Eagle Bulk Shipping Inc.

Greetings and welcome to the Eagle Bulk Shipping second quarter 2021 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If you require operator assistance, please press star then zero. As a reminder, this conference call is being recorded. I would now like to turn the call over to Gary Vogel, Chief Executive Officer, and Frank DiCostanzo, Chief Financial Officer of Eagle Bulk Shipping. Mr. Vogel, you may begin.

Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's second quarter 2021 earnings call. To supplement our remarks today, I would encourage participants to access a slide presentation that is available on our website at 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. Please refer 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. Our discussion today also includes certain non-GAAP financial measures, including adjusted net income, EBITDA, adjusted EBITDA, and TCE. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Please now turn to slide five. The dry bulk market for the midsize segment continued to strengthen in the second quarter on the back of robust demand across the commodity spectrum. and especially for grain and infrastructure-related cargoes we carry, such as cement, manganese ore, and steel. The Baltic Supermax Index rose by almost 60% during the quarter to levels not seen in more than a decade. EGLE generated a net TCE for the second quarter of 21,580, the highest level in 11 years. Given the rapidly rising market environment we've been experiencing, there's an inherent lag effect between our TCE performance and the BSI as we have existing commitments on the books and the majority of our fleet is employed on voyages lasting up to about 60 days. The BSI is currently at its highest level of the year at around 33,000. Given our relatively short duration exposure and our active management approach to trading our ships, we continue to be successful at capturing the majority of the move up on a real-time basis. As of today, we fixed around 75% of our available days for the third quarter at a net TC of $28,300 per day. While we generally prefer to utilize FFAs as a means to hedge forward exposure due to the increased optionality it provides us with, we've elected to lock in some revenue in the form of time charters on a selective basis. As an example, earlier this week we fixed one of our 58,000 deadweight Supermax vessels for minimum 11 to 13 months at a rate of $27,250 per day commencing in October. Given the deferred delivery, this charter will extend at least until September of 2022. Please turn to slide six. In terms of operating performance, we achieved our best-ever quarterly result, producing $62.7 million in EBITDA for the three months ending June 30th. This represents an increase of 100 percent compared to the prior quarter, and As you can see from the chart, it's the fourth sequential quarter of significant EBITDA growth. Given the fixed cost nature of our business, essentially all of the incremental net revenue flows to the bottom line. We realized an adjusted net income of $40.3 million for the second quarter, up fourfold as compared to Q1. Please turn to slide seven. Asset prices have also continued to increase in recent months with values for 10-year-old super maxes up around 24% on the quarter and approximately 75% year to date. This represents the second highest percent six-month increase over the last 20 years, the first one being in early 2004 at the beginning of the 2000s dry bulk super cycle. It's also noteworthy that the increase in values is occurring against a record pace of transactions. Year to date, over 200 mid-sized dry bulk vessels have been bought and sold, implying an annual run rate of almost 400 ships. Notwithstanding the dramatic increase in asset prices over the past eight months, the chart on this slide would indicate there still remains significant potential upside. Spot rates are at an 11-year high, but asset prices remain well discounted to their levels in 2010 when charter rates were similar to today's levels. Assuming a return to 2010-type levels, we could see upside in secondhand values of a further 30 percent, which would, of course, translate to increased NAV for the company. Please turn to slide eight. On the acquisition front, as reported separately, we purchased two 2015-built scrubber-fitted Ultramaxes in the early part of the second quarter for total consideration of $44 million. To help fund these acquisitions, we issued equity under our ATM program, raising about $27 million at a weighted average of $47.97 per share. We currently intend to fund the remaining balance with cash on hand. In total, we've purchased nine ships since November. By our estimates, the first seven acquisitions are up in value by about 60%, while the value on the ships we purchased just 10 weeks ago are up by about 16%. Together, this represents a total increase in value of over $60 million. To date, we've taken delivery of six of the acquired vessels, with the remaining three expected to deliver between late August and mid-September. Separately, and as part of our ongoing fleet renewal, we executed an agreement to sell the Tern, a 2003-built Supermax, just ahead of her statutory dry dock and ballast water installation due date. Performer for pending S&P deliveries, our fleet now totals 53 ships, averaging 8.8 years of age, with 89% being fitted with scrubbers. With that, I'd like to turn the call over to Frank, who will review our financial performance.

Thank you, Gary. Please turn to slide 10 for a summary of our second quarter financial results. The significant improvement in the charter rate environment drove our top line in Q2, with revenue net of both voyage and charter hire expenses totaling 99.2 million, an increase of 61% from the prior quarter. Net income came in at 9.2 million for the second quarter. Earnings per share, or EPS, for the second quarter was 76 cents on a basic basis and 74 cents on a diluted basis. Beginning this quarter, we have added additional non-GAAP measures, adjusted net income and adjusted EPS, which exclude non-cash unrealized gains and losses on derivative instruments. As we have discussed, we charter in third-party ships as part of our active management strategy. Furthermore, we utilize forward freight agreements, or FFAs, to selectively hedge our exposure to the market for both owned and chartered-in tonnage. Although FFAs are a great tool to synthetically lock in cash flows, they do not qualify for hedge accounting. As such, all unrealized mark-to-market gains or losses on hedges for future periods impact current quarter results on a non-cash basis. However, the associated revenues for the SHIPs are only recognized in future periods thereby causing a timing mismatch between revenue recognition and gains losses on hedging instruments. We believe that the additional non-GAAP measures adjusted net income and adjusted EPS, which exclude the unrealized non-cash derivative gains and losses, will better reflect our operating performance and improve the comparability of the periods presented in the financial statements. Adjusted net income excluding non-cash unrealized gains and losses on derivatives of $31 million came in at $40.3 million for the second quarter. Adjusted basic EPS came in at $3.31 for the second quarter. Beginning this quarter and retroactively adjusted for prior periods, adjusted EBITDA also excludes non-cash unrealized gains and losses on derivative instruments. As with the above, we believe the change better reflects the operational cash flows generated within the respective reporting period. Adjusted EBITDA doubled in Q2, coming in at 62.7 million. Let's now turn to slide 11 for an overview of our balance sheet and liquidity. Total cash was 83.8 million at the end of Q2, representing an increase of 3 million as compared to the end of the first quarter and a decrease of 5 million from year end. The change in cash versus prior quarter in year end was driven by cash generated from our strong operating results, equity proceeds of 27.4 million from our ATM program, offset by vessel acquisitions and debt service. I will cover the movements in greater detail on the cash walk slide. Total liquidity improved by 20.1 million from the prior quarter to 139.8 million. Total liquidity is comprised of total cash of 83.8 million and 56 million of undrawn revolving credit facility. Please note that subsequent to the quarter end, we have repaid the remaining 25 million outstanding on the UltraCo revolver bringing our undrawn revolver availability to 81 million. As previously reported, we have funded the acquisition of one vessel with restricted cash. In addition, we have secured new deck facilities totaling 51.5 million for six of our newly acquired vessels. As of the date of this earnings call, we have taken delivery of five of these vessels and have drawn a total of 35 million. We have chosen to not complete the third drawdown on our Holdco RCF given our strong cash flows from operations. Total gross debt excluding debt issuance costs at the end of Q2 was $500.7 million, a decrease of $7.1 million from the prior quarter. The decrease is due to the $30 million we repaid on the UltraCo debt facility revolver, principal repayments of $8.1 million, on the Ultracode debt facility and $4 million on the Norwegian bond debt offset by the $24 million we drew from the Holdco RCF and the $11 million we drew from the Ultracode debt facility third incremental borrowing. Please now turn to slide 12 for an overview of our cash flow from operations for the second quarter. Net cash provided by operating activities was 16.3 million in Q2. The chart highlights the timing-driven variability that working capital introduces to cash from operations, as depicted by the differences between the dark blue bars, which are the reported cash from ops numbers, and the light blue bars, which strip out changes in operating assets and liabilities, primarily working capital. Although, as the chart demonstrates, the volatility caused by working capital largely evened out over time. The differences between the two bars this quarter can be explained by the timing of accounts receivables collections, as we received $7.5 million in early July. Please now turn to slide 13 for a Q2 2021 cash walk. Let's focus on the top chart, which covers the cash movements between Q1 and Q2. The revenue and operating expenditure bars are a simple look at the operations. Moving to the right, the $28 million bar representing the cash used in the quarter on margin and collateral on our derivative instruments. The $32 million bar for vessel S&P represents the acquisition of three vessels for $27.2 million plus deposits paid of $4.4 million for two vessels to be acquired in the third quarter of 2021. The chart at the bottom covers cash movements year to date. Let's now review slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day came in at $11,220 for the second quarter. Vessel expenses or OPEX, came in at $5,020 per ship per day in Q2, excluding one-time non-recurring expenses related to vessel acquisitions and sales. OPEX was negatively impacted by costs associated with the acquisition of three vessels during the quarter. In addition, we continue to face higher operating expenses related to the COVID-19 pandemic across a number of areas, including higher lodging and transportation costs related to crew changes and costs related to stores and spares. Dry docking came in at $357 per ship per day in Q2, $791 lower than prior quarter as we had fewer vessels dry docking than in Q1. It is worth noting that there are significant challenges regarding COVID protocols and quarantine requirements for ships going into facilities for dry docking in installation of ballast water systems and the like. We do not see this abating at the moment and is likely to increase off-hire times for these events. Cash G&A came in at $1,624 per ship per day in Q2, flat as compared to Q1. It is worth noting that our G&A per ship calculation is based on our own vessels, whereas we operate a larger fleet including are chartered-in tonnage. If we were to include the chartered-in days in our calculation, G&A per ship per day would decrease by about $161 to $1,463. Cash interest expense came in at $1,540 per ship per day due to, which was marginally lower quarter over quarter, driven by an increase in ownership days. Cash debt principal payments came in at $2,679 per ship per day in Q2, $819 higher than prior quarter. The increase is attributable to amortization repayments on our Norwegian bond debt, which are paid semiannually in Q2 and Q4. This concludes my comments. I will now turn the call back to Gary.

Thank you, Frank. Please turn to slide 16. In Q2, we saw rain strengthen in both the Atlantic and Pacific basins, with the magnitude of the move-up being much greater in the Pacific. The Atlantic market averaged 22,600 for the quarter, up 11 percent over the prior period, while the Pacific was up 74 percent, averaging 26,100. As we've discussed previously, Pacific outperformance occurs from time to time, but generally happens in weaker markets. Apart from the elevated trade flows we saw within the basin, one of the primary reasons why the Pacific market outperformed was due to a significant increase in the backhaul trades, including cargoes that typically move in containers. We estimate up to 10% of all cargo moving on bulk carriers from the Far East to places like West Coast, South America, Europe, and the U.S. was container cargo spilling into the conventional bulk or market as a result of much higher container rates. These cargoes include smaller, semi-finished steel parcels, fertilizer in bags, bagged cement, dry chemicals in bags, and lumber. Given the ongoing strength in the container market, which is due in part to supply chain inefficiencies, we expect this dynamic to continue at least through the balance of the year. As we look ahead into Q3, both basins have traded higher, and the Atlantic is outperforming once again, driven by a pickup in grain exports from East Coast South America as well as a strong Mediterranean market. In fact, the MED has now emerged as a primary source of exports on a number of minor bulks, such as slag, cement, gypsum, salt, and steel products. Year-to-date, the BSI has averaged 22,600, with the forward curve currently averaging around 31,000 for the balance of the year. If the forward curve plays out, 2021 would be the best year for the BSI since 2008. Please turn to slide 17. Fuel prices have continued to increase on the back of increased demand for oil products across the spectrum. VLSFO is now trading around $535 per ton, up approximately 65% as compared to 12 months ago. As we've talked about previously, 89% of our fleet is fitted with scrubbers, and those vessels are able to utilize lower-priced HSFO. As such, the spread between HSFO and BLSFO is an important value driver for Eagle. As underlying crude and fuel prices have increased, so has the spread, which currently sits at around $115 per ton. At this level, we generate around $1,400 per day in incremental value across our fleet, equating to about $27 million per annum. Looking ahead, we expect fuel prices and spreads to continue to trend higher, which should be beneficial for our business. Please turn to slide 18. Net fleet supply growth increased slightly in Q2. A total of 118 dry bulk new building vessels were delivered during the period, down about 5 percent quarter on quarter and 28 percent year on year. Partially offsetting this, a total of 11 vessels were scrapped during the same period. The scrapping figure was down significantly as compared to the prior quarter, which is not surprising given the strength in the underlying market. In terms of forward supply growth, the overall dry bulk order book stands at a historic low of just 5.7%. For 2021, dry bulk net fleet growth is expected to come in at 3.3%. This assumes scrapping of roughly 7.6 million deadweight tons down from previous guidance and about half of last year's amount. Again, primarily as a result of the stronger rate environment. A total of 55 dry bulk ships were ordered during Q2, down roughly 15 percent as compared to the previous period. Although we expect some new ordering, given the strength in the underlying spot and period markets, we still do not believe it will be material for a number of reasons. Firstly, new building prices are up significantly. You now need to pay around $28 million for a Chinese Ultramax, which is about 25 percent higher as compared to just a couple years ago. In addition, new building slots are scarce, with yards busy with orders in the container segment as well as with other vessel types. As such, a ship order today will likely only be delivered in late 2023 or even 2024. And finally, there's significant uncertainty around future regulations regarding emissions and decarbonization. Together, we believe all of these factors will keep ordering fairly limited. Please turn to slide 19. Global growth expectations for 2021 remain at 6 percent, unchanged since our last earnings call. For 2022, the IMF is estimating global GDP growth of 4.9 percent, which reflects a 50 basis point improvement over their previous projection. Please turn to slide 20. Dry bulk demand growth has been revised upward since our last earnings call, with 2021 growth now estimated at 4.2 percent, up 40 basis points. This has been driven primarily by an increase in forecasted trade for grains, fertilizer, and steel. Notwithstanding continued uncertainty around COVID-19, we remain optimistic about the prospects for continued global growth, which is being supported by massive amounts of stimulus. This positive demand picture, combined with record low order book we discussed earlier, supports our constructive view on market developments looking ahead. With that, I'd like now to turn the call over to the operator and answer any questions you may have. Operator?

With prepared remarks completed, we will now open the line for questions. If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from the line of Randy Gibbons with Jefferies.

Howdy, gentlemen. How's it going? Good morning.

Hey, Randy.

Good morning. Hey, hey. So, yeah, first, clearly, congrats on the record quarter. I'll probably say that again next quarter as well. But speaking of next quarter, you stated that 75% of 3-2-21 is booked at $28,300 a day. I guess if rates stay at these levels or at least above 28-3, any reasons your actual rates would come in below that, you know, for example, ballasting or repositioning or counting variances there? And then second part of that question, you mentioned one chartered out supermax for about a year at 27, five, I think you said a day, quite the rate. Uh, is that the only TC out you currently have and any appetite for additional.

Yeah. So a fair amount to unpack there and appreciate the words on the quarter. Um, so first of all, if I, if we talk about Q3 and the 28, 300, you know, we, we have cargo on the books, um, you know, as, as an operator. and various things. But directionally, if the market is stronger, you would expect, you know, RTC to climb compared to when we're booking it previously. And of course, we're booking in advance, being 75% covered in the quarter, you know, whereas we're only in early August here. So, but directionally, you're correct. But you can't just apply, you know, the current rate, given that we do have business on the books. In addition, you know, that we have to cover as we go forward. And that's part of the lag that I spoke about. But there's nothing, you know, like unexpected, I guess you could say. You know, accounting-wise, our TCE calculation is straightforward, and I guess you're alluding to the derivatives, and that's a separate thing here in terms of the actual TCE. The part of derivatives that go into TCE calculation is actual realized FFA, you know, and bunker hedges. And I think it's important, and I'll take the opportunity to say that, 100%, all of our derivatives are hedges. There's no speculating. We don't do any speculating at all. So anytime there's a cost on a derivative, it's matched up, notwithstanding basis risk. It's matched up to a physical asset on the other side.

Got it. Okay. And then on the time charter outs.

Yeah, so we do have other charters out. We don't disclose all of them, but it's the longest one that we have. I'll say that. but we do from time to time. You know, we look at things from a value standpoint, and it's interesting. At the moment, there's a big dislocation between the FFA curve for next year, which for the year stands in the low 18,000s, and the rate I mentioned. And it's also worth noting that the ship we charted out is a Chinese supermax scrubber fitted, but still a Chinese supermax compared, you know, to the index. So it's a big... dislocation and the FFA curve right now is trading at that discount. So we look for maximum value. So all things being equal, we would prefer to use the FFA market to lock in those cash flows for next year and typically do. But when the value is not there, we're willing to pivot. We have different levers we can pull. And so we see that although we're losing that ship in quotes for the period that it's chartered out, the premium value of it relative to the FFA curve at the moment for a number of reasons is compelling, and that's one of the reasons we're doing that.

Got it. Okay. And then I guess next question and last question for the balance sheet, right? You're in great shape here. Your net debt is continuing to fall. Your fleet has grown to pro forma around 54 ships after the delivery here. With that, what do you do now with the free cash? Is it share repurchases now that your shares are well below NAV or maybe a dividend policy that you would start after the 3Q earnings? What do you do going forward?

Yeah, I mean, first of all, I appreciate the question, and I'm not surprised to have a question on dividends. I'm not surprised it's first out of the box, so to speak. But given the strong environment that we're in, and I'll say it this way, returning capital to shareholders has been a clear goal of mine, of the company, since we restructured the balance sheet in early 2016 when I joined the company. Having said this, I've also said a number of times that I think it's really important that You know, when we do something like, you know, a dividend policy, we have clear visibility, and I think we are in a situation now where there is clear visibility, but it needs to be both meaningful and sustainable. So as you know, as we talked about, right, we've just acquired nine ships. We still have three we're taking delivery of, and we're doing these with limited debt. So over the last few months, and we'll continue to do so, we're taking them. I mean, the Supermax, as an example, the one Supermax still to be delivered, We acquired for nine plus million. We're putting five million of debt on it, and that ship now is worth 17 plus. So very limited debt. So we're delevering. In fact, some of the alters we're taking delivery of, we're not putting any financing on. So we've been focused through these deliveries of strengthening the balance sheet and delevering. Having said that, once we finalize these deliveries, I think we're given what I think is clear visibility and strong cash flows. I think we'll be in a position to substantively address, you know, capital allocation, you know, whether that's share buyback or dividends. So, you know, I'll end it with kind of watch this space, but, you know, I think it's an appropriate question and an important topic going forward.

Fair. We will be watching. Keep up the great work. Thank you.

Thank you, Randy.

Our next question comes from Omar Nocta with Clarkson Securities.

Thank you. Hi, Gary, Frank. Good morning. Yeah, I just wanted maybe just to follow up and sorry to press a little bit on Randy's question, but I guess as we do think about it, obviously, you know, you guys have built Eagle up into a much stronger company. It's a very healthy place at this point. And you mentioned the nine vessel acquisitions, taking them in, you've got the three more waiting to get those in house and then addressing the a potential return of capital, whether it's dividend or share buybacks, I guess. But I guess should I take from that that maybe once you take these next three shifts that you're done buying vessels and that the next thing is going to be returning capital? Or is it more of, okay, we're going to take these three shifts and then we're going to figure out what to do going forward, either buy more vessels or pay out dividends?

Yeah, I mean, that's fair. I would say it this way. I think we're very comfortable with the nine ships that we've acquired. I would never want to say that we're done, but we don't feel that we need to continue to acquire vessels at this point. There's been a significant appreciation and value, and I think there's more potentially to go, but it's not really a focus of ours right now to add to that number, given the significant appreciation. So Like I said, I don't want to exclude that if there's an opportunity, then that we wouldn't, of course, pursue that. But we feel quite comfortable with the pro forma 53 ships, including the one that, you know, we sold the older ship and need to deliver. So, yeah, I'll leave it at that. But, yeah, I'll stop there.

Yeah, no, that's clear. I appreciate that, Gary. And I just wanted to just follow up. I noticed that one of the Supermaxes you agreed to buy back in February. I think the initial delivery window was until May, but that looks like it slipped into the third quarter here. Is there any read-through into that, any concern or risk that that deal doesn't go through? I know you guys got it at a very good price relative to where things are today.

Yeah. No, quite observant. In fact, the ship got delayed because of operational delays at the load port, but we actually are being compensated for that late delivery, and we expect the delivery to take place within the next few weeks, within August. So the answer is, you know, it's definitely late, but as I said, we're being compensated for that under the agreement. Got it.

Okay. Thanks, Gary. All right.

Thank you.

Our next question comes from Greg Lewis with BTIG.

Hey, thank you. Good morning, everyone. Good morning. Not going to dwell on capital allocation, but thanks for that. I guess, Gary, I have a question, and it kind of piggybacks on Omar's comments about the vessel being delayed and on some of Frank's comments about, you know, vessels being stuck in dry dock. And I guess what I'm wondering is, is there any sense to figure out whether it's COVID related or supply with just, you know, all the supply ceramic, is there any way to kind of back into a rough number of how much of the fleet is being artificially underutilized because of all these ongoing global issues? And have you guys spent any time thinking about that, just, you know, whether it's in dry docks or ports, being stuck at ports, or any kind of thoughts around that?

Yeah, it's a good question and an important point. I mean, we don't have an aggregate number, but we're definitely seeing, you know, considerable delays in China around constantly changing quarantine protocols from port to port. And so that's having an impact and a positive impact in terms of fleet utilization. Of course, it's negative on when it affects your ship specifically, and the ship is delayed and not earning revenue, especially in a $30,000-plus a day market. But overall, there's definitely delays there. And then you overlay that with the fact that a significant portion of the fleet still needs to install ballast water treatment systems over the next year and a half, I think, also bodes well. well or negatively for the fact that you're going to have more ships backing up because that's a statutory requirement without really any flexibility. And same with dry docks, right? There can be, for extenuating circumstance, an extension, but it can't just keep happening. So I think we're going to continue to see that until some of these protocols are lifted. And at the moment, we just don't see that. There's also delays for bulk carriers of the Panama Canal, and particularly the Neo-Panama Canal, which is also having an impact. But I don't have an aggregate number for you, but I think they are impactful, definitely.

Okay, great. And then just looking kind of at the FFA curve over into the back half of the year, I mean, it looks like it's in contango, and then I guess really tails off. As you guys think about your FSA, you know, your trading FSA portfolio, like how long is there – do you guys have a limit in how far out you're thinking about going in that with that, you know, how you manage that portfolio? I guess I'm wondering like, you know, I look at 22 and I see some healthy rates out on the curve. Is that something you think about taking advantage of or this is more – we kind of operate more on the shorter end of the curve.

Yeah, I mean, we use the FFA strictly, as I said, strictly as a hedge. So if we charter in a ship for a year, let's say a good example would be one year with an optional year. If we can sell a derivative at the same level, effectively locking in a break even for the first year, we've created what we call asymmetric optionality by having a free option, right? We still trade the ship for the year. and we can hopefully add incremental value around it, but we're not exposed to the market. So, typically, our FFAs go out about a year when we do a one-year charter or one option one. We could do longer if there's a longer charter, but it's pretty backward dated down, as I said, 18,000. We don't think that's fair value at the moment given where physicals are. So, you couldn't charter in a ship today for a year and sell an FFA because you'd be on the wrong side of four or $5,000, given where we charted out that supermax. So at the moment, that play doesn't work, but at times it does. So typically, I'd say a year. We're not limited to a year, but again, that market's pretty backward-dated, and so for that reason, it's just not that attractive right now. So hopefully that gives you an answer, but it's strictly on a hedging basis, so there's gotta be a reason and a physical asset why we want to enter into that FFA.

Okay, great. And then just, you know, your comments, you know, maybe now is not the best time to be, you know, acquiring vessels. I mean, at this point, it seems like pretty much all of your, you know, your older vessels are kind of out of the fleet. I mean, I guess, could there be opportunities as you look out on the older edge of your fleet to maybe continue to trim some of those vessels and take advantage of this higher asset price market? Or at this point, you really like the mix?

No, look, we've, I believe we've stated clearly, there's two ships that we have that are 17 years old.

I mean, I was talking beyond those.

No, I feel, you know, no, beyond those two ships, our next oldest ship's 12 and a half years old and we're very comfortable, you know, with that. So I don't see us monetizing those assets because of age. Now, if we get to a point in this cycle where we feel asset values, and by the way, although we're not out there with a need, I think, to continue to grow this fleet, we believe there's significant upside to asset values because of the strength in the market and also where we are relative to historic that we talked about. So I'm still a believer in asset value appreciation here. but we've got 53 ships already. But the answer is at some point in this cycle, would we be willing to sell a number of ships and get smaller if we felt it was the right thing from a capital standpoint and monetizing some of the value? Of course, asset values are driven by future cash flow. The answer is yes, but not at this point in the cycle. We're quite constructive.

Okay, perfect. Super helpful. Thank you, everybody.

All right, thank you.

Our next question comes from Jay Mintzmeier with Value Investors Edge.

Hi, good morning, Gary. Thanks for taking the questions.

Good morning, Jay.

Yeah, so I think we covered the FFA's a little bit earlier on the line, but I noticed you mentioned 2,430 days at basically 16,000 a day. You mentioned second half of 21 through 22. Do you have any sort of a breakdown of where those are going to layer in? Is a lot of that front loaded or is it pretty even?

Yeah, you know, fair question. We're actually going to provide that in the queue. So when it gets filed, you'll see a breakdown of by quarter and into next year. So you'll have full clarity on that.

Okay, outstanding. I think that'll be helpful. And then related to that, you have a collateral post on your balance sheet. Is that just an accounting measure, or is that actually required collateral due to the FFA counterparties?

Yeah, no, that's real collateral. It's held at the banks in which we use to utilize FFAs. Everything's cleared, so it's actual real cash.

Okay, thanks, Gary. And then final question, you have those convertibles now that are clearly in the money, but it seems like there's really no way to force those conversions anymore. is there anything you can do with those? Cause I mean, otherwise they just sit out there, right. You're, you're paying 5% interest on them and they really kind of pull down your reported earnings. Is there anything you can do to incentivize that conversion or get those out of the way, or you just stuck with them for three more years?

Well, I mean, you know, potentially you, we, we couldn't buy them in the open market, but as you said, there's no ability to force a conversion. Um, but you know, the calculation is, as you said, they're in the money. So I think it's, uh, The general view is that they'll be converted at some point, and the coupon on it is five and a quarter. But yes, they're there. Sorry, five. Five and a quarter. Five percent. Sorry. Anything else, Frank?

No, no, no.

Covered it well, Gary.

Thank you.

All right. Thanks, Gary. And just one thing on dividends real fast, since I think I'm the last person. Thinking forward on that, obviously, you've got to wait, make sure things are sustainable. But would that be maybe like a fixed sort of policy, or do you think it would be more so variable based on cash flows and earnings? Any sort of thoughts on how a dividend would look theoretically?

Yeah, I mean, ultimately, the board will make a decision as to what it looks like if we implement a dividend policy. But what I've said from my view is it needs to be sustainable. So if there's going to be a fixed portion to it, it needs to be relatively low, given the long-term cyclical volatile nature. Notwithstanding the strength in the market and our view on the forward market, I do believe this is still a cyclical business. And so I think variability is an important part, whether it's part or all. I think that that's really important because it needs to be sustainable. And as I've said before, I feel strongly that You know, we get a lot of questions why we don't have a dividend, but it's better to not have one than to have one and then have to cut it or stop it completely. So that's really, I think, the main driver is whatever we do, we want it to be sustainable.

Certainly makes sense. Thanks, Gary.

All right. Thank you.

Our next question comes from Pofrat with Noble Capital Markets.

Great. Thanks. Thanks for covering the FFAs. I had a question about the timing, too. But Frank and Gary, when you look at the, you know, the triggers or potential catalysts for the second half of the year, you know, one thing that you have is the Norwegian bonds that are still high cost. I'm not sure if you addressed those earlier. I wasn't in the full presentation. But can you talk about, you know, refinancing those bonds?

Sure, Poe. It's Frank here. I'll take that one. Yeah, we're going to refinance them within this year, 2021. The markets that we have available to us continue to improve, the bank market, the bond market. So our options are wide open and getting better. So we will take that out and likely whatever replaces it will be very attractive.

Great. And then, Gary, you talked about secondhand values moving up. not as attractive from an acquisition standpoint. When do new builds potentially get attractive for you?

Well, I think the answer is I don't think they do. And so I've been kind of on my soapbox saying, you know, that we're not going to be ordering ships since I joined Eagle. And the main driver of that was the world had enough dry bulk ships, and clearly that was shown with the challenging markets. that we worked through for the first five years I was here. I haven't changed my view that we don't need more ships. First of all, for a couple of reasons, ships you order today won't come at least till the end of 23 or 24. So I think we have a nice window here before that happens. But ordering a ship today, you know, that ship will only be, you know, 10, 11 years old in 2035. The uncertainty around future fuel regulations and carbon tax and decarbonization is extraordinary. I think the risk, the tail risk on an asset which historically is a 25, 26-year lifespan, given that on zero-emission ships coming, I don't see Eagle participating in new builds. Really, I can't see a scenario where that would make sense for us. We feel really good about we've acquired 29 ships. And except for the three super maxes, you know, all ultra maxes between zero and five years old. So we think that's really a sweet spot for having ships that, you know, the ships we're acquiring, say a 2015 built ship, right, is going to be 20 years old in 2035, a much better risk profile given the changes that are, of course, coming. So I just don't see a scenario where Eagle will be ordering ships. And although... as this market strengthens, there will be pressure and there will be some ordering. The people ordering those ships are going to need to wait now two to three years to get those ships. So you need to be pretty confident in this market, sustaining not just for the next year and a half, two years, but beyond and into that delivery window. So we feel We feel pretty good for those reasons that supply is going to stay relatively muted. But, of course, there will be some ordering that I'm sure of.

Just maybe semantics, but would you consider buying an Ultra out of the order book? the same as ordering a new one, or would you consider that as just essentially taking something out of the order book and it doesn't actually incrementally add to what the visible supply is out there, just semantics-wise?

No, it's an interesting question. We did take delivery of one resale, but that was actually a contract that was defaulted on back in 2016 at the bottom of the market, and the ship was completed. I think that's a little different than you know, buying a resale of a keel that was laid, you know, let's say, you know, six months ago and it's coming in a couple years. I don't see us buying. I think the sweet spot for us is still, if we were to acquire ships, is still that three- to five-year-old Ultramax for the reasons I mentioned. So, you know, I'll never say never because there's, you know, we don't know what the environment and landscape might look like, but I just don't really see that being a high probability for Eagle Bulk Great. Thanks, Gary. Thank you.

As a reminder, that is star then one if you'd like to ask a question at this time. Our next question comes from Liam Burke with B. Reilly.

Thank you. Good morning, Gary. Good morning, Frank. Good morning, Liam. Gary, your fleet is pretty versatile. You can handle both major and minor bulks as you look in through the end of the year and into 2022. Is there any particular area that makes you feel a lot better about how the demand side of the equation is going to be?

Yeah, I mean, you know, what makes me feel good about the demand side is how broad it comes across the commodities. I mean, you know, sometimes you'll see a a disparity between major bolts and minor bolts, right? But if we look at this year, you know, they're both, you know, 4.3, 4.1%. And if we look across, you know, there's a lot of cargo, a lot of commodities that are growing in the, you know, 3 to 5% range. So the fact that we're seeing it across the board is, I think, really, you know, positive as opposed to being driven by, you know, let's say, you know, grain movement because of drought somewhere or, or rains and things like that. So that's, I think, what's really compelling this time on the demand. And, of course, it's being supported by stimulus. And a lot of that stimulus we're seeing, you know, infrastructure spend. And infrastructure spend takes a long time. It doesn't just happen in three or six months. So, you know, cargoes that we're moving, like cement, cement clinker, you know, steel, manganese ore that I mentioned, you know, those are important and good products for infrastructure build, which typically is you know, longer term.

Okay. So as you look through the end of the year, there seems to be a degree of sustainability in the demand for commodities through the end of the year into 2022.

Yeah. We see it that way, yes.

Great. Thank you, Gary. Thank you.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Vogel for closing remarks.

Thank you, Operator. We have nothing further, so I'd like to thank everybody for joining us today and wish everyone a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.