Q3 2023 Eagle Bulk Shipping Inc Earnings Call
Yes.
Good day and thank you for standby welcome to the Eagle bulk shipping third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Gary Vogel Chief Executive Officer. Please go ahead.
Thank you and good morning, I'd like to welcome everyone to Eagle Bulks third quarter 2023 earnings call to supplement our remarks today I would encourage participants to access a slide presentation that is available on our website at Eagle ships Dot com.
Please note that part of 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.
Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results our performance and our financial condition.
Our discussion today also includes certain non-GAAP financial measures, including T. C G.
TCE revenues adjusted net income EBITDA and adjusted EBITDA.
Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Please turn to slide six.
The industry experienced a challenging market during Q3 would.
Would the BSI, averaging just over 10000 for the period, the weakest third quarter in three years.
Financial results for the quarter are reflective of the underlying freight environment that impacted our results as we generated a net loss of $5 $1 million or 55 per share.
We continue to execute on our strategy to monetize noncore older vessels, specifically, we closed on the sale of the sanctity Eagle are mid aged non scrubber fitted Super Max This was the third in the last vessel in the embark transaction, we previously disclosed our.
Our sale of the three shifts generated a total of $35 million in profit for us employing a levered IRR of 70% based on just the two year investment period.
Please turn to slide seven.
For Q3, we achieved a net TCE of $11482, representing an outperformance versus the benchmark BSI of $1441 per ship per day or roughly 14%.
Freight rates during the months of July and August remained depressed with the BSI, averaging just 8500.
This weakness was driven by lower fleet utilization as a result of the continued low levels of vessel congestion globally.
The BSI bottomed at 70 545 on August seven since experienced a strong rally with the index, reaching close to 15000 by the end of September.
The Atlantic Basin was the main driver of this recovery in rates as we saw robust exports of soybeans and corn out of Brazil, following a record crop being harvested this season.
As we look to Q4 spot rates have come off from their highs, but remains supported with the BSI, averaging approximately 13700 for the month of October.
As of today, we fixed approximately 68% of our owned available days for the fourth quarter had a net TCE of $15655 with that I'd like to turn the call over to Kosta, who will discuss our financial results for the periods Kosta.
Thank you Eric Please turn to slide nine.
I've mentioned earlier on the call weak market fundamentals during the third quarter and particularly during the months of July and August impacted our financial results for the period with net topline performance or TCE revenues totaling $54 million.
This equates to an acute TCE of 11000 or 82 or about 5% above the level, we indicated perhaps fixtures to date on our last earnings call.
Although freight rates improved significantly during September this was not really reflected in our results for Q3 due to the inherent lag when fixed wing business.
But as I indicated earlier, we expect to see a meaningful increase to our TC in Q4 based on the business we have thus far.
Vessel operating expenses improved approximately 7% quarter on quarter to total $29 million or <unk> $59 94 per day in line with our outlook.
Opex improved primarily due to the decrease in repairs and discretionary upgrades.
Normalization crew costs post the completion of our crew management transition project and also benefited from the fact that we did not take delivery of any newly acquired vessels during the quarter.
General and administrative expenses decreased 5% quarter on quarter and totaled $10 7 million in line with our outlook.
Cash G&A costs came in at just under $9 million.
Other operating expense items, which had a net positive impact for the quarter included a $4 9 million gain relating to the sale of the think the evoke offset partially by $700000 cost relating to legal.
Net interest expense inclusive of cash interest expense cash interest income and non cash deferred financial fees came in at $6 2 million for the quarter, which was modestly better than what we had previously guided that.
Our interest expense increased as compared to the prior quarter as a result of the upside in subsequent drawdown on our credit facility in June.
The unrealized net P&L on derivatives for Q3 was negative $2 million.
Was primarily attributed to our outstanding FSA positions as of September 30.
Okay.
After stripping out the noncash mark to market effects from derivatives generated adjusted net loss for the quarter up $2 9 million or 31 cents per share basic and diluted.
Please note that convertible bond was deemed to be anti dilutive this quarter from an EPS perspective.
Such shares underlying the security were not included in the download.
And share count.
Adjusted EBITDA amounted to $15 6 billion.
Please turn to slide 10.
We ended the quarter with a total cash position of $116 million down $2 million as compared to June 30.
We generated $3 8 million from operations.
We produced $14 5 million from investing activities, which was primarily comprised of the proceeds from the sale of the sanctity Eagle and we used $20 million financing comprised of the following.
A $12 5 million payment relating to the quarterly amortization on our term loan a.
$5 8 million payment relating to our Q2 dividend distribution.
And $1 8 million in payments, primarily relating to advisory fees for the share repurchase transaction concluded in June.
Please turn to slide 11.
Our liquidity position as of September 30 totaled $171 million and closer up $55 million and Undrawn RC up availability.
Total debt outstanding as of quarter end was $504 5 million comprised of the following.
$104 million on the convertible bond based amount to.
$275 million on the term loan and $125 million on the RCI.
The third quarter, we entered into interest rate swaps and $75 million notional relating to the new Upsized term loan amount and as of September 30, 75% of our total debt is now fixed and immune from movements in underlying interest rates.
Inclusive of swaps that we Havent base the all in weighted average interest rate on our total debt position is approximately five 2% today.
For more information on our debt facilities. Please reference the debt term summary, slide in the appendix.
Please turn to slide 12.
As we look ahead into Q4, we are providing you with the following information on outlook.
Available days is projected to be 4560, after taking into consideration estimates for both scheduled and unscheduled off hire.
As I indicated earlier as of today, we have fixed approximately 68%.
Our owned available days at a TCE of 15655.
Please note. This figure is inclusive of our pro rata estimate for realized gains and losses for the period on a mark to market basis.
On the expense side, we are projecting the following on a per owned days basis.
Vessel operating expenses are expected to remain flat in a range between 50 960 to 100.
Noncash depreciation and amortization expense is projected to come in between 3200 3400.
G&A cash expenses are forecast to come in between 1700 and 1900.
As a reminder, this figure is based on our own fleet only and does not take into account our vessel operating days for the chartered in fleet.
Noncash stock based compensation is estimated to come in between 304 hundred.
Net interest expense is expected to commence between <unk> hundred 6800.
As of September 30, we had $9 3 million basic shares outstanding and $12 8 million diluted shares outstanding after taking into account the shares underlying the convertible bond and Unvested equity awards.
This concludes my remarks, I will now turn the call back to Gary who will discuss industry fundamentals.
Thank you Kosta, please turn to slide 14.
As mentioned earlier freight rates have posted meaningful recovery since early August.
The Atlantic market is holding up well, thanks to strong grain exports out of both Brazil, and now being supported by grain exports from the U S Gulf as well.
It's also benefiting due to a shortage of available tonnage in the region.
Drought in Central America has led to low water levels in Panama and forced the canal authorities to put in place restrictions to the number of vessels transiting through the canal leading to a rise in vessel delays under normal conditions, approximately 32 vessels can transit the canal each way every day recently that number has been reduced.
Around 25, and just this week the Canal authority said the number we would be reduced further down to just 18 vessels per day by February.
This reduction will continue to add to delays and also increased ton miles for vessels that are forced to use alternate routes.
Rates in the Pacific Basin, which have benefited from elevated Chinese coal imports in recent months appear to have reached a seasonal peak in mid October kind of traded off.
It's worth mentioning that the Israel Hamas conflict is not materially impacted the drybulk market as the eastern Mediterranean is not a significant import or export region. However, the elevated risk from a macro perspective is real and could have meaningful consequences for global growth should the conflict widen.
Please turn to slide 15.
Our scrubber position remains unchanged with 50 of our ships or 96% of our fleet being fitted with exhaust gas cleaning systems.
Fuel prices generally rose during the third quarter with <unk> rising by 18% on increased demand from the middle East for use in power generation.
Tighter hff's supply as EU continued to be impacted by the ban on Russian crude and refined products.
SFO, which tends to be highly correlated with crude oil rose by 9%.
As a result, your spreads between <unk> and <unk> averaged roughly $86 per ton for the third quarter.
Notwithstanding a contraction in fuel spreads during the quarter, we've seen a meaningful widening in recent weeks due to relative drop of HFF prices stemming from increased supply of HSA is more Russian crude is going into Asian markets from West African crude production has increased as well relative to earlier this year.
<unk>.
From these regions generally results in more <unk> production than from other regions.
The current fuel spread for the fourth quarter now stands at around $150 per ton and based on the 2024 forward curve of $115 per ton, we estimate our scrubbers will generate approximately $30 million of incremental earnings on an annualized basis. This.
This translates to an incremental see benefit of approximately $650 per day, representing a meaningful contribution in the current freight environment. Please.
Please turn to slide 16.
Mimicking the trend in freight rates asset prices bottomed in August and Ah since traded up by approximately 10%.
Buying interest remains focused on a more modern tonnage and still seems to be dominated by European based ship owners, who tend to have more of an asset trade our approach to investing.
Asian buyers, which have generally been out of the market for most of the year appear to be showing interest again, and we view this as a positive signals the market sentiment and general direction.
For Eagle, we continue to monitor the market and evaluate opportunities that can further optimize our fleet and enhance our competitive position.
Since 2016, we've executed a total of 58 sale on purchase transactions, turning over 52% of our fleet and generating incremental value for the enterprise and our shareholders.
Please turn to slide 17.
Net fleet supply growth slowed in Q3.
A total of 113 Drybulk Newbuild vessels were delivered during the period as compared with 132 in the prior quarter.
Building deliveries in Q3 were partially offset by 37 vessels, which were removed from the market and scrapped notably for Eagle 12, midsized geared vessels were scrapped during the quarter, while still low. This represents a very significant increase and compares to just nine mid size vessels scrapped during all of 2020.
Two out of a fleet of approximately 4100 vessels.
As we've mentioned previously despite high scrap prices that have averaged around $540 per ton in 2023, thus far the low level of demolition is not surprising given the strength in the underlying spot market during 2021, and 'twenty two and beyond.
Parents shared sentiment by owners that rates will be strong going forward.
In terms of forward supply growth.
Overall Drybulk order book remains close to historically low levels of around eight 1% of the on the water fleet.
By rising modestly in recent quarters, it's noteworthy that the delivery range of ships that have been ordered now extends more than four years, even into 2028 lowering the impact of the order book, even further as compared with headline numbers.
For 2023, Drybulk net fleet growth projected at two 9%. The main driver of this low growth rate is a continuation of muted deliveries, which is occurred despite low levels of scrapping across all dry bulk segments.
Also note that scrapping in 2003 was forecast to be as high as 30 million deadweight.
Deadweight last year, but that projection has continuously been revised downward and is now forecast to just $6 7 million deadweight tons.
A total of 71 shifts will order during Q3 down 60% from 169 ships during the prior quarter.
Notably this is the first time in three years that contracting was under 100 vessels for a quarter. It's also worth noting that the vast majority of orders being placed today will not be delivered until 2026 or even later.
Please turn to slide 18.
The longer term future supply dynamics continue to look very favorable based on delivery of the current order book as well as anticipated scrapping levels. The mid size fleet is expected to surpass the record average age of 11 eight years in mid 'twenty four.
A positive from this trend is that there is an ever increasing number of significantly older ships that will need to be recycled during the coming years.
As we noted on the previous slide the forecast scrapping over the next year or two has been continually revised downward which only increases the average fleet age and adds to the pool of potential future scrapping candidates.
It's worth noting that ships over 15 years of age need to Drydock every 30 months, which translates to a meaningful and ever increasing cost per ships as they age.
Given limited yard capacity relative cost advantages of secondhand ships versus new buildings as well as uncertainty surrounding de carbonization and future fuel propulsion technology, we believe ordering and a result in order book will remain low for some time we.
We expect these dynamics combining a near record low order book with a near record fleet age to further improve the supply side in terms of fleet development in the coming years. Please.
Please turn to slide 19.
The IMF is currently projecting global GDP growth to reach 3% for 2023 unchanged from their previous forecast in July for 2024 Global GDP is expected to grow by two 9%, which is a 10 basis point reduction compared to the July estimate and <unk>.
<unk> notes that both headline and core inflation rates are being brought under control in most countries at.
At the same time, the soft landing scenario, where inflation controls achieved without a meaningful downturn in the economy looks increasingly likely.
The IMF does note that.
The GDP outlook phases potential downside risks from both a deepening of real estate crisis in China, as well as volatility in commodity prices.
In terms of the Drybulk market total train demand for 2023 and is expected to come in at three 7% on a core basis and improved further to four 6% when factoring in the ton mile effect.
Please turn to slide 20.
Looking into the details of Drybulk demand on this slide we note that 2023 forecast for most commodities has improved since our last earnings call.
Iron ore demand growth has been revised upward by 150 basis points to three 9% primarily on an upward revision in Chinese demand of 29 million tonnes.
Coal demand has also been revised upward.
70 basis points to six 4% growth for 2023 and increased demand from China for both thermal coal and Coke and coal, which has been partially offset by reductions in coal demand from Europe, India, and Japan demand for minor Bulks is generally holding steady with an upward revision of 60 basis point.
One 9% growth on an absolute basis for 2023, which is led by increases in trade demand for steel scrap aggregates as well as sugar.
In terms of grains trade demand growth has been revised upward by 135 basis points to three 7% in 2023 on the export side increases in estimated trade volume has been led by Brazil, and Russia, but also includes increases from Canada, Ukraine, and Australia, partially offset.
By decreases from the U S and Argentina.
Looking ahead to 2024, it's now projected for minor Bulks two lead drybulk demand with growth of three 2% on a core basis with increased demand forecast for nearly all minor bulk commodities.
Major bulks are projected to grow at just <unk>, 1% on a core basis with the increases in the grain trade being offset by decreases in both iron ore and coal.
Minor bulk forecast is particularly important for eagle bulk, which historically derives approximately two thirds of its cargo demand from minor bulk cargos.
Please turn to slide 21 for a recap.
Given eagle has exclusive focus on the mid size segment as well as a commercial platform that has a track record of meaningful outperformance. We continue to be in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.
Looking forward, we remain positive about the medium term prospects for the Drybulk industry, particularly given strong supply side fundamentals with a fully modern fleet of 52 predominantly scrubber fitted vessels with approximately $170 million in total liquidity Eagle is well positioned to continue to take advantage of opportunities.
So the benefit of all of our stakeholders with that I'd like to now turn the call over to the operator and answer any questions you may have operator.
Thank you as a reminder to ask a question. Please press star one on your telephone and wafer your name to be announced.
To withdraw your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Liam Burke with B Riley financial your line is now open.
Good morning, Gary Kosta.
Good morning.
Gary you mentioned, a number of things both on the supply and demand side.
To drive up rates or improve the rate environment, but there is still trending below historical averages is there anything else out there thats holding rates back or.
Or is it just the market.
It would seem that supply is very tight.
Demand for commodities is positive it shouldnt take a whole lot to get rates going, especially with the tight fleet supply.
Yes, so first of all we definitely see that the markets move fairly quickly in both directions as volatility which which.
I think speaks to your point about fairly tight balance in various markets.
Supply side I think our view is it looks extremely.
Compelling given the historically low.
Your book along with the almost record age having said that we just haven't seen meaningful scrapping now for six years and as I mentioned this quarter.
12 ships is not a big number but at least it's significantly more than last year. When it was nine all year, we need to see that scrapping and I believe we are starting to see it because you just can't keep steel ships.
Our saltwater environment going forever and as I mentioned in my prepared remarks ships over 15 years old need to Drydock every two and a half years. So we think that that that's coming that scrapping and thats really whats going to tighten up the supply side on demand.
Demand has been.
<unk>.
I think strong on a relative basis from where it was expected and as I mentioned also in my prepared remarks, most commodity demands have been revised upward over the last quarter, having said that I think the big <unk>.
Headwind, we faced this year was really an unwinding of congestion much more efficiency in ports.
Particularly in China, and not not much congestion there and on top of it. There's also a lot of ships taken out.
That for dry docking.
<unk> ships every five years and I mentioned the older ships every two and a half years during COVID-19 with Chinese zero Covid policy Drydock.
Times went up significantly and they are now back to normal. So I think we faced an unwinding of global congestion that really was.
Had a profound impact on the market, having said that we.
We got to pre Covid levels in terms of congestion as I mentioned also in my prepared remarks, we're starting to see some bottlenecks in various areas. Panama Canal is one example, also there is a significant amount of congestion on smaller ships waiting to load sugar off Brazil, and things like that so congestion is a double edged sword.
It's when it comes it takes supply out of the market.
<unk> unwind at times, and I think Thats one of the things we faced in 2023.
Great. Thanks, Gary Kosta, you've got Youre looking at a fourth quarter with sequentially higher spot rates.
You've laid out what your capex requirements are for the quarter, but it looks like youre going to see a nice significant step up in cash flow.
You've got you've stated dividend policy what happens after that.
So I think our first kind of.
Wave.
Viewed on repayment of the Rcs, So we have $125 million.
Our CF drawn.
Although we don't have to pay anything down on that until 2026 26, I think we will likely look to repay that opportunistically.
We also of course have the convert maturing in August.
As we said in a number of quarters now will likely look to settle that with some sort of combination of cash and shares.
But we do have a number of months until we need to put a plan in place for that.
Great. Thank you Gary Thank you Christa.
Thank you. Thank you.
Our next question comes from the line of Ben Nolan with Stifel. Your line is now open.
Hey, thanks.
Morning, guys.
Gary if I could go back to your Panama Canal stuff I mean, obviously, there's been a lot of noise in the market about it.
And I know that the.
The number of transits go down.
My understanding is the container ships are giving preference. So it's all of the other ships that are really bearing the brunt.
Of the decline.
In transit.
I guess my question now is.
How big of a deal is it for the Super Max and Ultra match at Max segments in particular I mean.
Do you.
As part of your regular business have many ships going through there or is it just sort of on the margin.
No.
It's a meaningful part of the business, particularly for grain cargoes out of the U S Gulf to China, and Asia and Thats. The typical trade historically, having said that we are now routing ships through Suez, which adds about 10 days.
And its slightly more expensive as well in terms of canal dues. So.
That's separate from paying auction auction rates the Panama. So it definitely is meaningful the other thing is is that historically it was it was fairly common for ships that were open I'm talking about Super Max Ultra Max ships that were open on the west side West Coast of Central America.
In South America to balance through the Panama canal into a loading area, whether that would be in CSA.
On vehicle or the U S Gulf, but that's a nonstarter right now. So there is a lack of ships that are able to get back into the Gulf and in efficient manner, which also causes a lack of lack of available tonnage there and is positive for rates coming out of the U S. Gulf and we've seen that just this past week anecdotally, we picked one of them.
Our ships out of the U S Gulf at a rate of $32000 for a trip to the far east that again was was routed via Suez.
Okay. That's helpful.
And then just.
Optically the number of charter in days that you guys have I think it was a 589 or something like that was meaningfully below where it was last almost half of what it was last year and it was even still meaningfully lower than what it was in the second quarter is that just the normal cyclical.
Dynamic or maybe any color that you can give on the on the chartering book.
Yes.
It's a good observation I mean, essentially the amount of short term trading in and out which is a fair amount of what we do is pretty static, but we had a number of charter in vessels and given the weak market over the last number of months through the summer.
Those ships were redelivered options arent acquired so it's a normal ebb and flow and then in a weaker rate environment as we take more ships on charter.
For whether it's for call it three to five months with options or a year with options you start to see that grow and what happened previously was as the market as we had ships with options in the market was strong.
Those options get declared and that's a call. It a base rate for every ship that you have in on period.
Fourth quarter, that's roughly.
Roughly 90 days and what Youre seeing there is a lack of those period end ships as they will redo ever given the weakness in the market.
And so as we look into the fourth quarter, obviously, you've announced that the rates are somewhat better than than they had been.
There should be a.
In theory, a little bit of a bounce back in that charter and as you.
In theory have options that are declared is that a fair assumption.
Well I would say this way I think directionally over the medium term I think you'd see that number grow but I wouldn't I wouldn't speak to the fourth quarter, because as you start to take shape.
<unk> It takes time to build that up and then declare options on top of new charters. So I wouldnt I don't want to give guidance, but that number will increase significantly in Q4, but I think youll see us trending back to kind of a more more average or mean.
Number as we go forward.
Alright, I appreciate it thanks.
Thank you.
Our next question comes from the line of Greg Lewis with <unk>. Your line is now open.
Hey, Thank you good morning, everybody. Thanks for taking my questions Gary.
I was curious I guess as we watch the rate market and I think you were touching on it a little bit could you talk a little bit more about kind of what drove that.
The higher rate performance over the last couple of months and really.
Q4 bookings look a lot better I think are looking a lot better than I think a lot of us thought maybe.
Before the quarter started.
Yes, I mean, I think the main driver is green and so historically, the south American grain market.
Or was it was a Q2 event that spilled into into July and what we're seeing now is really robust.
I mean as I mentioned in my remarks, Brazil had a record crop where we're still seeing very significant amounts and also in the U S. The beginning of the year.
Exports in the U S grain exports were down 26% in the beginning of the year and Theyre, making up for that in a meaningful way. So overall, we expect them to be down sequentially year over year, but significantly up on that.
And the latter part of the year, which is of course the fourth quarter.
Which is typically the strongest so when you combine.
Exports out of Brazil, along with out of the Gulf. That's the main driver out of the Atlantic and of course as I mentioned here ton mile days are going up a ships go via Suez instead of Panama <unk> weighed at Panama four four for transit in the Pacific drove rates I think significant amount of <unk>.
Kris and coal coal voyages.
Particularly in China.
And that's that's abated a bit but I think those were the main drivers and again it was definitely a ladder and continues to be led by the Atlantic.
Okay, Great and then I did have another one you mentioned that scrubber.
High sulfur fuel kind of fell off.
I know you guys are always looking to hedge.
Freight is this something where we could maybe had some fuel but kind of lock in a decent scrubber spread here as we kind of look out over.
The fuel curve.
So the answer is yes, we definitely can and we had a meaningful scrubber hedge position going into 2020, which ended up being very beneficial given given what happened.
With Covid, having said that we haven't done.
<unk> hedged.
Fuel spreads over the last couple of years for a number of reasons.
The numbers except for recently.
When they spiked up in.
In 2022.
<unk>, we're still significantly below that.
Significantly backward dated so I think our view is we're open to it we monitor the market, but when you combine the transaction cost.
The wide bid ask that happens in the in the futures market. We just don't think it's that compelling.
Okay, Okay, great and then one for coats im not even sure. If we have if you have this.
Readily available.
Any kind of color around how many how many dry docks, we should be thinking about for next year.
Yes, so we do if you look back in the appendix page yeah.
We do offer a kind of a capex schedule.
In terms of dry docks for next year, it's about 10 or so.
Okay, and then just as we think about that and the EMEA do we try to attach those with kind of the strength of the market.
Yes.
Sort of a window that we are able to effect, a drydock alright, and thats dependent on the special survey date.
It fluctuates between probably three to five months roughly so there is some wiggle room there that we can.
Kind of try to optimize based on the market and based on the position of the ships.
Okay, because because really what I'm wondering is Q1 seasonally weak.
Think about 10 throughout the year, what do we expect a few more may be in Q1 than the rest of the year.
Yes, right now for Q1, we have three scheduled.
Full year calendar 'twenty four we actually have six so.
But last night, when I mentioned before.
Perfect. Thank you everybody.
Thank you.
Thank you.
As a reminder to ask a question at this time. Please press star one one on your Touchstone telephone.
Our next question comes from the line of Omar Doctor with Jefferies. Your line is now open.
Omar Naphtha with Jefferies. Your line is open please check your mute button.
Thank you.
Hi, guys, Gary <unk> morning for.
Good morning, Thanks for the update just wanted to ask a couple of questions first maybe on the market Big picture.
Gary you outlined that ship values have been on the rise since August and generally have been pretty firm, even with the down shift we've seen in rates in recent quarters. Just wanted to ask kind of what do you think is behind the the uptick.
You mentioned.
There has been a focus on modern tonnage how much of this sort of brides and firmness in the secondhand market has to do with people looking or scrambling, perhaps to modernize ahead of regulations versus say are bullish on the outlook is there any way to maybe sort of qualify that to give us a sense of what's driving.
The strength in the S&P market.
Sure I mean, my view is it's really it's really driven by future rate expectation in the sense that.
You don't need to modernize today, let's say in particular versus if you think the market is going to be flat for a while I mean people are seeing.
A slide we put up which which.
Speaks to the average age against the order book I think is extremely compelling right. Notwithstanding the fact that we are approaching record age. The order book in our slides speaks just to the mid size is at 9% and people see that and that combined with the fact that companies have made significant amounts of money over the last couple of years.
<unk> are positioning themselves I think for what we believe.
Is going to happen and that is that these older ships inevitably will have to scrap and the headwinds that we've seen on some of the demand side and we'll abate and that will be extremely positive and there is simply not the capacity to put new new supply into the market in a meaningful way in a short time span at the moment.
You're ordering ships typically youre talking about 2026, even 2027 and so as these older ships start to scrapping and you got any kind of reasonable demand pop I think I think people are planning for that so I don't I also think that part of the reason aside from the age profile is and we've spoken about this.
Before right the uncertainty around things like carbon pricing future propulsion regulations.
Ci and what that's going to mean EU ETS is coming into effect.
In January so when you put all those things together older ships going to become less efficient, even noncompetitive and people see that so to me, it's really about an expectation of a more robust rate environment going forward and the.
The numbers and the graphs that illustrate that I think as I said before I think are quite compelling.
Thanks, Gary.
Very helpful context.
And to see how this plays out.
Second.
Question I have is clearly the.
Eagle has got pretty good amount of liquidity.
Even after the buyback.
The oaktree position, so you've got a pretty solid balance sheet just in terms of the convert that comes due next year.
I think it is July.
I know you've been asked this in the past, but any thoughts on how you envision that maturity playing out assuming it stays.
He is in the money.
Do you take the capital and sort of do a cash.
They would take it out for cash or do you prefer to have it convert into equity and any thoughts there updated thoughts ahead of ahead of that.
Yes, so I think it's very much dependent on where things are in terms of our.
Our share price the rate environment.
It is next is in August and as Kosta mentioned is a very good chance, it's a combination of cash and shares but we we believe we have a lot of different options in that regard.
Extension of convert.
A combination again and part of that will be how comfortable we are and what our cash balance looks like and how much we want to use of that so.
It's shipping rate in next August is a long way away. So we're definitely focused on it but we don't have to make any decisions now, but again, where the shares are trading I think will also be an important part of our decision process as we as we go forward.
Great. Thanks, Gary I'll turn it over.
Thank you.
And I'm showing no further questions at this time I'd like to hand, the call back over to Gary Vogel for closing remarks.
Thank you operator, we have nothing further but I'd like to thank everyone for joining us today and wish everyone a good weekend.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
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