Eagle Bulk Shipping Inc (EGLE) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second 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 second 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 SEC for a 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 3, the agenda for today's call will be as follows. I will first brief you on our second quarter 2011 results and year-to-date highlights, proceed with an update on the Company, 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 5 for a review of our second quarter 2011 results and highlights. Continued weakness in rates caused both by short-term trade dislocations and elevated supply growth negatively impacted earnings for the quarter. Eagle Bulk generated a net loss of $1.4 million, or $0.02 per share basic and diluted.

Revenues net of charter commissions totaled $76.4 million for the quarter, representing an increase of 16% year-on-year. This increase is primarily attributable to operating a larger fleet as compared to the same period last year. In addition, this number also reflects revenue generated from our trading division. Eagle Bulk Pte, which commenced operations in late 2010.

EBITDA for the second quarter amounted to $28.8 million and fleet utilization, which is calculated as the number of operating days divided by the number of available days improved to an impressive 99.5%.

On the strategic front, we took delivery of two newbuilding Supramaxes since our last earnings call in May, bringing the year-to-date total to five, representing an increase in the Eagle Bulk owned fleet of 11% since the end of 2010. There are now only three remaining newbuilds to take delivery of this year. All deliveries have three-year charters with base rates of $17,650 per day plus profit sharing.

On the S&P front, we sold the HERON, a [2010-built] Supramax and one of our oldest vessels in the fleet to an unaffiliated third-party for $22.6 million, net of commissions. The transaction was executed in July and cash proceeds were used to pay down debt, improving Company liquidity. Between taking delivery of the newbuildings and divesting the HERON, we were able to lower the average age of the fleet to just 4.5 years, an improvement of almost 7% quarter-on-quarter.

Please turn to slide 7 for an updated list of our on the water fleet, which currently totals 42 vessels, or 2.3 million deadweight tons.

The Eagle Bulk fleet is by far one of the largest, most homogeneous, and youngest fleets in the industry. On the bottom of slide 7, we depict our updated chartering position.

Our profile remains relatively unchanged as compared to last quarter. For the second half of 2011, 55% of our fleet is fixed, 8% is indexed to the Baltic Supramax Index, or BSI, and 37% remains open. We will continue to employ an opportunistic strategy and look to fix tonnage on longer periods as the market normalizes.

Please turn to slide 8, where we depict our historical and projected vessel owned days. With only three remaining newbuilds to take delivery of, we are approaching the end of our growth programs set out a few years ago.

All of the remaining newbuildings are fixed on three-year charters at an average base rate of $17,650 per day plus profit sharing. Our fully delivered fleet by 2012 will number 45 vessels, representing a cumulative annual growth rate of 26.4% since inception of our Company in 2005.

On slide 9, we illustrate Eagle Bulk's cargoes for the second quarter. Our fleet carried over 3.7 million tons of cargo during the quarter. Minor bulks represented almost 44% of total cargoes carried, a slight increase sequentially. We attribute the shift to the relative weakness in major bulk trade, as grain shipments were impacted by the flooding in the Midwest and Indonesian coal shipments were impacted by China's slowdown in purchases.

As a reminder, we believe China started to cut back on its coal imports during the first quarter in order to drive rising prices lower. This led to a short-term depletion in inventories.

Please turn to slide 11 for a review of the dry bulk market. Rates remained weak during the quarter on the back of continued supply growth and short-term trade dislocations. Although seaborne trade demand remain strong, it has not been able to fully soak up the incremental supply putting pressure on rates.

Vessels supply growth amounted to a record 44 million deadweight tons during the first half of 2011, representing an increase of 15% over last year. The non-craned vessels i.e. Capesizes and Panamaxes represented the bulk of deliveries as compared to both Supramaxes and Handysizes.

Australian coal mines still have not fully recovered from the massive flooding, which occurred in January. Although production and exports have ramped up significantly from their lows, capacity remains at depressed levels of around 20% as compared to last year. Revised estimates put lost production at over 30 million metric tons. To put it in context, this is equivalent to 600 Supramax voyages.

Flooding in the Midwest led to a record water level on portions of the Mississippi, Ohio, Illinois, Missouri and Arkansas Rivers. Some shippers enacted force majeure with barge movements along the Mississippi River decreasing 26% as compared to the first quarter. Dry bulk cargoes affected included grain and coal. Although the US exports most of its coal from the East Coast, Mississippi River ore originating product is increasing. Anywhere from 700,000 to 1 million tons of coal shipments were delayed due to the flooding.

The Indian iron ore export ban, which went into effect last summer and lifted this past April has withheld over 25 million tons of product from seaborne trade to date, equivalent to 500 Supramax voyages.

Although the ban has technically been lifted, exports from the state of Karnataka have been extremely slow to resume, both due to lack of export premise being issued and the onset of monsoon season, which typically runs from May to September.

In addition, recent developments surrounding an independent inquiry into the illegal mining within the region between the years of 2006 and 2010 has resorted to the Chief Minister of the state resigning. This region's iron ore exports represent approximately one-third of Indian's total, which are projected to reach 75 million tons in 2011, a decrease of 20% year-on-year.

We are finally seeing some statistics on the impact of seaborne trade from the tsunami, which affected Japan in March. As depicted on the top right corner chart, Japanese monthly coal imports plummeted 16% as damage to port infrastructure made it very difficult for ships to unload cargoes.

Given a shortage on inputs and higher electricity costs, Japanese steel plate prices shot up 20%. This is shown in the chart on the bottom right-hand corner of the slide.

On slide 12, we depict year-to-date performance by asset class. For a second consecutive quarter, Supramaxes outperformed both Panamaxes and Capesizes. We attribute this result due to the Supramaxes known versatility for having optimal size, ability to load and discharge cargoes using onboard cranes and the overall cargo carrying diversification mix. In addition, Supramaxes continue to benefit from lower supply growth as compared to larger asset classes.

Please turn to slide 13 for a discussion of the near-term fundamentals, which we see is mixed. We view the listing of the Karnataka iron ore export ban on April 20 as a positive development in getting the Supramax focused trade going again. But given recent developments surrounding corruption, we don't anticipate a meaningful resumption in exports at this time.

Chinese iron ore inventories remain at record levels. Latest figures indicate stockpiles are just shy of 94 million tons. Although there was a slight decrease in inventories over the previous week, we believe it will take some time until they head back to more normalized levels. This may affect short-term purchases in trade.

Chinese coal purchases has been robust during the latter half of the second quarter, helping replenished depleted inventories. This is indicated by the chart on the bottom right-hand corner.

The prime beneficiary of China's recent importing bench has been Indonesia, helping that country gain even greater market share away from Australia which continues to suffer from capacity restraints.

As illustrated on the top right-hand corner, Indonesia represents the biggest source for Chinese coal imports, representing 43% of 2010 totals. We believe the reconstruction efforts in Japan will be a positive for dry bulk and expect to see a pickup in trade by the first quarter of 2011. Japan will need to import iron ore, cement, steel products and logs, among other dry bulks.

Please turn to slide 14 for a review of the agricultural and minor bulk trades. Although flooding in the Midwest impacted grain trade during the quarter, global shipments remain firm. Last month, Russia announced it will be lifting its ban on exports and is now projected to ship 12 million tons during the 2011, 2012 season, a significant increase over last year, but still way below the 2009, 2010 levels of 20 million plus tons.

As a reminder, Russian wheat exports generally come out of the Black Sea region and go to North Africa, the Middle East and the Far East. All in all, we view the lifting of the ban as a positive, as product from the region will replace lower expected supplies out of Europe and the US.

Chinese soybean imports have come off in recent months, as a result of an imposed cap on veg oil prices, which has been led by negative gross margins. Additionally, a reduction in Chinese hog inventory has led to a decline in animal feed demand. However, the veg oil cap is expected to be lifted soon, prompting a resurgence in soybean imports.

We believe product in the short-term will be sourced primarily from Brazil, thanks to a record harvest, and discounted prices there relative to the US.

Overall, Chinese soybean import demand remains very strong, as it is expected to taken 59 million tons this year, a 10.3% increase over last year.

On the bottom right-hand corner, we depict New Zealand log exports by destination. Historically, China has been the main buyer, but we do expect for Japan to increase its purchases on the back of reconstruction. Minor bulks would represent over 30% of total seaborne dry bulk trade remain robust after posting a strong recovery in 2010.

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.

As we mentioned in previous earnings calls, the Daiichi nuclear power plant disaster has led to a number of nations evaluating their nuclear generating programs. Germany has already shutdown permanently eight of its plants equating to 8% of its national total capacity. It will be replaced by new coal-fired plants coming on line next year. We believe this action will be mimicked by other western countries as well, a positive for a global coal demand.

In addition, opposition to shale gas exploration as recently evidenced in France, may spread to Northern Europe and the US, leading to increased demand for coal. There's currently over 250 gigawatts of coal-fired power capacity scheduled to come on line by 2015, mostly in Asia. The incremental coal requirement will come primarily from Indonesia and Australia, but delays in Australian capacity expansion will lead to Indonesia providing for most of the incremental product in the near-term. On the top right-hand corner of slide 15, we depict projected incremental seaborne thermal coal trade.

Lastly, iron ore and coal demand is also projected to increase due to projected global steel production increases of 400 million tons by 2015.

On slide 16, we review the current supply picture. Newbuilding supply growth remains at high levels but the order book is shrinking quickly and deliveries appear to have peaked earlier this year.

As illustrated in the chart on the top right-hand corner, new orders in dry bulk are down 80% year-on-year and the order book as a percent of the fleet outstanding has come off over 45% since peaking in 2008. Slippage and cancellations for the sub-Capesize market remain at significant levels of 35% plus.

As we have said in the past, it is widely believed that slippage and cancellation rates will continue into 2012. Primary reasons for this are shipyard and financing issues.

With the rate environment remaining weak and scrap prices staying high, demolition continues to be robust. For the first half of 2011 alone, scrappings has totaled 13 million deadweight tons, or over 1.2 times 2010 full-year totals.

At this rate, scrapping for the year can reach over 25 million deadweight tons, surpassing the previous record by over two times. 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 assist 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. Asian shipbuilders continue to struggle with rising costs related to steel plate prices and other inputs, and a rising domestic currency. Shipbuilders' already thin margins are getting squeezed, forcing them to enact strict cost controls. This phenomenon creates a floor for asset prices, which is a positive for the industry.

Lastly, we have noticed the strategy of slow steaming coming into play with the dry bulk sector. Given the current rate environment and high fuel prices, it is making more and more economical sense to slow steam, which leads to longer voyages and hence increasing utilization.

I'd now like to turn over the call to Alan who will review our financial performance.

Thank you, Soph. Slide 18. I'd like to offer a brief recap on our second quarter results of operations. Net revenues for the quarter were $76.4 million compared to the second quarter of 2010 figure of $65.6 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 third quarter of 2010.

During the quarter, the fleet was on a mixture of voyage charters and short and long-term time charters. All vessels were on time charter during the second quarter of 2010. Operating income for the second quarter was $10.3 million compared with the 2Q '10 figure of $23.5 million. The year-on-year decrease in operating income is primarily attributable to operating a larger fleet in a lower rate environment.

EBITDA, as adjusted for exceptional items under the terms of our credit agreement was $28.8 million for the second quarter compared to the 2Q '10 figure of $41.7 million. Net loss was $1.4 million, or $0.02 per share basic and diluted. Finally, our fleet utilization continues to be a superior 99.5% for the second quarter.

Slide 19. Few comments on our balance sheet. We ended the quarter with approximately $74 million in the bank, including $24 million of restricted cash. We've taken delivery of five vessels so far this year. We're scheduled to take delivery of three more before the end of the year, including two this quarter, which will mark the end of our newbuilding program.

We also announced the sale of the HERON 10-year old Supramax for $22.6 million net of commissions. The transaction took place in July, proceeds were used to pay down debt. Our bank debt stands at June 30 at $1.151 billion, please note this figure does not reflect the repayment made from the sales proceeds.

As disclosed in our 8-K filing on April 28, we remain in dispute with our lenders regarding the interpretation of certain covenant calculations.

As stated in our earnings call in May, we disagree with the interpretation of the original covenant calculation being used by the agent. At this time, we remain in discussion with our lenders to resolve this technical matter and will notify the market accordingly.

We continue to believe that our interpretation of the facilities agreements' covenant calculation is correct, that the reinstatement of the original loan covenant was not valid and that we remain in compliance with all covenants in effect at June 30, 2011.

Slide 20. Our remaining CapEx for 2011 is $73 million, which we represented on a quarterly basis. As of today, we've have taken delivery of five vessels, expect to take delivery of two in the quarter and the last vessel before the end of the fourth quarter.

Slide 21. We maintain that our expected cash cost of $10,632 per vessel per day remains one of the lowest in the industry. Our estimated daily vessel operating cost is $5,103. Technical management fees paid to our vessel managers are estimated at $319 per vessel per day. Our estimated cash general and administrative expenses for 2011 is $1,307 per vessel per day. Based on our current interest rate swap profile, we estimate our interest expense, net of interest income, for 2011 is $3,300 per vessel per day.

Finally, we've maintained our estimate that our average drydock costs at $603 per vessel per day on the basis of the average dry docking cost of $550,000 once every two and a half years.

With that, I will turn the call back to Ann, who will open the call for questions.

(Operator Instructions). Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen.

Yes. Hi, Natasha.

Hello.

Hi. Supramax rates have performed particularly well over the last 12 to 18 months or so, particularly relative to the larger vessels. And having said that, you have a large amount of unfixed in index linked days in 2011 and 2012. And so how do you think about what level of spot exposure you're comfortable within this market environment, and could we expect to see [fixed more growth] in vessels?

Thanks, Natasha. That's a great question. I think what we want to avoid is what I call a classic mistake, which is in a down cycle in shipping to charter out your ships for multi-years. The charters would obviously love to take our ships for multiple year charters at these levels that I think the appropriate strategy is to keep the balance that we have. Really maintain for all of 2011 so far, we thought that the charter mix we had for Q1 was the right mix which we continued into Q2 and I think that's probably the right mix going forward until we see a change in the charter market.

So, the way we look at it is sort of a portfolio of different charters. We have -- as you know, we do have some quite a few high fixed rate, multi-year charters with profit sharing at rates that are significantly above current charter rates and the three newbuilds, as I mentioned earlier, that we're taking delivery of, each have significant charters attached with rates that are several thousands of dollars above today's rates. The index charters that we have, we believe it's always good with a fleet of our size to maintain a certain amount, call it anywhere from say 5% to 10% of the fleet on these index linked charters, and the reason for that is because you get dislocations between the Pacific and Atlantic markets.

So for example, we might have a ship that's in the Pacific, which might be trading let's say where the market might be [$10,000], the market in the Atlantic might be say, [$20,000] and the index is [$15,000]. So by having ships in the Pacific that are on BSI linked charters, we're able to effectively outperform the region where your ship is trading by [$5,000] a day. So, we will continue to maintain that. And now that we've set up an opportunistic capability within the Company to be able to charter the ships more aggressively, we've been able to do voyage charters and not lock-in low multi-year charters, which we think is the right course of action.

Okay, great. Thank you for that. I'm just curious maybe Alan, maybe you could answer this question. Is there any particular reason for the delay with regards to the covenant breach disagreement, I'm just curious why it's sort of taking so long to resolve?

Well, I think there's really two points on that. First of all, the facility is not bilateral or even like a club deal. When you have a syndicated facility, obviously there's a lot of people you have to consider and a lot of -- an issue has to go around to a lot of different members for consideration. That's point one. Point two is, the banking system in general globally is a very different banking environment than it was say four or five years ago. So -- and that's not true of Eagle. That's true of all companies, even companies outside of shipping.

So I'm just saying that really it's those two reasons we have a facility with multiple lenders, and secondly, things take longer to consider.

Okay, great. Thank you very much.

Thank you, Natasha.

Michael Webber, Wells Fargo.

Hi, good morning, guys. How are you?

Yes, hi, Mike. Good.

Hey. I wanted to jump back in and talk about the covenants for a bit and just -- when you hear conversations with your lenders, are you guys focused right now purely, I guess on the HERON now with the covenants? Or as you're kind of addressing that, are you guys talking a little bit more about maybe restructuring some of the facility down the line, or kind of addressing that amortization that seems to be looming over the next year and a half, two years?

I would say, listen, we have this one technical issue that obviously we're looking to resolve, and I think it's important to highlight that RBS and our other banks are not new to Eagle. There are people that we have long relationships with, which I think is very positive in this market. But obviously when you bring up one issue, there's the capability to talk about other issues as well. So, we're looking to talk about the facility in general. So I think that answers your question on that.

Fair enough. Now that's helpful. On your trading platform, you guys haven't been breaking this out, yet I think if you guys are kind of building it out. Can you give a little color in terms of profitability there for the quarter, and just maybe a little bit color around what happened within that unit over the last three or four months, as you guys are trying to ramp it up?

Mike, as we've said, we're still ramping it up. It is contributing but we're not at the point where we've built up enough of a book to be able to provide the market with any meaningful data. We're still not there yet.

On the quarter, would you call it a drag on the quarter?

No, I didn't say that.

Okay. You guys also sold the HERON during the quarter. And I think the bid -- the price looked actually a bit above market, and it's obviously positive from a liquidity standpoint. Would you guys think about selling any additional vessels? And I think you guys talked a bit about selling [the Handies], the older Handies, before they seemed a bit younger. Can you talk a little bit about that? And then I guess how young you'd be willing to go and at what point this start kind of impacting the strategic [your also] kind of strategic focus in terms of owning and operating the younger Supramaxes?

Good question. Well, I think first of all just to explain the thinking behind the HERON. We clearly saw, as I think we've mentioned earlier in the year, and maybe at the end of last year that we thought asset values would come under pressure. So, when we had the opportunity to sell a 10-year-old ship, one of our older ships in the fleet at what we thought would quickly be an above market price as you yourself identified, we did it. It just made good sense. And the time has proven us to be right in the decision to sell the HERON.

I think the great thing about the Eagle fleet having such a young homogeneous fleet is we don't have to be under the market pressure to do "distress selling. " So, for example, you want to be in a downcycle with a young fleet like ours. I think it's more difficult for owners that are operating call it more middle aged or older ships in this market might have to make decisions not out of strategic strength but out of strategic weakness.

So I think, look, we're comfortable with the fleet. The earning capabilities at the Supramaxes have proven themselves in this market to be far superior to ships two and three times their size. We believe that trend will continue for the foreseeable future. So I would say the best way for you to think about it is we will look to be opportunistic, but definitely we're not selling unless we think it's a good healthy strong price for the Company. There's no need to sell.

Got you. All right. Now that's very helpful. Yes, one more and I'll turn it over, [and I'd remiss] if I didn't ask about it. But you guys are facing a relatively public shareholders [issue] right now. Can you guys give an update with regards to any form of timing there in terms of a resolution? And then specifically with regards to your old liquidity over the next year or two as the market kind of brings that a little bit higher, does that impact your [ability] or desire to try to settle that?

Well, as I'm sure you know, any company that has declared a notice of a complaint, really can't talk about it and I'm not ducking it but that's just -- it's difficult for us to discuss. But that being said, what I think we're very comfortable in saying, which we actually put out an 8-K and said is that, our lawyers advice us that this is without merit and we will continue to update the market when we have updates that are worthy of public disclosure.

Okay. All right. Fair enough. Thanks for the time guys. I appreciate it.

Yes.

Thank you, Mike.

Chris Wetherbee, Citi.

Great. Thanks, guys. Good morning.

Yes, hi, Chris.

Hi, Chris.

Yes. Just a follow-up on Natasha's question on the facility and the negotiations that are going on, I mean any sense of what the timing may be there? I know it's probably difficult to figure out, but it's been a while, so I'm just curious if you actually think maybe we will get resolution in the next several weeks or is it something further than that?

I would say, listen, we're right now in ongoing talks with them. I think there's a sort of a mutual spirit of cooperation and goodwill on all sides, which we view as positive. So I think everyone's doing the right thing that they should be doing. But as I also said earlier, there are multiple parties and it is a slow process, so we're -- it's sort of hard for us to predict when the process will end. But everyone is working together well, and then we view that as a positive.

Okay. But it's difficult to give a sense of whether it's a quarter or more out from resolution?

It's just -- as I said, it's -- when you have multiple parties, it's hard to sort of pin a date on what someone else will decide. So, if it was a question about things that is just Eagle -- specific to Eagle management, I could give you some guidance. But when it involves other people, it's more difficult for us to predict for you.

Okay. Now that's fair. I appreciate the color. I don't know if it's possible that if you could give us an update on kind of pro forma debt as we stand today and cash levels as we stand today, you've taken a couple of vessel deliveries. You've obviously sold the vessel to pay down debt. I guess maybe if you could give a pro forma debt number, that would be great? And I just maybe alternatively, as you've taken the new vessel deliveries, are you using debt to fund those deliveries?

We generally don't give out numbers within the quarter. But as we did say, we used around $22 million odd of the proceeds to repay debt in the quarter. It is a revolving credit facility, so it remains available for redrawing if needed.

Okay. So you [can] draw that $22 million for vessel deliveries. And the two that you've taken subsequent to the end of the quarter, did you use debt to fund pieces of those?

No. We paid those out of cash.

Those were paid out of cash, okay. That's helpful. I appreciate it. And then maybe kind of a bigger picture question, Soph. You outlined very well like you always do kind of the puts and takes on what's driving the market from a fundamental perspective. How do you think about a rate recovery? I guess when you look out into the next several years as you have better supply demand dynamic within Supramax, but there are lot of challenges obviously from a demand perspective that you've kind of highlighted very well.

I guess when do you see rates coming back to kind of I guess maybe a little bit more normalized level. They certainly have outperformed, but are a little bit lower than what they've been over kind of the longer term or at least the last five or seven years or so. And what do you think about as far as the magnitude of the rate recovery? Do we get back to -- is it $20,000 a day on Supramaxes? Is it $17,000, $18,000? I'm just trying to get a sense of kind of what your thoughts are around recovery time periods and then magnitude of recovery?

Sure. Well, the sort of the silver lining in the cloud here is that the market has been so bad for the first half of 2011, you actually in a way wanted to be a little bit of a cleansing, which we've seen as I highlighted with the scrapping number. You're probably going to see a record year in scrapping this year. The other thing that I think we might have mentioned on the earlier call is you have basically no ordering of dry bulk vessels. In fact, I believe in the first three months of the year, 91% of all new orders were outside of the dry bulk and crude tanker sectors, which are the two big sectors in shipping globally. So, we love to hear that.

So this weak market basically has done two positives. Record demolition and zero new ordering. So the newbuilding deliveries, as I said, have peaked in our opinion. We don't think there will be any meaningful new orders for the balance of this year because we think newbuilding prices won't fall much further because there's going to be a pricing floor that's set by input costs like steel plate and also domestic currencies being strong in Japan, Korea, and China relative to the US dollar.

So, I think what you will see is, it will be demand driven. I think we've seen a bit of game plan with commodity pricing in China, which is nothing new. But I think the recovery you're looking at sort of a -- I would say the next -- the balance of this year, I think will be a continuation of what we're seeing, and the recovery is probably sometime I would say 12 months to 24 months out. But a lot of that has to do with the level of scrapping, when some of these positive factors like more coal coming on line, iron ore coming on line, the miner bulks continuing to be strong. And also nobody ordering new ships. And if you get that recipe, you could have -- and this gets to the trajectory, you could have a meaningful recovery. Supramaxes could easily go over $20,000 a day again, easily.

Okay. That's very helpful. And I guess my final question would just be on the back of that point you just made on scrapping. What do you think global capacity is for scrapping right now? I know it's a very difficult number to kind of get your arms around. But [before they] headed for 25 million deadweight tons or at least that's the run rate for the first half of the year. It's double what we've seen in the past at least. What are your thoughts about that? How much capacity can we actually take out on a given year?

I guess the sort of the indirect question is also given environmental concerns at the nations where the scrapping occurs could that be a bottleneck? I think global scrapping capacity is definitely capable today of handling 25 million plus even above that.

Okay.

I've seen in past down cycles where there are a lot of ships that want to get scrapped in a pretty short order, basically makeshift scrap facilities can kind of pop up. So, I think it's an incredibly efficient market this demolition market, and you can see it create capacity rather easily to absorb if there's a real spike in demand. But I think for current year 2011 with our projection of potentially 25 million plus tons scrap, the world market can handle that.

Okay. That's great. Well, listen guys, thank you very much for the time. As always, I appreciate it.

Thanks, Chris.

Thanks, Chris.

Justin Yagerman, Deutsche Bank.

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

Yes, hi, Justin. Well, thanks.

Great. I guess I wanted to check in on a couple of things. The provisions for bad debt with KLC, I just wanted to get a sense of how your conversations are going with them and the prospects of getting a makeup payment on time, and when we should expect to see that hit?

Sure. Well, very positive news on Friday, I don't know if anyone saw it, but Korea Lines filed with the Korean courts on Friday, a full blown restructuring plan. As some of you may be aware, the deadline was the prior week but it was subsequently filed on Friday. That generally is seen as a very positive sign that their reorganization is going well.

So, I would say that's the most contemporaneous data point we can give which we view is positive, and we continue to be in dialog with them and they continue to work through this market downcycle with a protection of the court system, and we continue to be a secured creditor.

Okay. That's helpful. Thanks for the update. On the bank negotiations, I know there's not all that much you can say and timing is up in the air. What in the meantime can the bank do? I mean if they wanted to play hardball with this, obviously you've described a very civil and normal discourse going on right now. Can they freeze liquidity, if they're claiming that you guys are in technical default right now, if they want to just squeeze you? Or is that something that I mean would just throw this into litigation and you wouldn't expect that to ever happen? I mean, if they -- and I'm not talking about an immediate scenario, but just if this gets to be a prolonged back and forth?

Justin, everything is operating in the normal course of business, period end.

And I would say, Justin, to that point, it's what I said earlier, I mean it's a slow process which obviously I know you guys don't like to hear and you'd like to hear resolution and we obviously would also. But you want to -- you don't want to rush something like this. You want to do it correctly, make sure everyone's happy with the outcome.

And as I said, everyone is behaving in a very sort of collegial, co-operative, mutually beneficial way. And one of the nice things is that we have relationships with each of the banks within the syndicate. So, it's not like a new group that doesn't know the company. I think you've seen in with other companies where you have a sort of a disjoint group of banks with different interest, maybe it's not as collegial, but we're happy with the direction of how things are going.

Okay. That's good to hear. And then you guys did sell a vessel above market and it's impressive in this environment. Curious just to hear a little bit about the experience putting the vessel up on market, how many bidders you had? What kind of action is there in the S&P market right now? And how quickly were you able to sell this vessel once you started advertising it?

I'll tell you something, shipping is a very gossipy industry, and I think I had people call and tell me that I had sold the ship twice before we had actually sold it. So I caution everyone on the call, if you see anything on a broker report that says the ship may or may not be sold in any company, wait until the company puts out a release that they did it, because shipping tends to be pretty gossipy. So, I would say there was a lot of gossip about the HERON being sold before she was actually sold.

That being said, what I think is very interesting is we had healthy interest for the ship. It could have happened quickly but we held our ground to get the price we got which we were very happy with. And what was also interesting, we saw interest from Asian buyers and also sort of European buyers. So, that was interesting to us as well.

That's really helpful color. Thanks, Soph. And I guess lastly, you brought up some interesting points in the -- we've been still focused on this financial stuff that there's been very little talk of the market in the Q&A. It was interesting the color on the number of loads that have actually been disrupted and the issues that you've seen because of flooding and what have you. Can you talk a little bit about how many load you think could be coming back in the back half? And maybe what you're seeing from Japan, is that starting to work its way back into the global economy?

I'd tell you to put a number on it, because it's always nice to kind of put numbers on things. I would guess that in the first six months of 2011, you've probably had about 1,200 Supramax voyages removed from the market by all these, call it a climate dislocations, aberrations, floodings, tsunamis, earthquakes and the lot. I think initially in March, we and others were expecting the rebuilding in Japan to sort of kick-in at the latter part of this year.

I think there are some people that still think that will happen. We said on the call today, we think actually you won't see meaningful rebuilding, probably until the first part of next year. We think that's getting pushed out a bit. We see the ability for a lot of what was lost in the first half of this year with the climate dislocations to potentially come back in the next, call it 6 to 12 months, say it's -- like for example, some of the flooding of the mines in Australia won't come back 100% but it might come back 80%. So you get a pickup from where we are, but maybe it won't get to where it was.

Okay. That's really helpful. Thanks so much. Appreciate your time.

You're welcome.

Thank you, Justin.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hi guys?

Hi Fotis.

Yes, hi, Fotis.

Soph, you mentioned earlier about the favorable timing of the sale of the HERON. And I want to ask you, what do you think that the asset -- where do you think that the asset values are heading during the next 12 months? And then we saw some transactions that they were not that successful like yours with -- but actually especially for much older vessels being lower. Do you think that the current pressure in rates can trigger some further decline in ship values?

That's a very good question, Fotis. Thanks. I think what we're seeing is a bifurcating market that's evolving during 2011. If you look back say one to five years ago, when we used to talk on the calls about where asset values are going, we could say they're going up 10%, they're going down 10%. And that would generally hold through for newbuild second-hand, old -- middle-aged or young vessels. That's not true today. And again, this is to sort of textbook shippings, so it's nothing that I haven't seen in multiple cycles before. The -- call it ships over 10 years of age and even more acutely over 15 years of age start to see a rapid deterioration in their values in this market. So I predict in the next sort of 12 months those ships could easily see a 20% decline in value from current level.

The young ships, call it the zero to five-years old, really will not see the decline of that magnitude, not even near that, because any buyer that has liquidity once those ships. As I commented on Justin's question on the HERON about how many buyers we saw, we saw far more buyers than we thought there were. And we saw Asian buyers, and we saw European buyers and we saw multiple parties coming in asking for inspections of the ship, which we thought was a surprising positive.

So, I think that underlines two things, a) there are buyers out there who don't really want the old ships, in this market you want the security of a young ship that's going to see through multiple cycles like ours. And secondly, I think what we also saw is, there is a demand for Supramaxes because Supramaxes are out earning every other asset class in dry bulk and have been doing it for the whole year.

So people see a security in the Supramaxes and want the young ones. So, I think those ships are much more sort of resilient price wise than bigger ship prices or older ship prices.

Based on these discussions that you have -- that you had with the potential buyers of the HERON, and how do you think that they were planning to finance these acquisition? And my question goes to where the lending system is right now, and at what levels are the banks willing to finance particularly second-hand acquisitions of vessels that are around 10 years old?

Well, specifically with our buyers, there was never a financing hurdle that we had to cross to get the transaction done. So I didn't see any indications that that was a problem for these buyers. What I can say generally on the banking market is we are seeing banks willing to loan anywhere from say 50% to 60%, maybe 65% of vessel acquisition. So, buyers really have to come up with anywhere from say 35% to 50% equity.

And in relation to your capital structure, are there any meaningful discussions or even any thoughts about potentially adding some different form of capital or high yield with further discussions about other companies. Is this something that you would consider as a possibility?

I mean, look, I think we've consider everything as long as it makes sense for the Company. But I think right now, we're benefiting as you all saw by what our interest expense was for the quarter by a low interest rate environment. So, you have to get the markets to create an opportunity for a company to exploit like high yield. And I think given where LIBOR is today, it's hard for the bond market to compete with that.

And lastly, on the trading operation, I know that you're not ready to comment on the profitability, but we saw that on average, we traded something like seven ships this quarter. Shall we expect something similar in the current quarter? And in addition to that, how do you see the current quarter on the revenue side being developing, given that we've had about a month of trading?

Okay. I think what you will see us doing is, as we're sort of developing, continue to create the Eagle brand in the cargo side of the business, we will probably be doing more meaningful contracts with fewer parties rather than shorter contracts with more parties. Also -- so we're in a way picking and choosing who we do business with more exclusively. You might see that show a slight dip in revenues in the short-term, but we believe in the long-term, it will actually yield a better result in terms of profitability.

But you expect that it will be around seven ships that you have right now that you have in the second quarter or it might be more, it might be less?

Well, I would say, okay, you're using an interesting metric which is number of ships per quarter, so I would say the way to think about it, instead of the ships maybe doing business with say 15 different parties, maybe it only is five. So, we'll be doing business with fewer parties but more meaningful, more repeat business. And I think -- we think about it in terms of sort of vessel owned days, which is basically what you're saying but just calculating days versus vessels. So I think we did like 629 days or so. I don't think it's going to move meaningfully up, but I think the quality of the days will improve.

Michael Pak, Clarksons Capital Markets.

Hi, guys.

Hi.

Yes, hi.

Just a couple of quick questions here. On the provision for bad debt, you provided a number as of 1Q. Any -- what is it as of 2Q, if you can provide that? And well, I got a couple of others, but if you could help me out with that, that will be great?

Yes. We did not take any further provisions, Mike.

Okay. Okay. And the other question I had was the compliance certificate date was delayed. It was I believe May 31. Was there a new date that was designated?

Everything is being put off as we continue to discuss things with the bank. There's no hard deadline in place right now.

Okay. And one final question regarding the trading ops. We kind of show a nice contribution this quarter from breakeven in 1Q. Can you comment directionally is that correct? It did have -- did the trading ops have a positive contribution in 2Q?

I think the trading ops definitely contributed to our results. I think going forward, what we want to do is, is get it to a certain scale where it's something we can discuss independently. But we feel it's not a meaningful enough contributor in anyway to be able to point to it and have it be a discussion point on the earnings call. But we do think it's important to as this thing evolves quarter-to-quarter to give you guys some color as we had in terms of what we're doing with whom and how many days it equals, either in ships or days, and directionally what we think we're going to do and who we are going to do with. So, that look to us to every subsequent quarter give more information on this as it develops.

Okay, great. I appreciate the color on that. So it was a positive contributor.

Yes.

Yes.

Okay, great, great. Thanks, guys. That's all I had. Thanks.

Thanks, Mike.

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

Thank you, Ann. I'd also like to thank everyone again for joining us for our second quarter 2011 earnings call, and we look forward as always to keep everyone updated with new developments in the future. Thank you very much.

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.