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Shares of dry bulk shipper Eagle Bulk Shipping (EGLE) are poised to move sharply higher on Thursday following news that the company has reached a deal with a syndicate of its lenders led by Royal Bank of Scotland Plc (RBS). This deal resolves all outstanding issues with the Company's lenders and significantly improves the Company's position amid the cyclical downturn in the dry bulk shipping markets.

Highlights From The Deal

  • $1.129 billion in debt will convert into a term loan with maturity set for December 2015. However, the company has the option to extend the maturity date an additional 18 months to June 2017.
  • EGLE will receive $20 million in a new liquidity facility.
  • Warrants will be issued to the lenders equal to 19.99% of EGLE shares outstanding.

My Opinion

This deal is certainly better than what I, and many others, had expected. EGLE is now in a position to continue operating through 2017. Judging from the high short interest, over 16%, it seems as though a lot of market players had seen bankruptcy as the most likely outcome for EGLE. While the road may eventually lead to bankruptcy, due to weak dry bulk rates, EGLE seems to have bought a lot of time. That being said, I would not rush into EGLE shares on Thursday as this has the potential to be a "buy the rumor sell the news" situation considering EGLE shares had been moving sharply higher ahead of this announcement. As shown by the chart below, EGLE shares have already moved higher by more than 25% over the past five days. This was a classic "buy the rumor" type of move. It would not surprise me to see a "sell the news" type of reaction soon for EGLE. However, I do think investors should now look at EGLE as a long-term call option on the dry bulk shipping market instead of a stock destined for zero.

(click to enlarge)EGLE ChartEGLE data by YCharts

Sector Impact

The news about EGLE should have positive ramifications for the entire shipping sector as many other shippers are facing a similar situation with high debt levels. Perhaps, if EGLE is any indication, other shippers will be able to strike similar deals to improve their financial situation. Names I will be watching following the news include Excel Maritime (EXM), DryShips (DRYS), Genco Shipping (GNK), and Frontline (FRO).

Source: Eagle Bulk Shipping Buys Some Time