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Eagle Bulk Shipping Inc. (NASDAQ:EGLE)

Q4 2007 Earnings Call

February 28, 2007 8:30 am ET

Executives

Sophocles Zoullas - Chairman and CEO

Alan Ginsberg - CFO

Analysts

Brian Luster - Abernathy Group

Natasha Boyden - Cantor Fitzgerald

Urs Dur - Lazard Capital Markets

Scott Burk - Bear Stearns

Omar Nokta - Dahlman Rose

Justin Yagerman - Wachovia

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2007 Eagle Bulk Shipping Incorporated Earnings Call. My name is Katie and I'll be your coordinator for today. At this time all participants will be in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).

I would like to now turn the call over to your host for today, Mr. Sophocles Zoullas, Chairman and Chief Executive Officer. Sir, you may proceed.

Sophocles Zoullas

Thank you and good morning. I'd like to welcome everyone to Eagle Bulk Shipping's fourth quarter and fiscal year 2007 earnings call. 2007 was a very important year for us, as the investments which we made last year start to be realized during 2008. We believe that the vessel acquisitions we concluded during 2007 and our overall financial strength and flexibility positions us to benefit from the growth, stability and market upside that should be realized this year. To supplement our remarks today, I encourage participants to access a slide presentation that is available on our website at www.eagleships.com.

Please note that part in our discussion today will include forward-looking statements. These statements are not guarantees of future performance, and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements, and we refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have direct bearing on our operating results, our performance, and our financial condition.

Please note on Slide 2 the agenda for the call will follow our usual format. After my opening remarks, I will discuss the fourth quarter and 2007 year highlights, and provide an update of our fleet and its positioning within the drybulk market. I will also discuss our strategy to deploy our fleet and deliver growth, stability and upside to our shareholders. Our CFO, Alan Ginsberg, will then discuss the company's financial performance. I will then end the management discussion with some concluding remarks before taking questions.

Please turn to Slide 4. We are very pleased with our fourth quarter and full-year results, which reflect strong quarterly and annualized results for Eagle Bulk. During the quarter, our net income was $16.3 million or $0.35 per share. Our gross timecharter revenues increased 23% during the same respective period to $38 million. EBITDA increased 26% to $27.9 million year-on-year. We declared a dividend yesterday of $0.50 for the quarter. Including this fourth quarter dividend, we have paid a total of $5.10 a share to our shareholders in just 10 quarters. We also continue to demonstrate operational excellence by achieving a fleet utilization rate of 99.3% for the quarter.

For 2007 we generated net income of $52.2 million, up 54% year-on-year. Gross charter revenues also increased 19% to $135.4 million. We also achieved a very high 99.4% fleet utilization rate for full year 2007. EBITDA increased 20% year-on-year to $99.4 million and dividends paid were $82.1 million or $1.98 per share.

Slide 5 lists the important transactions during 2007 that specifically benefit our shareholders through increased earnings and cash flows during 2008. Specifically, increased cash flows will be attributed to one, the rechartering of our on-the-water vessels which come off current charters this year; and two, the first deliveries in our newbuilding program which will start to deliver to us later this summer.

Reviewing our activities during 2007, we acquired and took delivery of three modern Supramax's for $138.7 million. We also expanded our Japanese newbuilding program at IHI Marine United from two to five vessels for a very attractive average contract price of $33.5 million per vessels. We will take delivery of our first IHI ship, which is charter free, later this year. Currently one-year charter rates would allow us to generate revenues of over 50% of the contract price of this ship, and we are currently seeing demand for this ship in the market today.

During the third quarter of 2007, we completed our fleet acquisition of 26 new build Supramax vessels for $1.1 billion. We expect to take delivery of the first vessel during the third quarter this year. We also recently exercised options to build an additional 458,000 deadweight Supramax sister vessels for $169 million. The most important point on this slide is that the $1.5 billion capital investment program during 2007 will triple the fleet to 53 vessels, and will generate significantly higher cash flows for the company starting later this year.

Slide 6 graphically demonstrates the growth of our EBITDA and owned days since 2005, and clearly shows that we are on track to deliver sustainable growth and accretion to our shareholders. The green bars on this graph show the annual EBITDA growth of this company. The red line illustrates the growth in vessel owning days, and the trajectory of our continued growth as 35 new ships will deliver into the company starting this summer.

We believe that we are the only public company -- drybulk company that can today deliver to our shareholders a compounded rate of growth between 20% to 25% in the fleet and 300% in increased owned days through 2012, which will add significant revenue generating capability to Eagle Bulk. Finally and importantly, these state-of-the-art vessels are being built at well established and highly regarded shipyards in Japan and China.

Please turn to the next slide for a discussion of our fleet. Slide 8 illustrates the highly desirable characteristics of our fleet and demonstrates our affective growth strategy which increases our fleet by 35 ships and our cargo carrying capacity by 2 million tons. In fact, during this year and next, we expect to take delivery of 12 new ships. The 53,000 deadweight series, the 56,000 deadweight series, and the 58,000 deadweight series ships will all start to deliver into the fleet and begin generating cash flow for Eagle Bulk.

Slide 9, Eagle Bulk offers shareholders the most profit-sharing charters of any U.S. listed drybulk company, as well as 18 ships open to charter between now and 2009 to take delivery of increased cash flows from higher charter rates as our ships complete their current charter contracts. The green bars on the graph on this slide show the increase in Eagle Bulk's capabilities to capture revenue upside of the market as our charters will reset at current market rates.

We believe that the growth of our fleet in 2008 provides us with chartering flexibility to generate significantly increased cash flows. As part of this new strategy, it is important to point out this morning that we have not chartered any of our ships during the last six months since we announced the 26 ship fleet acquisition. We believe we can take a more active position in the market and use the strength of the current tone in the chartering market to achieve higher cash flows from future charters.

On Slide 10, you can see that we will be increasing our on-the-water fleet in a short time frame from 18 to 30 ships, and then systematically further increasing the size of the fleet, cash flow and our presence in the drybulk market through 2012. We believe this substantial growth has been achieved at a very reasonable price. Our ships were purchased at 40% to 50% of the cost of buying secondhand ships last year. At the time, we felt that secondhand values had risen too high and investments in new buildings offered better value for better assets. We are now in a position to start unlocking the value of our investments, since the first new builds will start to deliver this summer.

The transactions we completed last year allow us to give our shareholders a unique strategic advantage in the drybulk market today. First, as demonstrated on Slide 10, Eagle Bulk has the security of minimum contracted revenues of $1.1 billion which helps secure and support dividends to our shareholders. It is important to note that the $1.1 billion of contracted revenue does not include any profit sharing revenues from any of the 19 profit sharing contracts for the fleet. Any profit sharing on any of the 19 ships will only increase cash flows to our company.

On to the industry; Slide 12, please. Many different key indicators each serve to demonstrate China's continued long-term need for raw materials, which will increase ton mile growth. Chinese capital investments during 2007 were up almost 30% compared to 2006, and construction growth increased almost 40% during the same period. These capital investments will need a continuous supply of raw materials to be transported on drybulk ships. Coal shortages in China, as well as the rest of the world, continue to be acute. After net imports of 20 million tons in 2007, Chinese coal imports are expected to double in 2008 to 40 million tons.

As we first brought to the market's attention in 2006, Chinese coastal trade is a major factor in the drybulk market. During 2007 Chinese coastal trade hit 400 million tons and the Chinese coastal bulk rate index increased 60%. Chinese coastal trade is expected to continue to play a major role in the drybulk market as poor inland transport in China pushes more commodity movements on ships. This market is especially important for Eagle Bulk as a large portion of this trade is done on smaller ships with onboard cargo cranes. Lastly, a new $200 billion Chinese fund is starting to invest in overseas mines which should further increase long-term trade patterns.

Slide 13 -- increasing future Indian trade is expected to benefit the drybulk market and, more specifically, the sub-Panamax craned bulk carrier market. Indian growth is starting to reach critical mass, and is expected to grow at a sustained 8% to 9%. Much of the activity in India is driven by a metal intensive period of their industrial growth as well as energy demand growth. As a result coal imports into India continue to surge and the country plans to sharply expand its power grid.

The increased demand for coal coupled with the worldwide demand for coal means that 29 gigawatts or 45% of the Indian power units are at low or critical inventory levels. Additionally, there are plans to add 64 gigawatts of coal-fired power units between now and 2012. To put this into shipping terms, 1 gigawatt of power requires approximately 2 million tons to 3.5 million tons of coal. Similar coal issues also face China and many other Asian countries that derive the majority of their power requirements from coal over oil. India is also following China's plans to invest abroad to secure critical coal supplies which should further support increased ton mile demand in the future.

It is important to point out that most of the Indian ports cannot handle large drybulk carriers like capesize vessels and require ships like ours that are smaller with onboard cranes to service seaborne transport for India. This is true in most of Eagle Bulk's trades globally as three-quarters of our contracts during 2007 required use of our ship-based cranes that Panamax's and capesize vessels do not have.

Slide 14 is an update from our Q3 presentation and shows the mix of commodities that the Eagle Bulk fleet carried during 2007. Once again, much of the message remains the same as prior quarters. Eagle Bulk continues to benefit from the growth in the iron ore, coal and grain trades which are mistakenly thought to be Panamax and capesize trades, as 45% of our cargoes carried last year were in these markets. However, we also benefit from the sub-Panamax protected minor bulk market which represents approximately 1 billion tons of cargo transported annually or one-third of all drybulk shipments each year.

This slide proves the benefits of the Supramax asset class, which is the only ship type that can carry the full-spectrum of drybulk commodities. This allows us to switch from one commodity trade to another, depending on changes in demand. We are focused on the Supramax market because of the flexibility of this ship type to carry any cargo and specifically enter the markets that the larger ships cannot service.

We believe our industry relationships and the cargos we carry provide us with unique visibility into the drybulk market and its demand drivers. This visibility allows us to grow the company and allowed us last year to purchase ships at reasonable prices in anticipation of a current strong drybulk market. We are now prime beneficiaries of our earlier purchases in today's strong market.

Slide 15, please. Turning to supply we have updated drybulk supply statistics through 2013. The results show a picture that is consistent with the increase in capesize ordering that has occurred during the last 12 months and highlights the benefits of the Supramax market. Currently the capesize order book represents 51% of all drybulk orders, with 22% for Panamax's, 21% for Supramax's and 6% for 0Handy size.

The graph on the lower left of this slide illustrates the balance of new ships coming into the market during the next six years and the number of ships that are over 20 years old. The results show the Panamax and Handymax markets are at similar ratios of ships coming into the market and ships most likely to leave the market during the next six years. We continue to believe that much of the new capacity for the Handymax market will be replacement ships for older ships that have reached the end of their useful life and not necessarily representing new capacity for the market.

Since our last presentation, the most noticeable changes in the capesize order book, which has increased from 73% to 87% and has a relatively young fleet with only 19% over 20 years old. In our market the fact that one out of every three Handymax's currently trading is over 20 years old, gives us a high degree of confidence that there will be meaningful demolition in our market over the next six years when new supply will be delivered, thereby keeping supply and demand well balanced. These factors are some of the reasons why we believe the Handymax market has the best long-term outlook within the various asset classes in the drybulk market.

One last important factor concerning supply that we discussed last quarter is the concept of slippage. This term refers to shipyards, usually greenfield yards that have not been in operation yet, but are taking orders for ships. We are hearing current statistics that missed or canceled deliveries in 2009 and 2010 may reach 10% to 30% of the current orderbook, as sourcing machineries for the ships such as main engines, crankshafts, generators, hatch covers and the like become problematic and takes possible new supply out of the market.

To highlight this point, during 2007, 8 million deadweight tons of vessels that were scheduled to deliver last year did not deliver. This trend is expected to increase in the next three years. I would now like to pass the call to our CFO, Alan Ginsberg, who will now provide a financial review of the company.

Alan Ginsberg

Thank you, Soph. Slide 17. A brief recap on our quarterly and full-year results of operations. Eagle had another in line quarter, there were no surprises here. Net revenues for the quarter were $35.6 million, just under $125 million for 2007. Fleet utilization was 99.3% for the quarter and a sterling 99.4% for the year. Operating income was $17.4 million for the quarter and $60.3 million for the year.

Finally net income adjusted for non-cash compensation expense was $17.1 million or $0.36 per share for the quarter, $56.5 million or $1.34 per share for the year. As Soph mentioned earlier in the presentation, as the fleet grows so will revenues and net income.

Slide 18. On to our expected costs for 2008. We are estimating our daily cash breakeven cost, $7,996 per vessel per day for 2008. Our cost structure is broken down as follows -- $4,414 in vessels expenses. We continue to see the cost of crewing ships increase globally; we're also seeing higher for cost oil-based supplies including lubes and paints. Finally, we're also seeing insurance costs increase.

Next, we expect to pay our technical managers, V. Ships and Barbers annual management fees of approximately $108,000 per vessels per year; this estimates to $296 per vessel per day. We estimate our general and administrative expenses for 2007 at $1,400 per vessel per day.

Continuing on to debt service, our estimated interest expense net of estimated interest income for 2008 is $1,338 per vessel per day. Please note that we've swapped the $238.7 million of bank debt against our on-the-water fleet at a weighted average interest rate of 5.6% inclusive of our margin. These swaps begin to mature beginning in the third quarter of 2009. Finally, we estimate our drydock costs at 500,000 once every 30 months, which equates to $548 per vessel per day.

Slide 19, I just want to offer a few comments on our year-end balance sheet. Once again I want to remind everyone on the call that during vessel construction interest expense, amortization of deferred financing costs, as well as supervision costs are capitalized until the vessel is delivered. As I mentioned earlier, $238.7 million of our debt is against our on-the-water fleet, and the balance of $358.5 million is against the newbuilding program.

As each vessel delivers, we will disclose the delivered cost of the vessel. Our book capitalization stands at just over $1 billion today, or at 12-31, and our net debt to cap stands at approximately 41%. Our current liquidity position is just over $1.1 billion. With that I'll turn it back to Soph who will complete the presentation.

Sophocles Zoullas

In conclusion, on Slide 21, we believe 2008 is an important pivotal year where investments made during 2007 will start to be realized this year. Eagle Bulk has consistently stayed true to its strategy and promise to investors since the IPO in 2005. That promise was to -- one, operate a modern fleet in the drybulk market; two, manage the company in a transparent, shareholder-friendly and responsible manner; three, look to deliver continuous value-creation through well timed and well priced transactions; and four, continue to pay healthy dividends to our shareholders.

To this regard Eagle Bulk continues to deliver on its successful growth strategy that delivers secure and stable revenues and upside to our shareholders. Specifically our 2008 strategy is focused on -- one; increasing cash flows by opportunistically rechartering our on-the-water fleet as the ships roll off current contracts and our newbuilds start to take delivery into the fleet later this year. Two, maintain good cash flow visibility for our shareholders that also supports a healthy, minimum dividend which is generated $5.10 per share in just 10 quarters, and gives us the flexibility to increase over time. And lastly use our significantly increasing cash flow to also pay down our debt and maintain strong balance sheet flexibility for future acquisitions.

Starting this summer Eagle Bulk will realize the value of our well-timed investments last year, as the first of our 35 ships will deliver to us and start to generate cash flow for the company. This new growth we believe will generate tangible results for our shareholders, and give us one of the largest and most modern drybulk fleets in the world today.

Our commercial, strategic and operating leverage is further enhanced with 45 sister vessels in the fleet. The new ships will add approximately 14,000 additional days per year to generate more revenues during the same period. Lastly and most importantly, Eagle Bulk is well-positioned to take advantage of the healthy drybulk market fundamentals, not only with the increased revenues through the growth in owned days, but also the 18 open vessels and 19 profit-sharing charters than can increase revenues per ship as well.

In conclusion, we believe Eagle Bulk is on the cusp of unlocking the value of our investments and is in a leading position to capitalize on the demand requirements of all drybulk commodities in all regions around the world, especially in the high-growth commodities and regions that larger ships cannot trade to. Thank you very much for your time this morning, and I would now like to turn the call over to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Brian Luster.

Brian Luster - Abernathy Group

Good morning Sophocles, how are you?

Sophocles Zoullas

Well. Thanks Brian.

Brian Luster - Abernathy Group

Just a quick one this morning. The options that you all have that are coming due in March.

Sophocles Zoullas

Yes?

Brian Luster - Abernathy Group

Do they appear as an asset on your balance sheet anywhere?

Alan Ginsberg

No.

Sophocles Zoullas

No, they don't.

Brian Luster - Abernathy Group

How can we think about the value of them? I'm just looking at the value on your last exercise options and there's a pretty decent spread between what you all would have been paying to purchase the vessels versus the current market value of the vessels.

Sophocles Zoullas

Correct, I agree with you.

Brian Luster - Abernathy Group

Any idea what the spread is on these?

Sophocles Zoullas

I would say we still have a while till we have to make that decision. I think the best way for you to think about that is, in the last two weeks all of a sudden there's been a huge surge in demand, not only for drybulk ships to charter, but we anticipate there will be a pickup in demand also for secondhand and newbuild positions because of the repricing of iron ore contracts between 65% and 71%.

So I think right now you should think that what we're doing is we're taking a look at the market before we have to exercise the options and seeing what the recent news from the iron ore mining companies, what that impetus will do to the value of our options. But to answer your specific question, we do not carry it as an asset, even though the options that we did exercise about two months ago are showing to be very well timed purchases.

Brian Luster - Abernathy Group

Do you have any idea what the approximate average exercised price is on these remaining options?

Sophocles Zoullas

$42.3 million, that's our strike price.

Brian Luster - Abernathy Group

Excellent, thank you.

Operator

Your next question comes from the line of Natasha Boyden, Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

Thank you. Good morning, gentlemen.

Sophocles Zoullas

Good morning Natasha.

Natasha Boyden - Cantor Fitzgerald

Soph, I just want to sort of dig into something. There was a line in the press release about a big acceleration delivery calendar for your 35 ships. I just want to clarify in the presentation, is this the actual delivery schedule that is going to happen?

Sophocles Zoullas

Yes, it is actually. As you can see, it goes from, I think, three ships to nine ships and then sort of accelerates from this year forward.

Natasha Boyden - Cantor Fitzgerald

Okay, so this is the schedule. As these ships come in and your cash flows grow, what are your thoughts regarding any potential dividend increases? Have you given any thought to that?

Sophocles Zoullas

No, we definitely have. In fact, I think we're so confident about the very visible cash flow accretion to the company as these ships start to deliver and, by the way, as our on-the-water fleet comes off-contract and recharters into the current market. We publicly said last year that we intend to grow the dividend over time.

A lot of investors are asking, when do we intend to do that? I think the short answer is wait and see. We're actually holding back our ships because we see there's a lot of demand. Where we charter the ships, the duration of the contracts, the cash flow that we generate from the newbuilds and from the on the water fleet will ultimately determine when that dividend increase will be and how much.

Natasha Boyden - Cantor Fitzgerald

Okay, great. I'm wondering if there's something else you can help me with. We're getting a lot of conflicting reports from various sources about the liquidity of the timecharter market right now, particularly on the three-, four- and five-year timecharter contracts. I wonder if you can maybe give us your thoughts on that.

Sophocles Zoullas

Our view -- I can just tell you, I can't give you the name, but earlier this week we got a bid on that three-year charter, now at a rate that we didn't find high enough for us. But what we're seeing for the Supramax market -- I can't speak about other sectors, but the Supramax market for our ships, our fleet, on-the-water and even new builds, we're getting bids and indications for I would say charters from two to five years for our on-the-water fleet this year, but even for new builds starting to deliver in 2010.

We had one charter that was actually interested in doing a three to five year charter on our 2010 deliveries recently. So we have seen an increase in liquidity in the charter market, the long-term charter market both for 2008 and beyond.

Natasha Boyden - Cantor Fitzgerald

Okay. So you're feeling pretty confident about that?

Sophocles Zoullas

Yes.

Natasha Boyden - Cantor Fitzgerald

Okay. And then in terms of your ships that are coming off charter for 2008 or I suppose this year now. Are you considering trading those ships on shorter term charters to take advantage of some of the current strength in the market or would you really go and sort of lock those up right away to, again, take advantage of the strength?

Sophocles Zoullas

I think one of the benefits, and this is really how we view it at Eagle. One of the tremendous benefits of last year is with a greatly expanded fleet we can really take a more, I would say, portfolio approach to chartering and look to take a portion of our fleet and be more aggressive and more active in the charter market. And I think investors can already see it by the fact that we haven't chartered any of our ships in effectively six months.

I don't want to let the cat out of the bag too much in terms of what our chartering strategy is for shipping people on the call today. But we definitely feel that we have the fleet capability to capitalize on the market a little more than previously.

Natasha Boyden - Cantor Fitzgerald

So I guess the overall message I'm getting from you is that you're still extremely confident in terms of, A, the short-term market and, B, the liquidity of the long-term market even out for '10 and beyond?

Sophocles Zoullas

I can say the market goes through its seasonal movements, we saw it in January, but our message has been unwavering. The seasonality happens, it's a fact in the market, people who know the market well come to expect it. But the big macro picture is healthy and we feel good about it.

Natasha Boyden - Cantor Fitzgerald

Okay, great. Thank you very much Soph.

Sophocles Zoullas

Thank you.

Operator

Your next question comes from the line of Urs Dur, Lazard Capital Markets. Please proceed

Urs Dur - Lazard Capital Markets

Hi guys. Congratulations on a very nice quarter and, believe it or not, I'm stuck. Natasha took my questions so congrats. No more questions from me.

Sophocles Zoullas

Thank you Urs.

Operator

The next question comes for the line of Scott Burk, Bear Stearns.

Scott Burk - Bear Stearns

Hi, Good morning Soph (inaudible).

Sophocles Zoullas

Good morning Scott.

Scott Burk - Bear Stearns

Just wanted to ask you -- you guys are going to have a pretty full plate with the newbuilding schedule out. We have seen the vessel prices on the secondhand markets come in a little bit. What's your view on secondhand acquisitions at this point, given some weakness in the asset prices?

Sophocles Zoullas

As I said earlier, we liked the secondhand market up until about the spring of 2007 and early spring we bought three modern Supramax's for about $45 million each. And then when we saw the value of the ships we had just bought within six months effectively go to $75 million each, we decided to step back from the secondhand market.

I would say the secondhand prices have come off a bit from their October, November highs, and it's something we'd obviously be very keen to continue in, but it's still not at the point where we're thinking it will build accretive value to us. But we're following it very closely because we're seeing prices just coming off the peak at the same time that charter rates are increasing, so it's a trend line we like.

Scott Burk - Bear Stearns

Okay. And in terms of financial flexibility, would you actually be able to do a deal like that, a multi-shift deal given your new building commitments?

Sophocles Zoullas

As you know, we have -- and you hit the nail on the head -- we have probably the greatest liquidity of any drybulk company today. We have $1.150 billion of liquidity. But a lot of that -- as you've come to know us; we're financially responsible and very protective of our balance sheet. So the short answer is, yes, the structure of our facility allows us to do deals like that, but we're going to keep the leverage low because it's been a very important part of our strategy to keep a strong balance sheet.

Scott Burk - Bear Stearns

And then one more question, kind of more on the industry side. You had some of the coal mines in Australia shut in, that was one of the things that maybe perhaps contributed to the January weakness. But what specifically is the impact that you observed on the industry of those coal mines shutting in and then specifically on Eagle if there is any impact?

Sophocles Zoullas

I think you are talking specifically about January, right?

Scott Burk - Bear Stearns

Yes, the Queensland line the [range] shutting in.

Sophocles Zoullas

Basically there are a couple things that had happen. You had those horrible floods and it's a combination of natural disaster with scheduling problems, with maintenance -- a whole bunch of factors that contributed to a come off in rates in January in addition to the seasonality of the market.

What's happened from what we're hearing is it was a short-term, very short-term negative as we saw last month, but we believe it's a positive sort of medium-term event because all those cargoes are going to get pushed back later in the year. So what you could get is a surge of the cargos that were supposed to be shipped earlier in the very beginning of 2008 actually hitting the water later in 2008 which will benefit drybulk ship-owners.

Scott Burk - Bear Stearns

Okay. And kind of a related thing, have you guys carried any cargos -- the Chinese coastal trade just with the coal movements around China?

Scott Burk - Bear Stearns

I'll tell you, the significance on the Chinese coastal trade is the following. And callers today may have heard that with the shortage, the energy requirements in China, a lot of Chinese national carriers like Cosco actually redirected their ships from the international market to the coastal trade. For example, Cosco I think redirected 1.5 million tons of their fleet -- deadweight tons of their fleet to the coastal trade thereby taking it off the market, depleting supply for the global market where we compete.

We can and have traded in the Chinese coastal trade, you need a special dispensation. Where we have been much, much more active actually, has been in the Indian coastal trade which we see growing considerably. In other words, trades from east to west, because the Indian inland transportation some would regard even more deteriorated than the Chinese system. So I would say, even though I didn't highlight it earlier, the coastal trade equation that we highlighted for China is as applicable in India and it's easier in India for a foreign Handymax owner to trade coastally.

Scott Burk - Bear Stearns

Interesting. Okay, thanks.

Operator

Your next question comes from the line of Omar Nokta, Dahlman Rose.

Omar Nokta - Dahlman Rose

Thank you. Good morning, guys.

Sophocles Zoullas

Hi Omar?

Omar Nokta - Dahlman Rose

Hi. I just wanted to get a sense on how you see your vessels on order coming along because there's a lot of talk obviously on newbuild delays and so forth. I just wanted to see what's the sense that you get from your shipyard on your ships on order?

Sophocles Zoullas

Well, the short answer is we're right on schedule, but I think on the more general macro comment you made, and this is something I've basically been saying for a long, long time -- all shipyards are not the same. A ship owner wants to make sure they're always aligned with the top shipyards. Whatever country you're building at you want to make sure you're with the top shipyard that's been in existence for a long time and, very importantly, also has experience building the ships that you're ordering.

And what's happened in the market in the last 18 months is shipyards that don't have experience ordering ships that they're taking contracts are taking contracts, they're having trouble sourcing the equipment, maybe they're having trouble financing the growth or buildout of these shipyards, and these delays are very real. The number we gave of 10% to 30% slippage anticipated in 2009 and 2010 we got from some trading partners about two weeks ago. So that's pretty fresh data for callers today.

Omar Nokta - Dahlman Rose

Interesting. And so with your yards you feel that they've got the cash flows and they're pretty well financed and everything?

Sophocles Zoullas

Specifically IHI in Japan has been around I think for 147 years, they weren't born yesterday. And the Sino-Pacific Shipbuilding Group is one of the top Chinese Handymax, or more specifically, Supramax builders in China. They're approximately 50% owned by the Bobang Group, which is a huge well-known French company, and have a very well demonstrated track record of building the kind of ships in the market that they're building for Eagle.

Omar Nokta - Dahlman Rose

Okay, perfect. Thanks a lot.

Sophocles Zoullas

Thank you.

Operator

Your next question comes from the line of Justine Yagerman from Wachovia. Please proceed

Justin Yagerman - Wachovia

Hey good morning Soph and Alan. How are you?

Sophocles Zoullas

Well Justin, thanks.

Justin Yagerman - Wachovia

Asked a different way, you've spoken a little bit about the options that you have, but why wouldn't you exercise the five options? They have been at $42 million, they're in the money. I mean outside of selling them to raise some cash paying for in the rest of your new build program is there anything that would stop you from doing it?

Sophocles Zoullas

I think -- listen, at this point we didn't pay for these options, they're not costing us anything. We could exercise them, we could sell them. At this point we're keeping all our options open. Specifically it's what I highlighted earlier in the call with the first question was that the news on the iron ore repricing is so fresh, we're seeing such an increase in demand in chartering activity as charters are starting to digest the implications of this.

And as you know, usually what happens is secondhand values follow cash flow, i.e. charter activity, and the new build values follow secondhand values. There's a bit of a lag effect, but we're waiting to see where the values, sort of by the time we have to declare the options, reach and then we'll ultimately decide -- exercise, sell or do something else.

Justin Yagerman - Wachovia

Got it. Do you have any comps for those ships right now? What are those new orders being placed at at the moment?

Sophocles Zoullas

You're talking about the ones that we just exercised or --?

Justin Yagerman - Wachovia

No, I mean if you have a current value so we get an idea of exactly how in the money those options are?

Sophocles Zoullas

The ones we have not exercised, what I can say is, again, as everyone knows, January was an unusual month, partly expected, partly affected by iron ore repricing and flooding and putting back of cargo commodities. I think because of that the newbuild ordering dried up and there hasn't been a good comp trade in the market in the last two or three weeks, Justin, so I could tell you this ship or that ship was just done so use that as a comp. I think you'll start to see comps as newbuild ordering starts to show some activity in the next I would say four to six weeks, but there's no good comp I could give you today.

Justin Yagerman - Wachovia

Okay, fair enough. On the financing environment, just curious your take on things, you obviously secured a lot of capital in '07. But I'm sure you're in constant talks with your banks. I wanted to get a sense from you guys how you feel the credit markets are for shipping companies, and you can only speak probably to yourselves, but maybe the rest of the industry as well. And then, Alan, just wanted to get a reminder of how much of your current debt is swapped out or fixed and at what cost?

Sophocles Zoullas

I'll start and then I'll pass it over to Alan. Justin, I can speak generally on what I'm hearing in the market and my impressions are that you're seeing a bifurcated credit or financing market for ship-owners. And what I mean by that is well-established ship-owners with good track records that have delivered on their strategic initiatives are able to continue to finance deals. Maybe the money isn't as easy to come by as before, but there's definitely liquidity in the system for good ship-owners.

I think new players coming into the drybulk market are going to have a hard time. I think if you don't have a track record, if you don't have a name in the market and you're looking for money, I think banks would rather finance well-established shipping companies. And I think the new untested players are going to have a hard time.

Alan Ginsberg

The specific answer to your question is we're 98% swapped as of today. The low-end margin is approximately 5.6 and the swap durations, some mature in '09 through 2013 as always with Eagle on a portfolio basis.

Justin Yagerman - Wachovia

That's very helpful. Thanks, Alan. Soph, you spoke a little about this, but I'd be interested to hear how cargo flows have shifted post-Chinese New Year and now that we've got some settlement on the iron ore negotiations. Are you seeing an increased cargo flow going on or is there still impediments to cargoes flowing in the marketplace and what are you hearing? I guess you guys don't play as much in the spot market, but very curious to hear what you are picking up from that market and how you think things are going to shape up here in the first half of '08?

Sophocles Zoullas

I think the best way, Justin, to think about it is its still early days. In other words, the news I think is so positive for the drybulk market and I believe we were in the first company to mention it back in September last year. We were hearing at the time from our Chinese contacts that iron ore was going to reprice as early as August-September, we were hearing between 25% up to 70%.

Now I took a more conservative view in what I wanted to communicate to the market. I said at the time that I thought a 25% to 35% increase in iron ore would be a very positive thing for the drybulk market. Now, of course, the results have actually been significantly better than that. I think it's caught some people by surprise and people are still trying to digest the impact, digest what it means on what drybulk carriers will cost to end users and to charters in the coming months as they have their cargo books.

So we've seen some people already protectively come into the spot -- more the period market to take positions to just take ships before they anticipate prices go up even further. And then you have some people that will probably, I would say in the next two to three months, start to come into the market. I think the markets improved in the last two weeks, but I think the best is yet to some sort of later this year.

Justin Yagerman - Wachovia

You're not afraid of anything a la 2006 when we saw a large price increase in iron ore and you saw cargoes pretty much diminish following that?

Sophocles Zoullas

No, we haven't seen that and, in fact, I think consistent with our view, we're holding our ships back, because we believe as these ships get closer to their deliveries they'll be worth more money.

Justin Yagerman - Wachovia

Got it. Are you hearing any planning around the Olympics in terms of cargos? We've heard different things about pollution issues causing shutdowns in China around the Olympics. Is there any talk about that in the spot market?

Sophocles Zoullas

There is some talk that around the city of Beijing, that around the period of the Olympics they will either slow down or shut down pollution creating activity around that one city. But that's one city out of a very large country. So the impact it will have on the drybulk market might be more perception than reality, but it's a very local event on a very short time frame, sort of two to four weeks. So I don't think it will have a meaningful impact specifically to drybulk rates.

Justin Yagerman - Wachovia

Got it. Conceptually -- sorry to have so many questions here -- but conceptually when I look at your fleet you guys are really moving to a homogenized Supramax fleet, very high-caliber, high-quality, high spec vessels. You still have some older Handymax in your fleet and they look to be, at least in this market, probably good sources of capital for you guys to fund this big expansion that you are doing over the next several years.

Is that something that you think about? Do you at some point get rid of the older Handymax's in the 40,000 ton range? Or are those somehow good for your business because there are certain charters who really like that smaller ship?

Sophocles Zoullas

You know, it's interesting, and we kind of talk about this at Eagle. Our oldest ships to the majority of the ship-owners around the world would be considered very, very modern ships. So they are still -- they have a decade or decades of remaining useful life, potentially 15-20 years of remaining useful life. So these are very well-maintained, high spec ships that have a lot of cash flow generating capability going forward.

I mean, I think ultimately in the coming years we're going to evolve to a pure Supramax company. So I think you identified what the long-term objective is, and it is part of our long-term strategic intention. And other than that we're just going to opportunistically look at when is the best time to release those units. But in today's market they're generating good cash.

Justin Yagerman - Wachovia

Absolutely. Two more and then I'll turn it over to someone else. Supervision between a Chinese and a Japanese yard, do you guys have any guidance -- obviously a little politically sticky to talk about -- but do you guys have any color on that? Just curious from an intellectual standpoint.

Sophocles Zoullas

I would say -- I mean, I've got to be careful here. Let me answer the question this way. We have -- the supervision is proportional to the number of ships we're building in each respective place. So for example, we're building more ships in China, less ships in Japan. So we have more supervision in China. But I think your question is probably more of a general question. As a ship owner the most important thing a ship owner has to do is build at a high-quality shipyard. And we feel that we've achieved that objective both in China and in Japan.

Justin Yagerman - Wachovia

Fair enough, I'll leave it at that on that one. Last question -- on the first dollar indemnity insurance as your cash flows and revenues move north, is that something that you are going to expand with your fleet? Or is that something that you're going to leave at around $1 billion in coverage and call that sufficient?

Sophocles Zoullas

I think, listen, this year is a pivotal year for Eagle. As the ships come in the charter's insurance that we have on our -- or revenue insurance is an organic part of our strategy here and we're going to look at it and continue to evaluate it as the fleet grows.

Justin Yagerman - Wachovia

Got it. All right, thanks for your time. I'll follow-up with you off-line on a few other things.

Sophocles Zoullas

Okay.

Operator

At this time I'm showing you have no further questions. I would like to now turn the call back over to Mr. Sophocles Zoullas.

Sophocles Zoullas

Thank you very much. I would just like to end the call by, again, thanking everyone again for joining us for the fourth quarter and full-year 2007 earnings call. And we look forward to keeping you updated of new developments during this year. Thank you very much, everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's call. You may now disconnect.

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