Eagle Bulk Shipping (EGLE) Q2 2021 Earnings Call Transcript

Eagle Bulk Shipping (EGLE)
Q2 2021 Earnings Call
Aug 06, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Eagle Bulk Shipping second quarter 2021 results conference call. [Operator instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Gary Vogel, chief executive officer; and Frank De Costanzo, chief financial officer of Eagle Bulk Shipping.

Mr. Vogel, you may begin.

Gary Vogel -- Chief Executive Officer

Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's second-quarter 2021 earnings call. To supplement our remarks today, I would encourage participants to access a slide presentation that is available on our website at eagleships.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 adjusted net income, EBITDA, adjusted EBITDA and TCE.

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 now turn out to Slide 5. The drybulk market for the midsize segment continued to strengthen in the second quarter on the back of robust demand across the commodity spectrum, and especially for grain and infrastructure-related cargoes we carry, such as cement, manganese ore, and steel. The Baltic Supramax index rose by almost 60% during the quarter, the levels not seen in more than a decade.

Eagle generated a net TCE for the second quarter of 21,580 the highest level in 11 years. Given the rapidly rising market environment we've been experiencing, there's an inherent lag effect between our TCE performance and the BSI as we have existing commitments on the books and the majority of our fleet is employed on voyage is lasting up to about 60 days The BSI is currently at its highest level of the year at around 33,000. Given our relatively short duration exposure and our active management approach to trading our ships, we continue to be successful capturing the majority of the move up on a real-time basis. As of today, we fixed around 75% of our available days for the third quarter, at a net TCE of $28,300 per day.

While we generally prefer to utilize FFAs as a means to hedge forward exposure, due to the increased optionality and provides us with, we've elected to lock in some revenue in the form of time charters on a selective basis. As an example, earlier this week, we fixed one of our 58,000 deadweight Supramax vessels for minimum 11 months to 13 months iterative $27,250 per day commencing in October. Given the deferred delivery, this charter will stand at least until September of 2022. Please turn to Slide 6.

In terms of operating performance, we achieved our best ever quarterly results, producing $62.7 million in EBITDA for the three months ending June 30. This represents an increase of 100% compared to the prior quarter. And as you can see from the chart, it's the fourth sequential quarter of significant EBITDA growth. Given the fixed cost nature of our business, essentially all of the incremental net revenue flows to the bottom line.

We realized an adjusted net income of $40.3 million for the second quarter, up fourfold as compared to Q1. Please turn to Slide 7. Asset prices have also continued to increase in recent months with values for 10-year old Supramaxes is up around 24% on the quarter, and approximately 75% year to date. This represents the second highest percent six-month increase over the last 20 years, the first one being in early 2004 at the beginning of the 2000s dry bulk super cycle.

It's also noteworthy that the increase in values is occurring against a record pace of transactions. Year to date, over 200 mid-sized dry bulk vessels have been bought and sold, implying an annual run rate of almost 400 ships. Notwithstanding, the dramatic increase in asset prices over the past eight months, the chart on this slide would indicate there still remains significant potential upside. Spot rates are at an 11-year high, but asset prices remain well-discounted to their levels in 2010 when charter rates were similar to today's levels.

Assuming a return to 2010 type levels, we could see upside in second-hand values of a further 30%, which would of course translate to increase now for the company. Please turn to Slide 8. On the acquisition front, as reported separately, we purchased two 2015 build scrubber fitted Ultramaxes in the early part of the second quarter for total consideration of $44 million. To help fund these acquisitions, we issued equity under our ATM program, raising about $27 million at a weighted average of $47.97 per share.

We currently intend to fund the remaining balance with cash on hand. In total, we purchased nine ships since November. By our estimates, the first seven acquisitions are up in value by about 60%. While the value on the ships we purchase just 10 weeks ago are up by about 16%.

Together, this represents a total increase in value of over $60 million. To date, we've taken delivery of six of the acquired vessels, with the remaining three expected to deliver between late August and mid September. Separately, and as part of our ongoing fleet renewal, we executed an agreement to sell the turn, a 2003 build Supramax just ahead of our statutory dry dock and ballast water installation due date. Pro forma for pending SMP deliveries, our fleet now totals 53 ships, averaging 8.8 years of age with 89% being fitted with scrubbers With that, I'd like to turn the call over to Frank, who will review our financial performance.

Frank De Costanzo -- Chief Financial Officer

Thank you, Gary. Please turn to Slide 10 for a summary of our second-quarter financial results. The significant improvement in the charter rate environment drove our top line in Q2 with revenue net of both voyage and charter hire expenses totaling $99.2 million, an increase of 61% from the prior quarter. Net income came in at $9.2 million for the second quarter.

Earnings per share, or EPS for the second quarter was $0.76 on a basic basis and $0.74 on a diluted basis. Beginning this quarter, we have added additional non-GAAP measures, adjusted net income and adjusted EPS, which exclude non-cash unrealized gains and losses on derivative instruments. As we have discussed, we charter in third party ships as part of our active management strategy. Furthermore, we utilize forward freight agreements or FFAs to selectively hedge our exposure to the market for both owned and chartered in tonnage.

Although FFA is our great tool to synthetically lock in cash flows, they do not qualify for hedge accounting. As such, all unrealized mark-to-market gains or losses on hedges for future periods impact current quarter results on a non-cash basis. However, the associated revenues for the ships are only recognized in future periods, thereby causing a timing mismatch between revenue recognition in gains, losses on hedging instruments. We believe that the additional non-GAAP measures, adjusted net income and adjusted EPS, which exclude the unrealized non-cash derivative gains and losses will better reflect our operating performance and improve the compatibility of the periods presented in the financial statements.

Adjusted net income excluding non-cash unrealized gains and losses on derivative of $31 million came in at $40.3 million for the second quarter. Adjusted basic EPS came in at $3.31 for the second quarter. Beginning this quarter, in retroactively adjusted for prior periods, adjusted EBITDA also excludes non-cash, unrealized gains and losses on derivative instruments. As with the above, we believe the change better reflects the operational cash flows generated within the respective reporting period.

Adjusted EBITDA doubled in Q2, coming in at $62.7 million. Let's now turn to Slide 11 for an overview of our balance sheet and liquidity. Total cash was at $83.8 million at the end of Q2, representing an increase of $3 million as compared to the end of the first quarter and a decrease of $5 million from year end. The change in cash versus prior quarter in year end was driven by cash generated from our strong operating results.

Equity proceeds of $27.4 million from our ATM program offset by vessel acquisitions and debt service. I will cover the movements in greater detail on the cash walk slide. Total liquidity improved by $20.1 million from the prior quarter to $139.8 million. Total liquidity comprised of total cash of $83.8 million and $56 million of undrawn revolving credit facility.

Please note that subsequent to the quarter end, we have repaid the remaining $25 million outstanding on the Ultraco revolver, bringing our undrawn revolver availability to $81 million. As previously reported, we have funded the acquisition of one vessel with restricted cash. In addition, we have secured new debt facilities, totaling $51.5 million for six of our newly acquired vessels. As of the date of this earnings call, we have taken delivery of five of these vessels and have drawn a total of $35 million.

We have chosen to not complete the third drawdown on our Holdco RCF given our strong cash flows from operations. Total gross debt, excluding debt issuance costs, at the end of Q2 was $500.7 million, a decrease of $7.1 million from the prior quarter. The decrease is due to the $30 million we repaid on the Ultraco debt facility revolver, principal repayments of $8.1 million on the Ultraco debt facility, and $4 million on the Norwegian bond debt offset by the $24 million we drew from the Holdco RCF and $11 million we drew from the Ultraco debt facility third incremental borrowing. Please now turn to Slide 12 for an overview of our cash flow from operations for the second quarter.

Net cash provided by operating activities was $15.3 million in Q2. The chart highlights the timing driven variability that working capital introduces to cash flow operations, as depicted by the differences between the dark blue bars, which are the reported cash from ops numbers and the light blue bars which strip out changes in operating assets and liabilities primarily working capital. Although as the chart demonstrates the volatility caused by working capital largely even though over time. The differences between the two bars this quarter can be explained by the timing of accounts receivables collections as we received $7.5 million in early July.

Please have turns to Slide 13 for our Q2 2021 tax walk. Let's focus on the top chart which covers the cash movements between Q1 and Q2. The revenue and operating expenditure bars are a simple look at the operations. Moving to the right, the $20 million bar representing the cash used in the quarter on margin and collateral on our derivative instruments.

The $32 million bar for vessel S&P represents the acquisition of three vessels for $27.2 million plus deposits paid of $4.4 million for two vessels to be acquired in the third quarter of 2021. The chart at the bottom covers cash movements year to date. Let's now review Slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day came into $11,220 for the second quarter.

Vessel expenses or opex came in at $5,020 per ship per day in Q2 excluding one-time non-recurring expenses related to vessel acquisitions in sales. Opex was negatively impacted by cost associated with the acquisition of three vessels during the quarter. In addition, we continue to face higher operating expenses related to the COVID-19 pandemic across a number of areas including higher lodging and transportation costs related to crew changes and costs related to stores and spares. Drydocking came in at $357 per ship per day in Q2, $791 lower than prior quarter as we had fewer vessels drydocking then in Q1.

It is worth noting that there are significant challenges regarding COVID protocols and quarantine requirements for ships going into facilities for drydocking and installation of valves water systems in the like. We do not see this abating at the moment and is likely to increase all higher times for these events. Cash G&A came in at $1,624 per ship per day in Q2, flat as compared to Q1. It is worth noting that our G&A per ship calculation is based on our own vessels, whereas we operate a larger fleet, including our chartered in tonnage.

If we were to include the Chartered in days in our calculation, G&A per ship per day would decrease by about $161 to $1,463. Cash interest expense came in at $1,540 per share per day in Q2, which was marginally lower quarter-over-quarter driven by an increase in ownership days. Cash debt principal payments came in at $2,679 per ship per day in Q2, $819 higher than prior quarter. The increase is attributable to amortization repayments on our Norwegian bond debt, which are paid semiannually in Q2 and Q4.

This concludes my comments. I will now turn the call back to Gary.

Gary Vogel -- Chief Executive Officer

Thank you, Frank. Please turn to Slide 16. In Q2, we saw rain strengthened in both the Atlantic and Pacific basins, with the magnitude of the move up being much greater in the Pacific Atlantic market average 22,600 for the quarter up 11% over the prior period, while the Pacific was up 74% averaging 26,100. As we've discussed previously, Pacific outperformance occurs from time to time, but generally happens in weaker markets.

Apart from the elevated trade flows we saw within the basin one of the primary reasons why the Pacific market outperformed was due to a significant increase in the backhaul trades, including cargoes that typically move in containers. We estimate up to 10% of all cargo moving on both carriers from the far east to places like West Coast, South America, Europe and the US was container cargo spilling into the conventional bulker market as a result of much higher container rates. These cargoes include smaller semi finished steel parcels, fertilizer in bags, bag cement, dry chemicals in bags and lumber. Given the ongoing strength in the container market, which is due in part to supply chain inefficiencies, we expect this dynamic to continue at least through the balance of the year.

As we look ahead into Q3, both basins have traded higher and the Atlantic is outperforming once again, driven by a pickup in grain exports from East Coast South America, as well as a strong Mediterranean market. In fact, the Med has now emerged as a primary source of exports on a number of minor bulks such as slag, cement, gypsum, salt and steel products. Year to date, the BSI has averaged 22,600 with the forward curve currently averaging around 31,000 for the balance of the year. If the forward curve plays out, 2021 would be the best year for the BSI since 2008.

Please turn to Slide 17. Fuel prices have continued to increase on the back of increased demand for oil products across the spectrum. VLSFO is now trading around $535 per tonne, up approximately 65% as compared to 12 months ago. As we've talked about previously, 89% of our fleet is fitted with scrubbers and those vessels are able to utilize lower priced HSFO.

As such, the spread between HSFO and VLSFO is an important value driver for Eagle. As underlying crude and fuel prices have increased, so has the spread, which currently sits at around $115 per time. At this level, we generate around $1,400 per day and incremental value across our fleet, equating to about $27 million per annum. Looking ahead, we expect fuel prices and spreads to continue to trend higher, which should be beneficial for our business.

Please turn to Slide 18. Net supply growth increased slightly in Q2, a total of 118 drive of new building vessels were delivered during the period down about 5% quarter-on-quarter and 28% year-over-year. Partially offsetting this, a total of 11 vessels were scrapped during the same period. The scrapping figure was down significantly as compared to the prior quarter which is not surprising given the strength in the underlying market.

In terms of forward supply growth, the overall drybulk order book stands at a historic low of just 5.7%. For 2021, drybulk net fleet growth is expected to come in at 3.3%. This assumes scrapping are roughly 7.6 million deadweight tonnes, down from previous guidance and about half of last year's amount, again, primarily as a result of the stronger rate environment. A total of 55 drybulk ships were ordered during Q2, down roughly 15% as compared to the previous period.

Although we expect some new ordering given the strength and the underlying spot and period markets, we still do not believe it will be material for a number of reasons. Firstly, new building prices are up significantly, you now need to pay around $28 million dollars for a Chinese Ultramax was about 25% higher as compared to just a couple years ago. In addition, new building slots are scarce with yards busy with orders in the container segments as well as with other vessel types. As such, a ship order today will likely only be delivered in late 2023 or even 2024.

And finally, there's significant uncertainty around future regulations regarding emissions and decarbonization. Together, we believe all of these factors will keep ordering fairly limited. Please turn to Slide 19. Global growth expectations for 2021 remain at 6%, unchanged since our last earnings call.

For 2022, the IMF is estimating global GDP growth of 4.9%, which requests a 50 basis point improvement over their previous projection. Please turn to Slide 20. Drybulk demand growth has been revised upward since our last earnings call, with 2021 growth now estimated at 4.2%, up 40 basis points. This has been driven primarily by an increase in forecasted trade for grains, fertilizer, and steel.

Notwithstanding continued uncertainty around COVID-19, we remain optimistic about the prospects for continued global growth, which is being supported by massive amounts of stimulus. This positive demand picture, combined with record low order book we discussed earlier, supports our constructive view or market developments looking ahead. With that. I'd like now to turn the call over to the operator and answer any questions you may have.

Operator?

Questions & Answers:

Operator

With prepared remarks completed, we will now open the line for questions. [Operator instructions] Our first question comes from the line of Randy Giveans with Jefferies.

Randy Giveans -- Jefferies -- Analyst

Howdy, gentlemen. How's it going?

Gary Vogel -- Chief Executive Officer

Good morning.

Frank De Costanzo -- Chief Financial Officer

Hey Randy.

Randy Giveans -- Jefferies -- Analyst

Good morning. Hey. Clearly, congrats on a good quarter. I'll probably say that again next quarter as well.

But speaking of next quarter, you stated that 75% of 3Q 2021 is booked at $28,300 a day. I guess if rates stay at these levels or at least above $28,300, any reasons your actual rates would come in below that, for example, balancing or repositioning or counting variances there? And then second part of that question, you mentioned one chartered out Supermax for about a year at $27,500, I think you said a day, quite the rate. Is that the only TC you currently have and any appetite for additional?

Gary Vogel -- Chief Executive Officer

So a fair amount to unpack there and appreciate the words on the quarter. So, first of all, if we talk about Q3 and the $28,300, we have cargo on the books as an operator and various things, but directionally if the market is stronger, you would expect our TCE decline compared to when we're booking it previously. And of course, we're booking in advance being 75% covered in the quarter, whereas we're only in early August here. So -- but directionally, you're correct, but you can't just apply the current rate, given that we do have business on the books in addition that we have to cover as we go forward.

And that's part of the lag that I spoke about. But there's nothing like unexpected, I guess you could say our county wise our TCE calculation is straightforward, and I guess you're alluding to the derivatives and that's a separate thing here in terms of the actual TCE. The only, the part of derivatives that go into TCE calculation is actual realized FFA and bunker hedges. And I think it's important, I'll take the opportunity to say that 100% all of our derivatives are hedges.

There's no speculating that we don't do any speculating at all. So anytime there's a cost on a derivative, it's matched up notwithstanding basis risks, it's matched up to a physical asset on the other side.

Randy Giveans -- Jefferies -- Analyst

Got it. OK. And then on the time charter outs?

Gary Vogel -- Chief Executive Officer

Yeah. So we do have other charters out. We don't disclose all of them. And -- but it's the longest one that we have, I'll say that.

But we do from time to time. We look at things from a value standpoint. And it's interesting, at the moment, there's a big dislocation between the FFA curve for next year, which for the year, stands in the low 18,000s and the rate I mentioned. And it's also worth noting that the ship we charted out is a Chinese Supermax scrubber fitted, but still a Chinese Supermax compared to the index.

So it's a big dislocation and the FFA curve right now is trading at that discount. So we work for maximum value. So all things being equal, we would prefer to use the FFA market to lock in those cash flows for next year and typically do. But when the value is not there, we're willing to pivot.

We have different levers we can pull. And so we see that although we're losing that ship in quotes for the period that it's charted out the premium value of it relative to the FFA curve at the moment for a number of reasons, is compelling. And that's one of the reasons we're doing that.

Randy Giveans -- Jefferies -- Analyst

Got it. OK. And then I guess next question and last question for the balance sheet, right. You're in great shape here.

Your net debt is continuing to fall. Your fleet has grown to pro forma around 54 ships after delivery here. With that kind of what do you do now with the free cash? Is it share repurchases, now that your shares are well below NAV or maybe a dividend policy that you would start after the 3Q earnings? What do you do going forward?

Gary Vogel -- Chief Executive Officer

Yeah. I mean, first of all, I appreciate the question. And I'm not surprised to have a question on dividends, not surprised, it's first out of the box, so to speak. But given the strong environment that we're in.

And I'll say it this way, returning capital to shareholders has been a clear goal of mine of the company, since we restructure the balance sheet in early 2016, when I joined the company. Having said this, I've also said a number of times that I think it's really important that when we do something like a dividend policy, we have clear visibility and I think we are in a situation now where there's clear visibility, but it needs to be both meaningful and sustainable. So, as you know, as we talked about, right, we've just acquired nine ships, we still have three we're taking delivery of, and we're doing these with limited debt. So over the last few months, and we'll continue to do so.

We're taking them -- I mean these Supermax as an example, the one Supermax still to be delivered, we acquired for nine-plus million, we're putting five million of debt on it, and that ship now is worth 17 plus. So very limited debt. So we're delivering, in fact, some of the alters we're taking delivery of – we're not putting any financing on, so we're – we've been focused through these deliveries of strengthening the balance sheet and delivering. Having said that, once we finalize these deliveries, I think we're given what I think is clear visibility and strong cash flows, I think we'll be in a position to substantively address capital allocation, whether that share buyback or dividend, so, I'll end it with kind of watch this space.

But I think it's an appropriate question and an important topic going forward.

Randy Giveans -- Jefferies -- Analyst

OK. We will be watching. Keep up the great work. Thank you.

Gary Vogel -- Chief Executive Officer

Thank you, Randy.

Operator

Our next question comes from Omar Nokta from Clarksons Securities.

Omar Nokta -- Clarksons Securities -- Analyst

Thank you. Hi, Gary, Frank. Good morning.

Gary Vogel -- Chief Executive Officer

Good morning, Omar.

Omar Nokta -- Clarksons Securities -- Analyst

Hi. I just wanted maybe to just a follow-up and sorry to press a little bit on Randy's question. But I guess, as we do think about it obviously, you guys have built Eagle up into a much stronger company sort of a very healthy place at this point. And you mentioned the nine vessel acquisitions taking them in.

You've got the three more waiting to get those in-house and then addressing potential return of capital, whether it's dividends or share buybacks, I guess. What is – I guess should we – should I take from that, that maybe, once you take these next three ships that you're done buying vessels and that the next thing is going to be returning capital, or is it more of OK, we're going to take these three ships, and then we're going to figure out what to do going forward, either buy more vessels or pay out dividends?

Gary Vogel -- Chief Executive Officer

Yes. I mean that's fair. I would say it this way. I think we're very comfortable with the nine ships that we've acquired.

I would never want to say that we're done. But we don't feel that we need to continue to acquire vessels at this point. There's been a significant appreciation in value. And I think there's more potentially to go, but it's not a – it's not really a focus of ours right now to add to that number, given the significant appreciation.

So like I said, I don't want to exclude that. If there's an opportunity then that we wouldn't, of course pursue that. But we feel quite comfortable with the pro forma 53 ships, including the one that we sold the older ship and need to deliver. So, yes, I'll leave it at that.

But yeah, I'll stop there.

Omar Nokta -- Clarksons Securities -- Analyst

Yes. No. That's clear. I appreciate that, Gary.

And then just wanted to just follow up. I noticed that one of the Supermax is you agreed to buy back in February. I think the initial delivery window was until May, but that looks that slipped into the third quarter here. And any read through into that, any concern or risk that that deal doesn't go through? I know, you've guys got at a very good price, relative to where things are today.

Gary Vogel -- Chief Executive Officer

Yes. And quite observing, and in fact, the ship got delayed because of operational delays at the load port. And – but we actually are being compensated for that late delivery, and we expect the delivery to take place within the next few weeks within August. So the answer is, you know, it's definitely late.

But as I said, we're being compensated for that under the agreement.

Omar Nokta -- Clarksons Securities -- Analyst

Got it. OK. Thanks, Gary. That's clear.

Gary Vogel -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Greg Lewis with BTIG.

Greg Lewis -- BTIG -- Analyst

Hey. Thank you. Good morning, everyone.

Gary Vogel -- Chief Executive Officer

Good morning.

Greg Lewis -- BTIG -- Analyst

Good morning. Not going to dwell on capital allocation but thanks for that. I guess, Gary, I have a question. And it kind of you know, it kind of piggybacks on Omar's comments about the vessel being delayed.

And piggybacks on some of Frank's comments about, vessels been stuck in drydocking. And I guess what I'm wondering is, is there any sense to figure out whether it's COVID-related or supply with just, you know, all the supplies ceramic? Is there any way to kind of back into a rough number of how much of the fleet is being artificially underutilized because of all these ongoing global issues? And if you guys spend any time thinking about that, just whether it's in drydocks or port, being stuck at ports or any kind of thoughts around that?

Gary Vogel -- Chief Executive Officer

Yes. It's a good question, an important point. I mean, we don't have an aggregate number, but we're definitely seeing, considerable delays in China around constantly changing quarantine protocols from port to port. And so that's having an impact and a positive impact in terms of fleet utilization.

Of course, it's a negative on when it affects your ships specifically, and the ship is delayed and not earning revenue, especially in a $30,000-plus a day market but overall, there's definitely, delays there. And then you overlay that with the fact that a significant portion of the fleet still needs to install ballast water treatment systems over the next year and a half I think is also bodes well or negatively for the fact that you're going to have more ships, backing up because that's a statutory requirement without really any flexibility. So -- and same with drydocks. Right? There can be for extenuating circumstance a -- an expansion, but it's not, it can't just keep happening.

So I think we're going to continue to see that until some of these protocols are lifted. And at the moment, we just don't see that. There's also delays for bulk carriers of the Panama Canal, and particularly the Neo Panama Canal, which is which is also having an impact. But I don't have a – an aggregate number for you, but I think they are impactful, definitely.

Greg Lewis -- BTIG -- Analyst

OK. Great. And then just looking, kind of, at the FFA curve and any progress into the back half of the year, I mean, it looks like it's in contango. And then, I guess, really tails off.

As you guys think about your FFA, you are trading FFA portfolio. Like, how long is there -- do you guys have a limit and how far out you're thinking about going in that? With that -- how you manage that portfolio? I guess, I'm wondering like, I looked at 2022 and I see some healthy rates out on the curve, is that something we think about taking advantage of or this is more, we kind of operate more on the shorter end of the curve?

Gary Vogel -- Chief Executive Officer

Yes. I mean we use the FAA strictly as I said, strictly as a hedge. So if we charter in a ship for a year, let's say, a good example would be one year with an optional year. We can sell a derivative at the same level, effectively locking in a breakeven for the first year.

We've created what we call asymmetric optionality by having a free option, right? We still trade the ship for the year. And we can hopefully add incremental value around it, but we're not exposed to the market. So typically, our FFAs go out about a year, when we do a ship, a one year charter or one option one. We could do longer if there's a longer charter, but it's pretty backward data down, as I said, 18,000.

We don't think that's fair value at the moment, given where physicals are. So you couldn't charter in a ship today for a year and selling FFA because you'd be on the wrong side of $4,000 or $5,000. Given where we charter out that Supermax. So at the moment that that play doesn't work, but at times it does.

So typically, I'd say a year, we're not limited to a year, but again, that markets pretty backward dated. And so for that reason, it's just not that attractive right now. So that hopefully that gives you an answer, but it's strictly on a hedging basis. So there's got to be a reason on a physical asset, why we want to enter into that FFA.

Greg Lewis -- BTIG -- Analyst

OK. Great. And then, just your comment, maybe now's not the best time to be acquiring vessels. I mean, at this point, it seems like pretty much all of your -- your older vessels are trying to add a fleet.

I mean, I guess, is there'll be opportunities on the -- as we look at on the older edge of your fleet to maybe continue to trim some of those vessels and take advantage of the higher asset fleet market. Or at this point, you do really like the mix.

Gary Vogel -- Chief Executive Officer

No. We've -- I believe, we've stated, clearly. There's two ships that we have that are 17 years old and then beyond those.

Frank De Costanzo -- Chief Financial Officer

Beyond those.

Gary Vogel -- Chief Executive Officer

No. I feel -- no, beyond those few ships, our next oldest ships 12.5 years old, and we're very comfortable with that. So I don't see us monetizing those assets, because of age. Now, if we get to a point in this cycle, where we feel asset values -- and I -- by the way, although, we're not out there, and with a need I think to continue to grow this fleet, I believe it's -- we believe there's significant upside to asset values because of the strength in the market and also where we are relative to historic, so that we talked about.

So I'm still a believer in asset value appreciation here. But we've got 53 ships already. But the answer is at some point in the cycle, would we be willing to sell a number of ships and get smaller if we felt it was the right thing from a capital standpoint and monetizing some of the value -- of course, as values are driven by future cash flow? The answer is yes. But not at this point in the cycle.

We're quite constructive.

Greg Lewis -- BTIG -- Analyst

OK. Perfect. Super helpful. Thank you, everybody.

Gary Vogel -- Chief Executive Officer

All right. Thank you.

Operator

Our next question comes from J. Mintzmyer with Value Investor's Edge. 

J. Mintzmyer

Hi. Good morning, Gary. Thanks for taking the questions.

Gary Vogel -- Chief Executive Officer

Good morning, J.

J. Mintzmyer

Yes. I think we covered the base a little bit earlier on the line. But I noticed you mentioned that 2430 days as 16,000 a day. You've mentioned second half 2021 through 2022.

Do you have any sort of a breakdown of where those are going to layer in? Is a lot of that front-loaded or is it pretty even?

Gary Vogel -- Chief Executive Officer

Yeah. Fair question. We're actually going to provide that in the Q. So when it gets filed, you'll see a breakdown of by quarter and into next year.

So you'll have full clarity on that.

J. Mintzmyer

OK. Outstanding, and it'll be helpful. And related to that you have a collateral post on your balance sheet, is that just a accounting measure, or is that actually required collateral due to let's say, counterparties?

Gary Vogel -- Chief Executive Officer

Yeah. No. That's real collateral. It's held that the banks in which we use to utilize FFA, everything's cleared.

So it's actual real, real cash.

J. Mintzmyer

OK. Thanks, Gary. And then final question. You have these convertibles now that are clearly in the money.

But there's, it seems like there's really no way to force those conversions. Is there anything you can do with those because I mean, otherwise, you just sit out there, right? You're paying 5% interest on them, and they really kind of pull down your reported earnings. So anything you can do to incentivize that conversion or get those out of the way or you just stuck with them for three more years?

Gary Vogel -- Chief Executive Officer

Well, I mean, potentially, we can buy them in the open market, but as you said, there's no ability to force a conversion. But the calculation is -- as you they're in the money, so I think it's -- the general view is that they'll be converted at some point and the coupon on it is 5.25%. But yes -- they're -- sorry, five to 5%. Sorry.

Anything else, Frank, you want to add to that?

Frank De Costanzo -- Chief Financial Officer

No, no, no. You've covered it well, Gary.

Gary Vogel -- Chief Executive Officer

Thank you.

J. Mintzmyer

All right. Thanks, Gary. And then, just one thing on dividends real fast, because I think I'm the last person. Thinking forward on that, obviously, you got to wait, make sure things are sustainable.

But would that be maybe like a fixed sort of policy, or do you think it would be more so variable based on cash flows and earnings. Ant sort of thoughts on how dividend would look theoretically?

Gary Vogel -- Chief Executive Officer

Yeah. I mean, ultimately, the board will make a decision as to what it what it looks like, if we implemented dividend policy. But what I've said from my view is, it needs to be sustainable. So if there's going to be a fixed portion to it, it needs to be relatively low, given the volatile -- long term cyclical, volatile nature.

Notwithstanding the strength in the market and our view on the forward market, I do believe this is what -- is still a cyclical business. And so, I think, variability is an important part, whether it's part at all, I think that that's really important, because it needs to be sustainable. And I've said before, I feel strongly that, it's -- like, we get a lot of questions, why we don't have a dividend, but it's better to not have one than to have one and then have to have to cut it or stop it completely. So that's really the -- I think, the main driver is whatever we do, we want it to be sustainable.

J. Mintzmyer

Certainly, makes sense. Thanks, Gary. Thank you.

Gary Vogel -- Chief Executive Officer

All right. Thank you.

Operator

Our next question comes from Poe Fratt with Noble Capital Markets.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. Thanks. Thanks for covering FFAs. I had a question about the timing too.

But Frank and Gary, when you look at the triggers, or potential catalysts for the second half of the year, one thing that you have is the Norwegian bonds that are still high cost, and I'm sorry, if you address those earlier, I wasn't on -- in the full presentation. But can you talk about, refinancing those bonds?

Frank De Costanzo -- Chief Financial Officer

Sure, Poe, it's Frank here, I'll take that one. Yes, we're going to refinance them within this year, 2021. The markets that we have available to us continue to improve; the bank market, the bond market. So our options are wide opening and getting better.

So we will, take that out, and likely whatever replaces it will be very attractive.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. And then, Gary, you talked about second hand values moving up. Not as attractive from an acquisition standpoint, when do newbuilds potentially get attractive for you?

Frank De Costanzo -- Chief Financial Officer

Well, I think the answer is I don't think they do. And so, I've been kind of on my soapbox saying, we're not going to be ordering ships, since I joined Eagle. And the main driver of that was we have the world had enough tribal ships. And clearly that was shown with the challenging market that we worked through for the first five years, I was here.

Having changed my view that, we don't, we don't need more ships, so first of all, for a couple of reasons. Ships you order today won't come at least till the end of 2023 or 2024. So I think we have a nice window here before that happens, but ordering a ship today, that ship will only be 10 years or 11 years old in 2035. The uncertainty around future fuel regulations and carbon tax and decarbonization is extraordinary, I think the risks that tell risk on an asset, which historically is a 25-year to 26-year lifespan, given that on zero emission ships coming I just, I don't see Eagle participating in new builds, really, I can't see a scenario where that would make sense for us.

We feel really good about we've required 29 ships and except for the three Supramax's, all Ultramax's between zero years and five years old. So, we think that's really a sweet spot for having ships that -- the ships were acquiring, say a 2015 build ship right, is going to be 20 years old and 2035 a much better risk profile given the changes that are of course coming. So I just don't see a scenario where Eagle will be ordering ships. And although, as this market strengthens, there's continue there will be pressure and there will be some ordering.

The people ordering those ships are going to need to wait now two to three years to get those ships. So you need to be pretty confident in his market, sustaining not just for the next year and half two years, but beyond and into that delivery window. So we feel we feel pretty good for those reasons that supply is going to stay relatively muted. But of course, there will be some ordering that, I'm sure.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Just maybe cement, but would you think -- how would you -- would you consider buying Ultra out of the order book, the same as ordering a new one, or would you consider that as just essentially taking something out of the orderbook and it doesn't actually incrementally add to what the visible suppliers out there to cement?

Frank De Costanzo -- Chief Financial Officer

No. It's an interesting question. We did take delivery of one resale, but that was actually a contract that was defaulted on back in 2016, at the bottom of the market, and the ship was completed. I think that's a little different than buying a resale of a keel that was laid, let say, six months ago, and it's coming in a couple years.

I don't see us buying, I think the sweet spot for us is still, if we were to acquire ships, is still that that three to five year old Ultramaxes for the reasons I mentioned. So, I'll never say never, because there we don't know what the environment and landscape might look like. But I just, I just don't really see that being a high probability for Eagle bulk.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. Thanks, Gary.

Gary Vogel -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from Liam Burke with B. Riley.

Liam Burke -- B. Riley Securities -- Analyst

Thank you. Good morning, Gary. Good morning, Frank.

Gary Vogel -- Chief Executive Officer

Good morning, Liam.

Frank De Costanzo -- Chief Financial Officer

Good morning, Liam.

Liam Burke -- B. Riley Securities -- Analyst

Gary, your fleet is pretty versatile, you can handle both major and minor bulks, as you look in through the end of the year and into 2022. Is there any particular area that makes you feel a lot better about how the demand side of the equation is going to be?

Gary Vogel -- Chief Executive Officer

Yeah. I mean what makes me feel good about the demand side is how broad it comes across the commodities. I mean, sometimes you'll see a disparity between major bolts and minor bolts, right. But if we look at this year, they're both, 4.3%, 4.1%.

And if we look across, there's a lot of cargo, a lot of commodities that are growing in the 3% to 5% range. So the fact that, we're seeing it across the board is, is I think, really positive, as opposed to being driven by – let's say, grain movement, because of drought somewhere, or rains and things like that. So that's, that's – I think what's really compelling this time on the demand, and of course, it's being supported by stimulus. And a lot of that stimulus, we're seeing, infrastructure spend, and infrastructure spend takes a long time.

It doesn't just happen in three or six months. So, cargos that were moving like cement, cement clinker, steel manganese ore that I mentioned, those are those are – those are important and good products for infrastructure build, which typically is, you know, longer term.

Liam Burke -- B. Riley Securities -- Analyst

OK. So as you look through the end of the year, there seems to be a degree of sustainability and the demand for commodities through the end of the year into 2022?

Gary Vogel -- Chief Executive Officer

Yeah. We see it that way. Yes.

Liam Burke -- B. Riley Securities -- Analyst

Great. Thank you, Gary.

Gary Vogel -- Chief Executive Officer

Thank you.

Operator

I'm showing no further questions in queue. At this time, I'd like to turn the call back to Mr. Vogel for closing remarks.

Gary Vogel -- Chief Executive Officer

Thank you, operator. We have nothing further. So I'd like to thank everybody for joining us today and wish everyone a good day.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Gary Vogel -- Chief Executive Officer

Frank De Costanzo -- Chief Financial Officer

Randy Giveans -- Jefferies -- Analyst

Omar Nokta -- Clarksons Securities -- Analyst

Greg Lewis -- BTIG -- Analyst

J. Mintzmyer

Poe Fratt -- NOBLE Capital Markets -- Analyst

Liam Burke -- B. Riley Securities -- Analyst

More EGLE analysis

All earnings call transcripts