Friday, May 17, 2013

Eagle Bulk Shipping: Enjoy The Good News For Now But Tread Very Carefully

Eagle Bulk Shipping (EGLE), a dry-cargo shipping company that owns 45 supramax vessels with an average age of 6.0 years as of March 31st, 2013, reported earnings for the first quarter on May 15th, that caught many investors by surprise, managing to snap an eight-quarter losing streak. For the first quarter of 2013, EGLE generated net income of $1.4 million or $0.08 per share. The stock yesterday bounced with gusto rising intra-day almost 67% to $5.93 per share, amid very heavy trading. 

What prompted this explosive reaction were more details about the company’s settlement with troubled charterer Korea Line Corporation (KLC). Under the latest terms of the settlement, EGLE received a combination of cash, long-term note receivable, shares in KLC, and a release from a $3.5 million accrued bunker liability. Based on my analysis, the total cash value of the settlement with KLC is approximately $40.2 million or $2.32 per share.

However, the company’s long-term debt has continued to climb with the $7.1 million addition of payment-in-kind interest during the first quarter. As of March 31st, 2013 total debt outstanding stood at $1,152 million. The current fair market value of the company’s fleet is not sufficient to pay-off the debt outstanding. Based on regulatory filings with the SEC, the company’s fleet as of December 31st, 2012 was valued at only $882 million, i.e. a shortfall of approximately $368 million.

There is no denying that Sophocles Zoullas-led Eagle Bulk Shipping had a very good day yesterday, squeezing $40 million in value from troubled Korea Line Corporation. But EGLE does not have any more tricks like this to dig itself from under its $368 million debt shortfall. Investors that were lucky enough to realize over-sized short-term gains may want to tread very carefully and seriously consider caching-in their chips.

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