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Edited Transcript of EGLE earnings conference call or presentation 31-Mar-17 12:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Eagle Bulk Shipping Inc Earnings Call

New York Mar 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Eagle Bulk Shipping Inc earnings conference call or presentation Friday, March 31, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank C. De Costanzo

Eagle Bulk Shipping Inc. - CFO and Secretary

* Gary S. Vogel

Eagle Bulk Shipping Inc. - CEO and Director

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Conference Call Participants

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* Espen Landmark Fjermestad

Fearnley Securities AS, Research Division - Equity Analyst

* Magnus Sven Fyhr

Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Eagle Bulk Shipping Inc. Fourth Quarter and Full Year 2016 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Gary Vogel, CEO. Sir, you may begin.

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [2]

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Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's Fourth Quarter 2016 Earnings Call. To supplement our remarks today, I encourage participants to access the slide presentation that is available on our website at www.eagleships.com.

Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results or performance and our financial condition, and please turn to Slide 3 for an agenda of today's call.

We will first provide you with a brief recap of our fourth quarter results and recent business highlights then proceed with a more detailed review of our financials, followed by an update on company performance. Finally, we will end the call with a discussion on the industry fundamentals before opening up the call for Q&A.

Please turn to Slide 5. The dry bulk market continued its recovery during the fourth quarter on the back of improving trade demand and more favorable vessel supply fundamentals. The Baltic Supramax Index, or BSI, increased over 17% quarter-on-quarter to average approximately 8,300 per day gross for the period, representing an almost threefold increase since the lows reached last February. It's also noteworthy that the market improved largely -- the market improvement largely occurred from mid-November onward, where the quarter started at just $7,100 per day and ended at $9,500. The improvement in the spot market can be attributed to a number of factors, including increased trade volumes of iron ore, coal and grain as well as pet coke and cement on the minor bulk side, along with a lower net supply growth and along with a significant imbalance in the global fleet distribution.

Chinese coal imports continued to recover with volumes increasing almost 60% quarter-on-quarter, this notwithstanding the fact that China had temporarily paused or, at the minimum, slowed down the previously announced production cuts. It's also important to note that an increased portion of Asian coal imports have been getting sourced from the U.S. due to its price advantage, leading to increased ton miles and hence higher utilization rates across asset classes.

The Atlantic and front haul markets also benefited from a strong U.S. grain harvest and increased pet coke exports to India, which also had a positive ton mile demand effect. These factors led to an increased shortage of ships in the Atlantic Basin, helping drive round-trip rates to over $10,000 per day for the quarter or a 78% premium to the Pacific, which averaged just over $5,900 per day.

On the supply side, newbuilding deliveries totaled just over 7 million deadweight tons during the quarter or approximately 90 vessels, a decrease of 36% from the prior period and down 15% year-on-year. Demolition of older tonnage amounted to 3.7 million deadweight tons during the quarter or roughly 55 vessels, representing an increase of 32% over the prior period, but almost 40% lower than the fourth quarter of '15, which averaged 5.9 million deadweight tons for almost 80 ships.

Although the dry market, and specifically the BSI, has improved significantly from the distressed levels seen during the first quarter of '16, it's important to note that the market remained at low levels when viewed from a historic standpoint.

Please now turn to Slide 6. For the fourth quarter of 2016, Eagle Bulk generated net revenues, adjusted for voyage expense and charter hire, of $21.8 million and realized a net TCE of $62.79, representing a 66% increase compared to the fourth quarter of '15.

Eagle incurred a net loss for the quarter of $19.5 million or $0.41 per share. In addition, as part of our ongoing fleet renewal initiative, we wrote down to market the values of 16 ships we've earmarked for potential sale over the next few years, leading to a noncash impairment charge of $129 million. Adjusted for these noncash charges, the net loss was $142 million.

Overall, earnings continue to be driven by a weak but recovering rate environment. Notwithstanding our improved performance relative to market, it's important to note that timing issues exist with earnings, especially when employing an active owner-operator model, and we will discuss these aspects later on in the call.

On the capital markets front, we closed on our previously announced $100 million private placement common stock offering in January, bringing the total gross -- growth equity raised almost $190 million in just 6 months. This capital provided us with significant dry powder, which has allowed us to take advantage of opportunities in the sale and purchase market. For example, as recently announced, we reached an agreement to acquire 9 modern CROWN-63 Ultramax vessels from Greenship Bulk Trust for a total cost of $153 million. We view this as a milestone transaction for the company, and I will discuss it in more detail shortly.

In terms of sale and purchase, we also remain focused on fleet renewal. We sold and delivered the Motor Vessel Redwing to her new owners in January, and we just entered into an MOA for the sale of the Sparrow, the oldest vessel in the fleet at 17 years of age and the only vessel in Eagle Bulk's fleet smaller than 50,000 deadweight tons.

Please turn to Slide 7 for a more detailed discussion on the Greenship fleet acquisition.

As mentioned earlier, we view the Greenship fleet acquisition as transformative, significantly increasing our operating scale and giving us substantial exposure to the Ultramax segment, which will total 11 vessels or 22% of the existing fleet on a pro forma basis, including the Greenship vessels.

This deal was unique for a number of reasons, including the end block nature or the fact that we're able to purchase a fleet of 9 ships in just one transaction. And giving the improving sentiment, there's a shortage of good-quality ships available for purchase into the market today.

It's a young fleet with an average age of just 4 years. We believe an attractive price equating to $17 million per vessel, and they were sister ships, meaning, they were built by the same builder, Sinopacific, and to the same specification. In this regard, operating sister ships lead to economies of scale, both on commercial and technical fronts. The fact that the ships are identical means they're easily interchangeable from a chartering perspective and hence provide our commercial team with extra flexibility when evaluating business.

On the technical side, efficiencies are also realized from a crew knowledge and rotation, purchase of spare parts and general maintenance management. Based on our inspections, we believe the vessels are in excellent condition. These ships were built for long-term ownership by the previous owner and the construction as well as management was carried out by (inaudible) which is known for its quality management and operation.

We expect to take delivery of the first vessel within the next couple of weeks and then approximately 2 per month, completing the deliveries by September.

In terms of financing, we're currently discussing financing terms with banks, and it's our present intention to apply moderate leverage of less than 50% to the 9 ships.

And notwithstanding our view that the rate environment will continue to improve long term, given dry bulks' volatility, we believe it is prudent to take advantage of recent gains in the forward market to lock in some cash flows related to the newly acquired vessels. In this regard, we just fixed one of the vessels to be delivered in July for a period of about 17 to 19 months at a gross charter rate of $10,250 a day, essentially taking the charter through the end of 2018.

Please turn to Slide 8 for a discussion on our fleet renewal strategy. Alongside growth, fleet renewal remains a critical aspect of our business strategy with the objective to improve the relative earnings power of our fleet as well as reduce the overall fleet age. To this end, we've sold 6 of our oldest smallest vessels over the past 12 months for total gross proceeds of approximately $24.8 million. Upon closing of the Sparrow sale, which is expected in April, we will have repaid almost $11 million in debt.

In addition, we've been able to save almost $4 million of related CapEx as these were -- ships were all sold prior to the special survey and their drydock due dates. In summary, these sales have allowed us to delever the balance sheet while increasing liquidity by almost $15 million.

Please turn to Slide 9 for a current snapshot of our pro forma fleet profile. Including the 9 Ultramaxes just purchased and taking into account the sale of the Sparrow, which is to be delivered to our new buyers in April, Eagle's pro forma own fleet now totals 49 vessels, equating to almost 18,000 annual days, an increase of 20% over the prior quarter. The average age of the fleet is now 7.8 years, younger by almost 1 year as compared with the fleet prior to the recent transactions. Subject to how the market develops, it's our intention to continue executing on our fleet growth and renewal strategy, selling off some of the older and smaller as well as less-efficient ships and purchasing newer and more efficient ones.

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

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Frank C. De Costanzo, Eagle Bulk Shipping Inc. - CFO and Secretary [3]

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Thank you, Gary. Please turn to Slide 11 for a summary of our fourth quarter and full year 2016 results.

For the fourth quarter of 2016, the company reported a net loss of $142.4 million as compared to a net loss of $79.7 million in the fourth quarter of 2015. The losses include a noncash vessel impairment charges of $122.9 million for Q4 '16 and $50.9 million for Q4 '15.

For the full year 2016, the company reported a net loss of $223.5 million as compared to a net loss of $148.3 million in 2015. The Q4 2016 impairment charge was recorded on 16 vessels, which the company expects to sell in the next few years as part of our fleet renewal strategy.

I will now walk you through our results for the 3-month period ending December 31, 2015, and December 31, 2016, excluding the impairment charges.

Net revenues in the quarter ending December 31, 2016, were $41.8 million as compared to $25.7 million recorded in the comparable period in 2015. The $16.1 million increase in revenue is primarily attributable to increased charter rates as well as increased available days due to chartered-in vessels.

Net loss for the fourth quarter of 2016 was $19.5 million as compared to a net loss of $28.9 million in the fourth quarter of 2015. The $9.4 million improvement is mainly due to the increased charter rates along with lower vessel expenses.

Total operating expenses for the quarter ending December 31, 2016, were $54.7 million as compared to $51.5 million recorded in the fourth quarter of 2015. The increase of $3.2 million is primarily due to the increases in voyage and charter hire expenses, largely offset by savings in vessel operating expenses.

Now let's take a look at our results for the year ending December 31, 2016, against the year ending December 31, 2015, excluding impairment charges.

Net revenue for the full year 2016 was $124.5 million, an increase of $20.6 million from $103.9 million in 2015. This revenue increase was attributable to the increase in the number of freight voyages performed and increase in available days. The increase in available days was due to the chartering of vessels, partially offset by the sale of 4 vessels in 2016. Our fleet utilization increased from 97.6% during 2015 to 98.7% in 2016.

The net loss for full year 2016 was $94.5 million as compared to a net loss of $97.4 million for the full year 2015. Total operating expenses for the year ended December 31, 2016, were $196.7 million as compared to $188.5 million for the full year 2015. The $8.2 million increase is primarily due to the increase in voyage and charter hire expenses, which were offset in part by the savings from vessel operating expenses.

Please turn to Slide 12 for a review of the changes in cash flows. In Q4, net cash used in operating activities was negative $5.3 million. The negative cash from operations was roughly covered by a $5 million revolving credit facility draw. You can see the net cash from ops has improved in each quarter in 2016 from negative $19.5 million in Q1 to negative $5.3 million in Q4 2016.

Let's now turn to Slide 13 for an overview of our balance sheet and liquidity. The company had total cash and cash equivalents of $76.5 million as of December 31, 2016, as compared to $24.9 million at December 31, 2015. Our total liquidity increases to $101.5 million when you add the $25 million of undrawn availability on our revolving credit facility to our cash balance.

Accounts receivable decreased by $2 million to $5 million at December 31, 2016. The decrease is made up of $1 million in reduction of trade AR and receipt of insurance claims totaling $1 million.

Inventories increased by $5.3 million to $10.9 million at December 31, 2016, due to an increase in bunker fuel, both volume and price.

The increase in inventories has been driven by a change in our business mix, with voyage and time charter-ins making up a larger part of our revenue.

Total debt as of December 31, 2016, stood at $276.4 million. The outstanding debt under our first lien facility as of December 31, 2016, was $209.1 million and is made up of the term loan balance of $184.1 million and revolving credit facility draw of $25 million. The outstanding balance of our second lien facility as of December 31, 2016, was $60 million, plus the accrued PIK interest of $7.3 million.

Let's now review Slide 14, our full year 2016 cash breakeven per vessel per day. Our daily vessel operating cost was $4,803 per day. Drydocking equated to $243 per day. Our cash G&A expenses, excluding onetime items related to redundancy costs and extraordinary legal expenses, amounted to $1,246 per day. Cash interest expenses was $631 per day. Therefore, the total cash breakeven per vessel per day for full year 2016 was $6,923 per vessel per day. Total breakeven per vessel per day for 2016 was $942 lower than 2015.

This concludes my review of the financials. I will now turn the call back to Gary, who will continue his discussion of the business and provide context around industry fundamentals.

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [4]

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Thank you, Frank. Please turn to Slide 16 for a review of our commercial performance.

I'm pleased to report that we are continuing to increase our active management model through a number of means. For example, we are contracting more and more business on voyage terms directly with cargo interest where Eagle has paid $1 per ton rate for carrying cargo, and then actively managing all aspects of the vessel operation on the voyage.

This contrasts with the rerouter time charter, where the counterparty operates the vessel. In the fourth quarter, approximately 30% of the cargoes lifted were done on voyage basis, threefold increase over its comparable period last year.

Clearly, development of our business remains a work in progress, and we expect to continue to grow the amount of business we contract directly with shippers, receivers and traders going forward.

As mentioned earlier on the call, and as you can see from the chart located on the bottom left-hand corner of Slide 16, the Atlantic market was trading at significant premiums than the Pacific during the fourth quarter, approximately 78%, significantly higher than the 5-year average of 28%, with the majority of our ships in the Atlantic. And given the spread dislocation between the 2 markets, we decided to capitalize on the premium, sending some ships to the Far East. It presently appears to be the right call as the spread differential has reverted around its historic mean level, currently around 30%. It's also important to note that there's always a lag in vessel earnings, so a significant portion of the revenue stream from this action will be earned during Q1.

In this regard, you will note in the lower right-hand portion of the slide that we estimate Q1 TCE to be $78.52 per day as of March 24, up 25% quarter-on-quarter and 160% year-on-year.

In addition to active management of our own fleet itself, we continue to build out our operating model, affecting arbitrage trades around our vessels and cargoes and building both the time charter and a cargo book. We believe it's worth highlighting that employing an active business model entails both front haul or revenue lags as well as backhaul or investment lags, with implications for revenue flows and timing. As an example, during 2016, we opportunistically chartered in 2 Ultramax vessels on period. And given our naturally long position on the own fleet and the fact that we had little fixed coverage, we entered into FFA hedges on the chartered-in fixed period to mitigate market risks while leaving the optional periods open. We refer to this as creating a symmetric optionality.

Between the hedges and positioning of the vessels into the Atlantic from their delivery points in the Pacific, we have through December 31 invested just over $400,000 in total. However, majority of the fixed periods are now completed on both ships. And based on the improved market environment, the current mark-to-market gain for 2017 is approximately $1.5 million on these 2 ships. So overall, a net gain of $1.1 million, of which the $1.5 million has yet to be realized. Notwithstanding the timing issues, it's noteworthy that this mark-to-market gain, as a result of this structured transaction, is separate from the Eagle-owned fleet business.

Inclusive of the 2 aforementioned period vessels, during the fourth quarter, we had a total of 749 days of vessels taken in by Eagle on charter as compared with just 355 in Q3. These vessels, including vessels taken into arbitrage positions of our own fleet, also served to increase our operating footprint and operational efficiencies.

Lastly, I'd like to report that subsequent to year-end, we chartered-in another SDARI-64 Ultramax for about 11 to 14 months, where we again used the structured strategy, hedging the fixed commitment period using FFAs and leaving the optional period open.

Please turn to Slide 17 for a discussion on OpEx.

On the technical management front, I'm pleased to report that we continued to improve our OpEx performance, thanks to the structural and strategic changes initiated over a year ago. Excluding extraordinary items related to unscheduled intermediate drydocks for whole painting and upgrades, Q4 OpEx was $4,563 per day, relatively in line with Q3.

For the full year, 2016 OpEx was $4,741 per day or 10% lower than the prior year, equating to a savings of over $7.7 million based on our fleet profile in '16.

On an annualized basis, the OpEx achieved in the second half of '16 equates to an annualized savings of more than $10 million year-over-year.

While cost savings are meaningful, it's vitally important to point out that we're achieving these savings while actively improving the makeup and condition of our ships, including drydocking 4 vessels on a discretionary basis to upgrade coatings among related vessel improvement initiatives.

For 2017, we're budgeting OpEx at $4,633 per day or 2% lower than 2016 actual. Please turn to Slide 18 for a decision on maintenance CapEx.

The chart on Slide 18 depicts the 2016 actual and forecasted drydocks by year, taking into consideration the 9 Ultramaxes we just agreed to acquire. As mentioned earlier on the call, all 6 of the ships we've sold today were due for drydocking, either '16 or '17. Selling these ships prior to the drydocks saved over $4 million in CapEx spend. As such, for '17, we're only required to drydock one vessel.

In terms of the IMO ballast water management convention, all existing ships globally are required to be fitted with a ballast water treatment system by their International Oil Pollution Prevention, or IOPP, Certificate renewal date following after September of 2017.

As is now common practice, Eagle is in the process of decoupling its IOPP Certificate renewal dates from that of special survey, which will have the effect of extending IMO ballast water treatment system installation dates by approximately 5 years. This notwithstanding, the U.S. Coast Guard has published its own ballast water treatment system requirements with a compliance date that has already passed, but allowing extension request for installation up to 1 year prior to a vessel's next drydocking. In this regard, Eagle has received extensions for all its vessels due for drydock prior to '18, and we will continue to apply for extensions with respect to the vessels with drydocking due in '18, requesting time to carry out appropriate feasibility studies, engineering analysis and installation. Clearly, this is a dynamic situation for all owners, including Eagle, and we will keep you informed of the material developments.

As you all know, we drydocked 9 vessels during 2016 for an aggregate expense of $3.7 million. Looking forward, the slide covers the drydock schedule for 2017 and '18. In '17, we expect minimal cash outlays relating to CapEx. And you will note that in '17, there's just one ship undergoing drydock. There are 14 drydocks scheduled for 2018, half of which are related to the recently announced Greenships acquisition. Of course, the eventual number may change, depending on vessel sales and acquisition.

Please turn to Slide 20 for a discussion on market fundamentals. On the supply side, although scrapping of older tonnage started off 2016 at a record pace, momentum slowed over the year on the back of an improving rate environment. In total, just over 29 million tons of dry bulk vessels were scrapped during '16. So far, year-to-date through February, just over 3 million deadweight tons have gone to demolition. Notwithstanding the general improvement in spot rates, we believe demolition will pick up somewhat as scrap rates have improved to the mid-upper $300s per lightweight ton. In addition, the ballast water management convention, depending on how it plays out in terms of timing, will have a marked effect on the decision to take older vessels through a third or fourth special survey. As such, analysts are estimating that the total for '17 could reach 21 million deadweight tons, equating to approximately 3% of the on-the-water fleet.

On Slide 21, we discuss forward supply. Projected new supply growth continues to decrease as ordering has dramatically slowed over the past few years, leading to an order book which now stands at 8% of the dry bulk fleet. Looking forward, secondhand values have increased significantly in recent months, with the spread discount to newbuildings narrowing considerably. Undoubtedly, we believe this will lead to some orderings -- orders being placed. However, we don't foresee a significant increase, and a number of factors lead us to this view, including the fact that financing remains difficult to access for most, many yards which were prolific suppliers to dry bulk are no longer viable and many industrial participants are simply not in a position to place new orders. Depending on actual scrapping and eventual deliveries, which is affected by slippage, net supply growth is expected to be marginal this year, anywhere from 0 to 2%. It's important to note that although the order book has shrunk dramatically in recent years, it's broad consensus that it remains inflated due to legacy orders, which have effectively been canceled but not yet reflected accordingly.

Please turn to Slide 22 for an overview of demand factors. Iron ore imports, as depicted in the top left corner of this slide, continued to increase at a robust pace, with levels at plus 20% to where they were just last February. The pickup in demand has been driven by increased domestic steel production, which in turn has been due to accommodated policies in place to support investment and growth.

In addition, imports have been benefiting from the substitution effect as local production of iron ore has been decreasing. Imported iron ore has an advantage in terms of both quality and cost.

Chinese iron ore inventories, as depicted in the bottom left corner of this slide, are now at a record level of over 120 million tons. It's unlikely this momentum can continue indefinitely, and we would expect stocks at some stage to be drawn down to more normal levels.

On the top right-hand corner, we depict monthly coal imports, which have come off their 2-year highs. This appears to be primarily attributable to the peak winter heating season coming to an end, but also to the recent production restrictions being eased somewhat. That there is, however, some speculation that the restrictions on domestic coal mining may be brought back in the near future.

On the bottom right-hand corner, we depict the Chinese Coastal Bulk Freight Index. Although volatile, the index is still trading well above its 5-year average and at a 3-year high. We believe this has had a direct impact in helping rates move higher during the quarter, especially in the geared segment, as tonnage gets taken up into the significant trade.

Please turn to Slide 23. As mentioned earlier on this call, U.S. grain exports were robust in Q4, and this continued well into Q1. Overall, fundamentals for the grain market remained healthy with growth for 2017 expected to be 3%. The global grain trade totals over 500 million tons or about 10% of all dry bulk, but it accounts for more than 20% of the Supramax trade. One of the major drivers of growth in this trade is China, the world's largest soybean importer, representing approximately 60% of the market. It primarily sources products from Brazil, which represents over 40 million tons, and the U.S. with over 30 million tons, both long-haul trades with significant ton mile effect.

Please turn to Slide 24. Minor bulks, which make up approximately half of the trade of Supramax-class vessels, continue to generate consistent trade demand growth. According to Braemar, infrastructure investment, such as China's One Belt, One Road initiative and Trump's plans for U.S. infrastructure, will be particularly supportive for steel and cement demand.

Fundamentals for pet coke have been very strong as of late, with U.S. exports rising dramatically over the past year, thanks in part to a large increase in demand from India, as depicted in the bottom left-hand corner chart.

On the bottom right-hand corner, we depict Chinese steel exports. Levels have been coming off primarily due to tariffs imposed by some importing nations. What we haven't seen, though, is that some Chinese products being taken to a third country in Southeast Asia and then some of that being reexported from there. This phenomenon could continue and positively act as a catalyst for growth in geared seaborne trade.

Please turn to Slide 25 for a summary on macro demand fundamentals. As we've discussed before, when compared to historic norms, trade demand remains out of sync, with GDP growth trailing significantly. In this regard, we believe the normalization or reversion towards the historic mean ratio could lead dry bulk growth to surpass 4% in the medium term. For 2017, dry bulk growth expectations are 2% to 3%, up by 1% to 2% from 2016.

Please now turn to Slide 26 for a snapshot of current expectation.

The FFA curve, although not a good predictor of rates, does represent a good and interesting snapshot of current expectation for future, and it is actionable. While the current forward curve is fairly flat, it is dramatically higher than where it was during our last earnings call in November. As an example, calendar '18 has moved up by over $2,000 a day since that time to approximately $9,200. And this change equates to almost $36 million per year for our fleet in added contribution, which goes straight to the bottom line.

This concludes our market discussion, and I now would like to end the call with a few takeaway points. Firstly, dry bulk fundamentals are continuing to improve, especially on the supply side. Secondly, today marks the 1-year anniversary of our balance sheet restructuring. And over that time, we've made significant progress in a number of areas. We strengthened our balance sheet, increasing over almost $250 million; renewing and growing our fleet, including the acquisition of 11 modern Ultramax vessels at historically low prices; and finally, we're continuing to develop our team and business model, which are now contributing to improving performance on both the top and bottom lines.

I'd now like to turn the call over to the operator and answer any questions you may have. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Magnus Fyhr with Seaport Global.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [2]

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Just a couple of questions related to your presentation. First on the fleet renewal strategy. You said you had 16 ships earmarked for sale, and does that include the 2 that were sold early in the year?

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [3]

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No, the impairment does not include the 2 ships that were sold earlier in the year. And I think it's worth reiterating that the view is to sell these vessels in the coming few years depending on market conditions. So it's just not -- they're not eminently marked for sale in total.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [4]

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Right. And then you have, after 2 capital raises, I mean, you have, I guess, about $175 million to $200 million of liquidity on the balance sheet. Funding the Greenship acquisition and also the one that was delivered in the first quarter leaves you about $100 million of liquidity. What kind of are you comfortable with to have a liquidity? I guess, you still have some dry powder left here to add more ships.

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [5]

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Yes, I think it's very much a dynamic evaluation from our side. So as we mentioned, we're currently discussing with banks to apply moderate leverage to the 9 ships, and we intend to take in the vessels, and we'll determine what we feel comfortable with. But I've used the word before, we intend to be prudent in terms of our balance sheet. It was only 12 months ago that we did the restructuring. And while we're confident in the overall recovery, we don't think it will be a straight line, necessarily, and we want to make sure that we have the necessary dry powder.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [6]

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Right. And you took one, I guess, ship on time charter, one of the newly acquired ships. How should we think of the mix going forward? I mean, you're primarily a spot operator, but what do you expect here over the next year as far as putting more ships on time charter?

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [7]

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Yes. So I think the way to look at it is that we are -- we like to operate our own ships. Having said that, we can hedge market risks not just by time chartering ships out, but by building a cargo book as well as using FFAs, and we'll intend to do that. So the decision to charter out one ship, so far, I mean, I think we'll continue to look at that and would likely do some additional, but we don't look to lock in the revenue streams on the majority of the ships that we acquired.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst [8]

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Okay. And just one last question. On the charter hire expense increase in the quarter you took in, I think you ran about 8 average ships during the quarter, that was up significantly from the third quarter. What was the thinking behind taking in that many ships in 4Q? I know, in retrospect, rates have improved, so I guess they're in the money right now.

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [9]

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Yes, so I think the way to look at it is to bifurcate it into 2. We mentioned the 2 ships where we illustrated the revenue stream on those 2 period ships and then one that we took subsequent to the fourth quarter, and those are more opportunistic market related. And as I mentioned, we hedged the fixed period, and so we see those as structured trades with upside optionality. The other ships that we took in were done to either lift cargoes that the company contracted on a TVN basis, where we don't have a specific named ship, or, to affect, an arbitrage, essentially where we have an Eagle ship and an Eagle cargo, but we decide to charter in another vessel because the combination of putting that ship into the cargo creates an overall better P&L in combination. So some were done opportunistically, and then some were done to effectively increase the effect of TCE by supplementing the fleet. And some of those ships are taken in for individual straight voyage, just for one leg, but some can be taken for 2 to 3 legs where, again, we have optionality, where we can extend the ship and capture the upside of the market.

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Operator [10]

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And our next question comes from the line of Espen Fjermestad with Fearnley.

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Espen Landmark Fjermestad, Fearnley Securities AS, Research Division - Equity Analyst [11]

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I just had one question. The decision to sell the Redwing 2007-built Supra, I presume there might be more of these sales, given the target of 16. But there is currently very large discount between the Korean and the Japanese and the Chinese vessels. Do you think those kind of 30%, 40% discount, do you think they will continue? Or do you think it's going to be tightened based on the outlook?

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [12]

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Yes. I think, in general, we see these spreads widen and tighten, and so things do revert to their mean. And I think we've already seen it actually. We've seen some of the Chinese vessels improve on a relative basis. So I do expect that to continue.

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Operator [13]

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(Operator Instructions) And I'm showing no further questions at this time. I would like to return the call to Mr. Gary Vogel for any further remarks.

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Gary S. Vogel, Eagle Bulk Shipping Inc. - CEO and Director [14]

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Okay. With that, I'd just like to thank everyone for joining us today for our earnings call and wish everyone a great day. Thank you.

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Operator [15]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.