Eagle Bulk Shipping Inc (EGLE) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2010 Eagle Bulk Shipping Incorporated earnings conference call. My name is Ann, and I will be your coordinator for today's call. At this time, all participants are in listen only mode.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the presentation over to Mr. Sophocles Zoullas, Chairman and CEO. Please proceed, sir.

Thank you and good morning. I would like to welcome everyone to Eagle Bulk Shipping's third quarter 2010 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 risk 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 more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition.

Please note on slide three the agenda for today's call will be as follows. I will first brief you on our third quarter 2010 results and year-to-date highlights. Proceed with the Company update, and lastly present our current views on the market. Alan will then give an overview of our quarterly financials, and I will end our presentation with some concluding remarks before we open the call to questions.

Please turn to slide five for a review of our third quarter 2010 results and year-to-date highlights. During the quarter we generated net income of $8.2 million or $0.13 cents per share basic and diluted, representing an impressive improvement in profitability over the third quarter of 2009. Revenues, net of charter commissions, totaled a record $72.8 million and EBITDA was $41.1 million, an increase of 75% and 64% respectively over the same period last year. Fleet utilization for the quarter remained an impressive 99.9%.

Since our last earnings call in August we have taken delivery of one additional new building Supramax, bringing the year-to-date total to 12 delivered vessels. 41% growth in the fleet this year alone. This growth coupled with the fleet utilization figure I cited a moment ago highlights the operational excellence that remains at the core of the Eagle Bulk brand.

On the S&P front, we sold the oldest and smallest vessel in our fleet, The Griffon a 15 year-old Handymax for $21 million net of commissions, generating a small profit for the Company, while lowering our fleet's average age profile, yet again, to just 4.5 years. In September, we announced the establishment of a new commercial trading platform and the opening of our new office in Singapore. We believe this new initiative represents an important milestone, as Eagle compliments its vessel assets with a model designed to deliver results throughout shipping cycles. Going forward, I believe this initiative further differentiates Eagle as the Company seizes new business opportunities.

Now, please turn to slide six for a detailed review of our trading capabilities, which are housed in a new unit Eagle Bulk Pte Ltd. 2010 has been a transformational year for Eagle Bulk, as we've amassed one of the largest and most modern Supramax fleets in the world. Eagle Bulk Pte's objective is to leverage the Company's growing scale within the Supramax asset class and generate excess returns in all shipping cycles.

Our strategy is to deepen and expand our relationships with global industrial producers and end users of dry bulk commodities. Having a large, and more importantly, a homogeneous fleet allows for us to engage in contracts of affreightment or COA business. A typical COA contract calls for the shipowner to move a certain type and amount of cargo over a specified period of time. This business effectively creates a natural hedge for the shipowner and allows us for upside even in a downward freight market. Other potential activities may include trading spot, time chartering in and out vessels, and trading paper derivatives for hedging purposes.

Separately, but in connection with our new platform, we recently opened a commercial and operational office in Singapore that will allow us for better monitoring access and following the dry bulk markets of our fleet on a 24 hour basis. We are still in the early stages and we expect that these activities will ramp up over the coming quarters.

On slide eight, we list our on the water vessels which currently total 38 or 2.1 million dead weight tons with an average age of 4.5 years. Our net fleet count is unchanged over the previous quarter, but the average age has decreased or improved over 2% thanks to taking delivery of the Martin and selling the Griffon. As we continue to take delivery of our remaining new builds the average fleet age will decrease and improve further. For the fourth quarter our chartering position for the fleet is optimally balanced with 64% fixed, 23% indexed and 13% open.

On slide nine we discuss our new building program. To date we have taken delivery of 19 vessels, including 12 vessels this year alone. We are pleased to announce that we are now three quarters of the way through our ambitious new building program, which we commenced in 2007. Seamless execution of the this program in the most challenging economic environment over the last 80 years is a tribute to our internal team and our shipbuilding partners who have delivered flawlessly.

Out of the vessels we have taken delivery of this year, 10 have minimum contracted revenues of $410 million on time charters ranging from three to nine years, with base rates between $17,750 to $18,500 a day. All but one of these vessels have 50/50 profit sharing components. The other two vessels we have taken delivery of this year have been fixed on one year index linked charters, providing us with spot-related upside potential. Going forward, we have eight remaining new buildings to take delivery of. All but one of these vessels are fixed on charters spanning anywhere from four and eight years, with base rates ranging from $17,750 to $18,400 a day. Total expected minimum contracted revenues are over $200 million. Additionally, four of these vessels have 50/50 profit sharing components as well.

Our fully delivered fleet by the end of the 2011, will number 46 vessels, representing a very impressive, compounded annual growth rate in vessel owned days of over 25% since 2005. We expect to fund our remaining CapEx with existing cash on hand, debt and cash flow from operations.

On slide 10 we illustrate Eagle's cargoes for the third quarter. Our fleet carried over 3.5 million tons of cargo during the period. An impressive 52% increase year-on-year. There was a noticeable shift towards the Supramax protected miner bulks, which represented 45% of our cargoes, up from 35% in the previous period. We attribute this swing to the relative strength in miner bulk demand, specifically potash and other fertilizers, and the relative weakness in the iron ore trade, attributed to the Chinese being out of the market and Indian monsoon season. For the third straight quarter coal represented the largest share of our cargoes, underscoring the extreme demand for this commodity.

Please turn to slide 12 for an update on the industry. The current dynamics for dry bulk trade are robust. Indian and Chinese imports of coal are up significantly year-on-year. South Africa, which historically has exported its coal supplies to Europe, is shifting sales towards Asia, increasing ton-mile demand. This shift is caused by Asia's increasing reliance on coal as an import for power generation. Strong growth realized in global industrial production and GDP over the last year are clearly visible by looking at the steel production numbers which are up 21%. This has been supported by Asia's high growth rate and the OECD recovery.

After bottoming out this summer, Chinese iron ore imports are at a five-month high and are expected to continue at a vigorous pace. We believe exports out of India should pick up post-monsoon season boosting support for the Sub-Panamax asset class. The Australian dollar, widely considered to be a proxy or indicator for commodity demand, is up approximately 25% since June alone. The grain embargo announced by Russia a few months ago has pushed commodity prices higher and impacted global trade patterns. This embargo has recently been extended for six months to June, 2011 and should continue to have a positive impact on Supramax rates. These positive factors are highlighted by the year-to-date increase in average Supramax rates of 44% year-on-year.

Please turn to slide 13 for a discussion on China and coal. Although China is the world's largest producer of coal, domestic supplies are not effective to provide for its own incremental consumption requirements. This is due to a number of factors including, poor quality of incremental supplies, and the high cost of transporting cargoes between the producing provinces in the North, such as Inner Mongolia and the consuming provinces in the Southeast. A prime example of China's inefficient inland transportation infrastructure is the recent traffic jam which involved more than 10,000 trucks carrying coal. This gridlock, spanning 75 miles, took weeks to clear. China already transports 600 million tons of coal annually or approximately 25% of its own consumption via seaborne routes. We estimate that this trade alone, which has increased 25% year-on-year can utilize over 800 Supramax vessels, soaking up significant supply from the international markets. Due to the factors just mentioned, we believe China will continue to import incremental coal requirements and this will have a tremendous positive impact on ton-mile demand and charter rates.

On slide 14, we review the robust fundamentals for both medium and long-term coal seaborne trade. For the medium term, we believe Australia's inadequate port infrastructure, which causes significant congestion, and Indonesian domestic requirements, will continue to force importers to go further away to meet their demand which increases ton-miles further. Alternative exports destined for the Asian market are coming from South Africa, Columbia, North America and Mozambique, which is expected to ramp up in the second half of 2011. Total seaborne coal trade is expected to reach 1.2 billion tons by 2014, a 40% increase from today's levels. The long-term demand fundamentals remain very promising thanks to massive investments in new coal plants in Asia. On the top right corner of this slide, we depict new coal fueled power capacity currently under construction and on the bottom right hand corner of this slide, we illustrate the long-term projections for seaborne coal which support long-term favorable demand fundamentals for the dry bulk market.

On slide 15 we discuss the increasing ton-mile effect for the grain trade. China's appetite for grains and soy beans is relentless. Total soybean imports for 2010 are projected at 54 million tons, up 27% year-on-year. These exports are primarily coming from the US and Brazil both long-haul trades for Supramax's. As previously mentioned, Russia's grain embargo has altered short term seaborne trade patterns increasing ton-mile demand. The drought, which led to the export embargo, has impeded planting of winter grain and may lead to a poor harvest again next year. Russia's extension of the embargo may drive importers, such as Egypt, to diversify their supply sources indefinitely increasing ton-miles, again, long-term. The battle over PotashCorp and the securing of long term fertilizer supplies highlights the extreme importance of this commodity in China's and Asia's improvement in the standard of living.

On slide 16, we review the current supply picture. Slippage and cancellations for the sub-cape size class remain at high levels of 40% plus year-to-date. As we said in our previous earnings call, it is widely believed that these slippage rates will continue for the remainder of this year and into 2011. Primary reasons for this are shipyard and financing issues. In addition, we view the RMB's recent appreciation against the US dollar as a potential catalyst for further delivery failures. All Chinese new building contracts are denominated in US dollars, while the labor costs are in local currency. As such, the recent RMB strength has squeezed shipyard margins and may potentially lead to repricing negotiations and/or further order cancellations and/or yard closures. 60% of all dry bulk orders placed in 2010 have been with Chinese shipyards. Supramax deliveries and the orderbook are expected to have peaked in 2010. Even with this new tonnage hitting the water, as I mentioned earlier, the year-to-date average Baltic Supramax index is up 44% over last year. Out performing the Baltic dry index two to one. On the top right corner of the slide we exhibit our standard dry bulk fleet age profile chart. Sub-Panamax vessels, as a group, remain the oldest, with 25% being over 25 years of age. As compared with 15% for Panamax's and under 10% for Capes. Scrapping remained at low levels during the third quarter due to the healthy rate environment. But, as we look forward almost 2,000 vessels are over 25 years of age and will eventually need to be scrapped. As we have said on previous calls, this phenomenon acts as a safety valve that will contain vessel growth and improve the supply demand fundamentals going forward. I will now turn over the call to Alan who will review our financial performance.

Thank you, Soph. I'd like to offer a brief recap on our third quarter results of operations. Eagle had another great quarter. We again achieved record net revenues for the quarter of $51.1 million (sic - see Press Release), compared to the 3Q '09 figure of $30.4 million(sic - see Press Release). Operating income for the quarter was $21.6 million, compared to third quarter '09 figure of $11.1 million. EBITDA as adjusted for exceptional items under the terms of our credit agreement was $41.1 million for the quarter, compared to the prior 3Q '09 figure of $25 million. Net income was $8.2 million or $0.13 cents per share basic and diluted for the quarter, compared with $0.5 million and $0.01 basic and diluted for the 3Q '09.

You will note on our income statement two new line items, voyage expenses are basically fuel costs, i.e., bunkers and also include port costs as well as canal costs. You will also note charter higher expenses. These are time charter costs of vessels that we charter in.

Slide 19, just a few comments on our balance sheet. At the end of the third quarter we have $148 million in the bank, including $19 million of restricted cash. During the quarter, we borrowed $43 million in order to fund our new building program. As Soph mentioned, we took delivery of three ships during the quarter, total of 12 for the year. We're scheduled to take delivery of one vessel this quarter. The last seven ships in our new building program deliver beginning the first quarter of 2011. Our bank debt stands at $1.124 million -- $1.124 billion and we are compliant with all of our bank covenants.

Slide 20, we're not making any changes to our expected cash costs, per vessel of $11,397 per day for the fourth quarter of 2010. This remains one of the lowest in the industry. Our estimated daily vessel operating expense is $5,116. Our technical management fees paid to our vessel managers are estimated $307 per vessel per day. We were under budget for the quarter and for the first nine months of this year. Our estimated cash, general and administrative expenses for 2010 is $1,521 per vessel per day. Our G&A for this quarter was higher than this largely attributable to costs related to the establishment our new Singapore office and trading operation. Based on our current interest rate swap profile, we estimate our interest expense, net of interest income, for 2010 is $3,850 per vessel per day, we're sticking with this vessel for the fouth quarter. As of September 30, we have $402 million of interest rate swaps in place. We are paying interest on the balance of our debt at prevailing 3 month LIBOR, plus our margin of 250 basis points. Finally, we have maintained that our estimated average dry dock costs at $603 per vessel per day, on the basis of average of dry docking costs of $550,000 once ever 2.5 years.We have three dry docks scheduled for the next quarter and two each for the following three quarters. With that, I'll turn it back to Soph who will complete the presentation.

Please turn to slide 22 for our concluding remarks. The eagle Bulk message is one of consistency. Of all the US listed dry bulk companies, we alone, remain uniquely focused on a single asset class, which is now recognized as the workhorse of the dry bulk market and which we believe will provide investors superior returns. As such, we have built one of the largest and most modern fleets of Supramaxes in the world. Our chartering position is well balanced with both spot upside potential and long-term cash flow visibility going out nine years. As of September 30, our fourth quarter 2010 charter coverage stood at 64% fixed, 23% indexed and 13% open. Because we own a large focused fleet, we believe our evolved chartering strategy, having a greater emphasis on being market opportunistic along with our improved market visibility through the establishment of our Singapore office will allow for us to better capture value and excess returns throughout all shipping cycles. We remain very pleased with our operational performance, one of the most efficient in the industry. Fleet utilization was an impressive 99.9% for the quarter. Lastly, management remains focused on taking delivery of the Company's final new build vessels and continuing to evolve Eagle into an industrial powerhouse within the mid-size dry bulk asset class. I would now like to turn over the call to the operator for questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Natasha Boyden with Cantor Fitzgerald. Please proceed.

Thank you operator. Good morning, gentlemen.

Hello, Natasha.

Soph, I just have a question on the Griffon. What motivated you to sell the Griffon last quarter and given that, would you consider selling other older vessels at these values?

Good question. We've been hinting that the Griffon, and really more specifically, that Handymaxes would be vessels that -- I don't want to quite use the term are non-core assets for us anymore, but our strategic focus will ultimately be, to be 100% Supramax one day. And, we had, prior to the Griffon, three Handymaxes in the fleet. The Griffon which is now gone, the Sparrow and the Kite. So, I would say, look for us at points that are opportune to ultimately look to divest out of the Handymax vessels and at some point in the future be 100% Supramax.

Okay. That's fair enough. And just looking at Supramax rates, they perform very well the last six to 12 months, particularly relative to larger vessels. But having said that, you do have relatively large amount of unfixed days in the latter half of 2010. How do you think about what level of exposure, in terms of spot, that you are comfortable with in this environment and could we expect you to fix more of your open vessels, or are you comfortable with the current level that you have?

I think the balance right now, going into what has traditionally always been the seasonally strong part of the year for dry bulk companies is exactly where we want to be. Also, to be a able to effectively capture value in this new trading platform, you can't be 100% locked down, because then the trading group doesn't have assets to be able to capture value. I would say, look for us to always sequentially cover the earlier ships, but I'd say, for where we are right now for the fourth quarter, which is the seasonally the good part of the dry bulk market for all of us, we're exactly where we want to be.

Okay. Great. Maybe, Alan, a couple of brief questions for you. You did mention why the G&A increased in the third quarter but this is the third sequential quarter that G&A's increased fairly substantially. So, can you give us a, what might be a reasonable run rate going forwards for 2011 and for the fourth quarter?

We're not ready to give out a run rate for the 2011. I will remind you that we've had 40% fleet growth during the year. So, a lot of it is the fact that we've taken delivery of 12 ships and are preparing for eight more. As far as the fourth quarter, management guidance would be to straight line the third quarter.

Okay. Great. And then lastly, what TCE rate did you achieve on your spot and index linked charters during the quarter?

We haven't given that figure out, Natasha.

Okay, alright. Thank you very much. I appreciate it.

And our next question comes from the line of Michael Webber with Wells Fargo. Please proceed.

Hello, good morning, guys. How are you?

Good, Mike, thanks.

Just wanted to zero in on the new trading operation a bit here. Can you talk a little bit about what we can expect from a revenue contribution perspective as well as from a cost? I know it's inherently difficult to plan ahead of time because you're capitalizing on market opportunities, but can you give a little bit of color on -- how would you think about that on a go forward basis?

Well, I would say, the best way for everyone on the call to think about it, and this is the way we internally view this, is we are very much still in what we call the ramp up phase. I mean, the actual launch of the office in Singapore only occurred in September. You will notice a contributory impact already on the Company with revenue growth, which can be pointed to with the trading platform, but I would say, we're very much in the early, early days. So, it would be very difficult to give you guidance that we as management team could say would be accurate guidance for you.

I would say, by the next quarter, we'll have a much better feeling for growth trajectory. But, what we find as very compelling for the Eagle story, but also as a differentiator with all the other, call it, US listed dry bulk companies, is now we have multiple potential revenue sources. Instead of being 100% a time charter Company, we now have revenue sources from chartered in vessels owned by others where we act as charter. Contracts of affreightment where we are taking obligations to move, anywhere from small shipments to multi-year shipments of cargoes. And as I discussed earlier, acts as a nice natural hedge. And to be able to basically be much more opportunistic than we've ever been before. And the third quarter is probably just a small glimpse, as I said, the ramp up phase of what this operation is doing for the Company.

Right. It's definitely an interesting differentiator be to see how it flexes out a bit. With regards to the trading operation and this might be a bit in the weeds, when you think about your COA commitments, and the chartered in vessels that physically back the cargoes, and combined with the FFAs, is the idea there to be net neutral in taking advantage of freight opportunities? Or do you envision a situation when you guys are net long or net short paper positions? And maybe talk a bit about some of the risk management policies that are in place and how we should think about that?

Sure. Well, I think, if you look at, I'll speak Eagle specific, but also most public dry bulk ship owners, especially the US group. If you want to talk about in terms of a trader's perspective, everyone's been super long assets dry bulk vessels, short cargo.

Right.

Which is not a very balanced book. So, what we felt and this is all very methodical natural evolution that started back in '05, from 10 vessels now to 40 plus vessels in this Supramax market, because when you have that kind of scale, you can do things that smaller companies or big companies with diversified fleets can't do. I.e., if our 46 ship composition was,say, 10 Capes, 10 Panomaxes, 10 Supramaxes and 10 Handys, and a couple Handymaxes, we couldn't do this effectively. But, when you have 46 vessels, all homogeneous, you have essentially a platform that allows you to get closer to your industrial end users, and ultimately as you correctly pointed out, have a balanced book to get cargoes, if you will, to balance out this very large, focused fleet.

So, just to give everyone on the call today a flavor of some of the cargoes we've done, even though we're still early days in this initiative, we have taken in some cement cargoes. We did, recently, a mini COA of grains in the Atlantic, both which allows us to cover the Eagle fleet. So, now, rather than going into the fleet -- into the market, an Eagle vessel has two options. You can either go in to the market, as we all traditionally have done, and find a charter to charter your ship or if it works out right, Eagle might have its own cargo and you can put your own ship on your own cargo. So, we believe it's a very natural, well timed and logical move for us.

Got you, that makes a lot of sense. That leads me to my next question. And Soph, you mentioned, that the remaining handful of remaining older Handymaxes, would this be a logical place for them if they can act as in-house excess tonnage to match these COA commitments? That maybe you don't have to go in and charter vessels in for or is that something that's on the margin, that you guys haven't thought about?

I'll tell you, it's a good point, but what we've noticed is that as we're getting more and more into the cargo business, and we have some people working for us who actually come from large industrial end user groups who are now working in-house at Eagle in Singapore. What we've seen is the stem sizes, which is what you call it in shipping, which is the cargo shipment size, is now moving in the 50,000 ton to 60,000 ton size. So, a lot of the cargo requirements, in other words the shipments, are moving into the Supramax size category, thereby -- I don't want to say marginalizing the Handymax, but making it slightly small.

Okay.

For lack of a better word.

No, that makes a lot sense.

I think we'll -- I think we've been consistent in our message and we will, at some point, be opportunistic and look to divest out of the remaining two Handymaxes in the fleet.

Yes. No, that makes a lot sense. One more question and I'll turn it over. You guys do -- you guys provide probably more transparency than just about anybody with regards to your cargo volumes and what makes up the actual commodities on your vessels.

And it looked like, and you mentioned earlier, that potash and fertilizer were a bit heavier this quarter than last. Can you talk a little bit about some of the seasonality on some of those minor bulk trades, currently? And then as we look to Q4 and Q1, how do you expect that mix to kind of shift both for major bulks, and then for the minor bulks with the potash and what not?

Well, what's interesting is, specifically with potash and fertilizer, that has been a recent, I would say, strategic focus of China. We've noticed in the last year or so -- and you've probably seen it in prior quarters slides that show our cargo breakdown, a pick up in grain activity.

Right.

A lot of that grain has been long-haul grain going from the Atlantic into the Pacific, specifically into China. So, fertilizer has also been something that's recently been a strategic focus of China and we see not -- and this isn't really answering your seasonality question, but we see fertilizer as becoming an increasingly more important minor bulk commodity.

In fact, if you look at slide 10, potash and fertilizer, and that's probably why you mentioned it, Mike, was the number one minor bulk cargo that we carried, almost by a factor of two from the second biggest cargo we carried, which was steels, pig iron and scrap. I would say, the nice thing about minor bulks, and this is what's a really great balance for the Supramaxes as opposed to the major bulks that definitely have seasonality. As we know, coal tends to ship -- well, thermal coals tends to ship like oil with the heating seasons and also with the summer electrical needs with AC.

Grains, obviously, move with harvests and iron ore tends to -- used to move on the contract repricing. Minor bulks are all over the place and create a nice bedrock of supply of cargoes into the Supramax market, which partly explains why we believe the Supramaxes have been a relative outperformers for the entire year relative to the bigger ships.

Right. Great. Listen, I appreciate the time, guys. Thanks a lot.

Thank you, Mike.

And our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Please proceed.

Yes, good morning, guys.

Good morning, Fotis.

I want to follow up a little bit on Mike's questions regarding the trading operation. It seems that there has already been some good contribution on the third quarter earnings. But, my question has to do with the risk management. I want to ask you, how long are the time charters that you are engaged in to? For how long do you time charter in the vessels? And, in relation to that, what are the commitments of the Company has taken or takes in order to perform this operation?

Well, the time charters that we've taken in have been traditionally anything from a voyage. For example, we took in a cement cargo and we immediately, within a couple of days, married it to a ship that we chartered in to move the cargo that we just booked. So, it can be as short as a voyage of, say 30 to 45 days, or it can be as long as, say, a year. That's generally the sweet spot that we've started operating in. But as I said earlier, this is still early days. That could change.

Shall we assume that you first find the cargoes and then you engage the ships into this operation?

What is interesting is it's more dynamic than that, in a sense we've seen already that you have -- well, first of all, Eagle has been an incredible beneficiary of having an office with a 12-hour time difference in the Pacific arena because what we see a lot is our information flow gives us a competitive advantage vis-a-vis other ship owners or even cargo interests. Which allows us, and in one case we took in a ship that we thought was way below market because the owner was maybe not up to speed with where the cargo demand was going, and in the flip side, there was partly -- one of the guys in our Singapore office had a very close connection with a cargo owner and exploited that relationship to get the cargo, that on the back of that we got a ship. So, I wouldn't say it's just cargo first, ship later, but if a ship does come in, we will look rather soon after that to marry it to a cargo. So, it's a relatively -- I guess to use a trading term, a relatively hedged book.

Yes. My -- my second question, I want to ask, you mention about the traffic jam in China, but I want to ask about the congestion, especially of the coal ports. We've seen the last few weeks congestion in Australia going down. At the same time congestion in the steel ports and the iron ore ports in China is going up again. Can you give us your views on how shall we expect congestion to develop, in relation, especially with the coal trades?

Okay. Well, generally there's been a couple of things that's happened, I would say, in the last month that have been, I would say, very, very short term negative but will be longer -- or medium term positive. As you may know, there have been floods in Australia and in Indonesia, specifically in some of the coal mine regions, which have created, I would say, a few week disruption in coal shipments.

But, as those things are now working their way through and are subsiding, we expect that you will see a backlog and an increase of congestion in Australia and in Indonesia, specifically for coal, I would say, within the next two to three weeks. We've already seen October purchasing of coal pushing up congestion beginning in November and as some people may know, Dalrymple Bay is already up to a congestion of two weeks and growing. The rule of thumb, they say, is purchasing is a lead indicator of congestion and congestion is a lead indicator of rising freight rates. So, I would say it's that fact pattern that leads us to be short-term optimistic about the next end of the year, maybe beginning of next.

Thank you, Sophocles, thank you, Alan.

Thanks Fotis.

And our next question comes from the line of Urs Dur with Lazard Capital Markets. Please proceed.

Hello, good morning.

Good morning, Urs.

Supramax rates are still well above your breakevens but they've been meandering down here of late. Any explanations for that? You've given a very good macro view and it's bullish, and I appreciate that. But what's the near term move?

Sure. Three specific reasons, two of which I'd mentioned on answering the prior question, which is in October we had, again, weather-related events, specifically floods in mines in Australia and in Indonesia, which have subsided subsequently or are subsiding as we speak, which will ultimately create this, what I call, elastic effect where the short-term negative turns into a future positive.

And as we have seen with game playing in the past, in India, from time to time puts bans on exports of iron ore which is in place. We expect it to last for a little bit longer and then subside. And then, as we've seen in prior times they've done this, usually has, again, an elastic effect on shipping rates moving up. I would say it's those three factors.

Alright. But still been very well supported by the grain trades and extension of ton-miles and coal and so on?

Yes. In a way, it's sort of a commentary on the underlying strength in the market where you can have these weather related dislocations. And actually, you know, while we're talking, there's a fourth factor. The monsoon seasons in India, which traditionally end October, have unusually been pushed to ending in to November. So, again, you have sort of three weather related factors that have happened but have still created underlying strength nonetheless. Once those subside we expect things to move up nicely again.

Okay. But, again, the rates have been quite good. I liked your insight as to the movement in the RMB and impact on shipyards, and it goes to the popular questions of the day, impact of QE on commodity prices? What's your internal thoughts or strategy there, as to how you would see the market get impacted by near term inflation in commodities that you move?

Well, generally that is historically, from a textbook standpoint has always been bullish for dry bulk shipping. We are also, big believers, and I think it's probably the first time it's been mentioned on a call, but I think this RMB dollar appreciation is a big factor in China in shipyards and will impact supply of ships coming into the dry bulk market. To give everyone a -- again, this is a broad brush stroke comment, but I think it's important for people to know, about three quarters or over three quarters of the input costs to build a ship are non-US dollar denominated in China. The revenue is 100% dollar denominated.

RMB has appreciated 4% vis a vis the dollar in this short period of time and is expected to rise a further 4% next year. As we saw in the 2007, 2008 period that usually means contracts will fail if they've been underpriced. So, our view is that this will have a potentially curtailing of supply into the dry bulk market. And also, as a reminder, in the last couple of months with the improvement in the container trade, there's been sort of an onslaught of container orders as well as tanker orders that further marginalizes dry bulk assets from a shipyard point of view. And, as a reminder to everyone, dry bulk ships are the least profitable ships for a shipyard to build. So, I think these factors all bode very well for the dry bulk market, specifically with regards to supply.

Okay. Alan, you mentioned something that we know that you have no problems with covenants. Can you just quickly remind us as to where your covenants -- where you are in your covenants and when you think you might be able to get out from under any waivers?

I'm not going to get too specific. We basically have an untimed waiver.

Right.

So, that I'll get out. Covenant compliance will depend on -- of course, on asset values. As we get closer to being fully drawn on our facility, we'll start to use the cash on our balance sheet to make CapEx. That will, therefore, grow the asset figure relative to the debt and bring us closer and closer to coming in to compliance. I wouldn't want to put a prediction on it.

Sure.

But, we're definitely moving in the right direction, quite nicely.

Right. So it's, if anything, been getting better in recent months, not worse?

Only getting better.

Our focus, or as will very much be, on using free cash to pay down debt and create equity value that way.

Excellent. Thanks, guys.

And our next question comes from the line of Stan Trilling with Credit Suisse. Please proceed.

Good morning, gentlemen.

Good morning, Stan.

A little early here in LA Question for you. When would you see the profit sharing start kicking in, at what level?

Well, we're already enjoying that benefit today, Stan. We have a couple of ships that have had nice contributions of profit sharing already. And, as I mentioned on our slide presentation, it's roughly about 75% of the new builds that we have on these long term time charters, have some kind of profit sharing components. Some have a delayed effect, where they kick in, in about two years. So, but some are already benefiting from that today.

When do you think we would see a more significant impact? In two years?

Well, I would say it's happening already, but in two years you'll have the majority of the new build fleet, two to three years, all having profit sharing components kick in.

Okay, thank you. Great job.

Thanks, Stan.

One moment.

Operator, if there's any questions, we're standing by. But if there is none, we can end the call.

We do have questions. I'm just looking to see who was the next one in the queue.

Okay.

One moment. And we'll take Justin Yagerman with Deutsche Bank. Please proceed.

Hello, good morning, guys. How are you doing?

Good. Thanks, Justin.

I wanted to -- following up on the question on the covenants and your explanation was good, and it's interesting to see that you guys, as you get further along in your program will probably get more and more compliant. Is there a snap back in terms of a lower margin to be paid as soon as you hit that threshold, and is that going to be a nice event for you guys, from an interest standpoint, at some point in the future?

The answer is no, Justin, but the 250 basis point margin is still one of the lower ones out there.

Sure. I was just curious if we had something like that coming up? Wanted -- a lot has been said about the trading operation, I wanted to get a feel for how are you guys -- are thinking about the size of this thing? I know that it's in its infancy. But I guess, in terms, of the way that you're describing it, if you're taking ships in and you're taking cargoes, you've got inherent possibility for mismatch, which causes obvious risk parameters that need to be called into question.

So, from a size limitation standpoint, how big do you envision this getting, as a piece of the business? How do you intend to control that? Are you setting limits to your guys in Singapore, in terms of how many commitments they can put in? I guess, maybe even putting some numbers around how many ships you would charter in against your fleet at any one point in time? It would be very helpful in terms of getting some color here.

Okay. Well, I think it's very important for people to understand that this is a very conservative hedged book, if you will. So, for example, as, and I think I gave this example earlier in the call, where we took in a cargo and within a couple of days immediately took in a ship to cover that position. We've done the same in the reverse. We've also, in ships that we've taken in on a longer than a voyage basis, Justin, we have relet that ship for the period, with a bit of a spread and a margin, profitable spread to Eagle. So, again, that's a very hedged exposure because you're taking in a ship --

But that's not always going to be available to you guys. And, I mean, there's, obviously, revenue possibilities on the other end, right? If you have optionality on a ship you may be able to make more by holding on to it, if you have a below market charter and you can find a cargo for it. Or, you may be able to let it go and then that way mitigate some of that risk, but the opposite is true, where if you don't have a cargo and then the market falls, you could be stuck with a ship that you're paying above charter on it. I'm just trying to get an idea for, at any given point in time, how big that risk could get?

Okay. Well, to date that hasn't been a focus of the Company. We actually look at this as a balancing our book rather than increasing our exposure. So, for example, on the ship side, in terms of chartering in ships, which I think is what you are focused on more, that we look at as more of an opportunistic way of either taking in a ship if we have a way to employ it immediately or, if we have a cargo that we've taken in and then we can marry the ship to the cargo.

Okay. If I'm right, you guys are thinking about this more from a cargo side and then you'll be supplying Eagle tonnage and to the extent you can then opportunistically bring in excess tonnage, that's where the charter end piece is going to come in?

I think that's a much better summary of what we are doing.

Okay. Okay. And then are FFA's going to play a role in this at all, in terms of hedging out some of that exposure where possible?

Yes. Hedging through FFA's for the purpose of hedging rather than doing it as a profit center, which is not our focus, plays a role, too.

Okay. Cool. That's a much clearer picture. I appreciate that. I think that that's all I had. Appreciate the color, guys. Thanks a lot.

Okay. You're welcome. Thanks.

And our next question comes from the line of Wilhelm Gedde-Dahl with Pareto Securities. Please proceed.

Hello. How are you? Thanks for taking my call. You have eight remaining vessels on order. Can you give -- specify the remaining CapEx figure and when that falls due?

Wilhelm, the Capex figure by quarter is in the appendix to the presentation.

Okay. Sorry about that. I didn't see that. Also, do you plan to finance that with what is the remaining $70 million or $80 million on your $1.2 billion facility and then cash or do you plan to secure new financing?

No, we -- as I said in my remarks, we will fund the remaining CapEx from three sources, internally generated cash, the remaining revolver, and cash on the balance sheet.

And that revolver is capped on $1.2 billion, right?

$1.15 billion.

$1.15 billion, and that starts to amortize in 2012 and then matures in 2014? Is that correct?

That's correct, Wilhelm.

And then back to your coal story, for those of us who share your bullish outlook on the coal story, should we be worried about the, perhaps, the Cape sizes eating more and more into that trade and capping the potential for the Supramaxes? Or what's your take on that?

We've actually seen the opposite where Supramaxes -- our Supramaxes have been employed on longer and longer routes than traditionally they have. I mean, for example, we are doing coal from -- we even did coal from America which is very unusual. But, coal from South Africa, Indonesia, of course, is a big coal region for Supramaxes for intra-Asian trade, but we've seen the opposite of what you've said.

And that's also indicative, if people look at the last three quarters of earnings presentation slides, coal has taken an ever increasing proportionate share of the cargo we carry on the Eagle fleet and we expect that will continue. Every indicator we're seeing out of our Singapore office and our trading partners in Asia is just saying that it's just getting more rather than less in terms of demand for that commodity. We're very bullish on coal.

Okay. That was all. Thank you very much.

Thank you.

And our next question and our last question will be coming from the line of Doug Garber with FBR Capital Markets. Please proceed.

Good morning, guys. Thanks for taking my question.

Good morning, Doug.

I just had a few follow-ups on the trading operations. Right now it seems pretty small but once it gets up and running in a few years, I'm curious how many vessels would you guys be comfortable having on that operation as a percent of the fleet? And, longer term, if you really do have a lot of cargoes and the position switches to long cargoes and short capacity, would you consider long-term charter ins?

Definitely, yes. And I think, it's definitely possible with the capabilities we have currently but, again, we are doing it conservatively in baby steps, to operate a fleet of ships not owned by us of the same size as our own fleet. So, Eagle to get to, say, 100 ships under operation.

Okay. And, if -- as this venture grows, when would be the earliest you would consider chartering in vessels. Would this be in '11, a '12, or further out than that, when you would start considering that asset light strategy?

Today.

Today. Okay. Thank you, guys. I'll turn it back.

Thanks, Doug.

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back to Mr. Sophocles Zoullas for closing remarks.

I'd like to thank everyone again for joining us for this third quarter 2010 earnings call. And we look forward to keeping you updated of new developments in the future. Thank you.

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