Eagle Bulk Shipping Inc (EGLE) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Eagle Bulk Shipping Incorporated earnings conference call.

My name is Ann, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator Instructions)

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 first quarter 2011 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 first quarter 2011 results and highlights, including a detailed summary of the agreement reached with our charter, Korea Lines Corporation, or KLC, proceed with a Company update, and lastly present our current views on the market. Alan will then give an overview of our financials before we open the call to questions.

Please turn to slide five for a review of our first quarter 2011 results and highlights. A weak spot market, caused by short-term dislocations and a default by our largest charter, negatively impacted earnings for the quarter. Eagle Bulk generated recurring earnings of $800,000, or $0.01 per share basic and diluted. Including the bad debt reserve that we have taken on KLC of $6.6 million, we reported a net loss of $5.8 million, or $0.09 per share. Revenues net of charter commissions totaled $86.7 million for the quarter, and EBITDA was $24.1 million. Excluding the impact from KLC, EBITDA was $30.7 million, a decrease of 6.7% year-on-year. Fleet utilization was a solid 99%.

As detailed on our previous earnings call in March, KLC filed for protective receivership on January 25 of this year . At the time, we had 11 vessels on the water, of which 10 were chartered long-term to Korea Lines, at an average rate of $18,400 (Sic -- see press release) per day. By February 15, only three weeks post-KLC's filing, we had negotiated to take back our vessels on a temporary basis and successfully re-chartered all of them to third parties for short periods.

Please turn to slide six for a detailed summary of the agreement reached with KLC and approved by the receivers. This deal encompasses the 10 vessels which are currently on the water, and two newbuildings which are delivering in the second and third quarters, respectively. One additional vessel, which KLC has on sub-charter, will remain at original terms, earning approximately $18,100 (Sic -- see press release) per day. The main terms of the 12 vessels affected by the new agreement are as follows. Teners remained unchanged, with charters lasting until 2018. The average base rate goes from $18,400 (Sic -- see press release) to $17,000 per day, a nominal decrease of 7.6%. All charters have profit sharing, and will be determined as follows. Until December, 2015, Eagle Bulk receives 100% of the upside to $21,000, and anything above is split 50/50. Between January 2016 and December 2018, Eagle receives 50% of the upside on rates above $21,000 per day. For approximately one year, commencing on March 15, the effective date of our agreement, Eagle Bulk will maintain employment of the 12 vessels. Any shortfall in rates between what we are able to earn on these vessels at $17,000 will be the responsibility of Korea Lines, and be paid in arrears.

The bad debt reserve we took during the first quarter pertains to receivables due from KLC prior to March 15, the agreement effective date. We were able to mitigate this loss by the proactive initiative to take back our vessels and employ them in the spot and short-term time charter market in mid-February, while we were in negotiations with the charter. Overall, we are very pleased to have reached a quick and fair resolution with KLC, and we believe the revised terms provide us with attractive long-term charter coverage.

Please turn to slide eight for a list of our on-the-water fleet, which currently totals 40 vessels, or 2.2 million deadweight tons, with an average age of only 4.8 years. We have taken delivery of two new build Supramaxes this year, the Thrush and the Nighthawk. As we continue to take delivery of our remaining six newbuilds in 2011, the average fleet age will decrease and improve further. On the bottom of slide eight, we depict our updated chartering position. For the remainder of 2011, 59% of our fleet is chartered, 9% is indexed to the Baltic Supramax index, or BSI, and 32% remains open. We will continue to employ an opportunistic strategy and look to charter tonnage on longer periods as the market normalizes.

Please turn to slide nine, where we depict a chart of our historical and projected vessel owned days. We have now reached the tail end of an ambitious new building program set out a few years ago, and have only six remaining vessels to take delivery of. All six vessels are fixed on medium to long-term time charters, including two to KLC at an average base rate of $17,400 per day plus profit sharing. Our fully delivered fleet by 2012 will represent a very impressive cumulative and annual growth rate and vessel owned days of 27% since 2005.

On slide 10, we illustrate Eagle Bulk's cargoes for the first quarter. Our fleet carried almost 4 million tons of cargo during the quarter, representing an impressive year-on-year increase of 24%. Minor bulks represented 43% of total cargoes carried, a slight decrease sequentially, which we attribute to the relative strength in coal, grains, and agricultural products during the quarter. In addition, potash and fertilizer freight demand remains very high, with these cargoes at representing over 15% of the total carried.

Please turn to slide 12 for a review of the dry bulk market. Since the beginning of the year, the dry bulk trade has been impacted by a number of short-term factors. During January, Australia suffered from massive flooding which caused major damage to coal mines, infrastructure and affected the quality of grain products. It is estimated that over 30 million tons of coal have been pushed out beyond 2011, due to the flooding. In February, a 6.3 magnitude earthquake hit New Zealand, causing damage to coal ports, with shippers enacting force majeure. As mentioned during our call in March, there was a hold up in coal shipments out of Indonesia during the first quarter, due to delays in the issuance of export permits. The total exports impacted or delayed are estimated at 12 million tons.

These disruptions which I just mentioned have had a direct affect on pushing coal prices higher, and in turn driving major importers, such as China, to reduce their purchases in 2011. This is evidenced by China's depleting coal inventories, as illustrated on the bottom right-hand corner of slide 12. Inventories are off approximately 30%. The Indian iron ore export ban, which went into effect last summer, has withheld approximately 25 milliontons of product from the seaborne trade to date. Unrest in northern Africa did not have a material impact on dry bulk trade, as originally expected, but did negatively affect sentiment. And lastly, the tsunami which hit Japan in March caused major destruction to ports and infrastructure, and led to significant production stoppages and hence, disrupted imports and exports. On the supply side, there was an abrupt increase in vessel deliveries in January over the 2010 monthly average. We attribute this effect to the January effect, which is caused by owners pushing deliveries to the following year so they can benefit from owning a quote-unquote younger vessel.

On slide 13, we depict year-to-date performance by asset class. Even with the market experiencing a number of dislocations as just outlined, Supramax rates fared relatively well and are off only 7% since January 1 , and have averaged a respectable $14,640 per day. This compares favorably to both Panamaxes, which returned a negative 21% year-to-date, and are averaging $14,090 per day, and Capesizes, which have traded off almost 70% and are averaging $8,384 per day. We attribute this result due to the Supramax's known versatility for having an optimal size, ability to load and discharge cargoes on its own, and the overall cargo carrying diversification mix. In addition, Supramaxes continue to benefit from a lower supply growth than the larger asset classes.

Please turn to slide 14 for a discussion of the short to medium term fundamentals. We view the lifting of the iron ore export ban on April 20 as a positive development in getting this Supramax-focused trade going again. We have seen a few fixtures getting done already, but we expect the resumption to be slow, especially since India heads into monsoon season. Indonesian coal exports are back to normal levels after realizing large delays in the first quarter, and Australian coal exports continued to recover, as mines are expected to come back online later this year and infrastructure gets rebuilt. With the resumption of coal exports to more normalized levels and the commodity prices coming off their highs, we expect importers to start restocking. Fixtures of coal from Indonesia to China and Indonesia to India have picked up significantly over the past couple of weeks . As depicted on the top right-hand corner chart, Indonesia is the largest exporter of coal to China. Lastly, we believe that the reconstruction efforts in Japan will be positive for dry bulk in the medium term, as the country will need to rebuild and import iron ore, cement, logs, among other dry bulks.

On slide 15, we discuss long-term demand for coal and iron ore. We continue to view coal as the new iron ore and believe it will dominate dry bulk trade for the foreseeable future. Arch Coal's recent announcement that it will acquire International Coal Group for $3.4 billion underscores the future prospects for this commodity. Additionally, according to the Indian Ministry of Mining, India is expected to be short 140 milliontons of coal for 2011. The recent devastation caused by Japan's Fukushima Nuclear Power Plant has triggered a global debate on whether this form of power generation is effective and worth the potential risks. It is reported that over 30 nations plan to review their nuclear generating power programs, which ultimately may lead to a shift back to coal power. Already, 50% of power plants coming online over the next few years will be coal fueled. On the top right-hand corner of slide 15, we depict projected increase in seaborne thermal coal demand by origin. Metallurgical coal and iron ore are expected to benefit from the high projected growth for steel production, which is expected to double by 1 billion tons by 2020.

Please turn to slide 16 for a review of the agricultural and minor bulk trades. Global seaborne trade in grains and agricultural products is expected to reach 355 million tons in 2011. The export ban by Russia will continue to positively impact ton miles on this trade, helping to soak up additional tonnage. Minor bulks, which represent approximately 30% of total seaborne trade, remained robust after posting a strong recovery in 2010.

On slide 17, we review the current supply picture. Newbuilding supply growth remains at high levels, but the order book as a percent of the fleet outstanding is shrinking rapidly and has come off over 40%, since peaking in 2008. Slippage and cancellations for the sub-Capesize market remain at 40-plus percent, and as we have said in the past, it is widely believed these slippage and cancellation rates will continue into 2011. Primary reasons for this are shipyard and financing issues. Another factor that is expected to hinder supply growth is the appreciation of the RMB. Chinese newbuilding contracts are denominated in dollars, while their labor costs are in local currency. As such, RMB's strength continues to squeeze shipyards' margins and may potentially lead to fewer orders and yard closures.

With the rate environment being relatively weak year-to-date, we have seen scrapping pick up significantly. For the first quarter alone, scrapping has totaled almost 5 million deadweight tons, or over 80% of 2010 full-year totals. At this rate, scrapping for the year could reach almost 20 milliondeadweight tons, a historical record. With scrap rates hovering around the $500 per lightweight mark, we believe this is possible. Almost 2,000 vessels are over 25 years of age and will eventually need to be scrapped. As we have said on previous calls, scrapping acts as a safety valve that will continue to contain vessel growth and improve the supply/demand fundamentals going forward. On the bottom right-hand corner of the slide, we depict historical scrapping by month. On the right-hand corner of the slide, we depict our standard dry bulk fleet age profile chart. Sub-Panamax vessels as a group remain the oldest, with 26% being over 25 years of age, as compared to a 13% for Panamaxes and under 7% for Capes.

I will now turn over the call to Alan,

Thank you, Soph.

Slide 19. I would like to offer a brief recap on our first quarter results of operations. Net revenues for the quarter were $86.7 million, compared to the first quarter 2010 figure of $54.2 million. The increase in revenue is principally attributable to the increase in the size of our fleet and the commencement of our trading operation which began at the end of the third quarter of last year. During the first quarter of this year, the fleet was on a mixture of voyage charters, short and long-term time charters. All vessels were on time charter during the first quarter of 2010. Operating income for the first quarter was $4.4 million, compared to the first quarter 2010 figure of $15.7 million. Please note that operating income includes the $6.6 million reserve for bad debts that we've taken for Korea Lines receivables.

EBITDA, as adjusted for exceptional items under the terms of our credit agreement, was $24.1 million for the first quarter, compared to the first quarter 2010 figure of 32.9. Net income, before the $6.6 million KLC reserve for bad debt, was $800,000 or $0.01 per share . Net loss, as reported, was $5.8 million, or $0.09 per share for the quarter. Our fleet utilization rate continues to be superior, at 99% for the first quarter.

Slide 20. A few comments on our balance sheet. We ended the quarter with $118 million in the bank, and our bank debt stands at $1.15 billion at the end of the quarter. As we disclosed in an 8-K filing on April 28 and in yesterday's press release, we are presently in dispute with our lenders on a technical covenant. We are presently in discussion with our lenders to resolve the matter. As such, we believe that it makes more sense for us to limit our discussion on the call today to what we have already disclosed publicly.

Slide 21. Our remaining CapEx for 2011 is $126 million, which we've presented on a quarterly basis. As of today, we've taken delivery of two vessels this year and expect to take delivery of four more before the end of the quarter. Please note that installments can move between quarters.

Slide 22. We are presenting our expected 2011 cash cost per vessel per day. We maintain that the figure of $10,632 per vessel per day remains one of the lowest in the industry. Our estimated daily vessel operating cost is $5,103. Our technical management fees paid to our vessel managers are estimated at $319 per vessel per day. Our estimated cash general administrative expenses for 2010 is a $1,307 per vessel per day. Based on our current interest rate profile, we estimate our interest expense, net of interest income, for 2010 at $3,300 per vessel per day.

As of March 31, we have $402 million of interest rate swaps in place. We are paying interest on the balance of our debt at prevailing three month LIBOR plus our margin of 250 basis points. Finally, we have maintained our estimate that our average drydock costs, $603 per vessel per day, on the basis of an average drydocking cost of $550,000 once every 2.5 years.

With that, I will turn it over to the operator who will open the line

Thank you. (Operator Instructions)

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

Thank you, Operator. Good morning, gentlemen.

Good morning, Natasha.

I know you said you just wanted to really stick to what has already been disclosed on the covenant issue, but I am wondering if you can maybe give us some more detail as to what the specific disagreement was with respect to that covenant issue, and then what compliance were you technically in violation of this quarter?

Natasha, let me be clear. We are in compliance today. We are going to stick to what we reported in the 8-K and the press release. We are not going to get into anything further specific.

Okay. All right. Fair enough.

Having said that, and obviously you have the issue with the banks, are the banks becoming just generally more aggressive in terms of coming after companies? Have you seen that in general? Or is this just a one-off issue?

I'd like to believe this is a one-off issue, but we don't really comment on what is happening with other companies, any more than we all read.

Okay. All right. Fair enough. Thank you.

Soph, maybe turning over to you, I know this is a question that I feel like I ask you all the time, but I am going to ask you again. The Supramax rates, as you pointed out in your press release and the presentation, have been performing very well, particularly over the last 12 to 18 months or so, in respect to the larger vessels. Having said that, you know, you do have a large amount of unfixed days for 2011.

How do you think about what kind of spot exposure you are comfortable in this market environment? And when do you think you might be open to fixing some more of your vessels?

I think, Natasha, and we have heard you ask that on prior calls, and it is a good question.

I think one thing that I want to highlight for everyone on the call is we have evolved as a Company, in that last year we set up this trading set up, which allows us to take in cargoes to give us shelter from falling rates. So, for example, even though you may look at us as having, say one-third open days , we have the flexibility of taking those open days and putting them on cargoes that Eagle has taken in, which was a flexibility that was not afforded to the Company say, two or three years ago. So, I would say, given that we have taken in cargoes, that has helped generate what we thought were healthy time charter rates for the Company.

But answering your question more specifically, I think for us to have sort 50% to 65% chartered, have 10% oddin the BSI index length charters, and have the remainder to put on our own cargoes or be open, and then cover them sequentially as we get closer and closer to them re-delivering to us is appropriate. Because also in a tighter market, you get a very big discount for chartering your ships, say two quarters ahead. So, you get a higher rate on your open vessel if you wait until the vessel is closer to redelivery, which is a strategy that we've found effective in this weakened

Okay, great. Thank you.

And then just lastly, and again I don't know if you can really give us any color on this. In terms of the new chartering business, can you talk to how profitable that business was during the quarter and where you think it's going, and essentially what kind of revenues were generated on the $15.9 million of charter hire expense?

Well, what we are doing is, I would say the best way to characterize that, Natasha, is it is still in the ramp-up phase. We're still -- as you know the office is set up in Singapore, which is working very effectively for the -- call it the Pacific business and vessels that we have deployed in the Pacific market. We have taken in several cargoes where we haven't had our ships in position for the cargoes. We've chartered in some ships from the market to cover those cargo commitments.

We have also, where we have not liked the directionality of the physical market and we haven't been able to effectively charter our ships, as I said earlier, because they are too far out to charter, but we think we have some open capacity that we would like to cover, we have been able to hedge using FFA's that, you may have noticed, in our quarter generated about $1 million of profit for the Company. So that is in the Q.

But I would say, other than the $ 1million that we have reported on hedging effectively our fleet, we are still in the ramp-up phase. But as you can see from what we have reported so far, it is positive. But still early

Right. I appreciate your time. Thank you very much.

Thank you, Natasha.

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

Yes. Good morning, gentlemen.

Good morning, Fotis.

I am looking at my model and I see that your building program is almost fully funded. I do not see any issue, but let's take a very extreme scenario of complete disaster in the shipping markets. What is your flexibility to delay these newbuildings, if you have to take -- to manage your cash flows and delay them beyond 2011? And what are the chances of something like that to happen?

That's a good question, Fotis.

I would say that best way to characterize that would be that we have a very good relationship with our shipyard partner. They have been very fair and equitable to us in the past when we have noticed huge dislocations in the market that were beyond our control. The one thing that I would like to point out, though, and unlike a lot of other shipping companies, is that all of our newbuilds coming on line, all six, have the medium to long term charters going out several years at way above market rates. So, we think about the newbuilds specifically, because I think your question is specifically on these newbuilds, are very insulated from market dislocations.

We have to all just take a moment and recognize that dry bulk market in the last six months has been hit sequentially one after the other after the other, by natural disasters of almost Biblical portion. We have gone through a period of tsunamis, nuclear reactors, earthquakes -- several earthquakes, floodings that have knocked out 40% of Australia's mining capacity. And this is all in a sort of six to nine month period. Unless people have a crystal ball that know more than we do, we think this has been just a really bad stretch of environmental factors that are beyond anyone's control. And we hope that it will not continue like this into the future.

May I ask you, what do you think is the working capital that the Company needs? What is the amount of cash? Right now, you have around $120 million of cash on the balance sheet. What is the necessary cash that you need to have in your balance sheet?

Fotis, the working capital requirement for the bank is $500,000 a ship, so we have roughly $20 million odd in restricted cash.

Okay. Thank you very much. I appreciate it.

And our next question comes from the line of Doug Garber with FBR Capital Markets. Please proceed.

Good morning, guys.

Hello, Doug.

I wanted to talk about the progress of your trading division. First quarter, there was a large increase in the number of days, and I was curious if that was your intention to ramp it up that fast, and if you're going to continue to ramp it up that fast, or if it was because you were redeploying the Korea Line vessels opportunistically. Should we continue to see this steady progression? Or at some point, will the vessels go back to Korea Line and those number of days fall later in the year?

Doug, real quick, the thousand days only relates to third-party vessels. It has no direct relationship to the KLC situation.

But I will jump in and add to Alan's comments that the agreement that we reached with Korea Line, which we think, as I mentioned earlier, is highly beneficial, both in terms of the speed of the resolution and the mitigation, but also in terms of the result. We, on a -- not a permanent basis, but call it a provisional basis, are chartering our ships and controlling the cash flow and the rates at that these Korea Line ships are deployed on. So they are effectively controlled by Eagle, until at such point that Korea Lines takes them back in the future.

The point that Alan was making, which is the ramp-up in vessel owned days, is attributable to the building out, if you will, of the trading platform. I think in the short answer is, it has been an opportunistic venture. We have seen -- I think in the reason you see a rapid ramp-up in the trading, and I am very pleased to report, is because the shipping market receptivity to Eagle as a name on the cargo side of the business has been tremendous. And I am very pleased that we have been able to be welcome into the cargo side of the business as quickly, more quickly than we expected, and where we have taken in cargoes where we haven't had the ability to position our own ships to take the cargoes, we have chartered in ships to take those cargo commitments. So that is probably what you are noticing, in our Q.

All right. Thank you.

And you mentioned the progress with Korea Line. What should we look for next to ensure that they are kind of doing what they said? That they don't have necessarily a relapse. When will they actually be making payments to you, and when can we say, hey, this actually worked successfully?

The first top-up payment we'll probably receive early in the fourth quarter. So that will be the sign that that part of the equation is going forward.

Although I will add that on one of the ships we have been receiving regular higher payments as of now. So I think it's very important to point out that we believe that Korea Lines is a significantly stronger company than it was pre-reorganization. In other words, we are one of few owners who are maintained in the smaller fleet, so there's less commitments that Korea Lines has going forward. And as part of their reorganization, to continue to have that status, it is important that they maintain timely payment. So, we believe they are a significantly stronger charter today than they were, say three months ago.

Okay.

And just real quick, back to the trading division, overall it was close to 25% of your overall days. If we look out to 2012 and beyond, is there a maximum number of days as a percent of the overall days you're operating, that you would have in the trading division, from a risk management perspective?

From risk management, we look at it more on the specifics of a given trade, and on whether or not, this is an important concept, on whether or not it is hedge-able. So in other words, if we have open days on our own fleet and we want to get cover, in other words we're long ships but we feel we're short cargoes, we will take cargoes as an effective natural hedge against our physical owned ships. Or if we can, for example, take cargoes and we can't charter in a specific ships, if we can then take some pay for trade to hedge that risk, we will look at it like that. But it is more on a risk adjusted basis than on having a specific growth target and say, we want to be at 25% bigger trading platform than we are today. We think it's more appropriate to manage risk than to manage growth.

All right. Thank you guys. I will turn it back.

Thank you, Doug.

And our next question comes from the line of Chris Wetherbee with Citi. Please proceed.

Good morning, guys. This is Will Thompson, sitting in for Chris.

Just a follow-up on Natasha and Doug's point, on the freight trading business. You mentioned last quarter that chartered-in days would likely increase sequentially from fourth quarter to first quarter, which we saw ,but also likely from first quarter to second quarter. Given the current market, is this still what you expect?

You mean in terms of the growth from Q1 to Q2?

Yes, in ramping up the business.

I think, in owned -- let's put it this way, the early days ramp-up was to go from 0 to 1000 days, which we have achieved. I think it would not be an accurate sort of guidance to say that we expect that we are going to keep growing at that effective rate, as a percentage growth rate going forward, as the denominator of the growth gets larger and larger. So I would say the best way to characterize it, if you look to Q2, is it will be opportunistic with a focus on managing risk. So, risk will be the gatekeeper to growth.

And can you sort of quantify how much of the freight trading business contributed to the operating income?

What we did report, which I mentioned earlier, is we were effective -- and again, as you can see this underlying theme that I keep bringing up again and again, when people are asking questions on trading, is risk management. We were effective in managing risk to the tune of a profit of $1 million that we reported. Beyond that, we haven't -- and I think what you're asking is a break-out. We haven't given that. It is still too early.

And that was at $1.1 million of other income, that was the FFA?

Yes.

Okay.

And then going back to the covenant, I know, Alan, you mentioned that you don't want to touch on this too much beyond what is already out there. But you mention in the filing the certificate of compliance is due May 30. Can we assume this would be the deadline for negotiations with the lenders?

Will, we are not going to comment any further.

Okay. Fair enough.

We are in active negotiations.

Okay. That's it for me. Thank you.

And their next question comes from line of Justin Yagerman with Deutsche Bank. Please proceed.

Good morning. This is Josh Katzeff on for Justin

Hello, Josh.

Could you just remind us on what your kind of thoughts are on how you will be using the FFA's it going forward, and how you might be using this, I guess mainly to manage risk, or whether you might actually be taking kind of opportunistic positions or use it to hedge your existing fleet?

First of all, let me clarify, the use of FFA's is not to set up a separate profit center for the Company, but just as a risk management tool.

I will give you some examples. One of the examples, as I mentioned earlier, I think Natasha had asked how do I view open days, about covering open days for the latter half of 2011. One of my responses was that if you have a ship that is open in November, it's a little hard, in this environment, to forward chartered your ship in May. But what you can do, which we didn't have as a tool in the toolbox, say a year ago, was the ability, if you like the way the FFA market is pricing Supramaxes for Q4, you can take out an FFA contract for Q4 days. You can take out say 90 days of capacity synthetically through FFA's, if you like the pricing of that market. Because your physical segment you really intend to cover is uncharterable, because the discount is too great for Q4. So that's, I think, one way to look at it.

The other way is that you can hedge against taking in cargoes and any other examples, similar to the two I just gave. But I think the primary one for the call today is in the type of choppy charter market that we have, to be able to use FFA's to effectively synthetically charter your fleet for quarters that the physical ships are too early to charter.

Got it.

And, I guess maybe going back to the KLC negotiations and charters, how confident are you on your ability to collect the monies owed under the newly renegotiated charters?

I would say, as I mentioned earlier, we view that Korea Lines is a significantly stronger player today than it was pre-filing.

Now it's important to recognize that Eagle is a secured creditor. So the way it works is Korea Lines had to put forward a program to the receiver, Korean receiver, the receiver had to approve it, and the court had to approve the resuscitation -- rehabilitation is what it's called in Korea. And the fact that it has gone through those sort of three tests, A, that they have cut off a lot of their liabilities, B, that the receiver has approved it, and C, that the courts have approved it, are three independent markers that the company is much, much stronger than it was before.

And as I said earlier, we are receiving regular timely charter hire on one vessel. And Alan outlined later, we have an agreement in place that is approved by the court for payment, starting later on this year, on the balance between the chartered ships, what we're making, the $17,000 they owe us. So today, we are feeling pretty good about things.

And so I guess that means the first test will be in Q4, on whether they can actually make those payments?

Well, the first test is really, are they paying us on the ship that we have on charter now? And the answer is yes.

Is that ship on a sub-charter?

Yes.

Okay.

Which is the case with most charters. There is always usually some underlying business below it.

And I guess maybe staying on this topic, going forward, I guess after that kind of initial payment in Q4, what's the kind of the schedule of payments? Is this going to be a monthly or a quarterly kind of payment?

Quarterly, Josh.

Quarterly.

Which by the way, is typical.

Let me just clarify. The quarterly payments is not necessarily unique to the Eagle - KLC deal. When you have a pool of ships chartered between a ship owner and a charter and there is a profit sharing mechanism in place, it is very typical in shipping for the profit sharing and the top-ups to be paid on a quarterly basis in arrears.

So, even though the deal, we feel, is unique and very fair and very good for Eagle, the payment of quarterly in arrears is not atypical. It is normal.

Thank you for your time.

Thank you, Josh.

And our next question comes from the line of Sal Vitale with Stern Agee. Please proceed.

Good morning, gentlemen.

Hello, Sal.

Just a few clarifications. One, on the other income line of $1.05 million. That is the gain on the FFA. Am I to understand that your use of the FFA's is more tactical, as it pertains to timing of when vessels come off of charter and they're rechartered, rather than a strategic hedge, going forward?

I don't know how you define strategic hedge, but I think I would underline the word hedge, which is how we use these instruments. These are not opportunistic sort of profit making trades for us. These are -- this is another tool in the toolbox, as we grow out our fleet and want to manage risk in volatile, uncertain times. And we find that it has been an effective tool so far.

Okay.

I guess, can I think of that as, you know, a certain number of vessels that are on FFA currently, for modeling purposes?

It's not really -- you have to think of it, Sal, more in terms of days, not vessels.

Okay.

We look at, we might have a couple hundred days, a couple thousand days, 100 days, whatever metric you want to use open for a quarter for the second half of the year, and you want to take those days off the table. But as I said, you can't forward charter those ships today six months forward, but you can take out FFA's if the pricing is right, and you like the pricing to effectively take care of that risk. And when there was a little bit of a run up in charter rates earlier this year, we effectively took out some FFA's that made us some money and hedged against the drop in rates that happened subsequent to that.

Okay. And has that been disclosed in your materials, the number of days you have on FFA for the next few quarters?

Sorry, can you repeat that question?

Has it been disclosed in your materials, the number of days you have on FFA for the next few quarters, for example?

No, and I may add that that is not a typical disclosure that shipping companies would give.

Okay.

If I could just switch gears to the KLC agreement . To what extent -- if I look at the shortfall between the realized rate and the $17,000, currently the Supramax rates are, I think, about $14,500 or so, the spot rate. To what extent have you, internally, have you stress test that shortfall, so that, for example, in a really bad environment if Supramax rates got to, and not that I think this happens, but let's say $7,000 per day. To what extent have you stress test that, so that your level of certainty you have that KLC would make good on the shortfall, say between $7,000

I would answer slightly differently, which is, first of all if you look back over the last, say 10 years of chartering markets, the Supramax market, as referenced by the Baltic Supramax Index, has only once in that period, for a short period of time, been anywhere near that. And that was basically in a short period, post- Lehman Brothers collapse, where Capes went from $150,000 to $2,500 a day in about 45 days. And that was the biggest dislocation in the shipping markets in over 50 years. So I think the likelihood is remote.

But the other thing I would like to stress on the call, that relative to the balance sheets and the financial strength of other charters in the market operators, we view that with the bankruptcy protection and the approval for rehabilitation that Korea Lines has under the Korean court system, we view, A, that they are significantly strengthened to what they were, and two, that they are stronger than many charters are out there today. So, we feel that they have been timely. They have been honoring their agreements to the letter so far, albeit it is still early days. So we remain confident that Korea Lines will perform until we are otherwise proven wrong.

Okay. That's helpful.

And then just the last question on the free trading business. If I look at the -- and again, this might not be the right way to look at it, maybe you could just help me with that, if I look at the charter expense, I guess divided by the chartered in, under operating lease day, of 1,029, I get to about $15,500 per day, charter expense per day. Is it fair to assume that that's about where the Supramax spot rates were for the quarter? Is it fair to assume that basically the revenue you achieved on that business is maybe just a little bit above the charter expense on that business? I guess I'm just thinking about a framework to think about that, going forward.

Sal, there is a no magic way to determine what we earning, above and beyond the time charter expense, as some of the vessels go back on other time charters, and other vessels do voyage operations. So, I understand that you are trying to get at something, but it is just not calculable from the information you have.

I think Alan brought up a very important point that is important to remind everyone on the call, that we now have the capabilities, the robust capabilities of doing voyage charter business. So that means we are paying that potentially, ships that we are chartering in, dollars per day -- dollars per ton as opposed to dollars per day, which usually results in a time charter equipment rate that is very hard to calculate, unless you know that metric.

So, again, we are telling people on the call today that we are chartering in ships both on time charter and on voyage charter, which makes the kind of reference point that you are trying to get to very difficult to calculate.

Also, appreciate Sal that the voyages can be undertaken by Eagle ships and by chartered-in ships. So, again, you just don't have enough information.

Okay.

Do you foresee a point in the future, maybe a few quarters out, where you will have more information on the free trading business?

Yes, as this thing builds out, we want to disclose more to the market at the appropriate time.

Okay. Very good. Thank you very much.

And our final question today comes from the line of Michael Pack with Clarkson Capital Markets. Please proceed.

Good morning, gentlemen.

Hello, Michael.

Just a couple quick questions, since we're at the end of the call. Just getting back to the trading business again, would you say your present position is you're long ship and short cargo? What would you characterize your present position today?

That's a great question.

I would say we are still long ship, short cargo. When we started the freight trading desk last year and we introduced it to the market, I think the way I used to describe it was exactly the way you phrased that question, which is, as an owner, having 100% of our assets in our portfolio being in the hard assets of the vessels and not having one ton of cargo, we were very long ships and very short cargo. So I think in these volatile markets, the goal was to get to a more balanced portfolio.

We still have much more to ship exposure than we do cargo exposure, but we are on a track to balance that going forward. And again, I think the there are very few other dry bulk companies that are listed here in the US that have those capabilities.

That's very helpful.

My other question involves the accounting of the -- related to the KLC settlement . On the claims for common benefit, in the case of a shortfall, what happens? Do you still realize the revenue on $17,000, but then there's a claim, I guess there is an accounts receivable that gets posted on the balance sheet for the difference? Is that how it

Yes, we will -- as I mentioned earlier, we will be, assuming that Supramax rates are below $17,000, we will be building an accounts receivable in the second and third quarters of 2011, until they pay us in arrears. So yes, the accounts receivable will be building , as we said, for the difference between what we earn on the ships and the $17,000 a

Great. I have no further questions. Thanks for your time, guys.

Thank you.

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

Thank you, Ann.

I would like to thank everyone again for joining us for our first quarter 2011 earnings call, and we look forward to keeping you updated on new developments in the future. Thank you, everyone.

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.