I just want to see what portion of the fleet you imagine growing this to.

Well, we're pretty conservative guys. So we're going to go pretty slow, and we've taken a couple of ships in house already. I'd rather err on the side of being cautious and do it right than start bringing ships in too fast and stress the organization.

So, this is the first quarter we've started managing the ships. So I would say it's a little early to give you that number, because we're going to go gauge the success of it as it unfolds in the next two quarters.

I understand. Thanks for that comment.

But let me -- but let me give you some further guidance. You know, it would not exceed 50% for sure.

Sure. Thanks again.

Our next question comes from the line of Jon Chappell of JP Morgan.

Thanks, good morning, guys.

Yes, hi, Jon.

Alan, no cost guidance or break-even gauge in the presentation this quarter. Should we just use the last slide from last quarter as a guide for the fourth quarter cost run rate maybe?

Yes, or if you feel more comfortable, you can use the nine months annualized for the fourth quarter.

Okay. And then, one of the things you've been talking about for several quarters is the cost inflation in the industry. Given the fact that things have changed from '05 to'08 to where we are today, does cost inflation still looking like its going to be high single digits to low double digits as we look to next year? Or could that be tempered?

I think right now Jon, what we're seeing is -- I'm not going to say a fight, but a push back from ship owners to this incredible call it wage insurance, lubricant, associated costs, a big push back of ship owners in this market to try and not accept these increases that ship owners have had to accept since -- effectively since 2005.

At Eagle, we're in the process right now of doing our 2010 budgets with our third party managers. So our budget process is currently ongoing as we speak. I think just like you see with the iron ore producers and the Chinese, there are these big drawn out negotiations to try and hold the line.

Owners are really trying to do the same with their costs. So I think you're going to continue to see inflation, probably more on the -- call it the ancillary costs. We're seeing for example, a big increase in insurance that we expect both with P&I and hull going forward but crew are a little more accepting that the market is not just dry bulk, but specifically containers and tankers are under pressure.

So I think you'll see a slower increase in crewing costs relative to other costs but they're going up but probably at a slower rate than you're use to seeing.

Okay, and then dry dock/off hire days. What should we expect for the fourth quarter?

We have only one scheduled dry dock for 22 days.

Okay. And then a bigger picture thing, you get a lot of good data regarding like the Chinese NDRC and some comments they made and as well as the shipbuilding industry. What about some of the comments that the Steel Association has been making about the excess inventories that they have, well above and beyond -- I think its like 50 million tons of what they're actually consuming, as well as commentary from the government of trying to slow some of the industries that may have over expanded.

Does that concern you at all as we go into next year that China may turn off the taps a little bit?

Well that -- as we know, Jon, that's been a concern that we've hearing all -- effectively all of this year. Now is your specific point about the steel industry globally, or consumption within China.

Just China.

Because they're different.

Yes, just China specifically.

Well, I was actually at a China conference just last week. And the message from someone who flew over from Hong Kong for that was that the demand will continue way into the foreseeable future.

Okay. One last thing, I guess, the slide that you had on slippage, how do you get a sense of how much of that is actually just delays, and how much of it is just pure cancellations? I know that there's some other stats about a 1,000 ships that that could be considered to be a danger, but as you look back, I guess, over the last nine months and you can put maybe a little bit of color on what may show up later in this year or next year and what's really never going to hit the water.

The truth is Jon, its very, very hard to get to that number, because as you know, 90% of the global ships orders in the dry bulk market, and frankly in other markets too, are being done by private owners, not public owners.

So cancellations, delays that are done by private buyers -- by public buyers is disclosed to the market eventually, usually in the -- within the quarter. What happens in the private sector generally is very hard to identify.

What we have done to be able to really get some usable data to -- for Eagle, but also for the market on our calls, is to go to places like the classification societies, to the component manufacturers, to the shipyards themselves. Because we believe they are the ultimate best gauge of what will hit the water, and that's why we put that thing out about ABS and the Chinese shipbuilders association.

So, again a hard number to come by, but we think we have pretty good source data that gives us some handle on what's coming. And its -- somewhere between 25% to 50% slippage or cancellations depending on whether you're -- the bigger ships have less slippage and cancellations. The smaller ships called sub Panamax generally have more slippage and more cancellations.

Okay. Thanks a lot Soph and Alan.

You're welcome.

And we have a question from the line of Justin Yagerman of Deutsche Bank.

Hey, good morning, guys. This is Mike Weber in for Justin. How are you?

Yes. Hi, Mike.

Hi. Just a couple of quick questions and I know you talked about this a little bit already, but I guess going back to your operating performance in the quarter, specifically your OpEx and your G&A. You guys referenced your offices in China and Japan, and kind of right sizing your operations to meet the needs of your future fleet.

Is it -- is this very characterized, I guess your current situation is at or near an inflection point, to where you guys have -- you guys are kind of at that steady run rate and you should now be able to benefit I guess from having those extended operations?

Yes, I think you hit the nail on the head. Basically, you know people on the call should think that there is a year of build up of G&A prior to a fleet growing, primarily through a newbuild program. And we experienced that. Now, we're entering the primary phase of our delivery schedule.

As I said in five months, we're taking delivery of seven ships. So an inflection point is a very correct way to characterize where we are. So, after this long waiting period, finally we're going -- we expect to see a leveling off of the G&A, and a real growth in EBITDA and cash flows as these ships hit the water.

Got you. So, I guess from a 2010 perspective when we think about run rates into the future, some kind of normalized level from your Q3 numbers, obviously adjusted for deliveries, is something we should look towards?

Yes, I think that's fine.

Okay. I guess moving to your charters, and you guys have signed a handful of the index best -- based charters, and then you obviously already have the charters with profit shares increasing I guess your operational leverage to the 2010, 2011 environment.

As your book stands right now, are you guys looking for more period cover, or I guess any more exposure to the 2010 environment? Or are you looking to kind of -- to lock some more things up, at kind of standardized one to two year contracts?

Well, it's very important to point out that there's been a real evolution at Eagle in how we charter our ships. If I go back four years, we were basically a 100% locked down.

Right.

And you know, we were a growth company. We had say ten ships when we went public. And we thought that for a ten ship company, that was the appropriate strategy at that time.

Fast forward to today, we're now going to be at 30, 35 ships in a couple of months. 47 ships in the water within a year or two. That's given us the flexibility, as we have a huge base of contracted revenues, to start to give optionality an upside to the Company through what we pioneered initially these profit sharing charters.

Then we further evolved into these index charters, which frankly, you know even though we only had four ships on index charters that really kicked in at the end of the quarter. So we didn't realize the full benefit of those charters. It helped us during the quarter on our revenues.

But I would say listen, bigger fleet gives us more flexibility, and frankly these ships are more employable through volatile markets than the bigger ships. So it's a strategy that's appropriate for the Supramax [market].

Got you. So, I mean I guess just looking at your current book and your current exposure, as we look out to 2010 and 2011, should we I guess kind of assume current level of exposure going forward, or would you look to -- would you look to us to add more index based charters as you start delivering some of these pre-chartered newbuilds?

Well we have one more -- we have four index charters now. We have one more that's coming on line, so we'll be at five.

Okay.

And we have a 63% coverage going into next year. We think that's, that's exactly where -- that's, that's the sweet spot for us.

All right and I guess a couple kind of cleaning up questions. You all have your waivers on your credit facility, if I remember correctly, are good until you meet your original covenant provisions for two consecutive quarters.

Is there any update on where you guys stand there? I guess as far as have you met the provisions for one quarter? Have you not had that sort of valuation test yet? Can you give an update.

Yes, sure, Mike, I think the way to think about that unless you hear from us to the contrary, think our waivers are in place until July 2014.

Okay. Great, and then I guess you referenced this earlier the deal you struck with one of your shipyards I guess about a year ago on a portion of your newbuild fleet, and you converted I believe eight or nine vessels to Supramax -- to options. This might be a moot point, considering you're moving the vessel deliveries back, but is there any update on the status of those options?

I know the Besra is scheduled -- was originally scheduled to deliver about a year from today. So it's probably getting close to still cutting time on that one if you were to exercise it.

They're really 2012 options, and I think one of the things that was really a nice balance for us, both for the shipyard and for Eagle is you know, we wanted to maintain the optionality to have those vessels, because look at the way the market is currently. It's healthy, and demand is recovering.

So 2012, if you continue this trajectory, it would have been a real shame to have cancelled those ships, and we're still holding them as options.

Right, is there an expiration date on this?

Sorry?

Is there an expiration date on this?

No, expiration and no changes. So we'll update you guys as we see fit, but right now we see those options as potentially being in the money valuable assets for the Company going forward.

Got you. All right, and then finally, Alan, I think you mentioned this in your prepared remarks, but the deferred financing costs that ran through your P&L this quarter. Did you say I guess partially ran through -- partially I guess impacted the Q3. I mean should we expect more of that deferred financing costs hitting the Q4?

No, that was one time related to the restructuring.

Okay, great. All right, guys that's all I have. Thanks for the time.

You're welcome.

Ladies and gentleman, that concludes the Q&A portion of today's presentation. I would like to turn the call over to Mr. Zoullas for any closing remarks.

I would like to thank everyone again for joining us for the third quarter 2009 earnings call and we look forward to updating everyone with new developments in the future. Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.