NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation and General Information
The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our” or similar terms). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership, charter and operation of drybulk vessels. The Company’s fleet is comprised of Supramax and Ultramax drybulk carriers and the Company operates its business in one business segment.
As of March 31, 2020, the Company owned and operated a modern fleet of 50 oceangoing vessels, including 30 Supramax and 20 Ultramax vessels with a combined carrying capacity of 2,946,188 deadweight tonnage ("dwt") and an average age of approximately 8.9 years. Additionally, the Company charters-in three Ultramax vessels for periods ranging between one to two years, and also charters-in vessels on a short term basis for a period less than 12 months.
For the three months ended March 31, 2020 and 2019, the Company’s charterers did not individually account for more than 10% of the Company’s gross charter revenue during those periods.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC that apply to interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on March 12, 2020.
The accompanying condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
On March 11, 2020, the World Health Organization declared the recent novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the pandemic, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the pandemic, such as quarantines and travel restrictions. Such measures have caused and will likely continue to cause severe trade disruptions. The extent to which COVID-19 will impact the Company's results of operations and financial condition, including possible vessel impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact, among others. Accordingly, an estimate of the impact cannot be made at this time.
As of January 1, 2020, we adopted ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU 2016-13"). ASU 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of the accounting standard did not have any material impact on our condensed consolidated financial statements.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are residual value of vessels, the useful lives of vessels, the value of stock-based compensation, estimated losses on our trade receivables, fair value of Convertible Bond Debt (as defined below) and its equity component, fair value of right-of-use assets and lease liabilities and the fair value of derivatives. Actual results could differ from those estimates.
Note 2. Recent Accounting Pronouncements
Leases
On January 1, 2019, the Company adopted Accounting Standards Update 2016-02, "Leases", ("ASC 842"). ASC 842 revises the accounting for leases. Under the new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. The new lease standard will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The accounting applied by a lessor under the new guidance will be substantially equivalent to current lease accounting guidance.
The following are the type of contracts that fall under ASC 842:
Time charter out contracts
In a time charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or non-hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period. The performance obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to the Company. The charterer generally pays the charter hire in advance of the upcoming contract period. The Company determined that all time charter contracts are considered operating leases and therefore fall under the scope of ASC 842 because: (i) the vessel is an identifiable asset; (ii) the Company does not have substantive substitution rights; and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.
The transition guidance associated with ASC 842 allows for certain practical expedients to the lessors. The Company elected not to separate the lease and non-lease components included in the time charter revenue because the pattern of revenue recognition for the lease and non-lease components (included in the daily hire rate) is the same. The daily hire rate represents the hire rate for a bare boat charter as well as the compensation for expenses incurred running the vessel such as crewing expense, repairs, insurance, maintenance and lubes. Both the lease and non-lease components are earned by passage of time.
The adoption of ASC 842 did not materially impact our accounting for time charter out contracts. The revenue generated from time charter out contracts is recognized on a straight-line basis over the term of the respective time charter agreements, which are recorded as part of revenues, net in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019.
Time charter-in contracts
The Company charters in vessels to supplement our own fleet and employs them both on time charters and voyage charters. The time charter-in contracts range in lease terms from 30 days to 2 years. The Company elected the practical expedient of ASC 842 that allows for time charter-in contracts with an initial lease term of less than 12 months to be excluded from the operating lease right-of-use assets and lease liabilities recognized on our Condensed Consolidated Balance Sheet as of January 1, 2019. The Company recognized the operating lease right-of-use assets and the corresponding lease liabilities on the Condensed Consolidated Balance sheet for time charter-in contracts greater than 12 months on the date of adoption of ASC 842. The Company will continue to recognize the lease payments for all operating leases as charter hire expenses on the condensed consolidated statements of operations on a straight-line basis over the lease term.
Under ASC 842, leases are classified as either finance or operating arrangements, with such classification affecting the pattern and classification of expense recognition in an entity's income statement. For operating leases, ASC 842 requires recognition in an entity’s income statement of a single lease expense, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Right-of-use assets represent a right to use an underlying asset for the lease term and the related lease liability represents an obligation to make lease payments pursuant to the contractual terms of the lease agreement.
At lease commencement, a lessee must develop a discount rate to calculate the present value of the lease payments so that it can determine lease classification and measure the lease liability. When determining the discount rate to be used at lease commencement, a lessee must use the rate implicit in the lease unless that rate cannot be readily determined. When the rate
implicit in the lease cannot be readily determined, the lessee should use its incremental borrowing rate. The incremental borrowing rate is the rate that reflects the interest a lessee would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment. The Company determined that the time charter-in contracts do not contain an implicit borrowing rate. Therefore, the Company arrived at the incremental borrowing rate by determining the Company's implied credit rating and the yield curve for debt as of January 1, 2019. The Company then interpolated the yield curve to determine the incremental borrowing rate for each lease based on the remaining lease term on the specific lease. Based on the above methodology, the Company's incremental borrowing rates ranged from 5.05% to 6.08% for the five lease contracts for which the Company recorded operating lease right-of-use assets and corresponding lease liabilities.
The Company has time charter-in contracts for three Ultramax vessels which are greater than 12 months as of the date of adoption of ASC 842. A brief description of each of these contracts is below:
(i) The Company entered into an agreement effective April 28, 2017, to charter-in a 61,400 dwt, 2013 built Japanese vessel for approximately four years with options for two additional years. The hire rate for the first four years is $12,800 per day and the hire rate for the first optional year is $13,800 per day and $14,300 per day for the second optional year. The Company determined that it will not exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset. In addition, the Company’s fair value below contract value of time charters acquired of $1.8 million as of December 31, 2018, which related to the unamortized value of a prior charter with the same counterparty that had been recorded at the time of the Company’s emergence from bankruptcy, was offset against the corresponding right of use asset on this lease as of January 1, 2019.
(ii) On May 4, 2018, the Company entered into an agreement to charter-in a 61,425 dwt 2013 built Ultramax vessel for three years with an option for an additional two years. The hire rate for the first three years is $12,700 per day and $13,750 per day for the first year option and $14,750 per day for the second year option. The Company took delivery of the vessel in the third quarter of 2018. The Company determined that it will not exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset.
(iii) On December 9, 2018, the Company entered into an agreement to charter-in a 62,487 dwt 2016 built Ultramax vessel for two years. The hire rate for the vessel until March 2020 is $14,250 per day and $15,250 per day thereafter. The Company took delivery of the vessel in the fourth quarter of 2018. The Company elected not to exercise the existing options under this contract and therefore the options are not included in the calculation of the operating lease right-of-use asset. On December 25, 2019, the Company renegotiated the lease terms for another year at a hire rate of $11,600 per day. The Company accounted for this as a lease modification on December 25, 2019 and increased its lease liability and right-of-use asset on its consolidated balance sheet as of December 31, 2019 by $4.5 million.
Office leases
On October 15, 2015, the Company entered into a new commercial lease agreement as a subtenant for office space in Stamford, Connecticut. The lease is effective from January 2016 through June 2023, with an average annual rent of $0.4 million. The lease is secured by a cash collateral of $74,917 which is recorded as restricted cash in the accompanying condensed consolidated balance sheets. In November 2018, the Company entered into a lease office agreement in Singapore, which expires in October 2021, with an average annual rent of $0.3 million. The Company determined the two office leases to be operating leases and recorded the lease expense as part of General and administrative expenses in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019.
Lease Disclosures Under ASC 842
The objective of the disclosure requirements under ASC 842 is to enable users of an entity’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from lease arrangements. In addition to the supplemental qualitative leasing disclosures included above, below are quantitative disclosures that are intended to meet the stated objective of ASC 842.
Operating lease right-of-use assets and lease liabilities as of March 31, 2020 and December 31, 2019 are as follows:
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Description
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Location in Balance Sheet
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March 31, 2020 (1)
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December 31, 2019 (1)
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|
Assets:
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|
|
Chartered-in contracts greater than 12 months
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Operating lease right-of-use assets
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$
|
15,370,956
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|
|
$
|
18,442,965
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|
Office leases
|
Operating lease right-of-use assets
|
1,814,063
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|
|
1,967,072
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|
|
|
$
|
17,185,019
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|
|
$
|
20,410,037
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|
|
Liabilities:
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|
|
|
|
Chartered-in contracts greater than 12 months
|
Current portion of operating lease liabilities
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$
|
12,700,708
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|
|
$
|
12,622,524
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|
|
Office leases
|
Current portion of operating lease liabilities
|
645,553
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|
|
633,454
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|
|
Lease liabilities - current portion
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|
$
|
13,346,261
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|
|
$
|
13,255,978
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|
|
|
|
|
|
Chartered-in contracts greater than 12 months
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Operating lease liabilities
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$
|
3,659,302
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|
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$
|
6,974,943
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|
|
Office leases
|
Operating lease liabilities
|
1,161,742
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|
|
1,326,850
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|
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Lease liabilities - long term
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|
$
|
4,821,044
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|
|
$
|
8,301,793
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|
(1) The Operating lease right-of-use assets and Operating lease liabilities represent the present value of lease payments for the remaining term of the lease. The discount rate used ranged from 5.05% to 6.08%. The weighted average discount rate used to calculate the lease liability was 5.50%.
The table below presents the components of the Company’s lease expenses and sub-lease income on a gross basis earned from chartered-in contracts greater than 12 months for the three months ended March 31, 2020 and 2019.
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Three Months Ended
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Description
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Location in Statement of Operations
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March 31, 2020
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March 31, 2019
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Lease expense for chartered-in contracts less than 12 months
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Charter hire expenses
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$
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2,748,414
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$
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8,360,743
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|
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Lease expense for chartered-in contracts greater than 12 months
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Charter hire expenses
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|
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3,292,525
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|
|
3,131,163
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|
|
|
|
|
|
|
$
|
6,040,939
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|
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$
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11,491,906
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|
|
Lease expense for office leases
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General and administrative expenses
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|
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181,412
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178,000
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Sub lease income from chartered-in contracts greater than 12 months *
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Revenues, net
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$
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3,997,224
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$
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3,082,752
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* The sub-lease income represents only time charter revenue earned on the chartered-in contracts greater than 12 months. There is additional revenue earned from voyage charters on the same chartered-in contracts which is recorded in Revenues, net in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019.
The cash paid for operating leases with terms greater than 12 months is $3.6 million and $3.7 million for the three months ended March 31, 2020 and 2019, respectively.
The Company did not enter into any operating leases greater than 12 months for the three months ended March 31, 2020.
The weighted average remaining lease term on our chartered-in contracts greater than 12 months is 17.5 months.
The table below provides the total amount of lease payments on an undiscounted basis on our chartered-in contracts and office leases greater than 12 months as of March 31, 2020:
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Year
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Chartered-in contracts greater than 12 months
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Office leases
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Total Operating leases
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|
|
|
|
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Discount rate upon adoption
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5.37
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%
|
5.80
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%
|
5.48
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%
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|
|
|
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|
|
Nine months ending December 31, 2020
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$
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9,826,451
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$
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552,462
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$
|
10,378,913
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2021
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6,982,810
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|
700,256
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|
7,683,066
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2022
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—
|
|
483,048
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|
483,048
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2023
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—
|
|
244,878
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|
244,878
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|
|
|
$
|
16,809,261
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|
$
|
1,980,644
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|
$
|
18,789,905
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|
|
|
|
|
|
|
Present value of lease liability
|
$
|
16,360,010
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|
$
|
1,807,295
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|
$
|
18,167,305
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|
|
|
|
|
|
|
Lease liabilities - short term
|
$
|
12,700,708
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|
$
|
645,553
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|
$
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13,346,261
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|
|
Lease liabilities - long term
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3,659,302
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|
1,161,742
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|
4,821,044
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|
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Total lease liabilities
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$
|
16,360,010
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|
$
|
1,807,295
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|
$
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18,167,305
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|
|
|
|
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|
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Discount based on incremental borrowing rate
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$
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449,251
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$
|
173,349
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|
$
|
622,600
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Revenue recognition
Voyage charters
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or "dead" freight. The voyage contract generally has standard payment terms of 95% freight paid within three days after completion of loading. The voyage charter party generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses the Company for any delays that exceed the agreed to laytime at the ports visited, with the amounts recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime which is known as despatch and results in a reduction of revenue. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses, and the revenue is recognized on a straight-line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606 because the Company, as the shipowner, retains control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage or despatch paid by the Company for the three months ended March 31, 2020 and 2019 was $1.9 million and $3.7 million, respectively.
The following table shows the revenues earned from time charters and voyage charters for the three months ended March 31, 2020 and 2019:
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Three Months Ended
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March 31, 2020
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March 31, 2019
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Time charters
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$
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27,830,475
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$
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27,504,191
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Voyage charters
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46,547,844
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|
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49,885,406
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$
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74,378,319
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|
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$
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77,389,597
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Contract costs
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. These costs are considered contract fulfillment costs because the costs are direct costs related to the performance of the contract and are expected to be recovered. The costs incurred during the period prior to commencement of loading the cargo, primarily bunkers, are deferred as they represent setup costs and recorded as a current asset and are amortized on a straight-line basis as the related performance obligations are satisfied. As of March 31, 2020, the Company recognized $0.6 million of deferred costs which represents bunker expenses and charter-hire expenses incurred prior to commencement of loading. These costs, are recorded in Other current assets on the Condensed Consolidated Balance Sheet.
Financial Instruments - Credit Losses
On January 1, 2020, the Company adopted ASC 2016-13, "Financial Instruments - Credit Losses" ("ASC 326"). The accounting standard amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses will result in more timely recognition of such losses. The Company adopted the accounting standard using the prospective transition approach as of January 1, 2020. The cumulative effect upon adoption was not material to our condensed consolidated financial statements.
The adoption of ASC 326 primarily impacted our trade receivables recorded on our Condensed Consolidated Balance Sheet as of March 31, 2020. The Company maintains an allowance for credit losses for expected uncollectable accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as voyage expense in the Condensed Consolidated Statements of Operations as of March 31, 2020 and 2019. Upon adoption of ASC 326, the Company assessed collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considered historical collectability based on past due status and made judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considered customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. For the three months ended March 31, 2020, our assessment considered business and market disruptions caused by COVID-19 and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods. The allowance for credit losses on accounts receivable was $2.8 million as of March 31, 2020 and $2.5 million as of December 31, 2019.
Note 3. Vessels
Vessel and Vessel Improvements
As of March 31, 2020, the Company’s owned operating fleet consisted of 50 drybulk vessels.
During the third quarter of 2018, the Company entered into a series of agreements to purchase up to 37 scrubbers, which were fitted on Company's vessels. The actual costs, including installation, was approximately $2.3 million per scrubber. The Company completed and commissioned 36 scrubbers and recorded $83.6 million in Vessels and vessel improvements in the Condensed Consolidated Balance Sheet as of March 31, 2020. Subsequent to the quarter end, the Company completed and commissioned the last remaining scrubber. Additionally, the Company recorded $1.6 million as advances paid towards installation of scrubbers on the remaining vessels as a noncurrent asset in its Condensed Consolidated Balance Sheet as of March 31, 2020.
During the third quarter of 2018, the Company entered into a contract for the installation of ballast water treatment systems ("BWTS") on 40 of our owned vessels. The projected costs, including installation, is approximately $0.5 million per BWTS. The Company intends to complete the installation during scheduled drydockings. The Company completed installation of BWTS on 13 vessels and recorded $5.5 million in Vessels and vessel improvements in the Condensed Consolidated Balance Sheet as of March 31, 2020. Additionally, the Company recorded $2.8 million as advances paid towards installation of BWTS on the remaining vessels as a noncurrent asset in its Condensed Consolidated Balance Sheet as of March 31, 2020.
The Vessels and vessel improvements activity for the three months ended March 31, 2020 is below:
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|
Vessels and vessel improvements, at December 31, 2019
|
$
|
835,959,084
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|
|
Purchase of Vessel and vessel improvements
|
466,556
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|
Scrubbers and BWTS
|
32,860,967
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|
|
Depreciation expense
|
(10,478,779)
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|
|
Vessels and vessel improvements, at March 31, 2020
|
$
|
858,807,828
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|
Note 4. Debt
|
|
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|
|
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|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Convertible Bond Debt
|
$
|
114,120,000
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|
|
$
|
114,120,000
|
|
|
Debt discount and debt issuance costs - Convertible Bond Debt
|
(20,389,346)
|
|
|
(21,316,856)
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|
|
Convertible Bond Debt, net of debt discount and debt issuance costs
|
93,730,654
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|
|
92,803,144
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|
|
Norwegian Bond Debt
|
188,000,000
|
|
|
188,000,000
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|
|
Debt discount and debt issuance costs - Norwegian Bond Debt
|
(3,778,904)
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|
|
(4,132,690)
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|
|
Less: Current Portion - Norwegian Bond Debt
|
(8,000,000)
|
|
|
(8,000,000)
|
|
|
Norwegian Bond Debt, net of debt discount and debt issuance costs
|
176,221,096
|
|
|
175,867,310
|
|
|
New Ultraco Debt Facility
|
166,800,316
|
|
|
172,613,988
|
|
|
Revolver loan under New Ultraco Debt Facility
|
45,000,000
|
|
|
—
|
|
|
Debt discount and Debt issuance costs - New Ultraco Debt Facility
|
(3,293,010)
|
|
|
(3,507,824)
|
|
|
Less: Current Portion - New Ultraco Debt Facility
|
(29,194,297)
|
|
|
(27,709,394)
|
|
|
New Ultraco Debt Facility, net of debt discount and debt issuance costs
|
179,313,009
|
|
|
141,396,770
|
|
|
Super Senior Facility
|
2,500,000
|
|
|
—
|
|
|
Debt discount and debt issuance costs - Super Senior Facility
|
(144,535)
|
|
|
—
|
|
|
Super Senior Facility, net of debt discount and debt issuance costs
|
2,355,465
|
|
|
—
|
|
|
Total long-term debt
|
$
|
451,620,224
|
|
|
$
|
410,067,224
|
|
Convertible Bond Debt
On July 29, 2019, the Company issued $114.12 million in aggregate principal amount of 5.00% Convertible Senior Notes due 2024 (the “Convertible Bond Debt”). After deducting debt discount of $1.6 million, the Company received net proceeds of approximately $112.5 million. Additionally, the Company incurred $1.0 million of debt issuance costs relating to this transaction. The Company used the proceeds to partially finance the purchase of six Ultramax vessels and for general corporate purposes, including working capital. The Company took delivery of the vessels in the third and fourth quarters of 2019.
The Convertible Bond Debt bears interest at a rate of 5.00% per annum on the outstanding principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2020. The Convertible Bond Debt may bear additional interest upon certain events, as set forth in the indenture governing the Convertible Bond Debt (the "Indenture"). If the Company becomes obligated to pay special interest, the Company may prior to July 29, 2020, at its option, redeem for cash all (but not less than all) of the Convertible Bond Debt at a redemption price as set forth in the Indenture.
The Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to its terms. The Company may not otherwise redeem the Convertible Bond Debt prior to the Maturity Date.
Each holder has the right to convert any portion of the Convertible Bond Debt, provided such portion is of $1,000 or a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity Date. The initial conversion rate of the Convertible Bond Debt is 178.1737 shares of the Company's common stock per $1,000 principal amount of Convertible Bond Debt (which is equivalent to an initial conversion price of approximately $5.61 per share of its common stock).
Upon conversion, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, to the holder, subject to shareholder approval requirements in accordance with the listing standards of the Nasdaq Global Select Market.
If the Company undergoes a fundamental change, as set forth in the Indenture, each holder may require the Company to repurchase all or part of their Convertible Bond Debt for cash in principal amounts of $1,000 or a multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the Convertible Bond Debt to be repurchased, plus accrued and unpaid interest. If, however, the holders instead elect to convert their Convertible Bond Debt in connection with the fundamental change, the Company will be required to increase the conversion rate of the Convertible Bond Debt at a rate determined by a combination of the date the fundamental change occurs and the stock price of the Company's common stock on such date.
The Convertible Bond Debt is the general, unsecured senior obligations of the Company. It ranks: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Bond Debt; (ii) equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company.
The Indenture also provides for customary events of default. Generally, if an event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the Convertible Bond Debt then outstanding may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Bond Debt then outstanding to be due and payable.
In accordance with ASC 470-Debt, the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) is to be separately accounted for in a manner that reflects the issuer's non-convertible debt borrowing rate. The guidance requires the initial proceeds received from the sale of convertible debt instruments to be allocated between a liability component and equity component in a manner that reflects the interest expense at the interest rate of similar non-convertible debt that could have been issued by the Company at the time of issuance. The Company accounted for the Convertible based on the above guidance and attributed a portion of the proceeds to the equity component. The resulting debt discount is amortized using effective interest method over the expected life of the Convertible Bond Debt as interest expense. Additionally, the debt discount and issuance costs were allocated based on the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Bond Debt.
Share Lending Agreement
In connection with the issuance of the Convertible Bond Debt, certain persons entered into an arrangement (the "Share Lending Agreement") to borrow up to 3,582,880 shares of the Company’s common stock through share lending arrangements from Jefferies LLC (“JCS”), an initial purchaser of the Convertible Bond Debt, which in turn entered into an arrangement to borrow the shares from an entity affiliated with Oaktree Capital Management, LP, one of the Company’s shareholders. As of March 31, 2020, the fair value of the 3.6 million outstanding loaned shares was $6.6 million based on the closing price of the common stock on March 31, 2020. In connection with the Share Lending Agreement, JCS paid $0.03 million representing a nominal fee per borrowed share, equal to the par value of the Company’s common stock.
While the Share Lending Agreement does not require cash payment upon return of the shares, physical settlement is required ( i.e., the loaned shares must be returned at the end of the arrangement). In view of this share return provision and other contractual undertakings of JCS in the share lending agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of borrowed shares, the loaned shares are not considered issued and outstanding for the purpose of computing and reporting the Company's basic and diluted weighted average shares or earnings per share. If JCS were to file bankruptcy or commence similar administrative, liquidating or restructuring proceedings, the Company will have to consider 3.6 million shares lent to JCS as issued and outstanding for the purposes of calculating earnings per share.
New Ultraco Debt Facility
On January 25, 2019, Ultraco Shipping LLC ("Ultraco"), a wholly-owned subsidiary of the Company, entered into a senior secured credit facility, (the "New Ultraco Debt Facility"), which provides for an aggregate principal amount of $208.4 million, which consists of (i) a term loan facility of $153.4 million (the "Term Facility Loan") and (ii) a revolving credit facility of $55.0 million,of which $10.0 million was available as of March 31, 2020. The proceeds from the New Ultraco Debt Facility were used to repay the outstanding debt including accrued interest under the Original Ultraco Debt Facility (as defined below) and the New First Lien Facility (as defined below) in full and for general corporate purposes. Subject to certain conditions set forth in the New Ultraco Debt Facility, Ultraco may request an increase of up to $60.0 million in the aggregate principal amount of the Term
Facility Loan. Outstanding borrowings under the New Ultraco Debt Facility bear interest at LIBOR plus 2.50% per annum. The Company paid $3.1 million as debt issuance costs to the lenders.
On October 1, 2019, Ultraco, the Company, and certain initial and additional guarantors entered into a first amendment to the New Ultraco Debt Facility (the "First Amendment") to provide for incremental commitments and pursuant to which on October 4, 2019, Ultraco borrowed $34.3 million for general corporate purposes, including capital expenditures relating to the installation of scrubbers. The Company paid $0.4 million as debt issuance costs to the lenders.
The New Ultraco Debt Facility matures on January 25, 2024 (the “New Ultraco Maturity Date”). Pursuant to the terms of the facility, Ultraco must repay the aggregate principal amount excluding the amounts borrowed under the First Amendment, of $5.1 million in quarterly installments for the first year and $7.3 million in quarterly installments from the second year until the New Ultraco Maturity Date. Additionally, there are semi-annual catch up amortization payments from excess cash flow with a maximum cumulative payable of $4.6 million, with a final balloon payment of all remaining outstanding debt to be made on the New Ultraco Maturity Date.
Ultraco’s obligations under the New Ultraco Debt Facility are secured by, among other items, a first priority mortgage on 24 vessels owned by the Guarantors as identified in the New Ultraco Debt Facility and such other vessels that it may from time to time include with the approval of the Lenders (the “Ultraco Vessels”).
The New Ultraco Debt Facility contains financial covenants requiring the Company, on a consolidated basis excluding Shipco (as defined below) and any of Shipco’s subsidiaries (each, a “Restricted Subsidiary”) and any of the vessels owned by any Restricted Subsidiary, to maintain a minimum amount of free cash or cash equivalents in an amount not less than the greater of (i) $0.6 million per owned vessel and (ii) 7.5% of the total consolidated debt of the Company and its subsidiaries, excluding any Restricted Subsidiary, which currently consists of amounts outstanding under the New Ultraco Debt Facility. The New Ultraco Debt Facility also requires the Company to maintain a liquidity reserve of $0.6 million per Ultraco Vessel in an unblocked account. Additionally, the New Ultraco Debt Facility requires the Company, on a consolidated basis, excluding any Restricted Subsidiary and the vessels owned by any Restricted Subsidiary, to maintain (i) a ratio of minimum value adjusted tangible equity to total assets ratio of not less than 0.30:1, (ii) a consolidated interest coverage ratio of not less than a range varying from 1.50 to 1.00 to 2.50 to 1.00, and (iii) a positive working capital. The New Ultraco Debt Facility also imposes operating restrictions on Ultraco and the Guarantors. The Company is in compliance with its financial covenants under the New Ultraco Debt Facility as of March 31, 2020.
Norwegian Bond Debt
On November 28, 2017, Eagle Bulk Shipco LLC, a wholly-owned subsidiary of the Company ("Shipco" or "Issuer") issued $200,000,000 in aggregate principal amount of 8.250% Senior Secured Bonds (the "Bonds" or the "Norwegian Bond Debt"). After giving effect to an original issue discount of approximately 1% and deducting offering expenses of $3.1 million, the net proceeds from the issuance of the Bonds were approximately $195.0 million. These net proceeds from the Bonds, together with the proceeds from the New First Lien Facility and cash on hand, were used to repay all amounts outstanding, including accrued interest under various debt facilities outstanding at that time and to pay expenses associated with the refinancing transactions. Shipco incurred $1.3 million in other financing costs in connection with the transaction. Interest on the Bonds accrues at a rate of 8.25% per annum and the Bonds will mature on November 28, 2022. The Norwegian Bond Debt is guaranteed by the Issuer's subsidiaries and secured by mortgages over 24 vessels (the "Shipco Vessels"), pledges of the equity of the Issuer and its subsidiaries and certain assignments.
The Issuer may redeem some or all of the outstanding Bonds on the terms and conditions and prices set forth in the bond terms. Upon a change of control of the Company, each holder of the Bonds has the right to require that the Issuer purchase all or some of the Bonds held by such holder at a price equal to 101% of the nominal amount, plus accrued interest.
The bond terms contain certain financial covenants that the Issuer’s leverage ratio, defined as the ratio of outstanding bond amount and any drawn amounts under the Super Senior Facility less consolidated cash balance to the aggregate book value of the Shipco Vessels, must not exceed 75.0%, and its subsidiaries’ free liquidity must at all times be at least $12.5 million. Shipco is in compliance with its financial covenants under the Bond Terms as of March 31, 2020.
During 2019, the Company sold four vessels, Kestrel, Thrasher, Condor and Merlin, for combined net proceeds of $29.6 million. Additionally, the Company sold one vessel, Thrush, in 2018 for net proceeds of $10.8 million. Pursuant to the bond terms governing the Norwegian Bond Debt, the proceeds from the sale of vessels are to be held in a restricted account to be used for the financing of the acquisition of additional vessels by Shipco and for partial funding of scrubbers. As a result, the Company
recorded the proceeds from the sale of these vessels as restricted cash - current in the Condensed Consolidated Balance Sheet as of March 31, 2020. During the fourth quarter of 2019, Shipco acquired one modern Ultramax vessel for $20.1 million which was paid from the restricted cash - current. As of March 31, 2020, the Company used $18.0 million of proceeds received from the sale of Shipco Vessels for the financing of scrubbers.
The bond terms also contain certain customary events of default. The bond terms also contain certain customary negative covenants that may restrict the Company's and the Issuer's ability to take certain actions.
Super Senior Facility
On December 8, 2017, Shipco entered into the Super Senior Revolving Facility Agreement (the "Super Senior Facility"), which provides for a revolving credit facility in an aggregate amount of up to $15.0 million. The proceeds of the Super Senior Facility are expected to be used (i) to acquire additional vessels or vessel owners and (ii) for general corporate and working capital purposes of Shipco and its subsidiaries. The Super Senior Facility matures on August 28, 2022. Shipco incurred $0.3 million as other financing costs in connection with the transaction.
As of March 31, 2020, the availability under the Super Senior Facility was $12.5 million.
The outstanding borrowings under the Super Senior Facility bear interest at LIBOR plus 2.00% per annum and commitment fees of 40% of the applicable margin on the undrawn portion of the facility. For each loan that is requested under the Super Senior Facility, Shipco must repay such loan along with accrued interest on the last day of each interest period relating to the loan.
Shipco’s obligations under the Super Senior Facility are guaranteed by the limited liability companies that are subsidiaries of Shipco and the legal and beneficial owners of 24 vessels in the Company’s fleet (the “Eagle Shipco Vessel Owners”), and are secured by, among other things, mortgages over such vessels. The Super Senior Facility ranks super senior to the Bonds with respect to any proceeds from any enforcement action relating to security or guarantees for both the Super Senior Facility and the Bonds.
The Super Senior Facility contains certain covenants that, subject to certain exceptions and qualifications, limit Shipco’s and its subsidiaries’ ability to, among other things, do the following: make distributions; carry out any merger, other business combination, or corporate reorganization; make substantial changes to the general nature of their respective businesses; incur certain indebtedness; incur liens; make loans or guarantees; make certain investments; transact other than on arm’s-length terms; enter into sale and leaseback transactions; engage in certain chartering-in of vessels; or dispose of shares of Eagle Shipco Vessel Owners. Additionally, Shipco’s leverage ratio must not exceed 75% and its subsidiaries’ free liquidity must at all times be at least $12.5 million. Also, the total commitments under the Super Senior Facility will be cancelled if (i) at any time the aggregate market value of the security vessels for the Super Senior Facility is less than 300% of the total commitments under the Super Senior Facility or (ii) if Shipco or any of its subsidiaries redeems or otherwise repays the Bonds so that less than $100.0 million is outstanding under the Bond Terms. Shipco is in compliance with its financial covenants under the Super Senior Facility as of March 31, 2020.
The Super Senior Facility also contains certain customary events of default customary to the transactions of this type.
New First Lien Facility
On December 8, 2017, Eagle Shipping LLC, a wholly-owned subsidiary of the Company ("Eagle Shipping") entered into a credit agreement (the "New First Lien Facility"), which provided for (i) a term loan facility in an aggregate principal amount of up to $60.0 million (the “Term Loan”) and (ii) a revolving credit facility in an aggregate principal amount of up to $5.0 million (the “Revolving Loan”).
On January 25, 2019, the Company repaid the outstanding balances of the Term Loan and the Revolving Loan together with accrued interest as of that date and discharged the debt under the New First Lien Facility in full from the proceeds of the New Ultraco Debt Facility. The Company accounted for the above transaction as a debt extinguishment. As a result, the Company recognized $1.1 million, representing the outstanding balance of debt issuance costs, as a loss on debt extinguishment in the Consolidated Statement of Operations for the three months ended March 31, 2019.
Original Ultraco Debt Facility
On June 28, 2017, Ultraco, a wholly-owned subsidiary of the Company, entered into a credit agreement (the “Original Ultraco Debt Facility”), by and among Ultraco, as borrower, certain wholly-owned vessel-owning subsidiaries of Ultraco, as guarantors (the “Ultraco Guarantors”), and certain lenders thereto.
On January 25, 2019, the Company repaid the outstanding balance of the Original Ultraco Debt facility and discharged the debt in full from the proceeds of the New Ultraco Debt Facility. The Company accounted for the above transaction as a debt extinguishment. As a result, the Company recognized $1.2 million, representing the outstanding balance of debt issuance costs, as a loss on debt extinguishment in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2019.
Interest Rates
2020
For the three months ended March 31, 2020, the interest rate on the Convertible Bond Debt was 5.0%. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was 10.14%.
For the three months ended March 31, 2020, the interest rate on the New Ultraco Debt Facility ranged from 3.39% to 4.68%, including a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was 5.52%.
For the three months ended March 31, 2020, the interest rate on our outstanding debt under the Norwegian Bond Debt was 8.25%. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for the three months ended March 31, 2020 was 8.91%, respectively.
For the three months ended March 31, 2020, the interest rate on our outstanding debt under the Super Senior Facility was 2.9%. The weighted average effective interest rate including the amortization of debt issuance costs for this period was 3.0%. Additionally, we pay commitment fees of 40% of the margin on the undrawn portion of the Super Senior Revolver Facility.
2019
For the three months ended March 31, 2019, the interest rate on the New First Lien Facility, which was repaid on January 25, 2019 ranged between 5.89% and 6.01%, including a margin over LIBOR applicable under the terms of the New First Lien Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount for this period was 6.45%.
For the three months ended March 31, 2019, the interest rate on the New Ultraco Debt Facility was 4.15%, including a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount for this period was 5.26%.
For the three months ended March 31, 2019, the interest rate on the Norwegian Bond Debt was 8.25%. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was 8.96%.
For the three months ended March 31, 2019, the interest rate on the Original Ultraco Debt Facility, which was repaid on January 25, 2019, was 5.28% including a margin over LIBOR and commitment fees of 40% of the margin on the undrawn portion of the facility. The weighted average effective interest rate for this period was 6.80%.
The following table summarizes the Company’s total interest expense for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
|
New First Lien Facility interest
|
$
|
—
|
|
|
$
|
293,545
|
|
|
Convertible Bond Debt interest
|
1,426,450
|
|
|
—
|
|
|
New Ultraco Debt Facility interest
|
2,227,946
|
|
|
1,458,570
|
|
|
Norwegian Bond Debt interest
|
3,880,108
|
|
|
4,042,500
|
|
|
Original Ultraco Debt Facility interest
|
—
|
|
|
362,257
|
|
|
Amortization of debt discount and debt issuance costs
|
1,503,866
|
|
|
503,716
|
|
|
Commitment fees on revolving credit facilities
|
153,445
|
|
|
101,415
|
|
|
Total Interest expense
|
$
|
9,191,815
|
|
|
$
|
6,762,003
|
|
Scheduled Debt Maturities
The following table presents the scheduled maturities of principal amounts of our debt obligations, excluding the impact of any future vessel sales for the next five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norwegian Bond Debt
|
Super Senior Facility
|
New Ultraco Debt Facility
|
Convertible Bond Debt
|
Total
|
|
Nine months ending December 31, 2020
|
$
|
8,000,000
|
|
$
|
—
|
|
$
|
21,895,722
|
|
$
|
—
|
|
$
|
29,895,722
|
|
|
2021
|
8,000,000
|
|
—
|
|
29,194,297
|
|
—
|
|
37,194,297
|
|
|
2022
|
172,000,000
|
|
2,500,000
|
|
29,194,297
|
|
—
|
|
203,694,297
|
|
|
2023
|
—
|
|
—
|
|
29,194,297
|
|
—
|
|
29,194,297
|
|
|
2024
|
—
|
|
—
|
|
102,321,703
|
|
114,120,000
|
|
216,441,703
|
|
|
|
$
|
188,000,000
|
|
$
|
2,500,000
|
|
$
|
211,800,316
|
|
$
|
114,120,000
|
|
$
|
516,420,316
|
|
Note 5. Derivative Instruments
Interest rate swaps
On March 31, 2020, the Company entered into an interest rate swap agreement ("IRS") to effectively convert a portion of its debt under the New Ultraco Debt Facility from a floating to a fixed-rate basis. The IRS was designated and qualified as a cash flow hedge. The Company uses the IRS for the management of interest rate risk exposure, as the IRS effectively converts a portion of the Company’s debt from a floating to a fixed rate. The IRS is an agreement between the Company and counterparties to pay, in the future, a fixed-rate payment in exchange for the counterparties paying the Company a variable payment. The amount of the net payment obligation is based on the notional amount of the IRS and the prevailing market interest rates. The Company may terminate the IRS prior to their expiration dates, at which point a realized gain or loss would be recognized. The value of the Company’s commitment would increase or decrease based primarily on the extent to which interest rates move against the rate fixed for each swap.
The following table summarizes the interest rate swaps in place as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap detail
|
|
|
|
|
Notional Amount outstanding
|
|
|
Trade date
|
Fixed rate
|
Start date
|
End date
|
|
March 31, 2020
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
0.64
|
%
|
July 27, 2020
|
January 26, 2024
|
|
$
|
76,101,584
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Under these swap contracts, exclusive of applicable margins, the Company will pay fixed rate interest and receive floating-rate interest amounts based on three-month LIBOR settings.
The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The effective portion of the swap is recorded in accumulated other comprehensive loss. No portion of the cash flow hedges was ineffective during the period ended March 31, 2020.
The following table shows the interest rate swap liabilities as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
Balance Sheet location
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Fair value of derivative instruments - current
|
|
$
|
94,860
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Fair value of derivative instruments - noncurrent
|
|
177,008
|
|
|
—
|
|
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing this market as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized and realized gains are recognized as a component of Other expense, net in the Condensed Consolidated Statement of Operations and Derivative asset and Fair value of derivatives in the Condensed Consolidated Balance Sheets. Derivatives are considered to be Level 2 instruments in the fair value hierarchy.
For our bunker swaps, the Company may enter into master netting, collateral and offset agreements with counterparties. As of March 31, 2020, the Company has International Swaps and Derivatives Association ("ISDA") agreements with two applicable banks and financial institutions which contain netting provisions. In addition to a master agreement with the Company supported by a primary parent guarantee on either side, the Company also has associated credit support agreements in place with the two counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral, when the market value of transactions covered by these agreements exceeds specified thresholds. The Company does not anticipate non-performance by any of the counterparties. As of March 31, 2020, no collateral had been received or pledged related to these derivative instruments.
As of March 31, 2020, the Company had outstanding bunker swap agreements to purchase 38,700 metric tons of high sulfur fuel oil with prices ranging between $225 and $297 and sell 38,700 metric tons of low sulfur fuel oil with prices ranging between $446 and $565 per metric ton, that are expiring at December 31, 2020. The volume represents less than 10% of our estimated consumption on our fleet for the year. The Company also had outstanding bunker swap agreements to purchase 72,000 metric tons of high sulfur fuel oil with prices ranging between $264 and $305 and sell 72,000 metric tons of low sulfur fuel oil with prices ranging between $411 and $486 per metric ton, that are expiring at December 31, 2021. In addition, the Company had outstanding bunker swap agreements to purchase 26,100 metric tons of low sulfur fuel oil with prices ranging between $121 and $524 per metric ton, that are expiring at December 31, 2020.
As of March 31, 2020, the Company entered into FFAs for 1,575 days covering the time period of April to December 2020 (between 15 and 29 days per month), expiring at the end of each calendar month during 2020. The FFA contract prices range from $8,200 to $11,650 per day. The Company will realize a gain or loss on these FFAs based on the price differential between the average daily Baltic Supramax Index ("BSI") rate and the FFA contract price. The gains or losses are recorded in Other expense, net in the Condensed Consolidated Statement of Operations.
The effect of non-designated derivative instruments on the Condensed Consolidated Statements of Operations and Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For theThree Months Ended
|
|
|
|
Derivatives not designated as hedging instruments
|
Location of loss/(gain) in Statements of Operations
|
|
March 31, 2020
|
|
March 31, 2019
|
|
FFAs - realized (gain)/loss
|
Realized and unrealized (gain)/loss on derivative instruments, net
|
|
$
|
(179,505)
|
|
|
$
|
516,531
|
|
|
FFAs - unrealized gain
|
Realized and unrealized (gain)/loss on derivative instruments, net
|
|
(1,440,676)
|
|
|
(1,686,819)
|
|
|
Bunker swaps - realized gain
|
Realized and unrealized (gain)/loss on derivative instruments, net
|
|
(576,464)
|
|
|
(41,008)
|
|
|
Bunker swaps - unrealized gain
|
Realized and unrealized (gain)/loss on derivative instruments, net
|
|
(5,665,196)
|
|
|
(1,226,959)
|
|
|
Total
|
|
|
$
|
(7,861,841)
|
|
|
$
|
(2,438,255)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
Balance Sheet location
|
|
March 31, 2020
|
|
December 31, 2019
|
|
FFAs - Unrealized gain
|
Derivative asset and other current assets
|
|
$
|
1,968,255
|
|
|
$
|
475,650
|
|
|
Bunker swaps - Unrealized gain
|
Derivative asset and other current assets
|
|
8,224,706
|
|
|
96,043
|
|
|
Bunker swaps - Unrealized loss
|
Fair value of derivatives - current
|
|
3,219,696
|
|
|
756,229
|
|
Cash Collateral Disclosures
The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined in the terms of respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of March 31, 2020 and December 31, 2019, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $2.6 million and $0.6 million, respectively, which is recorded within Derivative asset and other current assets in the Condensed Consolidated Balance Sheets.
Note 6. Fair Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash, cash equivalents and restricted cash—the carrying amounts reported in the Condensed Consolidated Balance Sheets for interest-bearing deposits approximate their fair value due to the short-term nature thereof.
Debt—the carrying amounts of borrowings under the Norwegian Bond Debt, Convertible Bond Debt, Super Senior Facility, and the New Ultraco Debt Facility (prior to application of the discount and debt issuance costs) including the Revolving Loan, approximate their fair value, due to the variable interest rate nature thereof.
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivatives include cash, money-market accounts and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include our short-term investments and debt balances under the Convertible Bond Debt, Norwegian Bond Debt, Super Senior Facility, and the New Ultraco Debt Facility. Interest rate swaps are considered to be a Level 2 item as the Company, using the income approach to value the derivatives, uses observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
March 31, 2020
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Fair Value
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Carrying Value
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|
Level 1
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|
Level 2
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|
Assets
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|
|
|
|
|
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Cash and cash equivalents (1)
|
$
|
72,222,728
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|
|
$
|
72,222,728
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|
|
$
|
—
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|
|
Liabilities
|
|
|
|
|
|
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Norwegian Bond Debt (2)
|
188,000,000
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|
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—
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|
128,780,000
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|
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New Ultraco Debt Facility (3)
|
211,800,316
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|
|
—
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|
|
211,800,316
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Super Senior Facility (3)
|
2,500,000
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|
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—
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|
|
2,500,000
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|
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Convertible Bond Debt (4)
|
114,120,000
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|
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—
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|
|
104,020,380
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|
December 31, 2019
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Fair Value
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|
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Carrying Value
|
|
Level 1
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|
Level 2
|
|
Assets
|
|
|
|
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Cash and cash equivalents (1)
|
$
|
59,130,285
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|
|
$
|
59,130,285
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|
|
$
|
—
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|
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Liabilities
|
|
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|
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|
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Norwegian Bond Debt (2)
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188,000,000
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|
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—
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192,626,680
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New Ultraco Debt Facility (3)
|
172,613,988
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|
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—
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|
172,613,988
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|
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Convertible Bond Debt (4)
|
114,120,000
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|
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—
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118,844,868
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(1) Includes restricted cash (current and non-current) of $3.0 million at March 31, 2020 and $5.5 million at December 31, 2019.
(2) The fair value of the Norwegian Bond Debt is based on the last trades on March 23, 2020 and December 31, 2019 on Bloomberg.com.
(3) The fair value of the liabilities is based on the required repayment to the lenders if the debt was discharged in full on March 31, 2020.
(4) The fair value of the Convertible Bond Debt is based on the last trade on February 7, 2020 on Bloomberg.com.
Note 7. Commitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the ordinary course of its business. The Company evaluates these legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows.
Note 8. Net (loss)/income per Common Share
The computation of basic net (loss)/income per share is based on the weighted average number of common stock outstanding for the three months ended March 31, 2020 and 2019. Diluted net income per share gives effect to restricted stock awards and stock options using the treasury stock method, unless the impact is anti-dilutive. Diluted net loss per share as of March 31, 2020 does not include 1,227,057 restricted stock awards, 2,282,171 stock options and 152,266 warrants, as their effect was anti-dilutive. Additionally, the Convertible Bond Debt is not considered a participating security and therefore not included in the computation of the Basic loss per share for the three months ended March 31, 2020. The Company determined that it does not overcome the presumption of share settlement of outstanding debt and therefore the Company applied the if-converted method and did not include the potential shares to be issued upon conversion of Convertible Bond Debt in the calculation of Diluted loss per share for the three months ended March 31, 2020 as their effect was anti-dilutive. Diluted net income per share for the three months ended March 31, 2019 does not include 2,750 stock awards, 348,625 stock options and 152,266 warrants, as their effect was anti-dilutive.
The following table summarizes the calculation of basic and diluted (loss)/income per share:
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Three Months Ended
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March 31, 2020
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March 31, 2019
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Net (loss)/income
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$
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(3,527,759)
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$
|
29,483
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Weighted Average Shares - Basic
|
|
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|
|
71,869,152
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|
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71,283,301
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Dilutive effect of stock options and restricted stock units
|
|
|
|
|
—
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|
|
787,567
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|
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Weighted Average Shares - Diluted
|
|
|
|
|
71,869,152
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|
|
72,070,868
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Basic (loss)/income per share
|
|
|
|
|
$
|
(0.05)
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|
|
$
|
—
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|
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Diluted (loss)/income per share
|
|
|
|
|
$
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(0.05)
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|
|
$
|
—
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Note 9. Stock Incentive Plans
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered 5,348,613 shares of common stock, which may be issued under the 2016 Plan. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan. The Company withheld shares related to restricted stock awards that vested in 2020 at the fair market value equivalent to the maximum statutory withholding obligation and remitted that amount in cash to the appropriate taxation authorities. On June 7, 2019, the Company's shareholders approved an amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional 2,500,000 shares to a maximum of 7,848,613 shares of common stock.
On January 2, 2020, the Company granted 372,250 restricted shares as a company-wide grant under the 2016 Plan. The fair value of the grant based on the closing share price on January 2, 2020 was $1.7 million. The shares will vest in equal installments over a three-year term. Additionally, the Company granted 28,262 common stock to its board of directors. The fair value of the grant based on the closing share price of January 2, 2020 was $0.1 million. The shares vested immediately. The amortization of the above grants is $0.3 million for the three months ended March 31, 2020, which is included in general and administrative expenses in the Condensed Consolidated Statements of Operations.
As of March 31, 2020 and December 31, 2019, stock awards covering a total of 1,227,057 and 1,559,502 of the Company’s common stock, respectively, are outstanding under the 2016 Plan. The vesting terms range between one to three years from the grant date. The Company is amortizing to stock-based compensation expense included in general and administrative expenses the fair value of non-vested stock awards at the grant date.
As of March 31, 2020 and December 31, 2019, vested options covering 2,194,171 and 2,028,921 of the Company’s common stock, respectively, are outstanding with exercise prices ranging from $4.28 to $5.56 per share.
As of March 31, 2020 and December 31, 2019, unvested options covering 88,000 and 255,875 of the Company's common stock, respectively, are outstanding with exercise prices ranging from $4.28 to $5.56 per share. The options vest and become exercisable in four equal installments beginning on the grant date. All options expire within 5 years from the effective date.
Stock-based compensation expense for all stock awards and options included in General and administrative expenses:
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Three Months Ended
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March 31, 2020
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March 31, 2019
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Stock awards /Stock Option Plans
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$
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836,200
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$
|
1,445,469
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The future compensation to be recognized for all the grants issued including the grants issued on January 2, 2020, for the nine months ended December 31, 2020, and the years ending December 31, 2021 and 2022 will be $2.0 million, $0.9 million and $0.2 million, respectively.
Note 10. Cash, cash equivalents, and Restricted cash
The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the condensed consolidated statements of cash flows:
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March 31, 2020
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|
December 31, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
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|
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Cash and cash equivalents
|
$
|
69,229,926
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|
|
$
|
53,583,898
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|
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$
|
60,715,204
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$
|
67,209,753
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|
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Restricted cash - current
|
2,917,885
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|
|
5,471,470
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|
|
—
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|
|
—
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|
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Restricted cash - noncurrent
|
74,917
|
|
|
74,917
|
|
|
19,283,145
|
|
|
10,953,885
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|
|
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
|
$
|
72,222,728
|
|
|
$
|
59,130,285
|
|
|
$
|
79,998,349
|
|
|
$
|
78,163,638
|
|
Amounts included in restricted cash represent those required to be set aside by the Norwegian Bond Debt, as defined in Note 4 below. The restriction will lapse when the funds are used for purchase of vessels or installation of scrubbers.
Note 11. Subsequent Events
On April 20, 2020, Ultraco, the Company, and certain initial and additional guarantors entered into a second amendment to the New Ultraco Debt Facility (the "Second Amendment") to provide for certain amendments to definitions of consolidated interest coverage ratio and consolidated earnings before interest, taxes and depreciation and amortization ("EBITDA"). The amendment provides that the calculation interest coverage ratio does not include amortization of debt discount, debt issuance costs and non-cash interest income. The definition of EBITDA has been updated to exclude stock based compensation from net loss.
On April 15, 2020, the Company entered into a second interest rate swap agreement to fix the LIBOR interest rate of $38.0 million of its debt under the New Ultraco Debt Facility at 0.58%.
