Eagle Bulk Shipping Executive Insights: Fixing Rates, KLC

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On Thursday, Eagle Bulk Shipping, Inc. (NASDAQ:EGLE) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed

Fixing Rates

Natasha Boyden – Global Hunter: Sophocles, you talked about obviously wanting to fix here at these rates given the fact that they’re so low, and that obviously makes a lot of sense, but I’m wondering, what kind of rates would you actually need to see before you thought about fixing for longer term charges again?

Sophocles N. Zoullas – Chairman and CEO: Great question. One thing that’s very interesting that I didn’t discuss during the slide presentation is that, if you look earlier in the year even at the end of the 2011, you’d see a one year charter rate would be at a premium to say, a trip charter or a short-term time charter rate. What’s happened since the markets improved since January, the spot market rate is close to or at the say one-year charter rate. So, given that our view is and we maintain our view that we’re at the trough of the dry bulk market in terms of the big cycle, since short-term rates are about the same as one-year rates, we’d rather stay short. Now, what’s interesting is the short-term rates have moved up, the long-term rates haven’t yet. If we see the one-year time charter rate go up say from where it is about $10,000 to $11,000 a day into the mid-teens that starts to look attractive.

Natasha Boyden – Global Hunter: Second question Alan maybe you can shed some light on this. Your G&A expenses shared a pretty large increase quarter-over-quarter and I am just wondering if you could just tell us what drove that increase and if we can expect that…

Alan S. Ginsberg – CFO: There was in the quarter $3.4 million of bad debt expense for the quarter.

Natasha Boyden – Global Hunter: So, we shouldn’t see that going forward and that shouldn’t be ongoing?

Alan S. Ginsberg – CFO: That’s correct.

Sophocles N. Zoullas – Chairman and CEO: So Natasha on a run rate to get a sense of what the real G&A is, that should be stripped out.

Natasha Boyden – Global Hunter: Just based on your charter hire expense it looks like you’re pulling back on the chartering business for the time being and that’s going down pretty significantly. Can you talk about your outlook and your plans for that segment?

Sophocles N. Zoullas – Chairman and CEO: Sure. You are 100% right. We’ve gone from about a 1,000 charter end days to about 30. The shift in strategy has been very conscious basically as you know we’ve developed taking in cargos. Initially, we’ve been chartering in ships to cover the cargoes that we have on COAs, I would say the shift has been since the market is weak, we’ve been using our own cargoes for our own ships and not giving that to the chartered in ships so that’s why you see the big drop in chartered-in days and we expect that’ll be the case going forward.

KLC

Christian Wetherbee – Citi: I was wondering if you could give us an update on KLC, I know you touched on in the press release, but just kind of curious what the next steps are in the process with them? It looks like they’re obviously not performing with the previous arrangements.

Sophocles N. Zoullas – Chairman and CEO: What we’ve done and this was discussed on the prior call, we’ve taken a very conservative posture of not recognizing any of those receivables until basically they are in the bank. Our view is, is we are going to maintain that conservative positioning going forward until you hear from us differently. We are right now in talks with them on managing their liability in terms what they owe us going forward. When we have anything more material to report on those talks which are ongoing we’ll let you know, but the important thing I think for everyone on the call and all of the analysts and everyone modeling this going forward is, unless the money is basically assured to be in the bank, we’re not recognizing it.

Christian Wetherbee – Citi: Okay, is there a process in place or is it just direct negotiations between you and them or is there still any legal or bank proceedings that could help you in this process?

Sophocles N. Zoullas – Chairman and CEO: I mean we obviously have lawyers, but we also have direct contact with them.

Christian Wetherbee – Citi: I think you probably can’t comment too much on the discussions you are having with your banks, I’m assuming it is going to be kind of a holistic solution to try to figure out – to get to a position that is I guess is sustainable and that’s probably why we are seeing the delay. Should we expect something by the end of this month based on the 8-K you guys filed a couple of weeks ago, is that the timing that we should at least be thinking about?

Sophocles N. Zoullas – Chairman and CEO: I hate to say something and not be able to deliver on that promise, I mean obviously we’d like to say yes, but the process has been very slow and I think that’s just characterized by the general lending market to the shipping industry these days. What I can say is we’re working, we’ve having productive talks, but they are ongoing.

Christian Wetherbee – Citi: I guess just one question I’m just curious to get a sense of what your thoughts are just generally as far as the magnitude of potential recovery as you look out into ‘13 and ‘14 obviously we have better supply and demand dynamics going out into the out years, where do you think that rates for Supramaxes could recover to? Is there a new normal that we should be thinking about for rates, just what are your thoughts there?

Sophocles N. Zoullas – Chairman and CEO: There’s a lot of historical analysis that’s been done stripping out the peak years and then getting normalized rates over the last 10 years or so, just to remind everyone on the call, the Supramaxes are still within the dry bulk market, one of the newest asset classes. So more than 10 or 11 years you can’t go further back than that, because Supramaxes didn’t exist, there were Handymaxes. Our view is that the normalized earnings potential of these ships that should start with a two, it should be 20,000 plus.

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