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Note 1 - General Information

12 Months Ended

Dec. 31, 2014

Business Description and Basis of Presentation [Text Block]

Note 1. General Information:

The accompanying consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the "Company", “we” or “our”). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership, charter and operation of dry bulk vessels. The Company's fleet is comprised of Supramax and Handymax bulk carriers and the Company operates its business in one business segment.

The Company is a holding company incorporated in 2005, under the laws of the Republic of the Marshall Islands and is the sole owner of all of the outstanding shares of its wholly-owned subsidiaries incorporated in the Republic of the Marshall Islands. The primary activity of each of the subsidiaries is the ownership of a vessel. The operations of the vessels are managed by a wholly-owned subsidiary of the Company, Eagle Shipping International (USA) LLC, a Republic of the Marshall Islands limited liability company.

As of December 31, 2014, the Company owned and operated a modern fleet of 45 oceangoing vessels, 43 Supramax and 2 Handymax, with a combined carrying capacity of 2,451,259 dwt and an average age of approximately 7.6 years. The Company also chartered in a Handylog beginning October 2^nd,2014 for a period of 7 years.

The following table represents certain information about the Company's charterers which individually accounted for more than 10% of the Company's gross charter revenue during the periods indicated:

% of Consolidated Charter Revenue

	Successor			Predecessor
	October 16, To December 31, 2014			January 1, To October 15, 2014			2013			2012
Charterer
Charterer A		-			-			15.8	%		-
Charterer B		-			10.5	%		13.8	%		26.5	%
Charterer C*		27.7	%		17.7	%		-			-

*Includes charter revenue from a pool that the Company participates.

Bankruptcy Filing

On March 19, 2014, the Company received waivers for the violation of the maximum leverage ratio covenant under its Credit Agreement (As defined in note 9 below) as of December 31, 2013 and the expected violation of the maximum leverage ratio and minimum interest coverage ratio covenants at March 31, 2014 (as amended, the “Waivers”). The Waivers were extended through August 5, 2014, subject to certain conditions and the satisfaction of certain milestones. Given the uncertainty as to whether the Company would be able to comply with the terms of the Waivers within the time frames provided, the Company concluded that there was substantial doubt about its ability to continue as a going concern until such time the Company was able to demonstrate that it had sufficient cash flows to meet its ongoing needs. To address this risk of being able to continue as a going concern, the Company undertook negotiations with its lenders to provide longer term covenant relief or to restructure its balance sheet and capital structure. The financial statements have been prepared assuming the Company will continue as a going concern.

On August 6, 2014, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with lenders constituting the “Majority Lenders” (as such term is defined in the Credit Agreement) under its Credit Agreement (the “Consenting Lenders”), which contemplated a plan of reorganization through a balance sheet restructuring of the Company’s obligations upon the terms specified therein. On the same day, the Company filed a voluntary prepackaged case (the “Prepackaged Case”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Court”). The Prepackaged Case was filed only in respect of the parent company, Eagle Bulk Shipping Inc., but not any of its subsidiaries. Through the Prepackaged Case, the Company sought to implement a balance sheet restructuring pursuant to the terms of its prepackaged plan of reorganization filed with the Court (the “Plan”). The Company continued to operate its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

The commencement of the Prepackaged Case constituted an event of default that accelerated the Company’s obligations under the Credit Agreement, subject to an automatic stay of any action to collect, assert or recover a claim against the Company and the application of the applicable provisions of the Bankruptcy Code.

As part of the Prepackaged Case, the Company obtained debtor-in-possession financing (the “DIP Loan Facility”), as further described below, pursuant to authorization from the Court. The Company funded its ongoing operations during the pendency of the Prepackaged Case through available borrowings under the DIP Loan Facility as well as cash generated from operations.

Subsequent to the filing of the Prepackaged Case, the Company received approval from the Court to continue using its existing cash management system and to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s operations, such as certain employee wages, salaries and benefits, certain taxes and fees, customer obligations, obligations to logistics providers and pre-petition amounts owed to certain critical vendors. The Company continued to honor payments to vendors and other providers in the ordinary course of business for goods and services received after the filing date of the Prepackaged Case. The Company retained legal and financial professionals to advise the Company in connection with the Prepackaged Case and certain other professionals to provide services and advice in the ordinary course of business.

On September 22, 2014, the Court entered an order (the “Confirmation Order”) confirming the Plan. On October 15, 2014 (the “Effective Date”), the Company completed its balance sheet restructuring and emerged from Chapter 11 through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms.

Key components of the Plan included:

●

Entry into a new senior secured credit facility (the “Exit Financing Facility”) as of October 9, 2014, in the amount of $275 million (inclusive of a $50 million revolving credit facility).

●

The cancellation of all outstanding equity interests in the Company as of the Effective Date, with the current holders of such equity interests (other than the Consenting Lenders on account of certain warrants held by them or shares of common stock received upon conversion of such warrants ) receiving (i) shares of the reorganized Company’s common stock (“New Eagle Common Stock “) equal to 0.5% of the total number of shares of New Eagle Common Stock issued and outstanding on the Effective Date (subject to dilution by the New Eagle Equity Warrants (as defined below) and the Management Incentive Program (as defined below)), and (ii) an aggregate of 3,045,327 New Eagle Equity Warrants. Each New Eagle Equity Warrant will have a 7-year term (commencing on the Effective Date) and will be exercisable for one share of New Eagle Common Stock (subject to adjustment as set forth in the New Eagle Equity Warrant Agreement and dilution by the Management Incentive Program).

●

The extinguishment of all loans and other obligations under the Credit Agreement as of the Effective Date, with the current holders thereof receiving (i) shares of New Eagle Common Stock equal to 99.5% of the total number of shares of New Eagle Common Stock issued and outstanding on the Effective Date, subject to dilution by the New Eagle Equity Warrants and the Management Incentive Program, and (ii) a cash distribution as contemplated by the Plan. On the Effective Date, the Credit Agreement was terminated, and the liens and mortgages thereunder were released.

●

All claims of unsecured creditors of Eagle Bulk Shipping Inc. were unaffected and will be paid in full in the ordinary course of business.

●

The establishment of a Management Incentive Program (the “Management Incentive Program”) that provides senior management and certain other employees of the reorganized Company with 2% of the New Eagle Common Stock (on a fully diluted basis) on the Effective Date, and two tiers of options to acquire 5.5% of the New Eagle Common Stock (on a fully diluted basis) with different strike prices based on the equity value for the reorganized Company and a premium to the equity value, each of the foregoing to vest generally over a four year schedule through 25% annual installments commencing on the first anniversary of the Effective Date. The Management Incentive Program also provides for the reservation of certain additional shares for future issuance thereunder, as further described in the Plan.

The Plan also provided for certain releases of various parties by certain holders of claims against and equity interests in the Company.

Exit Financing Facility

On October 9, 2014, Eagle Bulk Shipping Inc., as borrower, and certain of its subsidiaries, as guarantors, entered into the Exit Financing Facility with certain lenders (the “Exit Lenders”). The Exit Financing Facility is in the amount of $275 million, including a $50 million undrawn revolving credit facility, and matures on October 15, 2019. A fee of $5.5 million was paid to the lenders in connection with the Exit Financing Facility. Amounts drawn under the Exit Financing Facility bear interest at a rate of LIBOR plus a margin ranging between 3.50% and 4.00% per annum. The revolving credit facility is subject to an annual commitment fee of 40% of the margin. The Exit Financing Facility is described further in Note 8 below.

Registration Rights Agreement

On the Effective Date, and in accordance with the Plan, the Company entered into the Registration Rights Agreement with certain parties that received shares of New Eagle Common Stock under the Plan. The Registration Rights Agreement provided such parties with demand and piggyback registration rights.

New Eagle Equity Warrant Agreement

On the Effective Date, and in accordance with the Plan, the Company issued new equity warrants (the “New Eagle Equity Warrants”) were issued pursuant to the terms of the New Eagle Equity Warrant Agreement (the “New Eagle Equity Warrant Agreement”). Each New Eagle Equity Warrant has a 7-year term (commencing on the Effective Date) and are exercisable for one share of New Eagle Common Stock (subject to adjustment as set forth in the New Eagle Equity Warrant Agreement and dilution by the Management Incentive Program). The New Eagle Equity Warrants are exercisable at an exercise price of $27.82 per share (subject to adjustment as set forth in the New Eagle Equity Warrant Agreement). The New Eagle Equity Warrant Agreement contains customary anti-dilution adjustments in the event of any stock split, reverse stock split, stock dividend, reclassification, dividend or other distributions (including, but not limited to, cash dividends), or business combination transaction.

FRESH START ACCOUNTING

Financial Statement Presentation

Upon the Company’s emergence from the Chapter 11 Cases on October 15, 2014, the Company adopted fresh-start accounting in accordance with provisions of ASC 852, Reorganizations (“ASC 852”). Upon adoption of fresh-start accounting, the Company’s assets and liabilities were recorded at their fair value as of October 15, 2014, the fresh-start reporting date. The fair values of the Company’s assets and liabilities in conformance with ASC 805, Business Combinations, as of that date differed materially from the recorded values of its assets and liabilities as reflected in its historical consolidated financial statements. In addition, the Company’s adoption of fresh-start accounting may materially affect its results of operations following the fresh-start reporting date, as the Company will have a new basis in its assets and liabilities. Consequently, the Company’s historical financial statements may not be reliable indicators of its financial condition and results of operations for any period after it adopted fresh-start accounting. As a result of the adoption of fresh-start reporting, the Company’s consolidated balance sheets and condensed consolidated statements of operations subsequent to October 15, 2014 will not be comparable in many respects to our condensed consolidated balance sheets and condensed consolidated statements of operations prior to October 15, 2014.

Under ASC 852, fresh-start accounting is required upon emergence from Chapter 11 if (i) the value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all post-petition liabilities and allowed claims; and (ii) holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. Accordingly, the Company qualified for and adopted fresh-start accounting as of the Effective Date. Adopting fresh-start accounting results in a new reporting entity with no beginning retained earnings or deficits. The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares of the reorganized entity caused a change of control of the Company under ASC 852.

Fresh-start accounting also requires that the reporting entity allocate the reorganization value to its assets and liabilities in relation to their fair values upon emergence from Chapter 11. The Company’s valuation of the reorganized Company dated as of July 15, 2014, which was included in the Disclosure Statement related to the Plan, the post-confirmation estimated enterprise value of the Company to be in a range between $850 million and $950 million which was approved by the court, given the approximately $225 million of debt projected to be on the balance sheet of the Company under the Exit Financing Facility on the Effective Date, the implied equity value of the Company was estimated at approximately $625 million to $725 million. As part of determining the reorganization value on October 15, 2014, the Company estimated the enterprise value of the Successor Company to be $857 million and the reorganization value to be $925 million. The reorganization value includes the enterprise value, cash, current liabilities and fair value below contract value of time charters contract.

The following fresh-start balance sheet illustrates the financial effects on the Company of the implementation of the Plan and the adoption of fresh-start reporting. This fresh-start balance sheet reflects the effect of the completion of the transactions included in the Plan, including the issuance of equity and the settlement of old indebtedness.

The effects of the Plan and fresh-start reporting on the Company’s condensed consolidated balance sheet are as follows:

	Predecessor At Oct. 15 2014			Reorganization Adjustments ⁽¹⁾				Fresh Start Adjustments				Successor At Oct. 16 2014
ASSETS:
Current assets:
Cash and cash equivalents	$	28,144,072		$	7,904,632			$	-			$	36,048,704
Accounts receivable, net		13,723,326			-				-				13,723,326
Prepaid expenses		3,650,965			139,537		(f)		(534,217	)			3,256,285
Inventories		8,668,803			-				-				8,668,803
Investment		13,585,444			-				-				13,585,444
Other assets		5,704,808			-				-				5,704,808
Total current assets		73,477,418			8,044,169				(534,217	)	(k)		80,987,370
Noncurrent assets:
Vessels and vessel improvements		1,581,232,547			-				(738,607,547	)	(n)		842,625,000
Other fixed assets		457,510			-				(211,688	)	(m)		245,822
Restricted cash		66,243			-				-				66,243
Deferred drydock costs		5,108,002			-				(5,108,002	)	(l)		-
Deferred financing costs		300,000			275,000		(e)		-				575,000
Other assets		2,943,540			-				(2,515,944	)	(k)		427,596
Total noncurrent assets		1,590,107,842			275,000				(746,443,181	)			843,939,661
Total assets	$	1,663,585,260		$	8,319,169			$	(746,977,398	)		$	924,927,031

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise:
Accounts payable	$	13,567,585		$	-			$	-			$	13,567,585
Accrued interest		121,666			(106,597	)	(d)		-				15,069
Other accrued liabilities		12,617,380			(3,470,809	)	(g)		-				9,146,571
Unearned charter hire revenue		2,617,419											2,617,419
Fair value below contract value		-			-				1,550,382		(o)		1,550,382
Debt-In-Possession loan		25,000,000			(25,000,000	)	(b)		-				-
Term loans		-			15,625,000		(a)		-				15,625,000
Total current liabilities not subject to compromise		53,924,050			(12,952,406	)			1,550,382				42,522,026

Non-Current liabilities not subject to compromise:
Long-term debt		-			203,875,000		(a)		-				203,875,000
Fair value below contract value		-			-				5,012,116		(o)		5,012,116
Total non-current liabilities not subject to compromise		-			203,875,000				5,012,116				208,887,116

Liabilities subject to compromise:
Term loans		1,129,478,741			(1,129,478,741	)	(c),(h)		-				-
Payment-in-kind loans		62,423,569			(62,423,569	)	(i)		-				-
Accrued interest		15,102,925			(15,102,925	)	(j)		-				-
Total Liabilities subject to compromise		1,207,005,235			(1,207,005,235	)			-				-

Total liabilities		1,260,929,285			(1,016,082,641	)			6,562,498				251,409,142
Commitment and contingencies
Stockholders' equity:
Predecessor Preferred stock		-			-				-				-
Predecessor Common stock		185,537			(185,537	)			-				-
Predecessor Additional paid-in capital		767,878,482			(767,878,482	)			-				-
Successor Common stock		-			375,045				-				375,045
Successor Additional paid-in capital		-			673,142,844				-				673,142,844
Retained (deficit) earnings		(365,176,049	)		1,118,947,940				(753,771,891	)			-
Accumulated other comprehensive loss		(231,995	)		-				231,995				-
Total stockholders' equity		402,655,975			1,024,401,810				(753,539,896	)			673,517,889
Total liabilities and stockholders' equity	$	1,663,585,260		$	8,319,169			$	(746,977,398	)		$	924,927,031

(1) Reorganization adjustments: This column represents amounts recorded on the Effective Date for the implementation of the Plan, including the settlement of Liabilities subject to comprise and related payments, the issuance of new shares of common and new warrants, repayment of DIP facility and cancellation of Predecessor’s common stock.

*Cash proceeds at emergence ( net of cash payments)

Cash at hand before emergence	$	28,144,072
Amount borrowed under the exit financing facility		225,000,000		(a)
Less discount on exit financing		(5,500,000	)	(a)
Repayment of DIP facility		(25,000,000	)	(b)
Repayment of old debt		(182,603,425	)	(c)
Repayment of the accrued interest on DIP facility		(106,597	)	(d)
Payment of deferred financing costs on exit financing		(275,000	)	(e)
Payment of administrative fees, insurance expenses		(139,537	)	(f)
Payment of legal fees relating to restructuring		(3,470,809	)	(g)
Beginning cash balance for the successor	$	36,048,704

This entry records our exit financing facility of $225 million less the debt discount of $5.5 million which is presented net with the debt balance.

*The below entry records retirement of Liabilities Subject to Compromise, and fresh start accounting adjustments

Settlement of old term loan	$	1,129,478,741		(h)
Settlement of PIK loan		62,423,569		(i)
Settlement of accrued interest on the debt		15,102,925		(j)
Cash settlement of old debt		(182,603,425	)	(c)
Issuance of New Eagle Common Stock		(654,306,488	)
Issuance of new warrants		(19,211,401	)
Gain on settlement on Liabilities Subject to Compromise	$	350,883,921

This entry records a gain of $350.9 million on extinguishment of the obligations pursuant to implementation of the Plan. On the Effective Date, and in accordance with the Plan, the Company issued 3,045,327 of New Eagle Equity Warrants. Each New Eagle Equity Warrant has a 7-year term and an exercise price of $27.82 per share. The fair value of the New Eagle Equity Warrant was estimated on the Effective date using the Black-Scholes pricing model. The weighted average assumptions used included a risk free interest rate of 1.79%, an expected stock price volatility factor of 50% and a dividend rate of 0%. The aggregate fair value of the New Eagle Warrants was $19.2 million on the Effective date.

*Fresh Start Adjustments

Write down Predecessor Directors’ and Officers’ insurance	$	(3,050,161	)	(k)
Write down of deferred drydocking costs		(5,108,002	)	(l)
Write down of leasehold improvements		(211,688	)	(m)
Write down of vessel costs and accumulated depreciation		(738,607,547	)	(n)
Record fair value of below market time charter contract		(6,562,498	)	(o)
Total loss recorded as a result of Fresh Start Accounting	$	(753,539,896	)

This entry records the adjustment for fresh start accounting to report assets and liabilities at their estimated fair value including the write down of vessel, Directors’ and Officers’ insurance, Deferred drydocking costs and leasehold improvements to its fair value at the effective date. We also recorded a loss of $6.6 million to reflect the fair value of charter contract below market value at the effective date.

*Total Gain recorded in Statement of Operations due to Restructuring and fresh start accounting adjustments

Gain on settlement on Liabilities Subject to Compromise	$	350,883,921
Total loss recorded as a result of Fresh Start Accounting		(753,539,896	)
Net impact on Retained earnings	$	(402,655,975	)

The total impact on Retained earnings reflects the cumulative impact of fresh start adjustments as discussed above. The net gain on fresh start adjustment has been included in Reorganization items, net in the Statement of Operations.