DRS 1 filename1.htm

 

As confidentially submitted to the U.S. Securities and Exchange Commission on April 6, 2018 

pursuant to the Jumpstart Our Business Startups Act

 

Registration No. 333-  

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM F-1

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

GoodBulk Ltd.

(Exact name of Registrant as specified in its charter)

 

 

 

Bermuda 4412 N/A
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
     
 

7 Rue du Gabian,

Gildo Pastor Center, Monaco, 98000
+377 97 98 5987

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices) 

 

 

 

 

Cogency Global, Inc.

10 E. 40th Street, 10th Floor

New York, NY 10016

 
(Name, address, including zip code, and telephone number, including area code, of agent for service)

  

 

 

  Copies to:  

Richard D. Truesdell, Jr.
Marcel Fausten

Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017

212-450-4000

 

Finnbarr D. Murphy

Morgan, Lewis & Bockius LLP

101 Park Ave.

New York, NY 10178

212-309-6000

         

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. __________

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ __________

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ __________

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

 

CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered Proposed maximum aggregate offering price(1) Amount of registration fee
Common shares, par value  $1.00 per share $ $

(1)Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

  

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion
Preliminary Prospectus dated April 6, 2018

 

PROSPECTUS

 

 

Common Shares

 

GoodBulk Ltd.

 

This is our initial public offering of common shares. We are offering a total of           common shares, $1.00 par value, of GoodBulk Ltd.

 

We expect the initial public offering price will be between $           and $           per common share. We intend to apply to list our common shares on the           under the symbol “        .”

 

Prior to this offering, there has been no active trading market for our common shares, although the common shares are listed on the Norwegian Over-The-Counter List (“N-OTC”), an over-the-counter market that is administered and operated by a subsidiary of the Norwegian Securities Dealers Association. For a discussion of the factors considered in determining the public offering price, see “Underwriters.”

 

We are an “emerging growth company” under the U.S. federal securities laws and will be subject to reduced public company reporting requirements.

 

Investing in our common shares involves risks. See “Risk Factors” beginning on page 14 of this prospectus.

 

    

Per Share

    

Total 

 
Public offering price    $     $  
Underwriting discounts and commissions    $     $  
Proceeds, before expenses, to us(1)    $     $  

 

 

(1)See “Underwriters” for additional information regarding the total underwriters’ compensation.

 

We have also granted the underwriters an option for a period of 30 days to purchase up to an additional              common shares on the same terms as set forth above to cover over-allotments, if any. See “Underwriters.”

 

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Our common shares will be ready for delivery on or about           , 2018.

 

 

 

Morgan Stanley                               Credit Suisse

 

 

 

Prospectus dated           , 2018.

 

 

 

table of contents

 

 

 

Page

 

Summary 1
Summary Financial and Other Information 12
Risk Factors 14
Cautionary Statement Regarding Forward-Looking Statements 42
Use of Proceeds 43
Dividends and Dividend Policy 44
Capitalization 45
Dilution 47
Selected Financial and Other Information 49
Management’s Discussion and Analysis of Financial Condition and Results of Operations 51
The International Dry Bulk Shipping Industry 64
Business 81
Management 99
Principal Shareholders 104
Certain Relationships and Related Party Transactions 105
Description of Share Capital 109
Bermuda Company Considerations 115
Common Shares Eligible for Future Sale 121
Tax Considerations 123
Underwriters 129
Expenses of the Offering 135
Legal Matters 135
Experts 135
Service of Process and Enforcement of Civil Liabilities 135
Where You Can Find More Information 136
Glossary of Shipping Terms 137
Index to Financial Statements F-1

 

 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “GoodBulk” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to GoodBulk Ltd., together with its subsidiaries.

 

 

 

We have not, and the underwriters have not, authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

For investors outside the United States: neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

 

i 

 

Certain market data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, reports of governmental and international agencies and industry publications and surveys. Industry publications and third-party research, surveys and reports generally indicate that their information has been obtained from sources believed to be reliable. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

Presentation of Financial and Other Information

 

We prepare and report our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States. We maintain our books and records in U.S. dollars.

 

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

 

Unless otherwise indicated, all references to “U.S. dollars,” “dollars,” “U.S. $” and “$” in this prospectus are to the lawful currency of the United States of America and references to “Norwegian Kroner” and “NOK” are to the lawful currency of Norway.

 

EXCHANGE CONTROL

 

We intend to apply for and expect to receive consent under the Exchange Control Act 1972 (and its related regulations) from the Bermuda Monetary Authority for the issue and transfer of our common shares to and between non-residents of Bermuda for exchange control purposes provided our common shares remain listed on an appointed stock exchange, which includes the             . In granting such consent the Bermuda Monetary Authority accepts no responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

 

ii 

 

 

Summary

 

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our common shares. For the definition of certain terms used in this prospectus that are commonly used in the shipping industry, see the “Glossary of Shipping Terms” beginning on page 137 of this prospectus.

 

Our Business

 

We are GoodBulk Ltd., a leading international owner and operator of dry bulk vessels, and one of the world’s largest owners of Capesize vessels. Founded in October 2016, for the purpose of owning high-quality secondhand dry bulk vessels between 50,000 and 210,000 dwt, we offer investors an efficient company to access the dry bulk market. We were formed at a historically low point in the shipping cycle, which our management and Board of Directors believe represents an opportunity to expand our fleet and business with a low cost asset base. Starting with only one vessel on the water in January 2017, through our actively managed fleet strategy and opportunistic acquisitions at attractive valuations, we have successfully grown our fleet to 25 dry bulk vessels as of the date of this prospectus (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018). This includes 22 Capesize, 1 Panamax, and 2 Supramax vessels, which have an average age of 9 years and an aggregate carrying capacity of 4.1 million dwt.

 

Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, and grains, across global shipping routes. Our chartering policy is to employ our vessels primarily in the spot market, depending on prevailing industry dynamics. Currently we deploy our vessels on the spot market and in pools, which also includes Revenue Sharing Agreements (“RSAs”), managed by our commercial, operational, and technical managers, C Transport Holding Ltd. and its subsidiary C Transport Maritime S.A.M. (collectively defined as “CTM,” or our “Manager”). We believe this policy allows us to obtain attractive charter hire rates for our vessels, while also affording us flexibility to take advantage of a rising charter rate environment. Being in a pool can improve an owner’s income stream by providing access to global trade through sharing earnings brought in by the other pool members’ trading in a myriad of routes (a wider range of routes than those that make up the Baltic Indices), rather than just depending on the single route that standalone operations can achieve. Through these pools, we have access to long standing industry experience and contacts with major operators and charterers, economies of scale with respect to cost reductions, superior market intelligence and information as well as improved utilization rates that come from being part of a larger fleet.

 

We maintain a strong relationship with CTM, which we believe has allowed us to become one of the most cost-efficient public dry bulk operators. We believe CTM has an excellent track record in supplying leading dry bulk management services at very competitive rates.

 

Our company, its founders and its manager have a long history of operating and investing in the shipping industry. Our founding shareholders are Brentwood Shipping and Trading Inc. (“Brentwood Shipping”), Lantern Capital Partners (“Lantern”), and two other financial investors. Brentwood Shipping is a privately held shipping business owned by the family of our Chairman and Chief Executive Officer (“CEO”) John Michael Radziwill and has over a century of involvement in the shipping industry. Mr. Radziwill has served as our Chairman and CEO since our inception. During his career, Mr. Radziwill has overseen sale, purchase and new building contracting transactions of approximately 80 vessels, for an aggregate purchase price of over $2 billion. Additionally, Mr. Radziwill has served as the Chief Executive Officer of our manager CTM, since 2010, providing him unique insight and access into the dry bulk market, which we are able to leverage. Mr. Radziwill’s interests are fully aligned with our company through his family’s ownership stake in Brentwood Shipping.

 

At the end of March 2017, our common shares began trading on the N-OTC market under the symbol “BULK.”

 

 

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Our Relationship with C Transport Maritime

 

Our fleet is managed by CTM, which is beneficially owned by the family of our Chairman and CEO, John Michael Radziwill. Headquartered in Monaco and founded in 2004, CTM is one of the largest ship management companies and provides services that include commercial and operations management, technical management, risk management and research, as well as sale and purchase services to various third party vessel owners. CTM directly operates over 100 dry cargo vessels, ranging from Supramax to Newcastlemax bulk carriers, and over 140 vessels, including vessels managed through Capesize Chartering Ltd. (“CCL”) where CTM serves as co-manager. CTM’s fully managed pools include the Capesize and Supramax RSAs, with the vessels in the Capesize RSA being part of CCL.

 

CTM’s RSAs are commercial and operational platforms that collectively manage member vessels operating them on the spot market and distributing income produced proportionately according to each member vessel’s earning capacity. The RSAs are open to third party vessels with CTM charging a commercial management fee of 1.25% on incomes produced for their services. The RSA aggregates the revenues and expenses of all the participant vessels and distributes the net earnings calculated on (i) a key figure expressing the relative theoretical earning capacity of such member vessel based on the cargo carrying capacity, tradability, speed and consumptions and performances and (ii) the number of days the vessel was operated during the period. During 2017, the Supramax RSA member vessels carried approximately 22 million tonnes of cargo and performed 341 fixtures. Likewise, in 2017, CCL carried about 55 million tonnes of cargo and performed 325 fixtures for Capesize vessels.

 

CTM also manages vessels on behalf of other owners. CTM-managed vessels transported an aggregate of approximately 47 million tonnes of cargo in 2017 and approximately 87 million tonnes including the cargo carried on CCL controlled vessels.

 

CTM has won several industry accolades which are testament to the company’s commitment to its clients and to providing high quality service. In 2017, CTM won the award for Dry Bulk Operator of the Year at the 20th Annual Lloyds List Global Awards and, in 2015, CTM’s Technical Management was recognized by the United States Coast Guard (“USCG”) with its highest award – the QUALSHIP 21 for “quality shipping for the 21st century.”

 

Our relationship with CTM gives us access to their relationships with major international charterers, end-users, brokers, lenders and shipbuilders. The scale and reach of CTM’s commercial and technical platforms allow us to compete more effectively and operate our vessels on a cost-efficient basis.

 

Our Fleet

 

All of our vessels are currently operated in the spot market, with the majority operated through CTM’s RSAs or on index-linked charters.

 

The following table summarizes key information about our fleet as of the date of this prospectus:

 

Vessel Name Type Delivery Date to GoodBulk Size (dwt) Year Built Shipyard
Aquamarine1 Capesize January 5, 2017 182,060 2009 Odense, DEN
Aquadonna1 Capesize February 2, 2017 177,173 2005 Namura, JPN
Aquakula1 Supramax April 18, 2017 55,309 2007 Oshima, JPN
Aquaknight3 Panamax April 25, 2017 75,395 2007 Universal, JPN
Nautical Dream1 Capesize April 25, 2017 180,730 2013 JMU , JPN
Aquapride1 Supramax June 1, 2017 61,465 2012 Imabari, JPN
Aquacharm1 Capesize June 16, 2017 171,009 2003 Sasebo, JPN
Aquajoy1 Capesize June 21, 2017 171,009 2003 Sasebo, JPN
Aquavictory1 Capesize June 30, 2017 182,060 2010 Odense, DEN
Aquahope1 Capesize September 19, 2017 177,173 2007 Namura, JPN

 

 

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Aquakatana1 Capesize September 28, 2017 185,897 2005 Kawasaki, JPN
Aquarange1 Capesize December 4, 2017 179,842 2011 Hanjin, PH
Aquamarie2 Capesize December 19, 2017 178,896 2012 Sungdong, KR
Aquaenna1 Capesize January 9, 2018 175,975 2011 Jinhai, CHN
Aquabridge2 Capesize January 16, 2018 177,106 2005 Namura, JPN
Aquaproud1 Capesize January 24, 2018 178,055 2009 SWS, CHN
Aquatonka1 Capesize January 31, 2018 179,004 2012 Hanjin, PH
Aquavoyageurs2 Capesize February 5, 2018 177,022 2005 Namura, JPN
Aquahaha1 Capesize February 15, 2018 179,023 2012 Hanjin, PH
Aquataine2 Capesize February 20, 2018 181,725 2010 Imabari, JPN
Aquascope1 Capesize February 21, 2018 174,008 2006 SWS, CHN
Aquasurfer1 Capesize March 1, 2018 178,854 2013 Sungdong, KR
Aquacarrier1 Capesize April/May 2018* 175,935 2011 Jinhai, CHN
Aquamaka1 Capesize April/May 2018* 179,362 2009 Hyundai, KR
Aquakatie Capesize June/July 2018* 174,142 2007 SWS, CHN
Total: 25     4,108,229    

 

 

* Estimated delivery dates subject to vessel itineraries and employment.

1 Operated in the CTM RSAs.

2 Operated on index-linked charters.

3 Operated in the spot market.

 

Management of Our Business

 

Our Board of Directors defines our overall direction and business strategy and exercises all significant decision-making authority including, but not limited to, with respect to our investments and divestments. Our day-to-day business and vessel operations are managed by CTM with the guidance and oversight of our Board, under the operational, commercial, technical and administrative service agreements discussed below. CTM also sources and advises on strategic opportunities for our Board’s consideration.

 

Commercial Management Agreement

 

We have entered into a Commercial Management Agreement with CTM (the “Commercial Management Agreement”) for the operational and commercial management of all dry bulk carrier motor vessels owned or chartered by us or our subsidiaries. CTM’s services include negotiating contracts related to the vessels, negotiating terms of employment of the vessels, making all necessary arrangements for the proper employment of the vessels, negotiating the terms of all contracts for the purchase or sale of the vessels, and appointing port and other agents for the vessels, in each case subject to the express limitations and guidelines imposed by us. We pay CTM commission fees as follows: (i) in relation to time chartered-in and time chartered-out vessels, 1.25% commission on all hires paid or a 1.25% commission on all gross freight on all of the performed voyage charter contracts; and (ii) 1.00% commission of the memorandum of agreement price for the sale of any vessel by us or any of our subsidiaries. Upon completion of this offering, the Commercial Management Agreement will only be subject to termination by us upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform a material obligation, we must pay CTM a termination fee equal to twice the amount of commissions due over the prior twelve months.

 

Shipmanagement Agreement

 

Through our subsidiaries, we enter into a Shipmanagement Agreement with CTM with respect to each vessel in our fleet (each, a “Shipmanagement Agreement”). CTM’s services include providing technical management services, such as selecting and engaging the vessel’s crew, providing payroll and compliance services, providing competent personnel to supervise the maintenance and general efficiency of the vessel, arranging and supervising drydockings, repairs, alterations and the upkeep of the vessel, appointing surveyors and technical consultants,

 

 

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arranging the transportation of shore personnel when servicing the vessel, arranging supervisory visits to the vessel, and maintaining a safety management system. We pay CTM a basic annual management fee in the amount of $144,000 per vessel. Additionally, we reimburse CTM for rent, communication and other general expenses in the aggregate amount of $15,000 per vessel per quarter, and for travel and out-of-pocket expenses incurred by CTM in pursuance of its management services. Upon completion of this offering, a Shipmanagement Agreement will only be subject to termination by us upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform a material obligation, we must pay CTM a termination fee equal to the basic management fees for the prior twelve months. In addition, a Shipmanagement Agreement is deemed terminated upon the sale of the vessel to a non-affiliated third party.

 

Services Agreement

 

We have entered into a Services Agreement (the “Services Agreement”) with CTM for the provision of staff services, including customer and supplier management, accounting, treasury, budgeting and reporting, consultancy services, corporate and legal services, and information technology services. We pay CTM an annual management fee of $50,000 for each vessel, in quarterly installments. We also reimburse CTM for all travel and subsistence expenses CTM incurs in the provision of services. Upon completion of this offering, the Services Agreement will only be subject to termination by us, upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform its obligations (including if such failure is due to applicable law or insolvency of CTM), we must pay CTM a termination fee equal to twice the amount of the fees for the prior twelve months.

 

Unless terminated earlier by us, our Commercial, Shipmanagement and Services Agreements with CTM will automatically extend for an additional five years after completion of this offering. During this period the commissions and fee rates as noted above will remain fixed, thereby providing significant visibility into our cost structure.

 

Our Competitive Strengths

 

Demonstrated Access to Capital and Significant Financial Flexibility

 

We believe that we have successfully capitalized the business in a financially conservative manner that allows for continued access to capital to fund our growth opportunities. We target a long-term leverage profile below 30% Net Debt / Gross Asset Value, which provides us with significant financial flexibility going forward. In line with this target, we recently funded the acquisition of 13 Capesize vessels from CarVal Investors, LLC (“CarVal Investors”) using a mix of cash and shares, thereby demonstrating our ability to access capital to fund opportunistic acquisitions.

 

We believe that we have also demonstrated the ability to raise equity capital at increasing valuations, as measured on a share price basis, thereby driving improved returns for investors. In particular, we have successfully raised equity, each time at a higher valuation, to fund our initial growth, including our initial capital raise of $44.5 million (of which $18.5 million was contributed in kind for the vessel Aquamarine) in December 2016 at $10.00 per share. Three months later, in March 2017, we raised an additional $100.0 million at $11.00 per share to fund the acquisition of six vessels (one Ultramax and five Capesize vessels). More recently, in December 2017 through March 2018, we raised $32.3 million at $15.23 per share (to be settled in multiple closings), a significant majority of which was to fund part of the acquisition of nine of the Capesize vessels from CarVal Investors delivered to date. We have continued to demonstrate our ability to source attractive and accretive acquisitions and successfully access the capital markets to drive increased value for our investors and propel growth in the business.

  

As of December 31, 2017, we had $19.5 million of available cash and cash equivalents, in addition to $186.0 million available under committed but undrawn financing facilities. We believe that our available liquidity and committed financing capacity, together with the proceeds of this offering, will allow us to make additional accretive acquisitions.

 

High Quality Fleet Developed Through Timely Vessel Acquisitions

 

 

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Our fleet consists of 25 dry bulk vessels (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018), including 22 Capesize, 1 Panamax and 2 Supramax carriers, and we are the second largest and most concentrated owner of Capesize vessels among publicly listed peers. We believe that each vessel was acquired at an opportunistic point across each vessel’s life cycle, thereby maximizing earnings potential while at the same time minimizing acquisition cost. Our fleet has an average age of 9 years, and we believe that owning a high-quality, well-maintained fleet affords us significant benefits, including reduced operating costs, improved quality of service and a competitive advantage in securing favorable charters with high-quality counterparties. We believe that our active vessel acquisition and disposition strategy has allowed us to build one of the largest Capesize dry bulk fleets globally.

 

While our current fleet composition is weighted towards Capesize vessels, our strategy is to continue to evaluate the demand and supply dynamics across the various dry bulk vessel segments. We plan to focus on the 50,000 dwt – 210,000 dwt vessel range, supported by CTM’s expertise in operating and managing vessels across all vessel sizes. Since our formation, we believe that Capesize vessels have presented the most attractive value and upside potential, and as such, management has taken advantage of opportunistic acquisitions in the space.

 

Our ability to acquire vessels at attractive prices has not required us to compromise on other critical vessel features, such as quality or the existence of a liquid secondary market for similar type vessels. Our vessels are built at the world’s most renowned shipyards and have been carefully maintained by CTM. However, we do not limit ourselves to vessels constructed at certain yards but rather look extensively for opportunistic purchases across all geographies. Additionally, the current sale and purchase market for types of vessels consistent with those in our fleet remains highly active, which is an important metric we take into account as we evaluate acquisition opportunities. The dry bulk sale and purchase market is the most liquid shipping market, with approximately 596 bulker sales (41.6 million dwt) in 2016 and 645 bulker sales (43.9 million dwt) in 2017 alone. The Panamax and Capesize markets together represented approximately 38% of the market on a number of vessels basis and 60% on a dwt basis. This highly liquid sale and purchase market offers us a unique opportunity to take advantage of opportunistic vessel acquisitions and dispositions, without having to incur an illiquidity discount. This can be seen through our acquisition and subsequent sale of the vessel Aquabeauty, which we acquired in May 2017 for $10.0 million and agreed to sell in January 2018 for $15.0 million.

 

This is but one example of our ability to generate significant returns to our investors. We have a proven and successful track record of acquiring vessels at attractive prices. Our first vessel was contributed by Brentwood Shipping, and each subsequent vessel acquisition / disposition has represented an attractive opportunity for us at that point in time. Recently in the second half of 2017, we announced a transformative acquisition of up to 13 vessels from CarVal Investors for a combination of cash and shares. This transaction allowed us to expand our fleet with similarly young and low leveraged Capesize vessels, and, at closing, will position the Company as one of the largest publicly listed owners of Capesize vessels.

 

Strong Relationship with CTM

 

We believe that one of our principal strengths is our relationship with CTM, which enables us to take advantage of its best-in-class fleet management capabilities across commercial, operational, technical and sale and purchase activities, as well as all the supporting functions it provides and also benefit from CTM’s history of actively managing financing relationships with international banks on behalf of its clients.

 

These financing relationships include, but are not limited to, arranging ship mortgages, pre-delivery financing and arranging working capital lines. In addition, we believe CTM is one of a handful of Western shipping companies with access to finance from Japanese banks, having previously arranged financing for two bulk carriers for another client of theirs.

 

In addition, our relationship with CTM has provided us with extensive acquisition sourcing capabilities, including opportunities to acquire high quality vessels at attractive prices. For example, GoodBulk has benefited from the strong ties that CTM has with the Japanese shipping market, from where we have directly sourced four of our acquired vessels to date without requiring non-Japanese intermediaries. CTM's long-standing relationships and network in Japan span back to 2004 when CTM was formed. Since that time, CTM has completed close to 70 sale

 

 

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and purchase and charter-based transactions in Japan. CTM’s scope of work includes identifying and suggesting potential acquisition or disposition candidates, asset inspections determining overall condition, engaging in price negotiation on behalf of and in close guidance with the Company, legal documentation handling and hand-over completion for a successful deal execution.

 

CTM employs approximately 80 employees, several of which have been there since the company’s inception, including its CFO, Director of Handymax – Post Panamax, Director of Capesize – VLOC, Director of Sale and Purchase, and Director of Operations and Fleet. Other key executives have been with CTM for over 10 years including its CEO. Collectively, the top eight executives have over 90 years of experience with CTM. Our management team has worked together for up to 24 years for CTM and its predecessors. Moreover, the employees of CTM are well aligned with the company as they have personally invested over $3.3 million into the business. This provides extensive high quality industry expertise.

 

Following this offering, our agreements with CTM will automatically extend for an additional five years, during which period the commissions and fee rates as noted above will remain fixed, thereby providing significant visibility into our cost structure and ability to source vessel acquisition opportunities.

 

Industry Leading Cost Structure with Lowest Break Evens

 

Through our unique high operating leverage / low financial leverage strategy, we have been able to create a low cost platform with very competitive cash break even rates. This is in part due to our strong relationship with our external manager CTM, which has allowed us to benefit from its significant experience and scale, directly managing over 100 dry bulk vessels ranging from Supramaxes to Newcastlemaxes. Our ability to leverage CTM’s industry leading commercial and technical platform has allowed to us to maintain a lean corporate structure, thereby reducing our costs. In addition, our low leverage model limits interest and amortization expenses, further driving down our very low and competitive cash break evens. In light of these factors, we believe that our per vessel costs and operating expenses are among the lowest in the industry. Our low cost structure further provides downside protection in the event of a prolonged downturn in charter rates.

 

Experienced Management Team with Interests Aligned to Shareholders

 

Our management team and Board of Directors have an extensive track record of managing both shipping companies and capital markets transactions, including initial public offerings, secondary offerings, debt offerings and restructurings. Our Chairman and CEO, Mr. John Michael Radziwill has over 20 years of experience in the industry, including as CEO of CTM and as a board member of Euronav at the time of its listing on the NYSE. Our CFO, Mr. Luigi Pulcini, has over 20 years of experience in the shipping industry and has been with CTM since inception, where he also works as CFO. Our President and Director, Mr. Andrew Garcia has 17 years of capital markets experience with expertise developed as an investor in the shipping and dry bulk space and through creating and bringing companies public in the U.S., including Two Harbors Investment Corp. Our management team, including the family of our Chairman and CEO, currently owns approximately 13% of the company, fully aligning their interests with that of the other shareholders. Moreover, 100% of management’s economic participation is in the form of “at risk” equity purchased in our first two equity offerings.

 

Our Business Strategies

 

Continue to Opportunistically Engage in Acquisitions or Disposals to Maximize Shareholder Value

 

We intend to continue our practice of acquiring or disposing of secondhand vessels while focusing on maximizing shareholder value and returning capital to shareholders when appropriate. Our management team has a demonstrated track record of acquiring and disposing of vessels at attractive prices, and we will continue to monitor prices of secondhand dry bulk Supramax, Panamax, and Capesize vessels as we seek opportunities in line with our acquisition strategy. Our relationship with CTM has provided us with extensive acquisition sourcing capabilities, including opportunities to acquire high quality vessels at attractive prices. We plan to continue to remain active in the secondhand market as we believe this offers the best value opportunity and do not anticipate participating in the newbuilding market at this time.

 

 

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The key component of our acquisition strategy is to focus on high-quality assets at attractive prices, and maintain a disciplined approach focused on protecting and increasing shareholder value as we evaluate new acquisitions. When considering potential acquisitions, we will evaluate several factors, including, but not limited to, our expectation of fundamental developments in the industry, the level of liquidity in the resale and charter market, the vessel’s earning potential in relation to its value, its condition and technical specifications, expected remaining useful life, the credit quality of the charterer, in the event that there is an attached charter, and the overall diversification of our fleet and customers. Through this framework, we have demonstrated a successful track record of opportunistic vessel acquisitions and dispositions that has developed our fleet into one of the largest Capesize fleets today. While we actively pursue acquisition opportunities from Supramaxes to Capesizes, since inception, we have favored Capesize vessels as we believed that they offered the best relative opportunity. At a time when others have pulled back from the Capesize market, our conviction around the market opportunity has allowed us to take advantage of opportunistic prices and build our high quality fleet. We continue to see significant opportunity among the larger vessel classes given their strong earnings potential, favorable acquisition prices, and liquid secondhand market.

 

Capture Revenue Upside Potential Through Spot Market Exposure

 

We plan to strategically employ our fleet to provide for high utilization, while at the same time substantially preserving flexibility so as to capitalize on any favorable changes in the rate environment. While the Baltic Dry Index (“BDI”), the generally agreed upon proxy for dry bulk shipping rates, has recently come off its near all-time low in February 2016, the index still remains approximately 50% below its long-term average (since the BDI's inception in 1985). Given industry backdrop and macroeconomic factors, we believe that there is still significant upside potential in charter rates and we expect these rates to continue to increase in the near to medium term.

 

We believe that our unique relationship with CTM, whose pools have consistently outperformed the Baltic Supramax, Panamax, and Capesize indices, coupled with our strong balance sheet of low financial leverage, afford us the ability to employ our vessels in the spot market for extended periods of time. Consequently, this provides additional flexibility to capture the upside opportunity should rates rise. However, we note that there is no guarantee that rates will continue to rise or that CTM will continue to outperform the various market indices.

 

Low Cost Operating Platform

 

We maintain a strong relationship with our external manager and believe that CTM is able to oversee the technical and commercial management of our fleet at a lower cost than could otherwise be achieved in-house. Moreover, we believe that CTM’s cost structure and compensation rates are competitive with those available through other external vessel managers. We believe that our external management arrangement will promote scalability as it will allow for growth without the incurrence of significant additional overhead. We also believe this structure allows us to maintain a very competitive, low cost operating platform with low cash break evens. Following this transaction, our agreement with CTM will automatically extend for an additional five years from the date of this offering at fixed fee levels, thereby providing additional cost visibility.

  

Low Financial Leverage

 

We intend to maintain a strong balance sheet and low financial leverage over time, even though we may have the capacity to obtain additional financing. By targeting on a long-term basis a Net Debt / Gross Asset Value below 30%, we expect to retain greater flexibility than our more levered competitors and to operate our vessels under shorter spot or period charters. Additionally, our low leverage approach affords increased flexibility in the event of downward pressures on rates, allowing us to operate profitably at rates that would otherwise result in losses for some of our competitors.

 

Shipping industry participants have increasingly favored financially solid vessel owners, compared to those that are more susceptible to insolvency risk. As such, we believe that our low leverage profile will make us more attractive to potential counterparties such as charterers and commercial banks. We believe that this will afford us further opportunities including better charters and negotiating leverage with our lending partners.

 

Dividend Strategy

 

 

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We intend to manage our capital structure by actively monitoring our leverage level with changing market conditions, targeting on a long-term basis a Net Debt / Gross Asset Value below 30%, and returning capital to shareholders when appropriate.

 

While we anticipate paying a regular dividend, our Board may review our dividend policy from time to time in light of our plans for future growth and other factors. We cannot assure that we will be able to pay regular dividends in the event of unforeseen market events.

 

Favorable Industry Fundamentals

 

We believe that the following trends identified by Fearnley Consultants (“Fearnleys”) in the dry bulk carrier market present growth opportunities:

 

·The global dry bulk shipping downturn in rates and values ended in 2016, and the sector is showing growth and recovery in charter rates and vessel values.

 

·Newbuilding and secondhand prices have improved but are still well below average levels from the last 15 years.

 

·The outlook for bulk carriers is positive, with overall demand growth estimated at 2.0% to 3.5% for 2018 and 2019. The fleet is estimated to grow at a slower pace of approximately 2.1% and 1.8% in 2018 and 2019, respectively. As such, the market balance is set to improve over this period and subsequently, earnings and values are expected to increase.

 

·The total order book to existing fleet ratio is currently 9.9%. This is the lowest order book to fleet ratio observed since 2002.

 

Growth in demand of approximately 3.5% to 4.0% for coal and 2.0% to 3.5% for iron ore in 2018 and 2019 is expected, according to Fearnleys. This is expected to benefit our fleet, as most of this demand growth is expected to be for Capesize and Panamax bulk carriers. See “The International Dry Bulk Shipping Industry” for more information on the dry bulk shipping industry.

 

Corporate Information

 

GoodBulk Ltd. was incorporated pursuant to the laws of Bermuda on October 20, 2016.

 

Our principal executive offices are located at c/o C Transport Maritime S.A.M., 7 Rue du Gabian, Gildo Pastor Center, Monaco, 98000. Our telephone number at this address is +377 97 98 59 87. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is www.goodbulk.com. The information contained on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

We maintain a registered office in Bermuda at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The telephone number of our registered office is +1 441 295 1422.

 

Risk Factors

 

We face a number of risks associated with our business and industry and must overcome a variety of challenges to utilize our strengths and implement our business strategies. These risks relate to, among others, changes in the international shipping industry, including charter hire rates, a downturn in the global economy, supply and demand, risks inherent in our industry and operations that could result in liability for damage to or destruction of property and equipment, pollution or environmental damage, our dependence on CTM, potential conflicts of interests between us and CTM, inability to comply with the financial covenants in our credit facilities and inability to successfully employ our dry bulk carriers.

 

You should carefully consider the following risks, those risks described in “Risk Factors” and the other information in this prospectus before deciding whether to invest in our common shares.

 

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Implications of Being an Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

·the ability to include only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations disclosure; and

 

·an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company (i) upon the last day of the fiscal year (A) in which we had more than $1.07 billion in annual revenue, or (B) we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares held by non-affiliates exceeds $700 million as of the prior June 30th, or (ii) we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. To the extent that we take advantage of these reduced reporting burdens, the information that we provide shareholders may be different than you might obtain from other public companies in which you hold equity interests.

 

We are choosing to “opt out” of the extended transition period to comply with new or revised accounting standards applicable to public companies and, as a result, we will comply with new or revised accounting standards as required when they are adopted. Our decision to opt out of the extended transition period is irrevocable.

 

 

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THE OFFERING

 

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common shares. You should carefully read this entire prospectus before investing in our common shares including “Risk Factors” and our consolidated financial statements.

 

Issuer GoodBulk Ltd.
Offering We are offering                common shares.
Offering price range Between $        and $        per common share.
Voting rights Our common shares have one vote per share.  
Over-allotment option We have granted the underwriters the right to purchase up to an additional           common shares from us within 30 days of the date of this prospectus, to cover over-allotments, if any, in connection with the offering.
Share capital before and after offering

As of the date of this prospectus, our issued share capital consists of common shares.

Immediately after the offering, we will have         common shares outstanding, assuming no exercise of the underwriters’ over-allotment option.

Use of proceeds We estimate that the net proceeds to us from the offering will be approximately $             , based on the midpoint of the price range set forth on the cover of this prospectus after deducting estimated underwriting discounts and commissions and expenses of the offering that are payable by us. We intend to use the net proceeds from the offering to fund the acquisition of additional vessels and for general corporate purposes.  See “Use of Proceeds.”
Dividend policy While we anticipate paying a regular dividend to holders of our common shares, we have not yet adopted a dividend policy with respect to future dividends.  Any future determination related to our dividend policy will be subject to the discretion of our Board of Directors, requirements of Bermuda law, our results of operations, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, the terms of our outstanding indebtedness, contractual restrictions, the ability of our subsidiaries to distribute funds to us and other factors deemed relevant by our Board of Directors. See “Dividends and Dividend Policy” and “Description of Share Capital.”
Lock-up agreements We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any

 

 

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  shares of our share capital during the 180-day period following the date of this prospectus, subject to certain exceptions. Members of our Board of Directors and our executive officers, as well as certain of our shareholders, have agreed to substantially similar lock-up provisions, subject to certain exceptions.
Risk factors See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.
Listing We intend to apply to list our common shares on the         under the symbol “       ”.

 

The number of common shares that will be outstanding after this offering excludes:

 

·               common shares issuable upon the delivery of certain vessels we have agreed to acquire with expected delivery dates in 2018; and

 

·               common shares subscribed for in our December 2017 rights offering which remain to be issued in upcoming closings.

 

Unless otherwise indicated, all information contained in this prospectus assumes:

 

·the exchange of the Class A common share held by one of our founders into one common share, the exchange of which will occur upon the effectiveness of the registration statement of which this prospectus forms a part; and

 

·no exercise of the option granted to the underwriters to purchase up to             additional common shares to cover over-allotments, if any, in connection with the offering.

 

 

 

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Summary Financial and Other Information

 

We were incorporated on October 20, 2016 for the purpose of owning high quality secondhand dry bulk vessels between 50,000 – 210,000 dwt. The following table sets forth our summary consolidated financial data and other operating data. The summary financial data as of and for the period ended December 31, 2016 and as of and for the year ended December 31, 2017 of GoodBulk Ltd. are derived from our audited consolidated financial statements included elsewhere in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB. This financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

 

Statement of Profit or Loss Data:

 

(in thousands of U.S. dollars except per share data)  From October 20 (Inception) to December 31,
2016
  Year Ended December 31, 2017
Revenues        57,092 
Voyage expenses        (23,932)
Vessel operating expenses        (16,343)
Net other operating income        372 
Depreciation        (8,109)
General and administrative expenses    (603)   (1,986)
(Loss) / Profit from operations    (603)   7,094 
Net financial expense        (1,712)
(Loss) / Profit for the period / year    (603)   5,382 
Other comprehensive income for the period / year         
Total comprehensive (loss) / income for the period / year    (603)   5,382 
           
(Loss) / Earnings per share, basic and diluted(1)    (1.08)   0.46 
Weighted average number of common shares outstanding, basic and diluted(1)    557,836    11,577,225 
Pro forma earnings per share, basic and diluted(2)          
Pro forma weighted average number of shares, basic and diluted          

_______________

(1)       There are no potentially dilutive instruments outstanding.

(2)       Pro forma earnings per share give retroactive effect to the number of shares to be issued in this offering.

 

Statement of Financial Position Data:

 

   As of December 31,
(in thousands of U.S. dollars)  2016  2017
Cash and cash equivalents    22,500    19,519 
Total assets    25,007    286,385 
Total long-term debt        85,202 
Common shares    4,450    17,223 
Total shareholders’ equity    23,977    193,593 

 

Other Financial and Operating Data:

 

(in thousands of U.S. dollars except days and per day TCE)

  From October 20 (Inception) to December 31,
2016
  Year Ended December 31, 2017
EBITDA(1)    (603)   15,203 
Total available days(2)        2,693 
Net TCE (per day) (3)        12,465 
Gross TCE (per day) (3)        13,296 

 _______________

(1) EBITDA is a non-IFRS financial measure that represents net profit or loss for the period before the impact of income taxes, net finance costs, and depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). Management uses EBITDA as a means of evaluating and understanding our operating performance. 

 

 

  

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The following table reconciles (loss) / profit for the period / year, the most directly comparable IFRS measure, to EBITDA:

 

(in thousands of U.S. dollars) 

 

2016 

 

2017 

(Loss) / Profit for the period / year    (603)   5,382 
Net financial expense        1,712 
Depreciation        8,109 
EBITDA    (603)   15,203 

 

(2) Total available days are defined as ship ownership days less aggregate off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special intermediate surveys.

 

(3) Time charter equivalent, or TCE, is a non-IFRS measure that represents the average daily revenue performance of a vessel. TCE is calculated by dividing revenues earned by our vessels, including positive or negative adjustments from the RSAs, less voyage expenses (such revenues being referred to as net allocated revenues or TCE revenues), by the number of total available days during the relevant time period. TCE provides additional meaningful information in conjunction with revenues, the most directly comparable IFRS measure, because it assists management in making decisions regarding the deployment and use of our vessels and in evaluating our financial performance. TCE and TCE revenues are also standard shipping industry performance measures used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (such as voyage charters and time charters) under which the vessels may be employed between the periods. Our definition of TCE and TCE revenues may not be comparable to that used by other companies in the shipping industry.

 

The following table reconciles revenues, the most directly comparable IFRS measure, to TCE:

 

(in thousands of U.S. dollars except per day TCE)  Year Ended December 31, 2017
Revenues    57,092 
Voyage expenses    (23,932)
RSAs adjustment    412 
Net TCE revenues    33,572 
Net TCE (per day) (a)    12,465 
Gross TCE (per day) (b)    13,296 

_______________

(a) Net TCE is net TCE revenues divided by total available days.

(b) Gross TCE is net TCE (per day) grossed up by a market commission of 6.25% (consisting of 5.0% brokerage commissions and 1.25% commercial management commission to CTM).

 

 

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Risk Factors

 

You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our common shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us, or which we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks facing our company or investments in Bermuda companies described below and elsewhere in this prospectus.

 

Industry Specific Risk Factors

 

Charter hire rates for dry bulk vessels are volatile, which may adversely affect our business, results of operation and financial condition.

 

The dry bulk shipping industry is cyclical with high volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and in recent years charter hire rates for dry bulk vessels have declined significantly from historically high levels. In the past, time charter and spot market charter rates for dry bulk carriers have declined below operating costs of vessels. The BDI, a daily average of charter rates for key dry bulk routes published by the Baltic Exchange Limited, which is viewed as the main benchmark to monitor the movements of the dry bulk vessel charter market and the performance of the entire dry bulk shipping market, declined from a high of 11,793 on May 20, 2008 to a low of 290 on February 10, 2016, which represented a decline of 98%. In 2017, the BDI ranged from a low of 685 on February 14, 2017, to a high of 1,743 on December 12, 2017. As of March 29, 2018, the BDI was 1,055.

 

Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and changes in the supply of and demand for the major commodities carried by water internationally. Because the factors affecting the supply of and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable. Since we primarily charter our vessels in the spot market we are exposed to the cyclicality and volatility of the spot market. Spot market charterhire rates may fluctuate significantly based upon available charters and the supply of and demand for seaborne dry bulk shipping capacity, and we may be unable to keep our vessels fully employed in these short-term markets. Alternatively, charter rates available in the spot market may be insufficient to enable our vessels to operate profitably. A significant decrease in charter rates would adversely affect our profitability, cash flows and ability to comply with the covenants in our loan agreements and pay dividends, if any, in the future, on our common shares. Furthermore, a significant decrease in charter rates would cause asset values to decline, or decline further, and we may have to record an impairment charge in our consolidated financial statements which could adversely affect our financial results.

 

Factors that influence demand for dry bulk vessel capacity include:

 

·supply of and demand for energy resources, commodities and industrial products;

 

·changes in the exploration or production of energy resources, commodities, consumer and industrial products;

 

·the location of regional and global production and manufacturing facilities;

 

·the location of consuming regions for energy resources, commodities, consumer and industrial products;

 

·the globalization of production and manufacturing;

 

·global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes and strikes;

 

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·natural disasters;

 

·disruptions and developments in international trade;

 

·changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;

 

·environmental and other regulatory developments;

 

·currency exchange rates; and

 

·weather.

 

Factors that influence the supply of dry bulk vessel capacity include:

 

·the number of newbuilding orders and deliveries, including slippage in deliveries;

 

·the number of shipyards and ability of shipyards to deliver vessels;

 

·port and canal congestion;

 

·the scrapping rate of older vessels;

 

·speed of vessel operation;

 

·vessel casualties;

 

·the number of vessels that are out of service, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire;

 

·changes in regulations that may encourage the construction of vessels; and

 

·changes in environmental and other regulations that may limit the useful life of vessels.

 

In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage costs, the efficiency and age profile of the existing dry bulk fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for dry bulk shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.

 

We anticipate that the future demand for our dry bulk vessels will be dependent upon economic growth in the world’s economies, including China and India, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo to be transported by sea. Adverse economic, political, social or other developments could have a material adverse effect on our business, results of operation and financial condition.

 

Global economic conditions may continue to negatively impact the dry bulk shipping industry.

 

In the global economy, operating businesses have recently faced tightening credit, weakening demand for goods and services, weak international liquidity conditions, and declining markets. In particular, lower demand for dry bulk cargoes as well as diminished trade credit available for the delivery of such cargoes have led to decreased demand for dry bulk carriers, creating downward pressure on charter rates and vessel values. The relatively weak global economic conditions have and may continue to have a number of adverse consequences for dry bulk and other shipping sectors, including, among other things:

 

·low charter rates, particularly for vessels employed on short-term time charters or in the spot market;

 

·decreases in the market value of dry bulk vessels and limited secondhand market for the sale of vessels;

 

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·limited financing for vessels;

 

·widespread loan covenant defaults; and

 

·declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.

 

The occurrence of one or more of these events could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

If economic conditions throughout the world decline, in particular in China and the rest of the Asia-Pacific region, this could negatively affect our business, results of operations, cash flows, financial condition and ability to obtain financing, and may adversely affect the market price of our common shares.

 

Our business and operating results have been, and will continue to be, affected by global and regional economic conditions. The credit markets in the United States and Europe have experienced contraction, deleveraging and reduced liquidity since the financial crisis in 2008, and the U.S. federal and state governments and European authorities have implemented and may implement additional regulations in the future. Securities and futures markets and the credit markets are subject to comprehensive laws, regulations and other requirements. The SEC, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws.

 

As a result of any renewed concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets may increase as lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases, ceased to provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available to the extent required. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.

 

A substantial amount of our business is dependent upon the Chinese economy. Economic slowdown in the Asia Pacific region, particularly in China, may therefore have a materially adverse effect on us, as we anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging of dry bulk commodities in ports in the Asia Pacific region. Before the global economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of GDP, which had a significant impact on shipping demand. The growth rate of China’s GDP was 6.9% for the year ended December 31, 2017, which is 0.2% higher than the growth rate for the year ended December 31, 2016, which was China’s slowest growth rate since 1990, and continues to remain below pre-2008 levels. Despite this recent growth in GDP, if, in the future, there is an economic downturn in China, our business, financial condition and results of operations and future prospects, would be materially and adversely affected.

 

Political uncertainty, the rise of populist political parties and an increase in trade protectionism could have a material adverse effect on our business, results of operation and financial condition.

 

As a result of the lingering effects of the global financial crisis and the limited global recovery, the rise of populist political parties and economic nationalist sentiments has led to increasing political uncertainty and unpredictability throughout the world. On June 23, 2016, the United Kingdom held a referendum at which the electorate voted to leave the Council of the European Union (the “EU”). It is unclear whether any other EU member states will hold such referendums, but such referendums could result in one or more other countries leaving the EU or in major reforms being made to the EU or to the Eurozone. In addition, the U.S. presidential administration has publicly stated its intention to renegotiate or withdraw from the North American Free Trade Agreement (“NAFTA”). Negotiations commenced in August 2017; however, at this stage, it is uncertain what the outcome of the renegotiations will be or their extent, including any withdrawal from the NAFTA. These potential developments, market perceptions concerning these and related issues and the attendant regulatory uncertainty regarding, for example, the posture of governments with respect to taxation and international trade and law enforcement, could have a material adverse effect on our business, results of operation and financial condition.

 

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The rise of populist political parties in some countries and the dominance of single-party political power in other countries, such as Russia and China, may lead to increased trade barriers, trade protectionism and restrictions on trade. Our operations expose us to the risk that increased trade protectionism will adversely affect our business. If the continuing global recovery is undermined by downside risks and the recent economic downturn is prolonged, governments, especially populist governments, may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. In the United States, there is significant uncertainty about the future relationship between the United States and other exporting countries, including with respect to tax policy, trade relations, treaties and government regulations. The current U.S. administration has announced that it will impose punitive tariffs (including trade sanctions against a range of products imported from China) and the withdrawal from certain trade agreements, such as the Trans-Pacific Partnership, in order to achieve these goals. Changes in U.S. trade policy, such as the announcement of unilateral tariffs on imported products, have triggered retaliatory actions from China and could trigger retaliatory actions by other affected countries, resulting in “trade wars” that could have a material adverse effect on our financial condition, results of operations, cash flows and competitive position.

  

Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade, including trade between the United States and China. Increasing trade protectionism in the markets that our charterers serve may cause (i) a decrease in cargoes available to our charterers in favor of domestic charterers and domestically owned ships and (ii) an increase in the risks associated with importing goods to such markets. These developments would have an adverse impact on our charterers’ business, results of operation and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their charters with us. This could have a material adverse effect on our business, results of operations and financial condition.

 

The fair market values of our vessels may decline, which could limit the amount of funds that we can borrow or cause us to breach certain financial covenants in our credit facilities and we may incur a loss if we sell vessels following a decline in their market value.

 

The fair market values of dry bulk vessels, including our vessels, have generally experienced high volatility. The fair market value of our vessels may continue to fluctuate depending on a number of factors, including:

 

·prevailing level of charter rates;

 

·general economic and market conditions affecting the shipping industry;

 

·types, sizes and ages of vessels;

 

·supply of and demand for vessels;

 

·the need to upgrade vessels as a result of charterer requirements;

 

·technological advances in vessel design or equipment or otherwise;

 

·cost of newbuildings;

 

·other modes of transportation;

 

·governmental or other regulations; and

 

·competition from other shipping companies.

 

If the fair market values of our vessels decline, the amount of funds we may drawdown under our secured credit facilities may be limited and we may not be in compliance with certain covenants contained in our secured credit facilities, which may result in an event of default. In such circumstances, we may not be able to refinance our debt or obtain additional financing. If we are not able to comply with the covenants in our secured credit facilities, and are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet. In addition, if we sell one or more of our vessels at a time when vessel prices have fallen, the sale may be less than the vessel’s carrying value on our consolidated financial statements, resulting in a loss and a reduction in earnings.

 

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Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of such acquisitions may increase and this could adversely affect our business, results of operations, cash flows and financial condition.

 

A significant decrease of the market values of our vessels could cause us to incur an impairment loss and could have a material adverse effect on our business, results of operations and financial condition.

 

We review for impairment our vessels held and used whenever events or changes in circumstances indicate that the carrying amount of the vessels may not be recoverable. Such indicators include declines in the fair market value of vessels, decreases in market charter rates, vessel sale and purchase considerations, fleet utilization, regulatory changes in the dry bulk shipping industry or changes in business plans or overall market conditions that may adversely affect cash flows. We may be required to record an impairment charge with respect to our vessels and any such impairment charge resulting from a decline in the market value of our vessels or a decrease in charter rates may have a material adverse effect on our business, results of operations and financial condition.

 

While there has been limited newbuilding activity in 2016 and 2017, there is a risk that an increase in new vessel ordering may destabilize a market recovery.

 

Between 2009 and 2012, the dry bulk market experienced a period of high fleet growth as a result of increased newbuilding orders leading up to the global financial crisis in 2008. As the market appeared to be on the verge of a recovery in 2013, another surge of newbuilding orders further delayed dry bulk market improvement, and in 2016, the market hit its lowest point, with rates at below operating costs. Since late 2016, however, freight rates have been climbing, and from September 2016 onwards, every month has seen higher year-over-year rates. These improvements are the result of a resilient demand environment and overall declining fleet growth. According to Fearnleys, as of December 31, 2017, the newbuilding orderbook is at 9.9% of the existing drybulk fleet capacity, down from an average of about 16% in the previous five years. Newbuilding orders in the future may, however, impede this recovery and rates may fall if the net supply of dry bulk carrier capacity increases without a corresponding increase in demand, adversely affecting our ability to operate our dry bulk carriers profitably.

 

We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.

 

Our operations are subject to numerous international, national, state and local laws, regulations, treaties and conventions in force in international waters and the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels relating to protection of the environment. These laws and regulations include environmental protection statutes, such as the U.S. Oil Pollution Act of 1990 (“OPA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the U.S. Clean Air Act and the U.S. Clean Water Act, regulations established by the United Nations’ International Maritime Organization (“IMO”), including the International Convention for the Prevention of Pollution from Ships of 1975, the International Convention for the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974 (“SOLAS”), and the International Convention on Load Lines of 1966, and regulations established by flag state administrations. These requirements govern, among other things, the storage, handling, transportation and disposal of hazardous and non-hazardous materials, the remediation of contamination, the emission or discharge of pollutants into the air or water, liability for damage to natural resources and occupational health and safety. We may incur costs in order to comply with our obligations under existing and future environmental laws and regulations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, development and implementation of emergency procedures and insurance coverage or other financial assurance with respect to pollution incidents involving our vessels.

 

Compliance with such requirements, where applicable, may require installation of costly equipment or implementation of operational changes and may affect the resale value or useful lives of our vessels. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost of complying with them or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and may materially adversely affect our operations. For example, the International Convention for the Control and Management of Ships’ Ballast Water and Sediments

 

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(“BWM Convention”) adopted by the IMO in February 2004, calls for the phased introduction of the mandatory reducing of living organism limits in ballast water over time. In order to comply with these living organism limits, vessel owners may have to install expensive ballast water treatment systems or make port facility disposal arrangement and modify existing vessels to accommodate those systems. The BWM Convention entered in force on September 8, 2017 and we cannot be assured that these systems will be approved by the regulatory bodies of every jurisdiction in which we may wish to conduct our business. If they are not approved, it could have an adverse material impact on our business, financial condition and results of operations. In addition, the USCG has adopted regulations imposing requirements similar to those of the BWM Convention. In December 2016, the USCG first approved technology for ballast water treatment. The USCG previously provided waivers to vessels that could not install the as-yet unapproved technology, and such vessels will need to show why they cannot install the approved technology. In order to comply with these living organism limits, vessel owners may have to install expensive ballast water treatment systems or make port facility disposal arrangements and modify existing vessels to accommodate those systems. Other countries may adopt the BWM Convention or similar requirements unilaterally. USCG ballast water treatment requirements, as well as the adoption of the BWM Convention standards by other jurisdictions, could have an adverse material impact on our business, results of operations and financial condition depending on the available ballast water treatment systems and the extent to which existing vessels must be modified to accommodate such systems.

 

Certain environmental laws impose strict and joint and several liability for remediation of spills, discharges of oil and releases of hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under the OPA for example, owners and operators are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States.

 

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations, and satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

Environmental and other regulations restricting the use or export and import of certain products, such as coal, may negatively impact the demand for dry bulk shipping. For example, China recently issued curbs on the importation of coal at certain ports, and India recently imposed regional restrictions on petroleum coke use. More generally, increasingly stringent laws and regulations aimed at limiting greenhouse gas emissions may reduce demand for fossil fuels including coal, which may in turn reduce the demand for dry bulk shipping and have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

We are subject to international safety regulations, requirements and standards imposed by our classification societies and charterers and the failure to comply with these regulations, requirements and standards may subject us to increased liability, adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

 

The operation of our vessels is affected by the requirements set forth in the International Safety Management Code (“ISM Code”). The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We rely upon the safety management system that our technical manager has developed for compliance with the ISM Code.

 

The ISM Code requires that vessel managers obtain a safety management certificate (“SMC”), for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager is equipped with a document of compliance (“DOC”) issued by each flag state, under the ISM Code. The DOC and SMC are subject to periodic evaluation and must be renewed every five years. Our third party manager, CTM, manages our vessels and must maintain a DOC. If our third party manager fails to maintain a DOC, our vessels’ SMCs will be invalid. Any failure to comply with the ISM Code, including the failure of our vessels to maintain a valid SMC, may result in increased liability, may invalidate existing insurance or decrease available

 

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insurance coverage for the affected vessels and may result in a denial of access to, or detention in, ports, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

In addition, vessel classification societies impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, vessel-owners and operators may also incur significant additional costs in meeting new maintenance and inspection requirements, developing contingency arrangements for potential spills and obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance.

 

In addition, certain of our charterers apply the Rightship rating system to our vessels. Rightship, the ship vetting service founded by Rio Tinto and BHP-Billiton, which has become the major vetting service in the dry bulk shipping industry, rates vessels based on certain criteria for seaworthiness. We may be required to incur costs to ensure that our vessels achieve adequate Rightship ratings or otherwise meet the standards set by our charterers. If any of our vessels fail to meet these standards, our ability to operate these vessels may be limited.

 

The operation of our vessels is also affected by other safety regulations in the form of international conventions, including the Maritime Labor Convention of 2006 (“MLC”), and national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration, including those established by flag state administrations. Because such conventions, laws, and regulations are often revised, we may not be able to predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.

 

If our vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, drydocking or special survey, those vessels would be unable to carry cargo, thereby reducing our revenues and profitability and violating certain covenants in our loan agreements.

 

The hull and machinery of every commercial vessel must be “classed” by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the IMO. A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of such vessel.

 

If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable. Any such inability to carry cargo or be employed could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

Our operations may be adversely impacted by severe weather, including as a result of climate change.

 

Tropical storms, hurricanes, typhoons and other severe maritime weather events could result in the suspension of operations at the planned ports of call for our vessels and require significant deviations from our vessels’ normal routes. In addition, climate change could result in an increase in the frequency and severity of these extreme weather events. The closure of ports, rerouting of vessels, damage of mining sites and productive facilities, as well as other delays caused by increasing frequency of severe weather, could stop operations or shipments for indeterminate periods and have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

Natural or man-made disasters and other similar events may significantly disrupt our business and could have an adverse effect on our business, results of operation and financial condition.

 

Natural or man-made disasters, including earthquakes, power outages, fires, floods, nuclear disasters, terrorist attacks or other criminal activities or acts of crew malfeasance, may render it difficult or impossible for us to operate

 

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our business for some period of time. Any disruptions in our operations related to the repair or replacement of our vessels or disruption of or reduced demand for shipping could have a material adverse impact on our business and results of operations. In addition, we may not carry business insurance sufficient to compensate for losses that may occur.

 

Political decisions may affect our vessels’ trading patterns and could have an adverse effect on our business and results of operation.

 

Our vessels trade globally, and the operation of our vessels is therefore exposed to political risks that might result in a closure of major waterways. For instance, political disturbances in Egypt, Iran and the Middle East in general may potentially result in a closure of the Suez Canal and prevailing economic and political conditions in Panama, though currently stable, could, in the future, result in a closure of the Panama Canal. Geopolitical risks are outside of our control, and could potentially limit or disrupt our access to markets and operations and could have an material adverse effect on our business.

 

World events could affect our results of operations and financial condition.

 

Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in Russia, North Korea, the Middle East, including Iran, Iraq, Syria, Egypt and North Africa, and the presence of U.S. or other armed forces in the Middle East, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism have also affected vessels trading in regions such as the South China Sea, the Gulf of Aden off the coast of Somalia and West Africa. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

 

Acts of piracy on ocean-going vessels have had and may continue to have an adverse effect on our business, results of operations and financial condition.

 

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Sea piracy incidents continue to occur, with dry bulk vessels particularly vulnerable to such attacks. If these piracy attacks result in regions in which our vessels are deployed being characterized as “war risk” zones by insurers or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charter hire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. Although we maintain insurance to cover risks associated with piracy acts, we may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, results of operations and financial condition.

 

Our vessels may call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common shares.

 

Our policies do not permit our vessels to call, and our vessels, since they were acquired by us, have not called, on ports located in countries that are targets of sanctions imposed by the U.S. government and other authorities, or in countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Iran, North Korea, Syria, and Sudan. Our vessels may call on ports located in such countries in the future if such restrictions are announced or implemented on a short timeline before we are able to respond. Moreover, U.S. and UN sanctions vary in their application and may be amended or strengthened over time, which may deny us access to other ports or intermediaries that could impact our business. Our adherence to these restrictions is also dependent on the

 

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compliance of third parties with our policies and applicable laws, and the failure of those third parties to comply may pose regulatory risks to our vessels.

 

In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”), which amended the Iran Sanctions Act. Among other things, the Iran Sanctions Act, as amended by CISADA, provides for the imposition of “secondary” sanctions on non-U.S. companies and persons who conduct certain business or trade with Iran, including certain activities related to the supply or export of refined petroleum products to Iran. In 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (“Iran Threat Reduction Act”), which created new sanctions and strengthened existing sanctions on Iran, including, among other things, sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also added a provision to the Iran Sanctions Act requiring the President of the United States to impose five or more sanctions from a menu of sanctions on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including prohibitions on certain banking and property transactions involving the sanctioned person. Also in 2012, President Obama signed Executive Order 13608 which, among other things, provides for sanctions on non-U.S. persons who violate or attempt to violate, or cause a violation of, any sanctions in effect against Iran, or facilitate any deceptive transactions for or on behalf of any person targeted by U.S. sanctions on Iran. Any persons designated pursuant to Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all transactions with the United States or U.S. persons. This generally includes conducting business in U.S. dollars, as the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) assumes that most transactions denominated in U.S. dollars clear through the U.S. financial system.

 

On July 14, 2015, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) and the EU announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program (“JCPOA”), following an earlier interim agreement called the Joint Plan of Action. The JCPOA is intended to significantly restrict Iran’s ability to develop and produce nuclear weapons while simultaneously easing non-nuclear secondary sanctions directed toward non-U.S. persons for conduct involving Iran that takes place outside the United States without the involvement of U.S. persons. On January 16, 2016, which we refer to as Implementation Day, the United States joined the European Union and the United Nations Security Council in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency that Iran had satisfied its obligations under the JCPOA. Under the JCPOA, the particular sanctions under the Iran Sanctions Act, as amended by CISADA and the Iran Threat Reduction Act, referenced above, have been waived (except to the extent involving persons included on OFAC’s Specially Designated Nationals and Blocked Persons List), but Executive Order 13608 remains in effect.

 

However, there is significant uncertainty regarding the future of the JCPOA. In October 2017, President Trump announced that he would not make a certification with respect to the JCPOA required by the Iran Nuclear Agreement Review Act (“INARA”). The President’s decision did not immediately result in the reimposition of any Iran-related sanctions or place the United States in breach of its commitments under the JCPOA, but it (and any future failures to make required certifications under INARA) provide an opportunity for Congress to consider the reimposition of specific sanctions on Iran on an expedited basis. Moreover, President Trump has stated that should Congress not pass new legislation intended to force the amendment of the JCPOA to remove sunset provisions and impose restrictions on Iran’s ballistic missile programs, he will terminate the JCPOA, noting that he retains the authority to act unilaterally to reimpose sanctions at any time. In January 2018, President Trump again executed necessary waivers to continue the United States’ nuclear sanctions relief to Iran in compliance with the JCPOA, but in a statement he indicated that he will not again waive sanctions unless the JCPOA is amended.

 

Although we believe that we are in compliance with all applicable sanctions, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Moreover, although we have policies which require compliance with all applicable sanctions by our business partners, many of our activities are carried out by third parties whose compliance with applicable sanctions is not completely under our control. Any such violation could result in fines or other penalties and could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to

 

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invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our securities may adversely affect the price at which our securities trade. Moreover, our charterers may violate applicable sanctions as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries that are targets of U.S. sanctions that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our securities may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

 

Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, contract terminations and an adverse effect on our business.

 

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, to address global business risks, in particular those from third parties, arising from corruption, bribery and money laundering and to comply with international trade laws imposing embargoes and sanctions. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti- corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. As a result, our vessels could potentially be at a commercial, operational and financial disadvantage to competitors that do not expend the time and expense to implement comprehensive anticorruption compliance programs.

 

Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition.

 

We operate our dry bulk vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. The dry bulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere. The celebration of Chinese New Year in the first quarter of each year, also results in lower volumes of seaborne trade into China during this period. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality may result in quarter-to-quarter volatility in our revenues and results of operation, and could affect our ability to pay dividends, if any, in the future.

 

Increased inspection procedures, tighter import and export controls and security standards could increase costs and disrupt our business.

 

International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. In addition, pursuant to SOLAS, our vessels and the ports in which we operate are subject to the International Ship and Port Facility Security Code (“ISPS Code”), which is designed to enhance the security of ports and ships against terrorism. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading, offloading, trans-shipment or delivery and the levying of customs duties, fines or other penalties against us.

 

It is possible that changes to inspection procedures and security standards could impose additional financial and legal obligations on us. Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.

 

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Rising fuel, or bunker, prices may adversely affect our profits.

 

Since we primarily employ our vessels in the spot market or in spot market-oriented pools, we expect that fuel, or bunkers, will typically be a significant, if not the largest, expense that we would incur with respect to our vessels operating on voyage charters. Changes in the price of fuel may adversely affect vessels’ relative pool weighting and our profitability. The imposition of stringent vessel air emissions requirements, such as the IMO’s global limit for sulphur in fuel oil used onboard ships of 0.5% mass by mass (m/m) by January 1, 2020, could lead to marine fuel shortages and substantial increases in marine fuel prices which could have a material adverse effect on our business, financial condition and results of operations. The price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce our profitability and the competitiveness of our business versus other forms of transportation.

 

We operate dry bulk vessels worldwide and our business has inherent operational risks, which may reduce our revenue or increase our expenses, and we may not be adequately covered by insurance.

 

The international shipping industry is an inherently risky business involving global operations. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.

 

Furthermore, the operation of certain vessel types, such as dry bulk carriers, has certain unique risks. With a dry bulk carrier, the cargo itself and its interaction with the vessel can be an operational risk. By their nature, dry bulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, dry bulk carriers are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more susceptible to breach at sea. Hull breaches in dry bulk carriers may lead to the flooding of the vessels’ holds. If a dry bulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain our vessels, we may be unable to prevent these events. Any of these circumstances or events may have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future, on our common shares. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.

 

In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. We procure insurance for the vessels in our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include hull and machinery marine risks insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance coverage, and hull and machinery war risk insurance for our fleet. See “Business—Risk of Loss and Liability Insurance.” Although we do not carry conventional loss of hire insurance (or any other kind of business interruption insurance) for our vessels covering the loss of revenue during off-hire periods, depending on a particular situation, we may decide to arrange loss of hire insurance for one or more ships. We cannot assure you that we will be adequately insured against any or all risks. We may not be able to obtain adequate insurance coverage for our fleet in the future, and we may not be able to obtain certain insurance coverage at reasonable rates or at all. The insurers may not pay particular claims, or may default on claims they are required to pay. Our insurance policies may contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition.

 

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If our vessels suffer damage due to the inherent operational risks of the shipping industry, we may experience unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our business and financial condition.

 

The operation of an ocean-going vessel carries inherent risks. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel or be towed to more distant drydocking facilities, as well as the cost of such repositioning, may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.

 

Maritime claimants could arrest or attach one or more of our vessels, which could interrupt our cash flows.

 

Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flows and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our vessels.

 

Governments could requisition our vessels during a period of war or emergency, which could negatively impact our business, results of operations and financial condition.

 

A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our business, results of operations and financial condition.

 

If we do not set aside funds and are unable to borrow or raise funds for vessel replacement at the end of a vessel's useful life, our revenue will decline, which could adversely affect our business, results of operations and financial condition.

 

If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. As of the date of this prospectus, the average age of our fleet was nine years. Our revenues and cash flows are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations and financial condition could be adversely affected. Any funds set aside for vessel replacement will not be available for cash distributions.

 

The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.

 

Our vessels may call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or restrictions which could have an adverse effect on our business, results of operations and financial condition.

 

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Company-Specific Risk Factors

 

We are a recently incorporated company with a limited history of operations.

 

We were incorporated in October 2016 and have a limited performance record, operating history and historical financial statements upon which you can evaluate our operations or our ability to implement and achieve our business strategy. These factors may make evaluating an investment in the Company difficult. We cannot assure you that we will be successful in implementing our business strategy.

 

We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.

 

We currently operate most of our vessels in the spot market, exposing us to the cyclicality and volatility in spot market charter rates. Further, we may employ any additional vessels that we acquire in the spot market.

 

Although the number of vessels in our fleet that participate in the spot market will vary from time to time, we anticipate that a significant portion of our fleet will participate in this market. As a result, our financial performance will be significantly affected by conditions in the dry bulk spot market and only our vessels that operate under fixed-rate time charters may, during the period such vessels operate under such time charters, provide a fixed source of revenue to us. Accordingly, it is difficult for us to budget our future revenues.

 

Historically, the dry bulk markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for dry bulk capacity. A deterioration in the global economy may reduce demand for transportation of dry bulk cargoes over longer distances, which may materially affect our revenues, profitability and cash flows. The spot charter market may fluctuate significantly based upon supply of and demand of vessels and cargoes. The successful operation of our vessels in the competitive spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, or meet our obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

 

We are dependent on the success and profitability of the pools in which our vessels operate.

 

We are party to pooling arrangements through CTM’s RSAs and may be in the future party to other pooling arrangements, pursuant to which the profitability of our vessels operating in these vessel pools is dependent upon the pool managers’ and other pool participants’ ability to successfully implement a profitable chartering strategy, which could include, among other things, obtaining favorable charters and employing vessels in the pool efficiently in order to service those charters. As of the date of this prospectus, 19 of our vessels operate in pools. For the year ended December 31, 2017, over 90% of our shipping revenue was derived from CTM’s RSAs. If vessels from other pool participants that enter into pools in which we participate are not of comparable design or quality to our vessels, if the owners of such other vessels negotiate for greater pool weightings than those obtained by us or if a significant number of pool participants cease to participate in our pool or the pooling arrangements are otherwise restricted, we may not achieve the benefits intended by pool participation and this could negatively impact the profitability of the pools in which we may participate or our profitability or dilute our interest in the pool's profits.

 

Acquiring and operating secondhand vessels exposes us to increased operating costs, which may adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.

 

Our strategy contemplates the acquisition and operation of secondhand vessels. While we typically inspect secondhand vessels prior to acquisition, we may waive physical inspection of a secondhand vessel. Even if we do inspect secondhand vessels prior to acquisition, inspection does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, purchasers of secondhand vessels do not receive the benefit of warranties from the builders for the secondhand vessels that they acquire. A secondhand vessel may have conditions or defects that we were not aware of when we

 

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bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock, which would reduce our operating days.

 

Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. In addition, certain of our charterers use independent ship vetting services, such as Rightship, to assess the seaworthiness of a vessel. If our vessels are not Rightship approved, charterers may not be willing to charter our vessels. As our vessels age, they will require more expenditures in order to earn adequate ratings from such vetting services, and if market conditions do not justify those expenditures, it may prevent us from operating our vessels as profitably during the remainder of their useful lives.

 

The aging of our fleet may result in increased operating costs in the future, which could adversely affect our results of operation.

 

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels age, typically they will become less fuel-efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

 

Newbuilding projects are subject to risks that could cause delays, cost overruns or cancellation of newbuilding contracts.

 

As of the date of this prospectus, we are not party to any shipbuilding contracts for the construction of newbuilding projects, however, in the future, we may enter into contracts for newbuilding projects. Vessel construction projects are subject to risks of delay or cost overruns inherent in any large construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost increases between order and delivery, design or engineering changes and work stoppages and other labor disputes, adverse weather conditions or any other events of force majeure. Significant cost overruns or delays could adversely affect our results of operations, cash flows and financial condition. Additionally, failure to complete a project on time may result in the delay of revenue from that vessel.

 

In addition, in the event the shipyard does not perform under its contract and we are unable to enforce the refund guarantee with a third party bank for any reason, we may lose all or part of our investment, which would have an adverse effect on our results of operations, cash flows and financial condition.

 

We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.

 

We have entered into, and may enter, various contracts, including pooling arrangements, time charters, spot voyage charters, shipbuilding contracts, credit facilities and other agreements. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime industry, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. In addition, in the event any shipyards do not perform under their contracts, and we are unable to enforce certain refund guarantees with third-party lenders for any reason, we may lose all or part of our investment, and we may not be able to operate the vessels we ordered in accordance with our business plan. Should our counterparties fail to honor their obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

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A drop in spot charter rates may provide an incentive for some charterers to default on or seek to renegotiate their time charters.

 

When we enter into a time charter, charter rates under that charter may be fixed for the term of the charter. If, in the future, we enter into fixed-rate time charters at a rate materially above the spot market rate, charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to honor their payment obligations, we may be unable to recoup any compensation for the defaulted charter payment and only be able to re-charter our vessels at lower charter rates, if at all, which would affect our ability to comply with our loan covenants and operate our vessels profitably. If we are not able to comply with our loan covenants and our lenders choose to accelerate our indebtedness and foreclose their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.

 

We may have difficulty managing our planned growth properly.

 

The acquisition and management of the 25 vessels in our fleet (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by June 2018) have imposed, and additional dry bulk vessels that we may acquire in the future will impose, significant responsibilities on our management. One of our principal strategies is to continue to grow by expanding our operations, and we may, in the future, increase the size of our fleet through timely and selective acquisitions. Our future growth will primarily depend upon a number of factors, some of which may not be within our control. These factors include our ability to:

 

·identify suitable dry bulk carriers, including newbuilding slots at shipyards and/or shipping companies for acquisitions at attractive prices;

 

·obtain required financing for our existing and new acquisitions;

 

·identify businesses engaged in managing, operating or owning dry bulk carriers for acquisitions or joint ventures;

 

·integrate any acquired dry bulk carriers or businesses successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate vessels that we acquire;

 

·hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;

 

·identify additional new markets;

 

·enhance our customer base; and

 

·improve our operating, financial and accounting systems and controls.

 

Our failure to effectively identify, acquire, develop and integrate any dry bulk carriers or businesses, or our inability to effectively manage the size of our fleet, could adversely affect our business, results of operations and financial condition.

 

A delay in the delivery to us of any vessel, or the failure of the shipyard to deliver a vessel at all, could cause us to breach our obligations under a related charter and could adversely affect our earnings. In addition, the delivery of any of these vessels with substantial defects could have similar consequences.

 

A third-party seller could fail to deliver a secondhand vessel on time or at all because of:

 

·bankruptcy or other financial crisis of the third-party seller;

 

·quality or engineering problems;

 

·disputes between the Company and the third-party seller regarding contractual obligations; or

 

·weather interference or catastrophic events, such as major earthquakes or fires.

 

A shipyard could fail to deliver a newbuild on time or at all because of:

  

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·work stoppages or other hostilities, political or economic disturbances that disrupt the operations of the shipyard;

 

·quality or engineering problems;

 

·bankruptcy or other financial crisis of the shipyard;

 

·a backlog of orders at the shipyard;

 

·disputes between the Company and the shipyard regarding contractual obligations;

 

·weather interference or catastrophic events, such as major earthquakes or fires; or

 

·our requests for changes to the original vessel specifications; or shortages of or delays in the receipt of necessary construction materials, such as steel, or equipment, such as main engines, electricity generators and propellers.

 

In addition, we may seek to terminate or novate a vessel acquisition contract due to market conditions, financing limitations or other reasons. The outcome of contract termination or novation negotiations may require us to forego deposits on construction or acquisition, as applicable, and pay additional cancellation fees. In addition, where we have already arranged a future charter with respect to the terminated contract, we may incur liabilities to such charter counterparty depending on the terms of such charter.

 

During periods in which charter rates are high, vessel values generally are high as well, and it may be difficult to consummate vessel acquisitions or enter into newbuild contracts at favorable prices. During periods when charter rates are low, we may be unable to fund the acquisition of vessels, whether through borrowing or cash on hand. For these reasons, we may be unable to execute our growth plans or avoid significant expenses and losses in connection with our future growth efforts.

 

In addition, acquisitions may require additional equity issuances, which may dilute our common shareholders if issued at lower prices than the price at which they acquired their shares, or debt issuances (with amortization payments), the latter of which could lower our available cash. If this occurs, our financial condition may be adversely affected.

 

Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our management, and the management of our manager, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.

 

Technological innovation could reduce our charter hire income and the value of our vessels.

 

The charter hire rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new dry bulk carriers are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments we receive for our vessels and the resale value of our vessels could significantly decrease. As a result, our business, results of operations, cash flows and financial condition could be adversely affected.

 

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In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources, and as a result, we may be unable to employ our vessels profitably.

 

Our vessels are employed in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the dry bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. If we are unable to successfully compete with other dry bulk shipping companies, our results of operations would be adversely impacted.

 

We cannot assure you that we will be successful in finding employment for all of our vessels.

 

As of the date of this prospectus, our fleet of 25 vessels (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018), had an aggregate capacity of approximately 4.1 million dwt. We intend to employ our vessels primarily in the spot market. We cannot assure you that we will be successful in finding employment for any future vessels in the volatile spot market immediately upon their deliveries to us or whether any such employment will be at profitable rates, nor can we assure you continued timely employment of our existing vessels.

 

We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.

 

We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.

 

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to make dividend payments.

 

We are a holding company and our subsidiaries, which are all wholly-owned by us, conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries and cash and cash equivalents held by us. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by the terms of our term loan facilities, certain of which prohibit subsidiary borrowers from paying dividends except in certain circumstances during the non-amortization periods, a claim or other action by a third party, including a creditor, and the laws of the Republic of Liberia, where our vessel-owning subsidiaries are incorporated, which may in the future regulate the payment of dividends by companies. For a description of the restrictions under the term loan facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Term Loan Facilities.” If we are unable to obtain funds from our subsidiaries, our Board of Directors may exercise its discretion not to declare or pay dividends.

 

We may have to pay tax on U.S.-source shipping income, which would reduce our earnings.

 

Under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a corporation that owns or charters vessels and has gross shipping income attributable to transportation that begins or ends, but that does not both begin and end, in the U.S., which we refer to as “U.S.-source gross shipping income,” may be subject to a 4% U.S. federal income tax on 50% of that U.S.-source gross shipping income without allowance for deduction, unless the corporation qualifies for exemption from tax under Section 883 of the Code (“Section 883”) and the applicable Treasury regulations.

 

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Whether we qualify for the exemption under Section 883 after this offering may, in certain circumstances, depend on a specified percentage of our common shares being owned, directly or indirectly, by shareholders who meet certain tests, including being resident in the United States or certain foreign countries. In such circumstances, we would be required to satisfy certain substantiation and reporting requirements to establish that we so qualify, which in turn would require such shareholders (and certain intermediaries through which they indirectly own our common shares) to provide us with certain documentation. The ownership of our common shares may not allow us to so qualify for the exemption under Section 883, or, even if the ownership of our common shares would allow us to so qualify, we may not be able to satisfy the substantiation and reporting requirements that we would need to meet to establish that we so qualify. As a result, we cannot provide any assurance that we will qualify for the exemption under Section 883 for 2018 or any subsequent taxable year.

 

If we were not entitled to exemption under Section 883 for any taxable year, we would be subject for such year to an effective 2% U.S. federal income tax on the shipping income we derive during the year which is attributable to the transport of cargoes to or from the U.S. We believe that we did not qualify for the exemption under Section 883 for the taxable year ending December 31, 2017 and we estimate that our U.S. federal income tax liability for the 12-month period ending December 31, 2017 was approximately $176,000. However, as we acquire more vessels or the locations of the ports between which we transport cargoes change, we may generate more U.S.-source gross shipping income, which could increase the amount of our U.S. federal income tax liability. The imposition of this tax could have a negative effect on our business and could decrease our earnings available for distribution to our shareholders.

 

U.S. tax authorities could treat us as a “passive foreign investment company,” which could result in adverse U.S. federal income tax consequences to U.S. shareholders.

 

In general, a non-U.S. corporation will be considered a “passive foreign investment company” (a “PFIC”) for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains, other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services generally does not constitute passive income.

 

Based on our current and expected operations, including the anticipated utilization of the cash proceeds from this offering in our business, we believe that we will not be a PFIC with respect to our 2018 taxable year and do not expect to become a PFIC in the foreseeable future. To the extent we are required to take a position for U.S. federal income tax purposes, we intend to treat our income from our time charters and voyage charters, including through commercial pools, as services income, and not as rental income. Accordingly, we believe that our income from our time charters and voyage charters, including through commercial pools, does not constitute passive income for purposes of determining whether we are a PFIC, and, consequently, the assets that we own and operate in connection with the production of that income do not constitute passive assets. While there is no authority under the PFIC rules that directly addresses the treatment of income derived from time charters and voyage charters, including through commercial pools, as passive or nonpassive income, there is substantial legal authority supporting the treatment of such income as not constituting passive income for other tax purposes. However, there is also authority which characterizes income from time charters as rental income rather than services income for other tax purposes. Accordingly, the Internal Revenue Service (the “IRS”) or a court might not accept our position, and there is a risk that the IRS or a court may determine that we are a PFIC. Moreover, no assurance can be given that we would not become a PFIC for any future taxable year if the nature and extent of our operations change.

 

If the IRS were successful in asserting that we have been a PFIC for any taxable year during which a U.S. shareholder held our common shares, a U.S. shareholder generally will be subject to adverse U.S. federal income tax consequences. Under the rules applicable to PFICs, gain recognized by a U.S. shareholder on a sale or other disposition (including certain pledges) of our common shares would be allocated ratably over the U.S. shareholder’s holding period for the common shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. shareholder on its common shares exceeded 125% of the average of the annual

 

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distributions on the common shares received during the preceding three years or the U.S. shareholder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. Furthermore, if we were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, dividends paid on our common shares generally would not constitute “qualified dividend income” and the preferential tax rates for dividends (discussed under “Tax Considerations—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—Distributions”) would not apply.

 

In addition, if we were treated as a PFIC, certain of our subsidiaries may also be treated as PFICs (any such subsidiaries which are PFICs, “Lower-tier PFICs”). Under attribution rules, if we were treated as a PFIC, U.S. shareholders will be deemed to own their proportionate shares of our Lower-tier PFICs and will be subject to U.S. federal income tax according to the rules described herein with respect to PFICs on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition of shares of a Lower-tier PFIC, in each case as if the U.S. shareholder held such shares directly, even though holders have not received the proceeds of those distributions or dispositions directly.

 

Certain elections may be available that would result in alternative treatments of the common shares (such as a mark-to-market treatment).

 

Prospective U.S. shareholders should read the discussion under “Tax Considerations—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Rules” and consult their tax advisers regarding the application of the PFIC rules to an investment in our common shares.

 

We rely on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted and our business could be negatively affected.

 

The information and data systems of companies in the shipping and maritime sector are increasingly being targeted by a wide variety of criminal and other perpetrators of hacks and system compromises, including some attacks with the potential to cause major interruptions to business operations. CTM relies on information technology networks and systems to process, transmit and store electronic and financial information; to capture knowledge of our business; to coordinate our business across our operation bases; and to communicate internally and with customers, suppliers, partners and other third-parties. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cyber-attacks, telecommunication failures, user errors or catastrophic events. Information technology systems are becoming increasingly integrated, so damage, disruption or shutdown to the system could result in a more widespread impact. If our manager’s information technology systems suffer severe damage, disruption or shutdown, and its business continuity plans do not effectively resolve the issues in a timely manner, our operations could be disrupted and our business could be negatively affected. In addition, cyber-attacks could lead to potential unauthorized access and disclosure of confidential information and data loss and corruption. There is no assurance that we will not experience these service interruptions or cyber-attacks in the future. Further, as the methods of cyber-attacks continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerabilities to cyber-attacks.

 

Labor interruptions could disrupt our business.

 

CTM instructs third parties to provide the crew for all of our vessels, which are manned by masters, officers and crews that are employed by CTM’s manning agent. As a result of such employment, labor disputes, industrial action or other labor unrest, including labor strikes, could arise and, if not resolved in a timely and cost-effective manner, prevent or hinder our operations from being carried out normally and could have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, although we believe that we are in compliance with International Transport Workers' Federation (“ITF”) guidelines, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, which could result in our vessels being restricted from trading and have a material adverse effect on our business.

 

Risks Related to Our Relationship with C Transport Maritime

 

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We depend on our manager to operate our business and our business could be harmed if our manager fails to perform its services satisfactorily.

 

Pursuant to our commercial management agreement, as amended, with CTM (the “Commercial Management Agreement”), our services agreement, as amended, with CTM (the “Services Agreement”) and our ship management agreements, as amended, with CTM (the “Shipmanagement Agreements”), our manager provides us with operational, technical, commercial and administrative services (including vessel maintenance, crewing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance, financial services and office space, chartering, operations, hire collection and distribution, sale and purchase services). Our operational success depends significantly upon our manager’s satisfactory performance of these services. Our business would be harmed if our manager failed to perform these services satisfactorily. The Commercial Management Agreement, Services Agreement and Shipmanagement Agreements are subject to renewal on the later of (i) October 26, 2022 or (ii) five years after the date of this offering. Upon completion of this offering, the Commercial Management Agreement, Services Agreement and Shipmanagement Agreements will only be subject to termination by us upon three months prior notice. If the Commercial Management Agreement, Services Agreement and Shipmanagement Agreements were to be terminated or if their terms were to be altered, our business could be adversely affected, as we may not be able to immediately replace such services, and even if replacement services were immediately available, the terms offered could be less favorable than those under the existing agreements.

 

Our ability to compete for and enter into charters and to expand our relationships with our existing charterers will depend largely on our relationship with our manager and their reputation and relationships in the shipping industry. If our manager suffers material damage to their reputation or relationships, it may harm our ability to:

 

·renew existing charters upon their expiration;

 

·obtain new charters;

 

·successfully interact with shipyards during periods of shipyard construction constraints;

 

·obtain financing on commercially acceptable terms;

 

·maintain satisfactory relationships with our charterers and suppliers; and

 

·successfully execute our business strategies.

 

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations and financial condition.

 

Management fees are payable to our manager regardless of our profitability, which could have a material adverse effect on our business, financial condition and results of operations.

 

Pursuant to the Commercial Management Agreement, we pay CTM, (i) a commission of 1.25% on all hires paid on time chartered-in and time chartered-out vessels or a commission of 1.25% on all gross freight on performed voyage charter contracts, and (ii) a commission of 1% on the memorandum of agreement price realized in respect of a concluded sale of a vessel by us or any of our subsidiaries. Pursuant to the Services Agreement, we pay CTM an annual management fee of $50,000 for each vessel owned by us. Pursuant to the Shipmanagement Agreements, we pay CTM (i) an annual management fee of $144,000 for each vessel owned by us and (ii) $15,000 per vessel per quarter for other general expenses. The Commercial Management Agreement, Services Agreement and Shipmanagement Agreements are subject to renewal on the later of (i) October 26, 2022 or (ii) five years after the date of this offering. Upon any termination by us that is not a result of CTM’s failure to perform a material obligation, we must pay CTM a termination fee equal to twice the amount of commissions due over the prior twelve months under the Commercial Management and Services Agreement and a termination fee equal to the basic management fees for the prior twelve months under the Shipmanagement Agreement. The fees under the Services Agreement and the Shipmanagement Agreements are payable whether or not our vessels are employed, and regardless of our profitability, and we have no ability to require our manager to reduce the fees under both agreements if our profitability decreases, which could have a material adverse effect on our business, financial condition and results of operations.

 

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We are dependent on our manager and its ability to hire and retain key personnel.

 

We are dependent on our manager and its ability to hire and retain key personnel, and there may be conflicts of interest between us and our manager that may not be resolved in our favor. Our success depends to a significant extent upon the abilities and efforts of our manager, CTM, and our management team and upon our and our manager’s ability to hire and retain key members of our management team. The loss of any of these individuals could adversely affect our business prospects and financial condition. We do not maintain “key man” life insurance on any of our officers.

 

Our continued success will also depend upon our manager’s ability to hire and retain key personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense due to the increase in the size of the global shipping fleet. If our manager is not able to obtain higher charter rates to compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. If our manager cannot hire, train and retain a sufficient number of qualified employees, we may be unable to manage, maintain and grow our business, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. As we expand our fleet, we will also need to expand our operational and financial systems and hire new shoreside staff and seafarers to crew our vessels; if our manager cannot expand these systems or recruit suitable employees, it may have an adverse effect on our results of operations.

 

Our Chief Executive Officer is also the Chief Executive Officer of our manager, which could create conflicts of interest between us and our manager.

 

Our Chief Executive Officer, John Michael Radziwill, is also the Chief Executive Officer of our commercial, operational and technical manager, CTM. This relationship could create conflicts of interest between us, on the one hand, and our manager, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operation of the vessels in our fleet versus vessels owned or chartered-in by other companies affiliated with or managed by CTM. In particular, as of December 31, 2017, our manager provides commercial management services to approximately 91 vessels, operational management services to approximately 95 vessels and technical management services to approximately 28 vessels, including the vessels in our fleet, and our manager may operate additional vessels that will compete with our vessels in the future. As of December 31, 2017, nine of the vessels managed by CTM are also part-owned or controlled by Mr. Radziwill’s family. We do not have any agreement prohibiting competition with, or giving priority to, our vessels or our company with respect to any opportunities that may arise, and the vessels managed by CTM, including those owned by the Radziwill family, may compete with us. These conflicts of interest may have an adverse effect on our business, financial condition and results of operations.

 

Our Chief Executive Officer, Chief Financial Officer and President do not devote all of their time to our business, which may hinder our ability to operate successfully.

 

Our Chief Executive Officer and Chief Financial Officer participate in business activities not associated with us, including serving as a member of the management team of CTM, and are not required to work full-time on our affairs. Furthermore, while our President devotes a substantial amount of his time to our business, he participates in other business activities not associated with us and is not required to work full-time on our affairs. As a result, such executive officers may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as well as shareholders of other companies which they may be affiliated with. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business, results of operations and financial condition.

 

Our manager is a privately held company and there is little or no publicly available information about them.

 

Our vessels are commercially, technically and operationally managed by CTM. CTM’s ability to render management services will depend in part on their own financial strength. Circumstances beyond our control could impair their financial strength, and because they are a privately held company, information about their financial strength is not available. As a result, we and our shareholders might have little advance warning of financial or other problems affecting our manager even though their financial or other problems could have a material adverse effect on our business.

 

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Risks Relating to our Indebtedness

 

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

 

Borrowing under our credit facilities requires us to dedicate a part of our cash flow from operations to paying interest and, subject to temporary non-amortization periods under certain of our loan agreements that expire in 2019, principal on our indebtedness under such facilities. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Accordingly, our cash break even level will increase once these non-amortization periods end. Amounts borrowed under our credit facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the dry bulk carrier industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

 

·seeking to raise additional capital;

 

·refinancing or restructuring our debt;

 

·selling dry bulk carriers; or

 

·reducing or delaying capital investments.

 

However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations. If we are unable to meet our debt obligations or if some other default occurs under our credit facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt.

 

If the market values of our assets go down, our leverage ratio could increase above our long-term target.

 

We determine our net debt to gross asset value ratio at the time of vessel purchases, and we are not obligated to pay down the debt or otherwise reduce our leverage ratio, by raising equity or otherwise, if our leverage ratio is greater than our long-term target but within limits of the covenants in our credit facilities. If the market value of our assets were to decline in value faster than the rate at which we repay our loans, our leverage ratio may increase. While we expect the amortization profiles of our debt to be consistent with the expected depreciation of our fleet, some of our facilities have initial non-amortization periods, and we may enter into new credit facilities in the future with similar non-amortization profiles. Furthermore, if the market value of vessels were to decline, it may also cause our leverage ratios to increase.

 

We may require additional capital in the future, which may not be available on favorable terms, or at all.

 

Depending on many factors, including market developments, our future earnings, the value of our assets and expenditures for any new projects, we may need additional funds. In particular, using debt financing as part of the aggregate cost of acquiring new vessels is part of our growth strategy. We cannot guarantee that we will be able to obtain additional financing at all or on terms acceptable to us. If adequate funds are not available, we may have to reduce expenditures for investments in new and existing projects, which could hinder our growth, prevent us from realizing potential revenues from prior investments and have a negative impact on our cash flows and results of operations.

 

Restrictive covenants in our existing credit facilities and financing agreements impose, and any future credit facilities and financing agreements will impose, financial and other restrictions on us, and any breach of these covenants could result in the acceleration of our indebtedness and foreclosure on our vessels.

 

Our existing credit facilities and financing agreements impose, and any future credit facility and financing agreement may impose, operating and financial restrictions on us. These restrictions generally require us to maintain, among other things, certain minimum loan-to-value ratios , consolidated leverage ratios, minimum liquidity requirements and, in one case, EBITDA to interest coverage ratios, and limit our ability to, among

 

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other things, pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such dividend or prevent us from utilizing the credit facility if an event of default has occurred. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Term Loan Facilities.” Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours, and we cannot guarantee that we will be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to our stockholders, finance our future operations or pursue business opportunities.

 

A failure to meet our payment and other obligations or to maintain compliance with the applicable financial covenants and collateral coverage requirements could lead to defaults under our secured credit facilities. Our lenders could then accelerate our indebtedness and foreclose on the vessels in our fleet securing those credit facilities. The loss of these vessels would have a material adverse effect on our business, financial condition and results of operations.

 

Our financing arrangements have floating interest rates, which could negatively affect our financial performance as a result of interest rate fluctuations.

 

Our current financing agreements have, and our future financing arrangements may have, floating interest rates, typically based on LIBOR, movements in interest rates could negatively affect our financial performance. Furthermore, historically interest in most loan agreements in our industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.

 

Our financial condition could be materially adversely affected despite entering into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities. In the first quarter of 2018, we entered, and we may in the future enter, into derivative contracts to hedge our overall exposure to interest rate risk exposure. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. For instance, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. The derivatives strategies that we employ, and may employ, may not be successful, and we could, as a result, incur substantial additional interest costs. To the extent our interest rate swaps do not qualify to be designated as hedges for accounting purposes, we will be required to recognize fluctuations in their fair value in our income statement. Moreover, no assurance can however be given that the use of these derivative instruments, if any, may affectively protect us from adverse interest rate movements.

 

Because we generate all of our revenues in U.S. dollars but incur certain expenses in other currencies, exchange rate fluctuations could adversely affect our results of operations.

 

We generate all of our revenues in U.S. dollars and the majority of our expenses are also in U.S. dollars. However, certain limited expenses are incurred in other currencies. Changes in the value of the U.S. dollar relative to the other currencies or the amount of expenses we incur in other currencies could cause fluctuations in our net income.

 

Certain Factors Relating to Our Common Shares and the Offering

 

We do not know whether a market for our common shares will develop to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.

 

Our common shares currently trade on the N-OTC and there is no established trading market for our common shares in the United States. We intend to apply to list our common shares on             . There is no guarantee that an active trading market will develop. If an active trading market does not develop, you may have difficulty selling any of our common shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on             , or otherwise or how liquid that market might become. The initial public offering price for the common shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our common shares may be influenced by many factors, some of which are beyond our control, including:

 

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·actual or anticipated variations in our operating results;

 

·the failure of financial analysts to cover our common shares after this offering;

 

·changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;

 

·changes in market valuations of similar companies;

 

·announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or joint ventures;

 

·future sales of our shares by us or our shareholders;

 

·investor perceptions of us and the industry in which we operate;

 

·general economic, industry or market conditions; and

 

·the other factors described in this “Risk Factors” section.

 

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our results of operations or financial condition.

 

Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could cause the market price of our common shares to decline.

 

Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could cause the market price of our common shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our authorized share capital, we are authorized to issue up to             common shares, of which             common shares will be outstanding following this offering. We, our directors and officers and certain of our shareholders have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Although we have been advised that there is no present intent to do so, certain of the underwriters may, in their sole discretion and without notice, release all or any portion of the common shares from the restrictions in any of the lock-up agreements described above. Sales of common shares by our shareholders could have a material adverse effect on the trading price of our shares.

 

In addition, following the expiration of the lock-up period, certain of our existing shareholders will have the right to demand that we file a registration statement covering the offer and sale of their securities under the Securities Act of 1933, as amended (the “Securities Act”), for as long as each holds unregistered securities. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act. Any sales of securities by these shareholders could have a material adverse effect on the trading price of our common shares. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our common shares.

 

We also intend to file a registration statement in respect of all common shares that we may issue under the equity compensation plan we intend to adopt in connection with this offering. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriters” section of this prospectus.

 

 

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New investors in our common shares will experience immediate and substantial book value dilution after this offering.

 

The initial public offering price of our common shares will be substantially higher than the pro forma net tangible book value per share of the outstanding common shares immediately after the offering. Based on an assumed initial public offering price of $      per share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of December 31, 2017, if you purchase our common shares in this offering, you will pay more for your shares than the amounts paid by our existing shareholders for their shares and you will suffer immediate dilution of approximately $      per share in pro forma net tangible book value. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation. For additional information on the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

 

Transformation into a public company may increase our costs and disrupt the regular operations of our business.

 

This offering will have a significant transformative effect on us. We expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded common shares. We will also incur costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, increased directors and officers insurance, investor relations, and various other costs of a U.S. public company.

 

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), as well as rules implemented by the SEC and             . We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified independent board. We estimate the additional costs we will incur as a public company, including costs associated with corporate governance requirements, will be approximately $             million on an annual basis.

 

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.

 

For as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years. See “Summary—Implications of Being an Emerging Growth Company.” Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal control over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

 

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As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our common shares.

 

             of the              Listing Rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements.

  

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control.

 

Our principal shareholders, directors and executive officers and entities affiliated with them will own approximately             % of the outstanding shares of our common shares after this offering. As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of amalgamations, mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares.

 

Certain of our major shareholders may have interests that are different from the interests of our other shareholders.

 

Certain of our major shareholders may have interests that are different from, or are in addition to, the interests of our other shareholders. In particular, CarVal Investors and certain of its affiliates, may be deemed to beneficially own approximately             % of our issued and outstanding shares after giving effect to this offering, Lantern and certain of its affiliates, may be deemed to beneficially own approximately             % of our issued and outstanding shares after giving effect to this offering, and Brentwood Shipping may be deemed to beneficially own approximately             % of our issued and outstanding shares after giving effect to this offering. There may be real or apparent conflicts of interest with respect to matters affecting such shareholders and their affiliates whose interests in some circumstances may be adverse to our interests.

 

For so long as such shareholders continue to own a significant percentage of our common shares, they will be able to significantly influence the composition of our Board of Directors and the approval of actions requiring shareholder approval through their voting power. Accordingly, for such period of time, they will have significant influence with respect to our management, business plans and policies, including the appointment and removal of

 

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our officers. In particular, for so long as such shareholders continue to own a significant percentage of our common shares, they may be able to cause or prevent a change of control of our company or a change in the composition of our Board of Directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your common shares as part of a sale of our company and ultimately might affect the market price of our common shares.

 

Such shareholders and their affiliates engage in a broad spectrum of activities. In the ordinary course of their business activities, they may engage in activities where their interests conflict with our interests or those of our shareholders. For example, they may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, they may have an interest in our pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to us and our shareholders. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us or result in agreements that are less favorable to us than terms that would be obtained in arm's-length negotiations with unaffiliated third-parties.

 

We cannot assure you that our Board of Directors will declare cash dividends in the foreseeable future.

 

While we anticipate paying a regular dividend to holders of our common shares, we have not yet adopted a dividend policy with respect to future dividends and our Board of Directors may not declare dividends in the future. In addition, two of our existing term loan facilities prohibit us from making or paying dividends during the non-amortization periods of those facilities, which are currently expected to apply until March 2019.

 

The declaration and payment of dividends, if any, will always be subject to the discretion of our Board of Directors, restrictions contained in our credit facilities and the requirements of Bermuda law. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, the terms of our outstanding indebtedness and the ability of our subsidiaries to distribute funds to us. The international dry bulk shipping industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends.

 

We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. Our growth strategy contemplates that we will finance our acquisitions of additional vessels primarily through debt financings and/or the net proceeds of future equity issuances on terms acceptable to us. If financing is not available to us on acceptable terms, our Board of Directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for the payment of dividends.

 

We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.

 

We are a Bermuda exempted company. As a result, the rights of holders of our common shares are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. A number of our directors and some of the named experts referred to in this prospectus are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

 

Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our common shares.

 

We are incorporated under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act 1981, as amended, of Bermuda (the “Companies Act”), which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of

 

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directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

 

When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally, under our bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of holders of our common shares and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. Therefore, holders of our common shares may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.

 

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

 

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

 

We have anti-takeover provisions in our bye-laws that may discourage a change of control.

 

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions provide for:

 

·a classified board of directors with staggered three-year terms;

 

·directors only to be removed for cause;

 

·restrictions on the time period in which directors may be nominated;

 

·our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and

 

·an affirmative vote of             % of our voting shares for certain “business combination” transactions which have not been approved by our Board of Directors.

 

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

 

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Cautionary Statement Regarding Forward-Looking Statements

 

This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others.

 

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to of various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:

 

·general economic, political and business conditions;

 

·general dry bulk market conditions, including fluctuations in charter hire rates and vessel values;

 

·changes in demand in the dry bulk shipping industry, including the market for our vessels;

 

·changes in the supply of dry bulk vessels;

 

·our ability to successfully employ our dry bulk vessels;

 

·changes in our operating expenses, including fuel or bunker prices, drydocking and insurance costs;

 

·compliance with, and our liabilities under, governmental, tax environmental and safety laws and regulations;

 

·changes in governmental regulation, tax and trade matters and actions taken by regulatory authorities;

 

·potential disruption of shipping routes due to accidents or political events;

 

·vessel breakdowns and instances of offhire;

 

·our expectations regarding the availability of vessel acquisitions and our ability to complete acquisition transactions planned;

 

·our ability to procure or have access to financing and refinancing;

 

·our continued borrowing availability under our credit facilities and compliance with the financial covenants therein;

 

·fluctuations in foreign currency exchange rates;

 

·potential exposure or loss from investment in derivative instruments;

 

·potential conflicts of interest involving members of our board and management and our significant shareholders;

 

·our ability to pay dividends;

 

·other factors that may affect our financial condition, liquidity and results of operations; and

 

·other risk factors discussed under “Risk Factors.”

 

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

 42

 

Use of Proceeds

 

We expect to receive total estimated net proceeds of approximately $            , based on the midpoint of the range set forth on the cover page of this prospectus after deducting estimated underwriting discounts and commissions and expenses of the offering that are payable by us. Each $1.00 increase (decrease) in the public offering price per common share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and expenses, by $            .

 

We intend to use the net proceeds from this offering to fund the acquisition of additional vessels and for general corporate purposes.

 

 

 43

 

Dividends and Dividend Policy

 

While we anticipate paying a regular dividend to holders of our common shares, we have not yet adopted a dividend policy with respect to future dividends. In addition, two of our existing term loan facilities prohibit us from making or paying dividends during the non-amortization periods of those facilities, which are currently expected to apply until March 2019. Any future determination related to our dividend policy will be subject to the discretion of our Board of Directors, requirements of Bermuda law, our results of operation, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy, contractual restrictions, the ability of our subsidiaries to distribute funds to us and other factors deemed relevant by our Board of Directors. In addition, our existing credit facilities limit our ability to, among other things, pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such dividend. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Term Loan Facilities.”

 

We are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common shares and make other payments. Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of its assets would thereby be less than its liabilities.

 

Under our bye-laws, each common share is entitled to dividends if, as and when dividends are declared by our Board of Directors, subject to any preferred dividend right of the holders of any preference shares.

 

 

 44

 

Capitalization

 

The table below sets forth our cash and cash equivalents and total capitalization as of December 31, 2017:

 

·on an actual basis; 

 

·on an as adjusted basis to give effect to the following transactions which occurred between January 1, 2018 and March 31, 2018: (i) additional closings of a rights offering subscribed for in December 2017 (the “Rights Offering”), (ii) additional drawdowns under our credit facilities; (iii) issuances of common shares in connection with additional purchases of vessels and (iv) certain additional issuances of common shares as further described below; and

  

·as further adjusted to give effect to our sale of the common shares in the offering, and the receipt of approximately $             in estimated net proceeds, considering an offering price of $             per common share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom.

 

Investors should read this table in conjunction with the sections titled "Selected Financial and Other information" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, and the related notes thereto, included in this prospectus.

 

   December 31, 2017
   Actual  As Adjusted  As Further Adjusted
   (in thousands of U.S. dollars)
Cash:         
Cash and cash equivalents   $19,519   $15,171(1)       
                
Capitalization:               
Debt(2)               
Secured debt    85,202    164,202(3)     
Total debt   $85,202    164,202      
                
Shareholders’ equity               
Share capital(4)    17,223    26,839(5)     
Share premium    179,616    316,451(5)     
Receivables for equity shares    (7,425)         
Other reserves              
Retained earnings    4,179    4,179      
Total shareholders’ equity   $193,593    347,469(5)     
                
Total capitalization(6)(7)   $278,795    511,671      

  

 
(1)Reflects the payment of $111.5 million in connection with the purchase of nine vessels as part of the acquisition of 13 vessels from CarVal Investors, partially funded through aggregate drawdowns of $79.0 million under our credit facilities, the net proceeds of the Rights Offering of $21.5 million (including net proceeds of $7.4 million received on January 5, 2018 for the issuance of 494,131 common shares in connection with the first closing of the Rights Offering in December 2017) and net proceeds from additional issuances of common shares of $6.75 million. See footnote (5) below.

 

(2)All of our secured debt is guaranteed by us or the vessel-owning subsidiaries.

 

(3)Reflects additional drawdowns from our credit facilities of $79.0 million.

 

(4)Includes authorized common shares, common shares issued and common shares outstanding on an actual basis, common shares issued and outstanding on an as adjusted basis and        common shares issued and outstanding on an as further adjusted basis.

 45

(5)Reflects additional issuances of 8,254,743 common shares in connection with the purchase of nine vessels as part of the acquisition of 13 vessels from CarVal Investors, 443,204 common shares on January 18, 2018 in connection with an agreement with CarVal Investors for gross proceeds of $6.75 million, 172,941 common shares in connection with the second closing of the Rights Offering on January 26, 2018 for gross proceeds of $2.6 million, 329,775 common shares in connection with the third closing of the Rights Offering on February 14, 2018 for gross proceeds of $5.0 million and 415,017 common shares in connection with the fourth closing of the Rights Offering on March 2, 2018 for gross proceeds of $6.3 million.

 

(6)Each $1.00 increase (decrease) in the offering price per common share would increase (decrease) our total capitalization and shareholders’ equity by $              .

 

(7)Total capitalization consists of total debt plus total shareholders’ equity.

 

 

 46

 

Dilution

 

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.

 

At             , we had a net tangible book value of $             million, corresponding to a net tangible book value of $             per share. Net tangible book value represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by , the total number of our shares outstanding at December 31, 2017.

 

After giving effect to the sale by us of the             common shares offered by us in the offering, and considering an offering price of $             per common share (the midpoint of the range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated at December 31, 2017 would have been approximately $            , representing $             per share. This represents an immediate increase in net tangible book value of $             per share to existing shareholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing common shares in this offering. Dilution for this purpose represents the difference between the price per common shares paid by these purchasers and net tangible book value per common share immediately after the completion of the offering.

 

The following table illustrates this dilution to new investors purchasing common shares in the offering.

 

Assumed initial public offering price per share $
Net tangible book value per share at December 31, 2017  
Increase in net tangible book value per share attributable to new investors  
Pro forma net tangible book value per share after the offering  
Dilution per common share to new investors  
Percentage of dilution in net tangible book value per common share for new investors %

 

Each $1.00 increase (decrease) in the offering price per common share, respectively, would increase (decrease) the net tangible book value after this offering by $             per common share and the dilution to investors in the offering by $             per common share.

 

The following table summarizes, as of December 31, 2017, the total number of common shares purchased from us, the total cash consideration paid to us, and the average price per share paid by existing owners and by investors in this offering. The table below reflects an assumed initial public offering price of $                per share (the midpoint of the range set forth on the cover page of this prospectus), for common shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us.

 

    Common Shares
Purchased
    Total
Consideration
    Average  
(in thousands, except percentages and per share amounts)   

Number

    

Percent

    

Amount

    

Percent

    Price Per Share 
                          
Pre-IPO owners         %   $    %   $ 
Investors in this offering         %   $    %   $ 
Total         %   $    %   $ 

 

Each $1.00 increase (decrease) in the offering price per common share, respectively, would increase (decrease) total consideration paid by investors in this offering and total consideration paid by all shareholders by $                million.

 

The foregoing tables assume no exercise of the underwriters’ option to purchase additional common shares. If the underwriters exercise their option to purchase additional common shares, there will be further dilution in the aggregate to new investors.

 

 47

 

The dilution information above is for illustrative purposes only. Our as adjusted net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our common shares and other terms of this offering determined at pricing.

 

 

 48

 

Selected Financial and Other Information

 

We were incorporated on October 20, 2016 for the purpose of owning high quality secondhand dry bulk vessels between 50,000 – 210,000 dwt. The following table sets forth our selected consolidated financial data and other operating data. The selected financial data as of and for the period ended December 31, 2016 and as of and for the year ended December 31, 2017 of GoodBulk Ltd. are derived from our audited consolidated financial statements included elsewhere in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB. This financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

 

Statement of Profit or Loss Data:

 

(in thousands of U.S. dollars except per share data)  From October 20 (Inception) to December 31,
2016
  Year Ended December 31, 2017
Revenues        57,092 
Voyage expenses        (23,932)
Vessel operating expenses        (16,343)
Net other operating income        372 
Depreciation        (8,109)
General and administrative expenses    (603)   (1,986)
(Loss) / Profit from operations    (603)   7,094 
Net financial expense        (1,712)
(Loss) / Profit for the period / year    (603)   5,382 
Other comprehensive income for the period / year         
Total comprehensive (loss) / income for the period / year    (603)   5,382 
           
(Loss) / Earnings per share, basic and diluted(1)    (1.08)   0.46 
Weighted average number of common shares outstanding, basic and diluted(1)    557,836    11,577,225 
Pro forma earnings per share, basic and diluted(2)          
Pro forma weighted average number of shares, basic and diluted          

_______________

(1)There are no potentially dilutive instruments outstanding.

(2)Pro forma earnings per share give retroactive effect to the number of shares to be issued in this offering.

 

Statement of Financial Position Data:

 

   As of December 31,
(in thousands of U.S. dollars)  2016  2017
Cash and cash equivalents    22,500    19,519 
Total assets    25,007    286,385 
Total long-term debt        85,202 
Common shares    4,450    17,223 
Total shareholders’ equity    23,977    193,593 

 

Other Financial and Operating Data:

 

 

(in thousands of U.S. dollars except days and per day TCE) 

From October 20 (Inception) to December 31,

2016 

 

Year Ended December 31, 2017 

EBITDA(1)    (603)   15,203 
Total available days(2)        2,693 
Net TCE (per day) (3)        12,465 
Gross TCE (per day) (3)        13,296 

_______________

 (1) EBITDA is a non-IFRS financial measure that represents net profit or loss for the period before the impact of income taxes, net finance costs, and depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). Management uses EBITDA as a means of evaluating and understanding our operating performance.

 

 49

 

The following table reconciles (loss) / profit for the period / year, the most directly comparable IFRS measure, to EBITDA:

 

(in thousands of U.S. dollars) 

 

2016 

 

2017 

(Loss) / Profit for the period / year    (603)   5,382 
Net financial expense        1,712 
Depreciation        8,109 
EBITDA    (603)   15,203 

 

(2) Total available days are defined as ship ownership days less aggregate off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special intermediate surveys.

 

(3) Time charter equivalent, or TCE, is a non-IFRS measure that represents the average daily revenue performance of a vessel. TCE is calculated by dividing revenues earned by our vessels, including positive or negative adjustments from the RSAs, less voyage expenses (such revenues being referred to as net allocated revenues or TCE revenues), by the number of total available days during the relevant time period. TCE provides additional meaningful information in conjunction with revenues, the most directly comparable IFRS measure, because it assists management in making decisions regarding the deployment and use of our vessels and in evaluating our financial performance. TCE and TCE revenues are also standard shipping industry performance measures used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (such as voyage charters and time charters) under which the vessels may be employed between the periods. Our definition of TCE and TCE revenues may not be comparable to that used by other companies in the shipping industry.

 

The following table reconciles revenues, the most directly comparable IFRS measure, to TCE:

 

(in thousands of U.S. dollars except per day TCE)  Year Ended December 31, 2017
Revenues    57,092 
Voyage expenses    (23,932)
RSAs adjustment    412 
Net TCE revenues    33,572 
Net TCE (per day) (a)    12,465 
Gross TCE (per day) (b)    13,296 

_______________

(a) Net TCE is net TCE revenues divided by total available days.

(b) Gross TCE is net TCE (per day) grossed up by a market commission of 6.25% (consisting of 5.0% brokerage commissions and 1.25% commercial management commission to CTM).

 

 50

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes thereto, included elsewhere in this prospectus, as well as the information presented under “Presentation of Financial and Other Information” and “Selected Financial and Other Information.” As the Company was incorporated in October 2016 and its first vessel was contributed in January 2017, there are no comparable results for the prior year period. The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed elsewhere in this prospectus. See in particular “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

 

Overview

 

We are a leading international owner and operator of dry bulk vessels, and one of the world’s largest owners of Capesize vessels. Founded in October 2016, for the purpose of owning high-quality secondhand dry bulk vessels between 50,000 and 210,000 dwt, we offer investors an efficient company to access the dry bulk market. We were formed at a historically low point in the shipping cycle, which our management and Board of Directors believe represents an opportunity to expand our fleet and business with a low cost asset base. Starting with only one vessel on the water in January 2017, through our actively managed fleet strategy and opportunistic acquisitions at attractive valuations, we have successfully grown our fleet to 25 dry bulk vessels as of the date of this prospectus (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018). This includes 22 Capesize, 1 Panamax, and 2 Supramax vessels, which have an average age of 9 years and an aggregate carrying capacity of 4.1 million dwt.

 

Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, and grains, across global shipping routes. Our chartering policy is to employ our vessels primarily in the spot market, depending on prevailing industry dynamics. Currently we deploy our vessels on the spot market and in pools managed by CTM. We believe this policy allows us to obtain attractive charter hire rates for our vessels, while also affording us flexibility to take advantage of a rising charter rate environment. Being in a pool can improve an owner’s income stream by providing access to global trade through sharing earnings brought in by the other pool members’ trading in a myriad of routes (a wider range of routes than those that make up the Baltic Indices), rather than just depending on the single route that standalone operations can achieve. Through these pools, we have access to long standing industry experience and contacts with major operators and charterers, economies of scale with respect to cost reductions, superior market intelligence and information as well as improved utilization rates that come from being part of a larger fleet. We believe that participation in CTM’s pools provides us with opportunities that we would not have access to if we performed similar services in house.

 

We maintain a strong relationship with CTM, which we believe has allowed us to become one of the most cost-efficient public dry bulk operators. We believe CTM has an excellent track record in supplying leading dry bulk management services at very competitive rates.

 

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Factors Affecting Our Results of Operations

 

Revenues

 

Our vessels’ revenues are driven primarily by the number of bulk carriers in our owned fleet, by the amount of daily charter hire that they earn under time charters (or the amount of time charter equivalent they earn if employed on a voyage basis) and by the number of operating days during which they generate revenues. These factors, in turn, are affected by our decisions relating to ship acquisitions and disposals, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and technical specifications of our ships, as well as the relative levels of supply and demand in the dry cargo market affecting charter rates.

 

Our fleet is employed in the spot market, mainly via CTM’s RSAs, and we intend to maintain this policy because we believe it allows us to obtain attractive charter hire rates for our vessels, while also offering us the opportunity to take advantage of a rising market if this occurs, as well as allowing us flexibility to readily change our strategy to a more long term one if we believe it may be an opportune time in the cycle to do so.

 

For the vessels employed in the RSAs, revenues are collected by CTM on our behalf, in their capacity as manager and agent. In addition, all voyage related expenses are paid by CTM on our behalf. On a monthly basis, we receive a distribution equal to the net result earned from our vessels. The RSA collects the revenues and expenses for all the participant vessels and distributes the net earnings on the basis of (i) the relative theoretical earning capacity of such member vessel based on the cargo carrying capacity, tradability, speed and consumptions and performances and (ii) the number of days the vessel earned income during the period.

 

Voyage Expenses

 

Voyage expenses include all voyage costs incurred by our ships. For the vessels employed via the CTM RSAs, as mentioned above, the pool pays all the voyage expenses on our behalf, including bunker fuel, port charges, canal tolls and brokerage commissions and also pays the commercial management commission to CTM of 1.25%.

 

Vessel Operating Expenses

 

We outsource the technical management of our fleet to CTM and we pay CTM a fee of $144,000 per vessel per year for the services it provides and reimburse them for rent, communications and other general expenses, and for travel and out-of-pocket expenses incurred in relation to the service. Pursuant to the Shipmanagement Agreement, we are responsible for our vessels’ operating expenses, which include costs for crewing, insurance, repairs, modification and maintenance, including lubricants, spare parts, consumable stores and other miscellaneous expenses as well as the costs associated with providing these items and services.

  

Net Other Operating Income

 

Net other operating income reflects the adjustment of the net result of revenues minus voyage expenses to reflect the result from the RSAs as shared with the other participant vessels, less an allowance for expected credited losses.

 

Depreciation

 

Depreciation for the vessel component is calculated on a straight-line basis, after taking into account the estimated residual value, over the estimated useful life of the vessel, which is estimated to be 20 years from the date of initial delivery from the shipyard. The vessel’s residual value is based on the estimated scrap value which is equal to the product of its lightweight tonnage and an estimated scrap price, which represents our estimate of the current selling price assuming the vessel is already of age and condition expected at the end of its useful life. The drydocking component is amortized over the estimated period to the next scheduled drydocking which typically occurs every five years. If a drydocking is performed prior to the scheduled date, the remaining unamortized balance is written-off. Subsequent drydock costs incurred are capitalized as a separate component of the vessel cost when incurred. See “—Critical Accounting Policies—Vessels.”

 

Ordinary maintenance and repairs that do not extend the useful life of the vessels are charged to operations as incurred. Major renovation costs and modifications are capitalized and depreciated over the remaining useful life.

 

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Net Financial Expense

 

We incur interest expenses on the outstanding indebtedness under our existing credit facilities, which we include in our financial costs. Financial costs also include amortization of other loan issuance costs incurred in connection with establishing our existing credit facilities. We will incur additional interest expenses and other borrowing costs in the future on our outstanding borrowings and under future borrowings, including interest expense in connection with further drawdowns under our existing credit facilities aggregating $79.0 million as of March 31, 2018 and an additional planned drawdown of $23 million in 2018 in connection with the three contracted secondhand vessels with expected delivery in the second and third quarters of 2018. For a description of our credit facilities, see “—Term Loan Facilities.”

  

Results of Operations

 

We began earning revenues at the beginning of 2017 with the delivery of our first ship on January 5, 2017. In 2016, we only incurred costs relating to the incorporation of our company. The following table summarizes our results of operation for the period ended December 31, 2016 and the year ended December 31, 2017.

 

($ in thousands) 

2016 

 

2017 

Revenues        57,092 
Voyage expenses        (23,932)
Vessel operating expenses       (16,343)
Net other operating income        372 
Depreciation        (8,109)
General and administrative expenses    (603)   (1,986)
(Loss) / Profit from operations    (603)   7,094 
Net financial expense        (1,712)
(Loss) / Profit for the period / year    (603)   5,382 
Other comprehensive income for the period / year         
Total comprehensive (loss) / income for the period / year    (603)   5,382 

 

Revenues

 

Our revenues were $57.1 million for the twelve months ended December 31, 2017, which includes all revenues produced by the employment of our fleet directly in the market or via the CTM RSAs. For the latter, our statement of profit or loss also reflects voyage expenses as explained above. Our operations commenced in January 2017 and therefore there are no comparable results for the prior year period. Our ship ownership days were 2,712 days for the twelve months ended December 31, 2017, compared to 0 ship ownership days for the period ended December 31, 2016 as for that period we did not own any vessels. We started our ship owning operations on January 5, 2017 with the delivery of the first vessel and by December 31, 2017, we owned 14 vessels. As we are still in a growth phase, ship ownership days are expected to further increase to an estimated 8,457 in 2018, assuming the remaining vessels we have agreed to purchase are delivered to us in line with our estimates.

 

GoodBulk Annual Ship Ownership Days

 

Type  2016  2017  2018E
Capesize        1,993    7,362 
Panamax        250    365 
Supramax        469    730 
Total        2,712    8,457 
Ship equivalent       7.4    23.2 

 

Voyage Expenses

 

Voyage expenses were $23.9 million for the twelve months ended December 31, 2017 compared to $0 for the period ended December 31, 2016 as for that period we did not own any vessels. These expenses consist of bunker and port costs, freight taxation, and brokerage and commercial management commissions incurred in the employment of our vessels employed on a voyage basis directly by us or via the CTM RSAs.

  

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Vessel Operating Expenses

 

Direct vessel operating expenses were $16.3 million, or $6,026 per ship ownership day, for the twelve months ended December 31, 2017 compared to $0 for the period ended December 31, 2016 as for that period we did not own any vessels.

 

Direct vessel operating expenses excluding one-time expenses related to the onboarding of vessels for the twelve months ended December 31, 2017 (totaling $1.2 million), were $15.1 million or $5,558 per ship ownership day.

 

Net Other Operating Income

 

Net other operating income was $372,000 for the twelve months ended December 31, 2017 compared to $0 for the period ended December 31, 2016 as for that period we did not own any vessels. Net other operating income mainly represents the adjustment of the revenues earned by our vessels under their employment and the actual earnings as distributed by the CTM RSAs.

 

Depreciation

 

Depreciation was $8.1 million for the twelve months ended December 31, 2017, compared to $0 for the period ended December 31, 2016 as for that period we did not own any vessels, and represents the depreciation charge for our fleet from the date of delivery of the vessels to us until December 31, 2017.

 

General and Administrative (G&A) Expenses

 

General and administrative expenses were $1.99 million for the twelve months ended December 31, 2017, or $732 per ship ownership day, compared to $0.6 million for the period ended December 31, 2016. Our corporate G&A expenses for the twelve months ended December 31, 2017 reflect the startup nature of our first twelve months since commencing operations.

 

Net Financial Expense

 

Net financial expense consists of the total financial costs associated with our financing arrangements, including the amortization of other loan issuance costs incurred in connection with establishing our existing credit facilities, calculated on a pro rata basis until year end.

 

Net financial expense was $1.7 million for the twelve months ended December 31, 2017 compared to $0 for the period ended December 31, 2016, as for that period we did not own any vessels or have any financing arrangements in place. We had $86.0 million of outstanding borrowings under our credit facilities at December 31, 2017.

 

Profit for the Year

 

Our net profit was $5.4 million for the twelve months ended December 31, 2017, generating earnings per share of $0.46 based on 11,577,225 weighted average number of shares outstanding for the twelve months ended December 31, 2017, compared with a loss per share of $1.08 based on 557,836 weighted average number of shares outstanding for the period ended December 31, 2016, as for that period we did not own any vessels.

  

Time Charter Equivalent (TCE)

 

TCE is a non-IFRS measure of the average daily revenue performance of a vessel. TCE is calculated by dividing revenues earned by our vessels, including positive or negative adjustments from the RSAs, less voyage expenses (such revenues being referred to as net allocated revenues or TCE revenues), by the number of total available days during the relevant time period. TCE provides additional meaningful information in conjunction with revenues, the most directly comparable IFRS measure, because it assists management in making decisions regarding the deployment and use of our vessels and in evaluating our financial performance. TCE and TCE revenues are also standard shipping industry performance measures used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (such as voyage charters and time charters) under which the vessels may be employed between the periods. Our definition of TCE and TCE revenues may not be comparable to that used by other companies in the shipping industry. This non-IFRS measure should not be considered in isolation from, or as a substitute for, nor superior to, financial measures prepared in accordance with IFRS.

 

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We earned gross TCE of $13,296 per available day across our Capesize, Panamax, and Supramax vessels for the twelve months ended December 31, 2017. As we did not own any vessels for the period ended December 31, 2016, there are no comparable results for the prior year period. The following table reconciles revenues, the most directly comparable IFRS measure, to TCE:

  

(in thousands of U.S. dollars except days and per day TCE)  Year Ended December 31, 2017
Revenues    57,092 
Voyage expenses    (23,932)
RSAs adjustment    412 
Net TCE revenues    33,572 
Total available days(1)    2,693 
Net TCE (per day) (2)    12,465 
Gross TCE (per day) (3)    13,296 

_______________

(1)   Total available days are defined as ship ownership days less aggregate off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special intermediate surveys. 

(2)   Net TCE is net TCE revenues divided by total available days.

(3)   Gross TCE is net TCE (per day) grossed up by a market commission of 6.25% (consisting of 5.0% brokerage commissions and 1.25% commercial management commission to CTM).

 

EBITDA

 

EBITDA is a non-IFRS measure that represents net profit or loss for the period before the impact of income taxes, net finance costs, and depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). Management uses EBITDA as a means of evaluating and understanding our operating performance.

 

EBITDA was $15.2 million for the twelve months ended December 31, 2017, which is equal to 26.6% of our revenues and equal to $5,606 per ship ownership day over 2,712 ship ownership days for the twelve months ended December 31, 2017. EBITDA was negative for the twelve months ended December 31, 2016 because we did not have any operations. The following table reconciles (loss) / profit for the period / year, the most directly comparable IFRS measure, to EBITDA:

  

(in thousands of U.S. dollars) 

 

2016 

 

2017

 (Loss) / profit for the period / year    (603)   5,382 
Net financial expense        1,712 
Depreciation        8,109 
EBITDA    (603)   15,203 

 

Cash Break Even

 

Cash break even is a non-IFRS measure calculated by dividing all cash outflows deriving from the owning and running of the fleet (including vessel operating expenses, G&A expenses and net financial expense) due or paid in a specific year, by the number of total available days during such period. Cash break even is used in the shipping industry to assist management and investors in evaluating our ability to produce available cash in comparison with the market environment.

   

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Cash break even for our vessels for the twelve months ended December 31, 2017 was, on a normalized basis, $6,830 per ship ownership day. Cash break even was at a low level for the twelve months ended December 31, 2017 because our credit facilities have a non-amortization period for up to 24 months from draw down, depending on ship age. See “−Liquidity and Capital Resources−Term Loan Facilities” and Note 11 to the audited consolidated financial statements included elsewhere in this prospectus. As we did not own any vessels for the period ended December 31, 2016, there are no comparable results for the prior year period. The following table reconciles vessel operating expenses, G&A expenses and net financial expense for the year, the most directly comparable IFRS measures, to cash break even:

  

(in thousands of U.S. dollars)  Year Ended December 31, 2017
Vessel operating expenses    16,343 
One time expenses due to vessels deliveries    (1,270)
Normalized vessel operating expenses    15,073 
Ship ownership days    2,712 
Normalized vessel operating expenses per day    5,558 
      
G&A expenses    1,986 
Ship ownership days    2,712 
G&A expenses per day    732 
      
Net financial expense    1,712 
Amortization of arrangement fees and foreign currency translation    (247)
Net financial expense, excluding amortization of arrangement fees and foreign currency translation    1,465 
Ship ownership days    2,712 
Normalized net financial expense per day    540 
      
Total cash break even per day(1)   6,830 

_______________

(1) Total cash break even is calculated as the sum of normalized vessel operating expenses per day, G&A expenses per day and normalized net financial expense per day.

 

Lack of Historical Operating Data for Vessels before their Acquisition

 

Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, neither we nor our affiliated entities conduct any historical financial due diligence process when we acquire vessels. Accordingly, neither we nor our affiliated entities have obtained the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel’s classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller’s technical manager and the seller is automatically terminated. Accordingly, we have not included any historical financial data relating to the results of operations of our vessels from the period before our acquisition of them.

 

Critical Accounting Policies

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

 

Revenue and Expense Recognition

 

We generate our revenues from chartering our vessels. Vessels could be chartered under time charter or through voyage charter agreements.

 

Time charter revenue is recognized as earned on a straight-line basis over the term of the relevant time charter starting from the vessel’s delivery to the charterer, except for any off-hire period. Unearned revenue includes cash received prior to the balance sheet date, relating to services to be rendered after the balance sheet date. Accrued revenue (or deferred income) represents income recognized in advance (or deferred) as a result of straight-line revenue recognition in respect of charter agreements that provide for varying charter rates. Time charter revenue amounts received in advance are classified as liabilities until the criteria for recognizing the revenue as earned are met.

 

Under a time charter agreement, vessel operating expenses such as management fees, crew wages, provisions and stores, technical maintenance and insurance expenses and broker’s commissions are paid by the vessel owner, whereas voyage expenses such as bunkers, port expenses, agents’ fees, and extra war risk insurance are paid by the charterer.

 

Revenue under a voyage charter agreement is recognized on a pro rata basis based on the relative transit time in each period. Estimated losses on voyages are provided for in full at the time such losses become evident.

 

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RSA revenues are recognized on a gross basis representing time charter and voyage revenues earned by our vessels participating in the RSA, as we enter into contracts directly with charterers and are responsible to perform all of its obligations under each charter to which it is a party. The RSA aggregates the revenues and expenses of all of its participants and distributes the net earnings based upon each participating vessel’s weighting and its number of pool operating days in the period. Each member vessel receives a provisional hire paid monthly in arrears, with a final distribution following the presentation of the final annual results of the RSA.

 

Furthermore, in relation to the vessels participating in the RSA, the net allocation from the RSA which represents the RSA’s share of the net revenues earned from the other participants’ vessels less the other participants’ share of the net revenues earned by our vessels included in the RSA, is classified in the statement of profit or loss as other income or expenses, depending on whether it is a positive or negative adjustment for us.

 

Each participant’s share of the net RSA revenues is based on a key figure expressing the relative theoretical earning capacity of its vessels and the number of days such vessels participated in the RSA.

 

Revenue is only recognized when an agreement exists, the price is fixed, service is provided and the collection of the related revenue is reasonably assured. Revenue is shown net of address commissions, if applicable, payable directly to charterers under the relevant charter agreements. Address commissions represent a common market practice discount (sales incentive) on services rendered by us and no identifiable benefit is received in exchange for the consideration provided to the charterer. Commissions on time charter revenues are recognized on a pro-rata basis over the duration of the period. The address commission is also included by the Baltic Exchange in their daily market index.

 

Vessel operating expenses comprise all expenses relating to the operation of the vessel, including crewing, insurance, repairs and maintenance, stores, lubricants, spares and consumables and miscellaneous expenses. Vessel operating expenses are recognized as incurred; payments in advance of services or use are recorded as prepaid expenses.

 

Voyage expenses consist of bunkers consumption, agency fees and port expenses directly attributable to the voyage charter or for repositioning and are expensed on the duration of the voyage.

 

Commissions on time charter revenues are recognized on a pro-rata basis over the duration of the period.

 

Vessels

 

Vessels are stated at cost less accumulated depreciation and accumulated impairment loss, if any. The initial cost of a vessel comprises its purchase price and any directly attributable costs for bringing the vessel to its working condition. The cost of the vessel is allocated into two components, a “vessel component” and a “drydocking component.”

 

Depreciation for the vessel component is calculated on a straight-line basis, after taking into account the estimated residual value, over the estimated useful life of this major component of the vessel, which is estimated to be 20 years from the date of initial delivery. The vessel’s residual value is based on the estimated scrap value which is equal to the product of its lightweight tonnage and estimated scrap price, which represents our estimate of the current selling price assuming the vessel is already of age and condition expected at the end of its useful life. The drydocking component is amortized over the estimated period up to the next scheduled drydocking which typically occurs every five years. If a drydocking is performed prior to the scheduled date, the remaining unamortized balance is written-off. Subsequent drydock costs incurred are capitalized as a separate component of the vessel cost when incurred.

 

Ordinary maintenance and repairs that do not extend the useful life of the vessels are charged to operations as incurred. Major renovation costs and modifications are capitalized and depreciated over the remaining useful life.

 

The useful life of the vessels and depreciation method are reviewed annually to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits. When vessels are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposals is included in the statement of comprehensive income.

 

Impairment of Vessels

 

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The Company reviews its vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the vessel may not be recoverable. If any such indication exists, the recoverable amount of the vessel is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of the vessel is estimated to be less than its carrying amount, the carrying amount of the vessel is reduced to its recoverable amount by recording an impairment loss which is recognized immediately in profit or loss.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. Each vessel is considered to be a single cash-generating unit. The net selling prices of the vessels are estimated based on valuations from independent ship brokers.

 

When an impairment loss subsequently reverses, the carrying amount of the vessel is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the vessel in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

 

Critical Accounting Judgments and Key Sources of Estimation Uncertainty

 

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our management evaluates whether estimates should be made on an ongoing basis, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in the future.

 

In the process of applying the accounting policies above described, management has not identified critical accounting judgments.

 

In the process of applying the accounting policies above described, management has identified the following key sources of estimation uncertainty:

 

Vessel Lives and Residual Value

 

Vessels are stated at cost, less accumulated depreciation. The estimates and assumptions that have the most significant effect on the vessel carrying amount relate to the estimated useful life of the vessel and its residual value. An increase in the estimated useful life of a vessel or in its residual value would have the effect of decreasing the annual depreciation charge and an increase in the estimated useful life of a vessel would also extend the annual depreciation charge into later periods. A decrease in the useful life of a vessel or its residual value would have the effect of increasing the annual depreciation charge. If regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s useful life will be adjusted to end at the date such regulations become effective. The estimated residual value of a vessel may not represent the fair market value at any one time partly because market prices of scrap rates tend to fluctuate.

 

Vessel Cost

 

We recognize drydocking costs as a separate component of the vessel’s carrying amount and amortize the drydocking cost on a straight-line basis over the estimated period until the next drydocking. If the vessel is disposed of before the next drydocking, the remaining balance of the drydock cost is written-off and forms part of the gain or loss recognized upon disposal of vessels in the period of disposal. The general rule is to amortize a vessel’s estimated drydocking expenses for the first special survey over five years, in case of new vessels, and until the next drydocking for secondhand vessels unless we intend to drydock the vessels earlier as circumstances arise. The drydock component is estimated at the time of delivery of the vessel based on our manager’s historical experience with similar types of vessels.

 

Costs that will be capitalized as part of the future drydockings include a variety of costs incurred directly attributable to the drydock and costs incurred to meet classification and regulatory requirements, as well as expenses related to the dock preparation and port expenses at the drydock shipyard, drydocking shipyard expenses, expenses

 

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related to hull, external surfaces and decks, and expenses related to machinery and engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment on board. Drydocking costs do not include vessel operating expenses such as replacement parts, crew expenses, provisions, lubricants consumption, insurance, management fees or management costs during the drydocking period. Expenses related to regular maintenance and repairs of vessels are expensed as incurred, even if such maintenance and repair occurs during the same time period as drydocking.

 

For subsequent drydockings, actual costs are capitalized when incurred. Drydocking schedules are subject to changes (always meeting due date imposed by applicable regulations in place) for commercial and/or operational reasons. These changes could have impacts on the annual depreciation charge and the determination of the value in use computed for impairment test purposes.

 

Liquidity and Capital Resources

 

Our primary sources of capital during the period from October 20, 2016 (inception) through December 31, 2016 were the net proceeds from the private placements of our common shares which were used to pay the deposit for the acquisitions of one vessel. Our primary sources of capital during the twelve months ended December 31, 2017 were net proceeds from private placements of our common shares ($81.1 million, net of placement expenses), borrowings under our credit facilities ($81.1 million, net of bank fees and charges) and cash produced by the operation of our fleet ($14.2 million). This capital has been deployed in vessels acquisition ($160.9 million), repurchase of our common shares ($4.3 million) and absorbed by working capital ($16.0 million). Our cash flows for the year ended December 31, 2017 were:

 

(in millions of U.S. dollars)  From October 20 (Inception) to
December 31, 2016
  Year Ended
December 31, 2017
Cash as at start of period        22.5 
Cash from operating activities        14.2 
Cash absorbed by working capital        (16.0)
Cash used in investing activities    (2.5)   (160.8)
Cash provided by financing activities    25.0    159.6 
Cash as at end of period    22.5    19.5 

  

We believe that cash flow from operating activities, available cash and cash equivalents and our access to our credit facilities will be sufficient to fund our liquidity requirements for at least the next 12 months. At December 31, 2017, we had $205.5 million of total liquidity, comprising $19.5 million in cash and cash equivalents and $186.0 million of available borrowings under our credit facilities.

 

We intend to continue to execute upon our strategy of building a leading owner of dry bulk assets and to acquire high quality secondhand dry bulk tonnage at historically attractive valuations. Our business is capital intensive and we intend to pay for these assets with a combination of proceeds from the sale of our common shares, including this offering, and future borrowings under one or more secured credit facilities, which may be collateralized by the vessels in our fleet. We expect to rely on operating cash flows as well as equity offerings and long-term borrowings under secured credit facilities to implement our growth plan and dividend policy.

 

As of December 31, 2017, we had $86.0 million of outstanding indebtedness under our credit facilities, none of which was payable within the next twelve months due to the non-amortization periods under our credit facilities, and an estimated $3.2 million in capital expenditures relating to drydock expenses and $129.0 million related to vessel deliveries payable within the next 12 months.

  

The following table sets forth our estimated schedule of dry dockings expected for the next two years. The duration and expense of the dry dockings are based upon our technical manager’s experience and the condition of the vessel at the time of acquisition. These estimates can vary based upon yard schedules, condition of the vessel at the time of drydocking, location of the drydocking, and other factors. These estimates do not include the cost of installing ballast water treatment systems (“BWTS”).

  

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Estimated Dry Dock Schedule
    Off Hire Days    

Estimated Cost

(in $ million)

 
December 31, 2018   67    3.15 
December 31, 2019   56    2.3 
    123    5.45 

 

Equity Issuances and Repurchases

 

On December 23, 2016, we completed a primary private placement of 4.45 million common shares, at a purchase price of $10.00 per common share, for total consideration, net of commissions and placement expenses, of $43.1 million, of which $25.0 million was received in cash. The remaining consideration relates to the shares subscribed by Brentwood Shipping through the contribution, as equity in kind, of a vessel that was delivered to us on January 5, 2017.

 

On March 29, 2017, we completed a private placement of 9.1 million common shares, at a purchase price of $11.00 per common share, for total consideration, net of commissions, of $98.6 million, of which $81.1 million was received in cash. The remaining consideration relates to the shares issued to Brentwood Shipping as part of our acquisition of six vessels from Carras Ltd. (“Carras”), a subsidiary of Brentwood Shipping.

  

On April 3, 2017, we entered into an acquisition agreement with Carras to purchase six vessels from Carras for a total consideration of $97.5 million, of which $80.0 million was paid in cash and $17.5 million was paid by issuing 1,590,909 common shares at a price of $11.00 per common share to Brentwood Shipping.

 

On April 26, 2017, we entered into an agreement to acquire 394,541 common shares from unaffiliated parties in the open market for a net consideration of $4.34 million.

 

On October 26, 2017, we entered into an acquisition agreement with affiliates of CarVal Investors to purchase up to 13 vessels from CarVal Investors in a series of closings occurring in the fourth quarter of 2017 and the first half of 2018 for a combination of cash and shares at a price of $15.23 per common share. As of the date of this prospectus, we have received delivery of 11 vessels, for total consideration of $121.2 million and the issuance of a total of 11,772,743 common shares.

 

On December 20, 2017, we closed a rights offering directed toward our existing eligible shareholders at a purchase price of $15.23 per share with total subscriptions of 1,680,441 shares to be settled in multiple closings. As of the date of this prospectus, 1,411,864 shares have been issued for gross proceeds of $21.5 million.

 

On January 18, 2018, we entered into an agreement with two funds affiliated with CarVal Investors pursuant to which we issued a total of 443,204 common shares at a price of $15.23 per common share, for net proceeds of $6.75 million.

 

Term Loan Facilities

 

On March 8, 2017, we entered into a $60.0 million term loan facility among ABN Amro Bank N.V. as arranger, facility agent and security agent, our subsidiaries, Singapore Shipping Co. Ltd. and Aquamarine Carrier Co. Ltd., as joint and several borrowers and hedge guarantors and GoodBulk Ltd. as parent guarantor (the “First ABN Facility”) which matures on the earlier of the fifth anniversary of the last utilization date and June 30, 2022. Borrowings under the First ABN Facility bear interest at a percentage rate per annum which is the aggregate of LIBOR plus 325 basis points. The loan has an initial profile of 15 years, with a non-amortization period of 24 months for vessels built after 2007, and 18 months for vessels built between 2005 and 2007. As of December 31, 2017, the First ABN Facility was drawn for its total amount of $60.0 million, with a first priority mortgage secured by six wholly owned vessels.

 

The First ABN Facility contains debt covenants including restrictions as to changes in management of the vessels, additional indebtedness and mortgaging of vessels without the lender’s prior consent. The minimum market value of the vessels mortgaged under the facility must be at least 150% of the outstanding loan amounts. Under the agreement, we are also required to maintain minimum liquidity of the greater of $2.0 million or $400,000 per mortgaged vessel, and an Equity Ratio (as defined therein) equal to Equity to Total Assets (book value) greater than 30%. During the non-amortization period, we, GoodBulk Ltd., are prohibited from making or paying any dividend (in cash or in kind) or other distribution in respect of our share capital. Following the occurrence of a Potential Event of Default (as defined under the loan agreement) or where the making of payment of such dividend or distribution would result in the occurrence of an event of default, no subsidiary borrower shall make or pay any dividend or other distribution (in cash or in kind). Furthermore, the subsidiary borrower has to maintain a minimum balance of $200,000 per vessel in the earnings account and a positive working capital.

  

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On August 29, 2017, we entered into a $50.0 million term loan facility among Credit Suisse AG as arranger, facility agent and security agent, our subsidiary Aquaknight Shipping Co. Ltd. as borrower and GoodBulk Ltd. as parent guarantor (the “CS Facility”) which matures on the earlier of the fifth anniversary of the last utilization date and September 30, 2022. Borrowings under the CS Facility bear interest at a percentage rate per annum which is the aggregate of LIBOR plus 345 basis points. The loan has an initial profile of 15 years, with a non-amortization period of 24 months for vessels under nine years of age, and 18 months for vessels over nine years of age. As of December 31, 2017, the CS Facility was drawn for $14.5 million, with a first priority mortgage secured by two wholly owned vessels.

 

The CS Facility contains debt covenants including restrictions as to changes in management of the vessels, additional indebtedness and mortgaging of vessels without the lender’s prior consent. The aggregate market value of the vessels mortgaged under the facility must be at least 140% of the outstanding loan amounts. Under the agreement, we are also required to have equity net worth of $50.0 million, maintain minimum liquidity of $500,000 per mortgaged vessel, total bank debt over total assets adjusted to market value lower than 70% and beginning on September 30, 2018 to have an EBITDA to Interest Expenses (as defined therein) ratio of not less than 3:1. If there are no deferred amounts outstanding (including under the non-amortization period), then we and the subsidiary guarantor may pay dividends so long as no default has occurred and is continuing or would occur by reason of the payment of such dividend or other distribution. If there are deferred amounts outstanding during that year, the dividend has been declared and the deferred amounts have been reduced (through a prepayment), then we and the subsidiary guarantor may distribute dividends up to the amount of the reduction in the same year.

  

On November 22, 2017, we entered into a $77.0 million term loan facility among Danish Ship Finance A/S as arranger, facility agent and security agent, our subsidiaries Atlantic Bridge Shipping Co. Ltd., Voyageurs Shipping Co. Ltd., Itasca Shipping Co. Ltd. and Silver Surfer Shipping Co. Ltd. as joint and several borrowers and GoodBulk Ltd. as parent guarantor (the “DSF Facility”) which matures on the earlier of the fifth anniversary of the last utilization date and March 30, 2023 with respect to one tranche and December 31, 2023 with respect to the other tranche. Borrowings under the DSF Facility bear interest at a percentage rate per annum which is the aggregate of LIBOR plus 255 basis points. The loan has an initial profile of 15 years, with a non-amortization period of 12 months for the identified vessels. As of December 31, 2017, the facility was drawn for $11.5 million, with a first priority mortgage secured by one wholly owned vessel.

 

The DSF Facility contains debt covenants including restrictions as to changes in management of the vessels, additional indebtedness and mortgaging of vessels without the lender’s prior consent. The aggregate market value of the vessels mortgaged under the facility must be at least 145% of the outstanding loan amounts and the total bank debt over total assets adjusted to market value below 70%. Under the agreement, we are also required to maintain minimum liquidity of the greater of $10.0 million or $500,000 per mortgaged vessel. We and the subsidiary borrowers may make or pay dividends or other distributions (in cash or in kind) provided that no event of default has occurred and is continuing or would occur by reason of the payment of such dividend or other distribution.

  

On December 22, 2017, we entered into a $85.0 million term loan facility among ABN Amro Bank N.V. as arranger, facility agent and security agent, our subsidiaries, Angel Carrier Co. Ltd., Pretty Carrier Co. Ltd., Proud Shipping Co. Ltd. and Scope Carrier Co. Ltd., as joint and several borrowers and hedge guarantors and GoodBulk Ltd. as parent guarantor (the “Second ABN Facility”) to partially finance the purchase of four identified vessels (up to $35.0 million) and certain other non-identified vessels (up to $50.0 million) prior to September 30, 2018. The Second ABN Facility matures on the earlier of the fifth anniversary of the last utilization date and September 30, 2023. Borrowings under the Second ABN Facility bear interest at a percentage rate per annum which is the aggregate of LIBOR plus either 260 or 285 basis points for the identified vessels and non-identified vessels, respectively. The loan has an initial profile of 16 years for the identified vessels and 15 years for the non-identified vessels, with a non-amortization period of 12 months for the identified vessels. As of December 31, 2017, we had no drawdowns under the Second ABN Facility.

 

The Second ABN Facility contains debt covenants including restrictions as to changes in management of the vessels, additional indebtedness and mortgaging of vessels without the lender’s prior consent. The minimum market value of the vessels mortgaged under the facility must be at least 150% of the outstanding loan amounts. Under the agreement, we are also required to maintain minimum liquidity of the greater of $10.0 million or $500,000

 

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per mortgaged vessel, and an Equity Ratio (as defined therein) equal to Equity to Total Assets greater than 30%. Furthermore, the subsidiary borrower has to maintain a minimum balance of $200,000 per vessel in the earnings account and a positive working capital. During the non-amortization period, we, GoodBulk Ltd., are prohibited from making or paying any dividend (in cash or in kind) or other distribution in respect of our share capital. Following the occurrence of a Potential Event of Default (as defined under the loan agreement) or where the making of payment of such dividend or distribution would result in the occurrence of an event of default, no subsidiary borrower shall make or pay any dividend or other distribution (in cash or in kind).

 

The term loan facilities are available to be drawn down in separate tranches to be utilized to finance the purchase price of approved ships, with any remaining balance to be utilized to finance the purchase price of ships that meet certain criteria. Under each of the term loan facilities, the subsidiary borrowers shall repay each tranche by equal consecutive installments using an age-adjusted repayment profile based on the age of the relevant ship, to be paid in accordance with a repayment schedule in relation to each tranche as provided by the facility agent.

  

As of December 31, 2017, we are in compliance with all of our financial covenants in each of our credit facilities.

 

Contractual Obligations

 

The following table summarizes our estimated material contractual obligations and other commercial commitments at December 31, 2017, and the future periods in which such obligations are expected to be settled in cash:

 

   Total  Less than
1 year
  1-3 years  3-5 years  After 5 years
   (in millions)
Bank borrowings(1)   $86.00   $   $20.42   $58.73   $6.85 
Interest(2)   $18.98  $4.90  $8.98  $5.10    
Vessel acquisitions(3)   $129.20   $129.20             
Fees due under Shipmanagement & Services Agreements   $30.13   $5.75   $12.19   $12.19     
Total   $264.31  $139.85  $41.59  $76.02  $6.85

  

 

(1)Includes scheduled principal payments on bank debt outstanding as of December 31, 2017. Additional information about our bank borrowings is included in Note 11 to the audited consolidated financial statements included elsewhere in this prospectus.

 

(2)In the first quarter of 2018, we entered into interest rate swap agreements with our lenders, entirely hedging our interest rate risk exposure. Variable future interest payments were determined based on the forward curve of LIBOR plus the margin applicable to each term loan facility, resulting in an average interest rate (through the term loan duration) of 5.4%. Additional information about our derivative and hedging activities and the related accounting is included in Note 23 to the audited consolidated financial statements included elsewhere in this prospectus.

 

(3)Reflects $111.5 million paid to date in connection with the purchase of nine vessels as part of the acquisition of 13 vessels from CarVal Investors. Does not reflect the acquisition of a secondhand Capesize vessel in March 2018 for a purchase price of $19.9 million which is expected to be delivered to the fleet by July 2018.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as of December 31, 2017.

  

Quantitative and Qualitative Disclosures about Market Risk

 

In addition to the risks inherent in our operations, we are exposed to a variety of financial risks, such as market risk (including interest rate risk and currency risk), liquidity risk and credit risk, and further information can be found in Note 23 to the audited consolidated financial statements included elsewhere in this prospectus.

 

Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act.

 

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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company (i) upon the last day of the fiscal year (A) in which we had more than $1.07 billion in annual revenue, or (B) we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares held by non-affiliates exceeds $700.0 million as of the prior June 30th, or (ii) we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. To the extent that we take advantage of these reduced reporting burdens, the information that we provide shareholders may be different than you might obtain from other public companies in which you hold equity interests.

 

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. Our decision to opt out of the extended transition period is irrevocable.

 

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THE INTERNATIONAL DRY BULK SHIPPING Industry

 

Fearnleys has provided the information and data presented in this section. Fearnleys has advised that the statistical and graphical information contained herein is drawn from its databases and other published and private industry sources. The main source for data in this Section is Fearnresearch, the market research department of Fearnleys AS. In connection therewith, Fearnleys has advised that: (i) certain information in Fearnleys’ databases are derived from estimates or subjective judgments, (ii) the information in the databases of other shipping data collection agencies may differ from the information in Fearnleys’ database and (iii) while Fearnleys has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. Although data is taken from the most recently available published sources, these sources do revise figures and forecasts from time to time.

 

Overview

 

Dry bulk shipping comprises shipments of free-flowing bulk raw materials such as iron ore, grains, and coal; free flowing finished or semi-finished bulk materials such as alumina, fertilizers, and sugar; and unitized commodities like steel, semi-finished metals, lumber/logs, and metal scrap.

 

Iron ore, coal, and grains are usually called “major bulks.” “Minor bulks” covers all other bulk commodities such as alumina, bauxite, fertilizers, steel scrap, non-ferrous ores, sugar, rice and forest products, among others.

 

Charterers in the dry bulk shipping industry include cargo owners such as mining companies, grain houses, and steel mills as well as end-users such as steel mills, alumina refineries and power utilities. The charterers also include trading houses, ship operators and even traditional ship owners.

 

Preliminary data indicates a total demand for dry bulk shipping of about 22,680 billion tonne-miles in 2017, which entails an increase of approximately 3.9% compared to 2016 and is above the compounded average growth rate (“CAGR”) in the period from 2008 to 2017 of 3.0%. One tonne-mile represents the equivalent of shipping one tonne of product over one nautical mile distance. All references to demand and demand growth in this “The International Dry Bulk Shipping Industry” section are expressed in tonne-miles.

 

Major Bulk Commodities

 

Iron Ore

 

Iron ore is the key ingredient in steelmaking. Seaborne iron ore volumes almost doubled, from 306 million tonnes to 589 million tonnes, over the 20-year period from 1984 to 2004. Seaborne volumes have doubled over the last decade, mainly due to the rapid and unprecedented industrialization of China.

 

Iron ore is the single largest seaborne dry bulk commodity. In 2017, it is estimated that 1,425 million tonnes of iron ore were shipped, generating about 7,669 billion tonne-miles. Iron ore constituted about one third of total seaborne dry bulk demand in 2017. For 2018 and 2019, we expect a growth in seaborne iron ore demand on a tonne-mile basis of 2.0% to 3.5% each year.

 

Chinese seaborne imports constitute about 74% of global seaborne volumes followed by Japan, Europe (as used herein, includes the major importing countries Germany, the United Kingdom, France, Italy, the Netherlands, Belgium and Spain), South Korea, and Taiwan. Japan and Europe combined constituted about 15%. In 2002, the year before Chinese imports took off, Chinese seaborne imports constituted about 23% and Europe and Japan combined constituted about 53% of global seaborne imports.

 

2017 Global Seaborne Iron Ore Imports

 

   China  Japan  Europe  South Korea  Taiwan  Others
Volume (mt)    1059    127    91    72    24    52 
Share    74%   9%   6%   5%   2%   4%
Transportation work (btm)    5808    808    305    379    114    255 
Share    76%   11%   4%   5%   2%   3%

 

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The main exporters of iron ore are Australia and Brazil, which provide approximately 85% of world seaborne exports. South Africa and Canada also are major exporters with 4.7% and 2.9% of the market, respectively. India was historically the third largest exporter, but due to a governmental crackdown on illegal mining and breaches of environmental legislation, their exports have been reduced by close to 90% since 2010. However, in 2016 and 2017, we observed that Indian exports have been increasing. Iron ore is the main ingredient in steelmaking, and major producers are Vale, Rio Tinto Group, BHP Billiton, FMG, and Roy Hill, among others.

 

Most iron ore shipments are shipped by Capesize bulk carriers or VLOCs, but due to port limitations and the nature of the trade, certain volumes are also shipped by smaller vessels. For vessels larger than 50,000 dwt, more than 85% of the shipments are carried by Capesize bulkers.

 

Shipments of Iron Ore by Vessel Type

 

          2008    2017 E 
           

Shipments (mdwt)

    

Share 

    

Shipments (mdwt)

    

Share 

 
 Capesize     100 kdwt+    672    80%   1421    89%
 Panamax/Kamsarmax     70-100 kdwt    106    0%   119    7%
 Panamax/Ultramax     60-70 kdwt    23    3%   27    2%
 Supramax     50-60 kdwt    37    4%   31    2%
 Total          837    87%   1598    100%

 

Coal

 

Coal has principally two uses: (i) fuel for electricity and heat generation, and (ii) reduction agent in blast furnace iron making. An estimated 1,075 million tonnes of coal, generating about 4,070 billion tonne-miles (“btm”), were shipped by sea in 2017. This was a large turnaround in the seaborne coal trade after three years of contraction. The estimated growth in tonne-miles in 2017 was about 7%, which is close to the 2008 to 2013 CAGR of 7.6% per annum. For 2018 and 2019, we expect growth in seaborne coal demand of approximately 3.5% to 4.0% each year.

  

The key importing countries are principally the same as for iron ore, with the addition of India. Up to 2009, China was a net exporter of coal, but during the last few years, China has turned into the single largest importer of coal. The main reason for this increase in importing was that Chinese domestic output of coal decreased. While Chinese imports decreased markedly in 2014 and 2015, but due to domestic restrictions on coal mining, we observed that seaborne imports rose by about 37 million tonnes in 2016 and another 19 million tonnes in 2017.

 

2017 Global Seaborne Coal Imports

 

   China  India  Japan  Europe  S. Korea  Taiwan  Others
Volume (mt)    220    191    193    124    148    69    130 
Share    20%   18%   18%   12%   14%   6%   12%
Transportation work (btm)    805    800    662    518    536    209    540 
Share    20%   20%   16%   13%   13%   5%   13%

 

Traditionally, Japan and Europe have been the key driving economies for coal dry bulk shipping, but since 2009, coal imports to Europe and Japan have been greatly surpassed by Chinese imports. This change is a result of reduced indigenous Chinese coal output as well as continued strong demand from power utilities and steel mills.

 

The main exporting countries are Australia and Indonesia which provide around 65% of total seaborne exports. In addition, the United States, Colombia and South Africa are also key exporting countries with 7.0%, 10.0%, and 7.5%, respectively. Fearnleys estimates that exports from Australia in 2017 were about 402 million tonnes, showing a 15 million tonne increase after three years of stable exports. Indonesian exports amounted to 286 million tonnes in 2016. Based on the first nine months of exports in 2017, we estimate total exports in 2017 to have amounted to about 300 million tonnes. We expect Australian and Indonesian export volumes to remain at their current levels for 2018 and 2019.

 

 65

 

The size of bulk carriers deployed in coal trades is much more heterogeneous than the ones in iron ore trades. One of the reasons is that the average coal haul is much shorter than the average iron ore haul (about 3,700 nautical miles compared to about 5,330 nautical miles). Another factor is that port infrastructure and restrictions result in many trades being served by Supramax bulkers. Most coal shipments are transported by Panamax vessels. Shipments by vessels larger than 50,000 dwt have not changed considerably from 2008 through 2017:

 

Shipments of Coal by Vessel Type

 

          2008    2017 E 
           

Shipments (mdwt)

    

Share

    

Shipments (mdwt)

    

Share 

 
 Capesize     100 kdwt+    257    33%   439    33%
 Panamax/Kamsarmax     70-100 kdwt    379    48%   625    47%
 Panamax/Ultramax     60-70 kdwt    83    11%   107    8%
 Supramax     50-60 kdwt    71    9%   166    12%
 Total          790    100%   1337    100%

 

Grains

 

Grains comprise of wheat, coarse grains (maize, rye, oats, barley, and sorghum), and soybeans/meal. Seaborne trade in grains is estimated to have amounted to 517 million tonnes generating about 3,257 billion tonne-miles in 2017. The demand for transportation stemming from grains has traditionally increased slower compared to minerals. However, the 2008 to 2017 growth in grain transportation has been very high at average growth rates of about 4.4% and 6.0% in terms of volume and transportation work, respectively. Good crops in the Americas and Australia combined with continued changes in dietary habits in East Asia has contributed to this trend. Growth in demand from grains and soybeans/meal is expected to slow down in 2018 to 2019 to about 2.0% to 2.5% each year.

 

The longer-term demand for transportation of grains is primarily a function of dietary habits, which to a large extent are dependent on economic development in individual countries and regions. When the economy improves, the food intake traditionally increases, which in turn increases demand for feed grain required for animals.

 

In the shorter term, grains are a key source of freight market volatility. One key factor for this volatility is seasonality and the fact that timing of harvesting periods is different in the northern and southern hemispheres. Another key factor is the weather, which greatly impacts crops and could result in significantly different trading patterns from year to year.

 

The main exporters of grains and soybeans/meal are the United States, Argentina, and Brazil, which provide approximately 60% of total seaborne exports. Australia and the European Union are also major exporters with approximately 6.0% each.

 

Soybeans/meal are the largest of the three main categories of grains, with the United States, Brazil, and Argentina being the main producers and exporters. The principal markets for sale of grains are Western Europe and Asia. China has been a major force in soybean/meal trades as imports have increased from about 12 million tonnes in 2000 to about 95 million tonnes in 2017. China is sourcing most of its imports from the Americas, and the substantial distance has contributed significantly to the demand and increase in tonne-miles. Grain is primarily shipped in Handysize-Panamax bulk carriers.

 

Shipments of Grains by Vessel Type

  

          2008    2017 E 
           

Shipments (mdwt)

    

Share

    

Shipments (mdwt)

    

Share

 
 Capesize     100 kdwt+    0.4    0%   1.5    0%
 Panamax/Kamsarmax     70-100 kdwt    113    54%   368    60%
 Panamax/Ultramax     60-70 kdwt    45    21%   75    12%
 Supramax     50-60 kdwt    52    25%   169    27.5%
 Total          210.4    100%   613.5    100%

 

 

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Shipments of Grains by Vessel Type

 

Over the period between 2008 and 2017, it has become evident that a further polarization of shipment sizes has occurred for shipments larger than 50,000 dwt. The share of shipments by Supramax and Panamax bulkers have increased from approximately 79% to 88%.

 

It should be noted, however, that a fair share of grain shipments occurs in vessels smaller than 50,000 dwt. Total shipments in 2017 were about 517 million tonnes. Using an approximate load factor, with load factor being the ratio between cargo intake and dwt of 0.8 for grains, approximately 25 to 30 million tonnes of grains were shipped by vessels smaller than 50,000 dwt.

 

Others

 

This residual group covers all other dry bulk commodities, such as free flowing bulk commodities including bauxite, alumina, petroleum coke, fertilizers, metallic ores and concentrates, sugar and seeds, and cement. In addition, there is a long array of dry commodities that are unitized rather than free flowing, but still carried by bulk carriers. These include commodities such as steel and other metals, lumber, logs, wood pulp and metal scrap. A common denominator for this residual group is that the majority is finished or semi-finished commodities and as such the demand for these goods is more linked to the general economic development than the major bulk commodities. Fearnleys estimates that global seaborne trade of dry bulk commodities in this group amounted to about 1,405 million tonnes in 2017 and anticipates further growth of approximately 2.5% to 3.0% in both 2018 and 2019.

 

Shipments of these dry bulk commodities are to a very high degree carried out by vessels smaller than 50,000 dwt. Using the general load factor of 0.85 results in a seaborne traded volume of about 550 million tonnes in 2017 by vessels larger than 50,000 dwt. This implies that close to two thirds, or about 1,040 million tonnes, were carried by vessels smaller than 50,000 dwt.

 

Shipments of “Others” by Vessel Type Larger Than 50,000 dwt

 

           2008   2017 E 
           

Shipments (mdwt)

    

Share

    

Shipments (mdwt) 

    

Share

 
 Supramax     50-60 kdwt    133    39%   369    57%
 Panamax/Ultramax     60-70 kdwt    65    19%   85    13%
 Panamax/Kamsarmax     70-100 kdwt    136    40%   171    26%
 Capesize     100 kdwt+    4.4    1%   21    3%
 Total          338.4    100%   646    100%

 

For vessels larger than 50,000 dwt, close to 60% were carried by Supramax bulkers.

 

Demand for Dry Bulk Shipping

 

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The two tables below show total seaborne trade:

 

Dry bulk shipping demand (million tonne)
    2000    2005    2008    2009    2010    2011    2012    2013    2014    2015    2016E   2017F   

2008-17 growth (%) 

    

2008-17 growth (% CAGR) 

 
Iron ore    454    652    845    914    979    1,035    1,080    1,161    1,289    1,300    1,375    1,425    69%   6.0%
Coal    523    710    834    835    914    943    1,050    1,205    1,140    1,025    1,025    1,075    29%   2.9%
Grains    230    309    351    349    379    384    395    407    419    470    495    517    47%   4.4%
                                                                       
Major bulks    1,207    1,671    2,030    2,098    2,272    2,362    2,525    2,773    2,848    2,795    2,895    3,017    49%   4.5%
Minor bulks    981    1,151    1,303    1,168    1,288    1,368    1,423    1,503    1,521    1,557    1,551    1,590    22%   2.2%
                                                                       
Total    2,188    2,822    3,333    3,266    3,560    3,730    3,948    4,276    4,369    4,352    4,446    4,607    38%   3.7%

 

 

Dry bulk shipping demand (billion tonne-miles)
    2000    2005    2008    2009    2010    2011    2012    2013    2014    2015    2016E   2017F   

2008-17 growth (%) 

    

2008-17 growth (% CAGR) 

 
Iron ore    2,545    3,918    4,849    5,346    5,540    5,913    6,230    6,325    6,870    7,050    7,400    7,669    58%   5.2%
Coal    2,509    3,113    3,905    2,890    3,547    3,614    4,085    4,585    4,193    3,800    3,805    4,070    4%   0.5%
Grains    1,244    1,688    1,930    1,905    2,190    2,174    2,283    2,397    2,517    2,950    3,119    3,257    69%   6.0%
                                                                       
Major bulks    6,298    8,719    10,684    10,141    11,277    11,701    12,598    13,307    13,580    13,800    14,324    14,996    40%   3.8%
Minor bulks    4,894    5,642    6,738    5,508    6,084    6,591    6,986    7,222    7,281    7,440    7,515    7,683    14%   1.5%
                                                                       
Total    11,192    14,361    17,422    15,649    17,361    18,292    19,584    20,528    20,860    21,240    21,839    22,680    30%   3.0%

 

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The three major bulk commodities constitute approximately two-thirds of the total demand for dry bulk shipping. The ratio has increased from approximately 55% in 2000 to approximately 66% since 2012.

 

Dry bulk trade is a function of several factors:

 

·general economic activity;

 

·industrialization/urbanization of developing countries;

 

·population growth (plus changes in dietary habits); and

 

·regional shifts in cargo supply/demand balances.

 

General economic activity and growth in GDP indirectly have an impact on demand for both raw materials and finished/semi-finished products. However, in the developed world and in developing countries that have reached a certain level of maturity, GDP is normally a poor indicator for dry bulk demand. The reason for this is that services constitute a larger share of GDP and the sectors driving dry bulk demand constitute a minor share of economic activity.

 

In developing countries, steel and energy intensities are normally high due to the industrialization required for construction of infrastructure, housing and industrial facilities. In the initial phase of industrialization, fixed asset investments tend to constitute a high proportion of GDP and have a positive impact on dry bulk demand.

 

Population growth alone contributes to demand as people need housing, transportation and infrastructure and these necessities increase in line with the population growth. Changes in dietary habits and increased demand of meat result in disproportionate growth in grain demand due to increased need for feed grain.

 

Finally, global imbalances in raw material supplies and demand impact the demand for dry bulk shipping. The distances for shipment chiefly reflect regional commodity surpluses and deficits. Changes occur because of depletion of local resources or when local demand exceeds local supply. On the other hand, downstream involvement could have a negative impact on dry bulk demand. Generally, the more concentrated the sources of cargo supply, the greater the average distance shipped. Ship demand is determined by the overall volumes of cargo moved and the distances for shipment (that is, tonne-mile demand), as well as changes in vessel efficiency. Changes in vessel efficiency may be caused by factors such as:

 

·Vessel speed: In the high fuel cost/low freight rate environment of recent years, there has been an incentive for shipowners to reduce speed for lower fuel consumption;

 

·Port delays: Port delays have been a common occurrence in the last ten years as inland and port logistics in several key export areas have struggled to meet surging global demand; and

 

·Laden to ballast ratios: This ratio considers the amount of time vessels spend sailing empty on re-positioning voyages. Ballasting has also increased over the last ten years, mainly due to the widening imbalance in cargo flows between the Atlantic and Pacific Basins.

 

World seaborne dry bulk trade has followed a steady upward trend during the 1980s and 1990s. The CAGR in the major dry bulk cargoes over this period was an estimated 2.0%, before doubling to about 4.0% in the decade from 2000 to 2009. In the period from 2010 to 2014, a further increase to an estimated 5.0% occurred. Since 2014, the compounded annual growth rate has been approximately 3.0%.

 

The seaborne estimate is for all vessels larger than 10,000 dwt, but it must also be taken into consideration that the fleet structure has changed considerably over this period. The fleet below 50,000 dwt is currently at approximately 113 million dwt, whereas at the end of 1989, the fleet stood at 103 million dwt, and the total fleet has grown from approximately 203 million dwt to approximately 800 million dwt (at the end of February 2018). This implies that virtually all growth in seaborne dry bulk trades has occurred in the 50,000 dwt or larger segment. Considering this segment, seaborne trade rose an average of 3.7% in the 1990s; about 6.7% per annum from 2000 to 2009 and about 3.9% per annum from 2010 to 2016.

 

 69

 

China has been the key driver for the growth in seaborne dry bulk volumes over the last decade. From 2003 to 2017, Chinese iron ore imports have increased seven-fold from 147 million tonnes to an estimated 1,059 million tonnes. Coal imports have risen from 34 million tonnes in 2008 to an estimated 220 million tonnes in 2017. As mentioned above, soybean/meal imports have risen from about 12 million tonnes in 2000 to about 95 million tonnes in 2017. As such, there has been solid growth in several commodities as China has industrialized and urbanized itself. Fixed-asset investment remains the biggest engine of China’s economy and increased about 7.2% in 2017. This fuels demand for coal and iron ore, commodities primarily carried in Panamax and Capesize bulk carriers.

 

Fleet

 

In international dry bulk shipping, it is common to refer to the fleet above 10,000 dwt as the fleet. Bulk carriers and other single-deckers below 10,000 dwt are typically deployed in regional and short haul trades, although vessels in this fleet segment also perform longer haul trades. This section covers vessels larger than 10,000 dwt.

 

Dry bulk carriers are single-decked ships that transport dry bulk commodities that are either free-flowing like grain and coal, or unitized like steel. The free-flowing cargoes are carried in a “loose” form in the sense that the cargo is put into the cargo holds without any means of bags, nets, or even crates. The unitized cargoes might be bundled such as steel beams or logs, but could also be loose. Carriage of unitized commodities often requires the cargo to be secured by means of dunnage to avoid shifting of the cargo during the voyage.

 

The fleet is usually divided into four main segments with generic names. Below is an overview of these main segments, with references to sub-segments within each:

 

Capesize

 

Capesize vessels are larger than 100,000 dwt and derive their name from the fact that they are too large to transit the Panama Canal and traditionally had to go around Cape Horn. Despite seeing increased interest for small Capesizes in recent years, the typical Capesize vessel is between 150,000 dwt and 220,000 dwt. The 150,000 to 200,000 dwt category is simply referred to as Capesize whereas the 200,000 to 220,000 dwt vessels are called Newcastlemaxes, as their size is the maximum that can call at the Port of Newcastle in the east coast of Australia, which is a major coal export port facility. These vessels have a slightly wider beam and are generally slightly longer than the Capesize bulkers. Apart from this, they are quite similar, with nine holds/hatches and gearless. Finally, the largest category of dry bulk carriers is the Very Large Ore Carriers (VLOCs). These are vessels are specially designed to carry iron ore. The holds of the VLOCs have a different design than those of a bulk carrier and the bottom of the hold is raised to lift the center of gravity of the cargo. These vessels are unsuitable to carry other cargoes than iron ore due to their limited cubic capacity. The VLOCs are about 220,000 to 400,000 dwt. About 99% of the commodities carried by Capesize bulkers are iron ore or coal. Iron ore alone constitutes about 69% of commodities carried by Capesize bulkers.

 

Panamax

 

Panamax vessels are between 70,000 and 99,999 dwt and are in principle the largest vessels that can transit the Panama Canal. Following the opening of the third set of locks in Panama in 2016, the largest vessels in this group can transit the canal as well. The maximum beam for transiting the original locks is 32.26 meters. In the new lock, the beam restriction is 48 meters. The conventional Panamax is 225 meters long with a beam of 32.26 meters. The vessel is fitted with seven holds and hatches and is normally gearless.

 

This segment is sub-divided into three groups: the traditional Panamax, the Kamsarmax and the Post-Panamax. The Kamsarmax derives its name from Port Kamsar in Guinea. This port has a length restriction of 229.5 meters, and hence the Kamsarmax is a stretched Panamax providing extra cargo capacity. Apart from this, the design carries the same features as a traditional Panamax. The Post-Panamax vessels are too wide to transit the original locks in the Panama Canal. The vessels compete with Panamax/Kamsarmax bulkers rather than Capesize bulkers. As of June 2016, these vessels can transit the third set of locks in the Panama Canal.

 

Close to 90% of all cargoes carried by Panamax bulkers are either coal, grain, or iron ore. Coal is by far the dominant commodity, constituting about 53% of the Panamax cargo base. Panamax bulkers trade worldwide, including short haul trades regionally.

 

 70

Handymax

 

Handymax vessels are between 40,000 and 69,999 dwt and typically have five holds and hatches and four cranes. The generic name Handymax used to be a reference to vessels between 40,000 and 50,000 dwt, but this has changed over the past 15 years. Around 2000, the first over 50,000 dwt vessels with the same features as the traditional Handymax vessels were delivered from shipyards. The new group, between 50,000 and 60,000 dwt, was named Supramax. In recent years, we observed that the standard size within this segment has increased again with the creation of a new 60,000 to 70,000 segment named Ultramax. A vessel of this size would normally be called a Panamax, but the new Ultramax differs from the Panamax as it has five holds/hatches and cargo cranes whereas a Panamax has seven holds/hatches and usually is gearless. Thus, the new Ultramax vessels tend to compete with the Supramaxes with respect to hold configuration and cargo gear whereas it could compete with Panamax with respect to deadweight and hold volume.

 

The Handymax bulker trades worldwide with all kinds of dry bulk cargoes. The degree of specialization in this size group is less than in the Handysize, but to a certain degree these are vessels specially designed for, among other things, carrying forest products.

 

Handysize

 

Handysize vessels are between 10,000 and 39,999 dwt, and typically have four or five cargo holds and four cranes and/or derricks. These ships are highly versatile and carry almost all types of cargoes, making this segment typically more specialized in design than other segments. The vessels can be designed for various purposes, including for carrying steel and logs and lumber. Other vessels in this class are designed with specialty cranes, wide open hatches and boxed holds, and others are designed for the carriage of cement. The hull design does not differ widely, but the configuration and design of cargo holds as well as the loading and discharging equipment are the key differences between the various designs. Handysize bulk carriers trade both regionally as well as long haul trades across the Atlantic or Pacific oceans, or between them. Handysizes do not usually benefit from economies of scale as they are typically deployed in trades where significant port limitations exist and/or trades where there is limited storage capacity in place, which limits shipment sizes.

 

The following table shows the current age distribution of the dry bulk fleet in million dwt, in addition to information about the average age for each segment:

 

Age and size distribution for bulk carriers as of the end of February 2018

 

   Handysize (10-39,999)  Handymax (40-69,999)  Panamax (70-99,999)  Capesize (100,000+)  Total
   Nos.  M. Dwt  Nos.  M. Dwt  Nos.  M. Dwt  Nos.  M. Dwt  Nos.  M. Dwt
<=1998    506    12.5    326    16.3    140    10.6    83    19.3    1,055    70.5 
1999-03    234    6.4    297    15.0    286    21.6    111    19.2    928    64.0 
2004-08    342    9.3    477    25.9    431    34.1    248    45.9    1,498    89.0 
2009-13    1,246    38.9    1,439    80.9    1,076    89.4    890    168.9    4,651    195.4 
2014-18    541    19.0    849    50.9    510    41.7    374    73.5    2,274    350.2 
Total fleet    2,869    86.1    3,388    189.0    2,443    197.4    1,706    326.8    10,406    799.3 
                                                   
Average age (years)         10.2         8.7         8.7         8.2         8.7 

 

Supply of Dry Bulk Vessels

 

The supply of dry bulk carriers is mainly determined by deliveries of new vessels from shipyards and the demolition and recycling of obsolete vessels. In addition, there are permanent conversions of bulk carriers to other uses and losses at sea and constructional total losses. The latter causes are very small in comparison to demolition.

 

The demand for newbuildings and subsequent deliveries of newbuildings is to a large extent a function of demand for new tonnage from ship owners and available shipyard capacity. Following the upturn in the market from 2004 to 2006, ship owners ordered many new vessels from the yards. At the same time, shipbuilding capacity increased substantially, especially in China, resulting in delivery of new tonnage increasing rapidly in 2009 and subsequent years. In 2008, about 24.3 million dwt were delivered, which was in line with the preceding three years. However, in 2009, approximately 42.3 million dwt were delivered, compared to more than 79 million dwt in 2010, 96.1 million dwt in 2011 and 97.9 million dwt in 2012. This resulted in substantial net fleet growth rates causing freight markets to tumble and contracting of new tonnage to slow down, resulting in fewer deliveries in 2013 through 2015.

 

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In 2013 and 2014, contracting picked up again; one of the key drivers for the revival was the focus on fuel efficient vessels. Yards have marketed new designs with significantly lower fuel consumption than existing ones, and in a market environment with very high bunker prices, this was considered attractive despite the prices of newbuildings. In 2012, total ordering of bulk carriers amounted to about 20.8 million dwt. In 2013 and 2014, ordering ended at 88.2 and 47.9 million dwt, respectively. This fell to 10.5 million dwt in 2016 before an increase to 23.7 million dwt in 2017. 2016 annual contracting volume was at the lowest level since 1993.

 

The figure below shows the end of year order books from 2005 to 2017:

 

 

End of year order books per segment (in million dwt)

 

   Capesize (100,000+)  Panamax
(70-99,999)
  Handymax
(40-69,999)
  Handysize
(10-39,999)
  Total  In % of fleet
 2012    44.1    33.1    24.6    11.9    113.6    16.7%
 2013    51.4    28.1    35.6    14.9    130.0    18.1%
 2014    67.1    27.8    38.2    13.3    146.4    19.6%
 2015    49.6    22.9    30.0    10.7    113.2    14.7%
 2016    40.8    16.2    18.1    7.2    82.2    10.5%
 2017    44.8    16.8    10.8    6.5    78.9    9.9%

 

The order book, as of the end 2017, was approximately 79 million dwt and represented 9.9% of the current fleet. This is the lowest seen since 2006.

 

The typical useful trading life of a bulk carrier is between 20 and 25 years, but varies over time. In periods of good market earnings, owners tend to maintain and keep their vessels longer. The following chart shows how the average demolition age has changed between 2011 and 2017, broken down by segment. Please note the segment division is slightly different from elsewhere in this section as all vessels larger than 100,000 dwt are aggregated to bring more clarity into the chart.

 

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Since 2011, the average age of demolition has declined markedly from 28.2 years to 22.9 years. The average demolition age in 2017 is consistent with the historical average age of demolition during the period between 2002 and 2017.

  

The decision to scrap a vessel is usually reactive rather than proactive. This means that owners often decide to scrap vessels following a period with poor market conditions where the owners do not see or expect a market revival in the short term. In addition, the vessel might be in for a special survey, which is associated with costs, and the owners could then decide to scrap the vessel when expectations for improvement are very low.

 

During the period between 2004 and 2008, when there was a significant increase of newbuildings, very few vessels were sold for scrap and annual demolition sales varied between 0.8 and 3.0 million dwt. The demolition sales increased in 2009 and 2010 but did not reach significant levels before 2011 to 2016, where a total of approximately 160 million dwt of tonnage was sold for demolition. The peak years were 2012 and 2015, coinciding with a freight market low, at about 33 million dwt each year.

 

Because of deliveries and demolition activity, the dry bulk fleet has on average increased by approximately 6.4% per annum since 2000. The following table shows total number of vessels, dwt, and average growth rates for the individual segments and the total fleet:

 

   10-39,999 dwt  40-69,999 dwt  70-99,999 dwt  100,000 dwt  Total
   Nos  Kdwt  Nos  Kdwt  Nos  Kdwt  Nos  Kdwt  Nos  Kdwt
 2000    2,865    75,602    1,517    79,389    496    36,960    516    84,320    5,394    276,271 
 2005    2,729    72,482    1,869    97,494    839    63,176    657    111,094    6,094    344,246 
 2008    2,864    76,315    2,155    113,064    1,120    85,586    836    145,815    6,975    420,780 
 2009    2,813    75,211    2,295    120,868    1,205    92,790    960    170,748    7,273    459,617 
 2010    2,977    80,566    2,599    138,117    1,384    108,195    1,169    210,374    8,129    537,252 
 2011    3,059    84,240    2,871    153,611    1,619    128,160    1,367    249,739    8,916    615,750 
 2012    3,110    86,893    3,012    161,818    1,914    152,520    1,502    278,553    9,538    679,784 
 2013    3,078    86,754    3,123    168,396    2,139    170,924    1,560    292,197    9,900    718,271 
 2014    3,082    87,660    3,196    173,207    2,276    182,095    1,623    305,428    10,177    748,390 
 2015    3,088    88,673    3,367    183,919    2,345    188,085    1,621    307,124    10,421    767,801 
 2016    3,104    90,091    3,450    190,145    2,378    191,595    1,646    313,692    10,579    785,589 
 2017    2,855    85,597    3,368    187,716    2,431    196,371    1,699    324,969    10,353    794,653 
                                                     
CAGR
 2000-2005     -1.0%   -0.8%   4.3%   4.2%   11.1%   11.3%   5.0%   5.7%   2.5%   4.5%
 2005-2008     1.6%   1.7%   4.9%   5.1%   10.1%   10.6%   8.4%   9.5%   4.6%   6.9%
                                                     
 2000-2008     0.0%   0.1%   4.5%   4.5%   10.7%   11.1%   6.2%   7.1%   3.3%   5.4%
 2008-2017     0.0%   1.3%   5.1%   5.8%   9.0%   9.7%   8.2%   9.3%   4.5%   7.3%

  

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Net fleet growth has leveled off substantially in recent years. The fleet grew by double-digit growth rates and increased by about 48% from the end 2008 through the end of 2012. From the end of 2012 until the end of 2017, the fleet expanded by only 17%. In the last three years, we have seen net fleet growth rates of 2.6%, 2.3%, and 1.2% in 2015, 2016, and 2017, respectively. The main causes for this development are found in lower deliveries of newbuildings due to difficult market conditions and continued high demolition activity. We expect net fleet growth rates of about 2.1% in 2018 and about 1.8% in 2019.

 

Charter Contracts

 

Chartering of bulk carriers can take different forms. In principle, most owners are targeting a certain income on time charter basis. The main difference between the various forms of charter contracts is the allocation of risk between the owner and the charterer. The main forms of charter contracts are:

 

Voyage Charter

 

The owner agrees with the charterer to perform a single voyage. The parties also agree on the loading and discharging ports, the commodity and quantity, the rate of loading and discharging and the dates of loading. The charterer pays the owner a freight, normally in US$/tonne loaded cargo quantity. Under a voyage charter, the owner is responsible for all voyage related costs such as the cost of bunkers, the port costs and canal costs, if any, in addition to operating costs (insurance, manning, repair and maintenance, among others) and capital costs. Under a voyage charter, the owner bears the risk for delays at sea (bad weather) and changes in voyage related cost elements. The charterer bears the risk of increased loading and discharging time.

 

Contracts of Affreightment (COA)

 

Under a contract of affreightment (“COA”), the owner and charterer agree on the terms for carrying a certain volume of cargo from one location to another, or any combination of ports, over a certain period. The cargoes are normally carried at fairly regular intervals. The name of the vessels deployed under a COA are usually not specified in the contract and the owner nominates vessels for each lifting according to agreed routines. Freight is normally paid in US$/tonne, and otherwise, a COA is similar to a voyage charter with similar obligations and rights as agreed under a voyage charter. COAs may cover only a few cargoes over a short period of time or up to several years covering dozens of cargoes per year.

 

Time Charters

 

A time charter is a contract for the use of a vessel for a fixed period at a specified daily rate. Under a typical time charter, the ship owner provides crewing and other services related to the vessel’s operation, the cost of which is included in the daily rate, and the charterer is responsible for substantially all of the vessel’s voyage related costs. When the vessel is off-hire, the customer is usually not required to pay the hire and the owner is responsible for all costs. Under a time charter, the point and time of delivery and redelivery is pre-agreed. The charterer is commercially responsible for the utilization of the vessel, and as opposed to a voyage charter, the charterer takes over all risks for voyage related costs and delays at sea. The charterer normally selects a time charter if it wants a dedicated vessel. A time charter can have a duration of less than a week or up to many years.

 

Bareboat Charters

 

A bareboat charter is in principle a lease. Similar to a time charter, the owner provides the charterer with a vessel at a specified daily rate and for a fixed period. However, under a bareboat charter, the customer provides crewing and all necessary services required for the operation of the vessel, in addition to all voyage related costs. In practice, the customer becomes a shipowner without holding title to the ship. During the bareboat charter term, a charterer must pay the hire regardless of whether or not the vessel is in service, and all time and operational risk is transferred to the charterer.

 

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Freight Rates

 

The freight rates of charter contracts are determined by the balance, or imbalance, between supply and demand. This balance can broadly be divided into the global demand and supply balance governing the global market conditions and the short-term balance regionally that could cause rates to temporary increase or decrease.

 

The Baltic Exchange issues daily freight and hire assessments based on the input of data from ship brokers. These daily assessments are presented both as an average of the broker assessments as well as an index: the Baltic Dry Index, or BDI. In addition, the Baltic Exchange calculates time charter average earnings for each of the main sub-segments: Handysize, Supramax, Panamax, and Capesize bulkers.

 

The freight and time charter assessments presented by the Baltic Exchange deviate from individual fixtures made in the market place, but its daily assessments have become the norm for market levels and development.

 

The following chart shows the time charter average development for Supramax, Panamax, and Capesize and is a representation of average spot earnings:  

 

 

 

1 TC avg BSI (or Baltic Supramax Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Supramax bulk carriers

2 TC avg BPI (or Baltic Panamax Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Panamax bulk carriers

3 TC avg BCI (or Baltic Capesize Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Capesize bulk carriers. The Baltic Exchange introduced a new Capesize reference vessel in February 2014.

4 The current BCI refers to the 180,000 dwt vessels whereas the BCI 172 refers to the old reference vessel of 172,000 dwt.

 

Another way of illustrating the dry bulk market is to show the 12-month time charter rates. The variation in the 12 month charter rates have in several periods been closely correlated with secondhand values. Normally, this period rate is also an indicator of short-term expectations. An owner will often opt for a charter for a period of 12 months if it expects a decreasing market, whereas a charterer will opt for a period charter if it expects a rising market. 

 

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Asset Values

 

The shipping markets differ from other markets in one major aspect: that the market for the sale and purchase of the production assets (the vessels) is quite liquid and normally considered a vital part of the business plan for most ship owners. Price assessments are typically made by brokers on a regular basis for standard vessels for newbuildings, newbuilding resale values as well as assessments for five, ten and fifteen year-old vessels.

 

Newbuilding prices are determined by the balance between supply and demand for newbuildings as well as changes in production costs, currency exchange rates and interest rates. Price differences between individual shipyards are often due to the quality of their vessels, both with respect to design and workmanship.

 

The value of secondhand vessels is influenced by several factors. Normally, when an owner considers ordering a newbuilding, the owner also will consider modern secondhand vessels (typically less than five years old). The decision is influenced by short term market development and pricing. If, for instance, newbuilding resale prices (vessels due for delivery from the shipyard within a few months) are valued significantly higher than newbuilding contracts and short-term freight market expectations are poor, most owners will opt for a newbuilding contract. If short-term freight expectations are strong, the owner might still consider it worthwhile to pay a premium for a resale/modern unit to get an operational ship more quickly.

 

Values of vessels older than approximately five years are more prone to be impacted by freight market developments. If the spot market is expected to be firm, prices tend to increase, and conversely decrease when the expectations are lower. The older a vessel becomes, the more its value is impacted by freight conditions.

 

In sum, secondhand values are primarily shaped by actual and anticipated earnings, newbuilding replacement costs (relevant to modern secondhand vessels) and demolition value for old vessels. For an individual transaction, the class position (when the next special survey is due) and the technical condition play an important role in setting the value.

 

The following charts and tables show newbuilding price and secondhand value development for Capesize, Panamax, and Supramax bulk carriers:

 

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   Capesize (170-180,000 dwt) value in $m (end of year)
   10 years old  5 years old  Resale value  NB price
 2007    118.0    152.0    178.8    92.0 
 2008    37.0    47.0    55.3    76.0 
 2009    43.0    54.0    65.0    55.0 
 2010    42.0    53.5    62.0    55.0 
 2011    28.0    38.0    48.0    50.0 
 2012    21.0    29.5    37.0    45.0 
 2013    27.0    44.0    58.0    55.0 
 2014    29.5    40.0    55.0    54.0 
 2015    14.0    27.0    41.0    47.0 
 2016    14.0    22.8    34.5    41.0 
 2017    23.0    35.0    48.0    45.0 
 2007–17 average     36.0    49.3    62.1    55.9 

 

 

 

 

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   Panamax (70-84,000 dwt) value in $m (end of year)
   10 years old  5 years old  Resale value  NB price
 2007    75.0    91.5    107.6    51.0 
 2008    22.0    27.0    31.8    42.0 
 2009    27.5    34.0    40.0    35.0 
 2010    31.0    38.0    43.0    36.0 
 2011    20.0    27.0    31.0    30.0 
 2012    14.0    19.0    24.0    27.5 
 2013    17.0    24.5    31.0    30.0 
 2014    14.5    20.0    30.0    29.5 
 2015    7.5    14.0    22.0    26.0 
 2016    10.0    14.0    21.5    23.0 
 2017    15.3    22.5    30.0    26.0 
 2007–17 average     23.1    30.1    37.4    32.4 

 

 

 

   Supramax (50-60,000 dwt) value in $m (end of year)
   10 years old  5 years old  Resale value  NB price
 2007    64.0    75.5    88.8    45.0 
 2008    18.0    25.0    29.4    37.0 
 2009    22.0    28.0    35.0    30.0 
 2010    25.0    31.5    36.0    31.0 
 2011    17.0    25.5    29.5    28.0 
 2012    13.5    18.5    23.5    25.5 
 2013    14.5    22.5    28.5    28.0 
 2014    13.5    20.5    26.5    27.5 
 2015    7.0    12.0    20.0    24.0 
 2016    9.5    13.8    20.0    21.0 
 2017    13.0    18.0    27.0    24.0 
 2007–17 average     19.7    26.4    33.1    29.2 

 

The sale and purchase market for bulk carriers is quite liquid compared to other vessel types. In 2017, Fearnleys has registered about 645 bulk carrier transactions compared to, for example, about 264 tanker transactions.

 

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Market Developments

 

Over the past five years, total fleet growth has been moderately high at about 3.2% CAGR per annum, whereas demand in the same period has increased by about 2.0% CAGR per annum. The latter figure is well below the historical average growth rate. However, the growth in supply has by far outpaced the growth in demand since 2008, and the increased supply resulted in the very low freight conditions seen in 2015 and 2016. Measured by the BDI, the February 2016 average level was 307, which is about 46% lower than the preceding all-time low of 572 in July 1986.

 

Freight market conditions improved throughout 2016 and especially in 2017 when the BDI exceeded 1,700 points in December. The positive development in 2017 was driven by very moderate fleet growth of about 1.2% and strong demand growth of about 4.0%. Major bulk demand increased even more at approximately 5.0%.

 

Following significant ordering activity in 2013 and 2014, it was expected that a high delivery rate of bulk carriers would continue in 2015 and 2016. In 2016, we observed total deliveries of about 46.6 million dwt. This fell to about 37.6 million dwt in 2017. To mitigate the effects of these deliveries, continued demolition activity is necessary to balance supply and demand growth going forward. A challenging factor in this respect is that the current bulk carrier fleet is quite modern with an average age of 8.7 years.

 

To balance the market, this implies that the demand must increase at similar, or preferably higher, rates, and that the growth in demand accordingly must continue at the average rate for the past five years in the years to come. In the past five years, the key driver in the dry bulk market has been the Chinese stimulus package early in the period, and the significant growth in Chinese coal imports throughout the period. In 2017, total iron ore trade expanded by about 3.6% whereas coal trades increased by 7.0%, resulting in combined growth of approximately 4.8%.

 

IMO Regulations

 

The operation of ships is regulated by both national and international regulations. The United Nations, through the International Maritime Organization (“IMO”), is the key international regulatory body. IMO regulation covers safety (SOLAS), pollution (MARPOL), standards for measurement (such as the Load Line Convention) and others.

 

In 2016, two sets of regulations were ratified: The International Convention for the Control and Management of Ships' Ballast Water and Sediments (the “BWM Convention”), which will became effective on September 8, 2017, and the decision to implement a global sulphur cap of 0.50% m/m (mass/mass) in marine fuels, which becomes effective on January 1, 2020.

 

Both decisions have had an impact on international shipping, as further described below.

 

BWM Convention

 

Over the years, it has become evident that disposal of ballast water is a key source of transfers of potentially invasive and harmful organic organisms and species all over the world. The introduction of invasive species could potentially harm the local marine ecosystems and have serious negative economic consequences. As a result, the IMO several years ago introduced ballast water management regulations before eventually ratifying a requirement for BWTS. The latter became effective on September 8, 2017.

  

As a result, all sea-going vessels are required to fit/retrofit an approved treatment system upon renewal of the vessels’ International Oil Pollution Prevention (“IOPP”) certificate after the effective date. The IOPP certificate is renewed every 5 years, usually at the same time as for class renewal.

 

For owners of ships, the regulation has a cost consequence. Depending on the size, type and design of a vessel, the cost for retrofitting a BWTS is about US$0.4 million to US$2.5 million.

 

Global Sulphur Cap

 

Within certain, defined geographical areas, there are limits on sulphur emissions in place. These are the Baltic Sea, the North Sea and the English Channel, which are defined as a Sulphur Emission Control Area (“SECA”). As a result, vessels navigating in these waters must adhere to a 0.50% sulphur cap.

 

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There is also an Emission Control Area in North America and parts of the Caribbean. This zone is formed by the 200 nautical mile economic zone around North America. Although not defined as a SECA, vessels navigating within the 200 nautical mile limit must adhere to a 0.5% sulphur limit.

 

Most vessels entering these zones will meet the requirements by changing from residual fuel oil to marine gas oil, which is much lower in sulphur content.

 

For several years, it has been evident that the IMO would introduce a global sulphur cap similar to those applicable for SECA/ECA. In the Marine Environment Protection Committee (“MEPC”) meeting in October 2016, it was decided that this limit will become effective from January 1, 2020.

 

The current global sulphur cap is 3.5%. There are several options to reduce sulphur emissions:

 

·Exhaust cleaning (or scrubbers);

 

·Running the main engine on low sulphur fuel; or

 

·Running the main engine on gas (LNG, LPG, Ethane).

 

Scrubbers are designed to clean the exhaust emissions for sulphur and as such, one can continue operating the main engine on residual fuel oil. The cost for scrubbers varies with ship type/size and is assumed to cost between US$2.0 and US$4.0 million per vessel. In addition, a scrubber could potentially increase fuel consumption by about 2% to 3%. So far, very few owners have opted for scrubbers. According to DNV GL, there are in total about 320 vessels that will have scrubbers installed by 2019, representing about 0.5% of the total global merchant fleet.

 

The other alternative is to run the main engine on low sulphur fuel. This means running on marine gas oil. This has a cost implication as the gas oil premium to residual fuel oil has been about 246 US$/mt on average for the past 15 years. However, back in 2012 through 2014, while crude oil prices were hovering around $100 per barrel, the premium was in the region of 400 US$/mt.

 

The third alternative, running the vessel on gas, carries a costly investment, and currently there are limited bunkering opportunities. The incremental cost for an LNG-fueled Capesize is approximately US$10.0 to US$12.0 million for a newbuilding. We believe this makes this option unattractive.

 

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Business

 

Our Business

 

We are a leading international owner and operator of dry bulk vessels, and one of the world’s largest owners of Capesize vessels. Founded in October 2016, for the purpose of owning high-quality secondhand dry bulk vessels between 50,000 and 210,000 dwt, we offer investors an efficient company to access the dry bulk market. We were formed at a historically low point in the shipping cycle, which our management and Board of Directors believe represents an opportunity to expand our fleet and business with a low cost asset base. Starting with only one vessel on the water in January 2017, through our actively managed fleet strategy and opportunistic acquisitions at attractive valuations, we have successfully grown our fleet to 25 dry bulk vessels as of the date of this prospectus (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018). This includes 22 Capesize, 1 Panamax, and 2 Supramax vessels, which have an average age of 9 years and an aggregate carrying capacity of 4.1 million dwt.

 

Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, and grains, across global shipping routes. Our chartering policy is to employ our vessels primarily in the spot market, depending on prevailing industry dynamics. Currently we deploy our vessels on the spot market and in pools managed by our commercial, operational, and technical manager, CTM. We believe this policy allows us to obtain attractive charter hire rates for our vessels, while also affording us flexibility to take advantage of a rising charter rate environment. Being in a pool can improve an owner’s income stream by providing access to global trade through sharing earnings brought in by the other pool members’ trading in a myriad of routes (a wider range of routes than those that make up the Baltic Indices), rather than just depending on the single route that standalone operations can achieve. Through these pools, we have access to long standing industry experience and contacts with major operators and charterers, economies of scale with respect to cost reductions, superior market intelligence and information as well as improved utilization rates that come from being part of a larger fleet.

 

We maintain a strong relationship with CTM, which we believe has allowed us to become one of the most cost-efficient public dry bulk operators. We believe CTM has an excellent track record in supplying leading dry bulk management services at very competitive rates.

 

Our company, its founders and its manager have a long history of operating and investing in the shipping industry. Our founding shareholders are Brentwood Shipping, Lantern, and two other financial investors. Brentwood Shipping is a privately held shipping business owned by the family of our Chairman and CEO John Michael Radziwill and has over a century of involvement in the shipping industry. Mr. Radziwill has served as our Chairman and CEO since our inception. During his career, Mr. Radziwill has overseen sale, purchase and new building contracting transactions of approximately 80 vessels, for an aggregate purchase price of over $2 billion. Additionally, Mr. Radziwill has served as the Chief Executive Officer of our manager CTM since 2010, providing him unique insight and access into the dry bulk market, which we are able to leverage. Mr. Radziwill’s interests are fully aligned with our company through his family’s ownership stake in Brentwood Shipping.

 

At the end of March 2017, our common shares began trading on the N-OTC market under the symbol “BULK.”

 

Our Relationship with C Transport Maritime

 

Our fleet is managed by CTM, which is beneficially owned by the family of our Chairman and CEO, John Michael Radziwill. Headquartered in Monaco and founded in 2004, CTM is one of the largest ship management companies and provides services that include commercial and operations management, technical management, risk management and research, as well as sale and purchase services to various third party vessel owners. CTM directly operates over 100 dry cargo vessels, ranging from Supramax to Newcastlemax bulk carriers, and over 140 vessels, including vessels managed through CCL where CTM serves as co-manager. CTM’s fully managed pools include the Capesize and Supramax RSA, with the vessels in the Capesize RSA being part of CCL.

 

CTM’s RSAs are commercial and operational platforms that collectively manage member vessels operating them on the spot market and distributing income produced proportionately according to each member vessel’s earning capacity. The RSAs are open to third party vessels with CTM charging a commercial management fee of 1.25% on incomes produced for their services. The RSA aggregates the revenues and expenses of all the participant vessels and distributes the net earnings calculated on (i) a key figure expressing the relative theoretical earning

 

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capacity of such member vessel based on the cargo carrying capacity, tradability, speed and consumptions and performances and (ii) the number of days the vessel was operated during the period. During 2017, the Supramax RSA member vessels carried approximately 22 million tonnes of cargo and performed 341 fixtures. Likewise, in 2017, CCL carried about 55 million tonnes of cargo and performed 325 fixtures for Capesize vessels.

 

CTM also manages vessels on behalf of other owners. CTM-managed vessels transported an aggregate of approximately 47 million tonnes of cargo in 2017 and approximately 87 million tonnes including the cargo carried on CCL controlled vessels.

 

CTM has won several industry accolades which are testament to the company’s commitment to its clients and to providing high quality service. In 2017, CTM won the award for Dry Bulk Operator of the Year at the 20th Annual Lloyds List Global Awards and, in 2015, CTM’s Technical Management was recognized by the USCG with its highest award – the QUALSHIP 21 for “quality shipping for the 21st century.”

 

Our relationship with CTM gives us access to their relationships with major international charterers, end-users, brokers, lenders and shipbuilders. The scale and reach of CTM’s commercial and technical platforms allow us to compete more effectively and operate our vessels on a cost-efficient basis.

 

Our Fleet

 

All of our vessels are currently operated in the spot market, with the majority operated through CTM’s RSAs or on index-linked charters.

 

The following table summarizes key information about our fleet as of the date of this prospectus:

 

Vessel Name Type Delivery Date to GoodBulk Size (dwt) Year Built Shipyard
Aquamarine1 Capesize January 5, 2017 182,060 2009 Odense, DEN
Aquadonna1 Capesize February 2, 2017 177,173 2005 Namura, JPN
Aquakula1 Supramax April 18, 2017 55,309 2007 Oshima, JPN
Aquaknight3 Panamax April 25, 2017 75,395 2007 Universal, JPN
Nautical Dream1 Capesize April 25, 2017 180,730 2013 JMU , JPN
Aquapride1 Supramax June 1, 2017 61,465 2012 Imabari, JPN
Aquacharm1 Capesize June 16, 2017 171,009 2003 Sasebo, JPN
Aquajoy1 Capesize June 21, 2017 171,009 2003 Sasebo, JPN
Aquavictory1 Capesize June 30, 2017 182,060 2010 Odense, DEN
Aquahope1 Capesize September 19, 2017 177,173 2007 Namura, JPN
Aquakatana1 Capesize September 28, 2017 185,897 2005 Kawasaki, JPN
Aquarange1 Capesize December 4, 2017 179,842 2011 Hanjin, PH
Aquamarie2 Capesize December 19, 2017 178,896 2012 Sungdong, KR
Aquaenna1 Capesize January 9, 2018 175,975 2011 Jinhai, CHN
Aquabridge2 Capesize January 16, 2018 177,106 2005 Namura, JPN
Aquaproud1 Capesize January 24, 2018 178,055 2009 SWS, CHN
Aquatonka1 Capesize January 31, 2018 179,004 2012 Hanjin, PH
Aquavoyageurs2 Capesize February 5, 2018 177,022 2005 Namura, JPN
Aquahaha1 Capesize February 15, 2018 179,023 2012 Hanjin, PH
Aquataine2 Capesize February 20, 2018 181,725 2010 Imabari, JPN
Aquascope1 Capesize February 21, 2018 174,008 2006 SWS, CHN
Aquasurfer1 Capesize March 1, 2018 178,854 2013 Sungdong, KR
Aquacarrier1 Capesize April/May 2018* 175,935 2011 Jinhai, CHN
Aquamaka1 Capesize April/May 2018* 179,362 2009 Hyundai, KR
Aquakatie Capesize June/July 2018* 174,142 2007 SWS, CHN
Total: 25     4,108,229    

 

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* Estimated delivery dates subject to vessel itineraries and employment.

 

1 Operated in the CTM RSAs.

 

2 Operated on index-linked charters.

 

Vessel Redelivery Period Charterer Rate
Aquataine April 30, 2018 – July 31, 2018 Anglo American 112% BCI 5TC
Aquamarie July 3, 2018 – October 3, 2018 Cargill International SA 105% BCI 5TC
Aquabridge March 5, 2018 – July 5, 2018 Cargill International SA 105% BCI 5TC
Aquavoyageurs April 12, 2018 – August 11, 2018 Cargill International SA 105% BCI 5TC

 

 

3 Operated in the spot market.

 

Management of Our Business

 

Our Board of Directors defines our overall direction and business strategy and exercises all significant decision-making authority including, but not limited to, with respect to our investments and divestments. Our day-to-day business and vessel operations are managed by CTM with the guidance and oversight of our Board, under the operational, commercial, technical and administrative service agreements discussed below. CTM also sources and advises on strategic opportunities for our Board’s consideration.

 

Commercial Management Agreement

 

We have entered into a Commercial Management Agreement with CTM for the operational and commercial management of all dry bulk carrier motor vessels owned or chartered by us or our subsidiaries. CTM’s services include negotiating contracts related to the vessels, negotiating terms of employment of the vessels, making all necessary arrangements for the proper employment of the vessels, negotiating the terms of all contracts for the purchase or sale of the vessels, and appointing port and other agents for the vessels, in each case subject to the express limitations and guidelines imposed by us. We pay CTM commission fees as follows: (i) in relation to time chartered-in and time chartered-out vessels, 1.25% commission on all hires paid or a 1.25% commission on all gross freight on all of the performed voyage charter contracts; and (ii) 1.00% commission of the memorandum of agreement price for the sale of any vessel by us or any of our subsidiaries. Upon completion of this offering, the Commercial Management Agreement will only be subject to termination by us upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform a material obligation, we must pay CTM a termination fee equal to twice the amount of commissions due over the prior twelve months.

 

Shipmanagement Agreement

 

Through our subsidiaries, we enter into a Shipmanagement Agreement with CTM with respect to each vessel in our fleet. CTM’s services include providing technical management services, such as selecting and engaging the vessel’s crew, providing payroll and compliance services, providing competent personnel to supervise the maintenance and general efficiency of the vessel, arranging and supervising drydockings, repairs, alterations and the upkeep of the vessel, appointing surveyors and technical consultants, arranging the transportation of shore personnel when servicing the vessel, arranging supervisory visits to the vessel, and maintaining a safety management system. We pay CTM a basic annual management fee in the amount of $144,000 per vessel. Additionally, we reimburse CTM for rent, communication and other general expenses in the aggregate amount of $15,000 per vessel per quarter, and for travel and out-of-pocket expenses incurred by CTM in pursuance of its management services. Upon completion of this offering, a Shipmanagement Agreement will only be subject to termination by us upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform a material obligation, we must pay CTM a termination fee equal to the basic management fees for the prior twelve months. In addition, a Shipmanagement Agreement is deemed terminated upon the sale of the vessel to a non-affiliated third party.

 

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Services Agreement

 

We have entered into a Services Agreement with CTM for the provision of staff services, including customer and supplier management, accounting, treasury, budgeting and reporting, consultancy services, corporate and legal services, and information technology services. We pay CTM an annual management fee of $50,000 for each vessel, in quarterly installments. We also reimburse CTM for all travel and subsistence expenses CTM incurs in the provision of services. Upon completion of this offering, the Services Agreement will only be subject to termination by us, upon three months prior notice. Upon any termination by us that is not a result of CTM’s failure to perform its obligations (including if such failure is due to applicable law or insolvency of CTM), we must pay CTM a termination fee equal to twice the amount of the fees for the prior twelve months.

 

Unless terminated earlier by us, our Commercial, Shipmanagement and Services Agreements with CTM will automatically extend for an additional five years after completion of this offering. During this period the commissions and fee rates as noted above will remain fixed, thereby providing significant visibility into our cost structure.

 

Our Competitive Strengths

 

Demonstrated Access to Capital and Significant Financial Flexibility

 

We believe that we have successfully capitalized the business in a financially conservative manner that allows for continued access to capital to fund our growth opportunities. We target a long-term leverage profile below 30% Net Debt / Gross Asset Value, which provides us with significant financial flexibility going forward. In line with this target, we recently funded the acquisition of 13 Capesize vessels from CarVal Investors using a mix of cash and shares, thereby demonstrating our ability to access capital to fund opportunistic acquisitions.

 

We believe that we have also demonstrated the ability to raise equity capital at increasing valuations, as measured on a share price basis, thereby driving improved returns for investors. In particular, we have successfully raised equity, each time at a higher valuation, to fund our initial growth, including our initial capital raise of $44.5 million (of which $18.5 million was contributed in kind for the vessel Aquamarine) in December 2016 at $10.00 per share. Three months later, in March 2017, we raised an additional $100.0 million at $11.00 per share to fund the acquisition of six vessels (one Ultramax and five Capesize vessels). More recently, in December 2017 through March 2018, we raised $32.3 million at $15.23 per share (to be settled in multiple closings), a significant majority of which was to fund part of the acquisition of nine of the Capesize vessels from CarVal Investors delivered to date. We have continued to demonstrate our ability to source attractive and accretive acquisitions and successfully access the capital markets to drive increased value for our investors and propel growth in the business.

  

As of December 31, 2017, we had $19.5 million of available cash and cash equivalents, in addition to $186.0 million available under committed but undrawn financing facilities. We believe that our available liquidity and committed financing capacity, together with the proceeds of this offering, will allow us to make additional accretive acquisitions.

 

High Quality Fleet Developed Through Timely Vessel Acquisitions

 

Our fleet consists of 25 dry bulk vessels (which includes two secondhand vessels with expected delivery by May 2018 and one vessel with expected delivery by July 2018), including 22 Capesize, 1 Panamax and 2 Supramax carriers, and we are the second largest and most concentrated owner of Capesize vessels among publicly listed peers. We believe that each vessel was acquired at an opportunistic point across each vessel’s life cycle, thereby maximizing earnings potential while at the same time minimizing acquisition cost. Our fleet has an average age of 9 years, and we believe that owning a high-quality, well-maintained fleet affords us significant benefits, including reduced operating costs, improved quality of service and a competitive advantage in securing favorable charters with high-quality counterparties. We believe that our active vessel acquisition and disposition strategy has allowed us to build one of the largest Capesize dry bulk fleets globally.

 

While our current fleet composition is weighted towards Capesize vessels, our strategy is to continue to evaluate the demand and supply dynamics across the various dry bulk vessel segments. We plan to focus on the 50,000 dwt – 210,000 dwt vessel range, supported by CTM’s expertise in operating and managing vessels across all vessel sizes. Since our formation, we believe that Capesize vessels have presented the most attractive value and upside potential, and as such, management has taken advantage of opportunistic acquisitions in the space.

 

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Our ability to acquire vessels at attractive prices has not required us to compromise on other critical vessel features, such as quality or the existence of a liquid secondary market for similar type vessels. Our vessels are built at the world’s most renowned shipyards and have been carefully maintained by CTM. However, we do not limit ourselves to vessels constructed at certain yards but rather look extensively for opportunistic purchases across all geographies. Additionally, the current sale and purchase market for types of vessels consistent with those in our fleet remains highly active, which is an important metric we take into account as we evaluate acquisition opportunities. The dry bulk sale and purchase market is the most liquid shipping market, with approximately 596 bulker sales (41.6 million dwt) in 2016 and 645 bulker sales (43.9 million dwt) in 2017 alone. The Panamax and Capesize markets together represented approximately 38% of the market on a number of vessels basis and 60% on a dwt basis. This highly liquid sale and purchase market offers us a unique opportunity to take advantage of opportunistic vessel acquisitions and dispositions, without having to incur an illiquidity discount. This can be seen through our acquisition and subsequent sale of the vessel Aquabeauty, which we acquired in May 2017 for $10.0 million and agreed to sell in January 2018 for $15.0 million.

 

This is but one example of our ability to generate significant returns to our investors. We have a proven and successful track record of acquiring vessels at attractive prices. Our first vessel was contributed by Brentwood Shipping, and each subsequent vessel acquisition / disposition has represented an attractive opportunity for us at that point in time. Recently in the second half of 2017, we announced a transformative acquisition of up to 13 vessels from CarVal Investors for a combination of cash and shares. This transaction allowed us to expand our fleet with similarly young and low leveraged Capesize vessels, and, at closing, will position the Company as one of the largest publicly listed owners of Capesize vessels.

 

Strong Relationship with CTM

 

We believe that one of our principal strengths is our relationship with CTM, which enables us to take advantage of its best-in-class fleet management capabilities across commercial, operational, technical and sale and purchase activities, as well as all the supporting functions it provides and also benefit from CTM’s history of actively managing financing relationships with international banks on behalf of its clients.

 

These financing relationships include, but are not limited to, arranging ship mortgages, pre-delivery financing and arranging working capital lines. In addition, we believe CTM is one of a handful of Western shipping companies with access to finance from Japanese banks, having previously arranged financing for two bulk carriers for another client of theirs.

 

In addition, our relationship with CTM has provided us with extensive acquisition sourcing capabilities, including opportunities to acquire high quality vessels at attractive prices. For example, GoodBulk has benefited from the strong ties that CTM has with the Japanese shipping market, from where we have directly sourced four of our acquired vessels to date without requiring non-Japanese intermediaries. CTM's long-standing relationships and network in Japan span back to 2004 when CTM was formed. Since that time, CTM has completed close to 70 sale and purchase and charter-based transactions in Japan. CTM’s scope of work includes identifying and suggesting potential acquisition or disposition candidates, asset inspections determining overall condition, engaging in price negotiation on behalf of and in close guidance with the Company, legal documentation handling and hand-over completion for a successful deal execution. CTM employs approximately 80 employees, several of which have been there since the company’s inception, including its CFO, Director of Handymax – Post Panamax, Director of Capesize – VLOC, Director of Sale and Purchase, and Director of Operations and Fleet. Other key executives have been with CTM for over 10 years including its CEO. Collectively, the top eight executives have over 90 years of experience with CTM. Our management team has worked together for up to 24 years for CTM and its predecessors. Moreover, the employees of CTM are well aligned with the company as they have personally invested over $3.3 million into the business. This provides extensive high quality industry expertise.

 

Following this offering, our agreements with CTM will automatically extend for an additional five years, during which period the commissions and fee rates as noted above will remain fixed, thereby providing significant visibility into our cost structure and ability to source vessel acquisition opportunities.

 

Industry Leading Cost Structure with Lowest Break Evens

 

Through our unique high operating leverage / low financial leverage strategy, we have been able to create a low cost platform with very competitive cash break even rates. This is in part due to our strong relationship with our

 

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external manager CTM, which has allowed us to benefit from its significant experience and scale, directly managing over 100 dry bulk vessels ranging from Supramaxes to Newcastlemaxes. Our ability to leverage CTM’s industry leading commercial and technical platform has allowed to us to maintain a lean corporate structure, thereby reducing our costs. In addition, our low leverage model limits interest and amortization expenses, further driving down our very low and competitive cash break evens. In light of these factors, we believe that our per vessel costs and operating expenses are among the lowest in the industry. Our low cost structure further provides downside protection in the event of a prolonged downturn in charter rates.

 

Experienced Management Team with Interests Aligned to Shareholders

 

Our management team and Board of Directors have an extensive track record of managing both shipping companies and capital markets transactions, including initial public offerings, secondary offerings, debt offerings and restructurings. Our Chairman and CEO, Mr. John Michael Radziwill has over 20 years of experience in the industry, including as CEO of CTM and as a board member of Euronav at the time of its listing on the NYSE. Our CFO, Mr. Luigi Pulcini, has over 20 years of experience in the shipping industry and has been with CTM since inception, where he also works as CFO. Our President and Director, Mr. Andrew Garcia has 17 years of capital markets experience with expertise developed as an investor in the shipping and dry bulk space and through creating and bringing companies public in the U.S., including Two Harbors Investment Corp. Our management team, including the family of our Chairman and CEO, currently owns approximately 13% of the company, fully aligning their interests with that of the other shareholders. Moreover, 100% of management’s economic participation is in the form of “at risk” equity purchased in our first two equity offerings.

 

Our Business Strategies

 

Continue to Opportunistically Engage in Acquisitions or Disposals to Maximize Shareholder Value

 

We intend to continue our practice of acquiring or disposing of secondhand vessels while focusing on maximizing shareholder value and returning capital to shareholders when appropriate. Our management team has a demonstrated track record of acquiring and disposing of vessels at attractive prices, and we will continue to monitor prices of secondhand dry bulk Supramax, Panamax, and Capesize vessels as we seek opportunities in line with our acquisition strategy. Our relationship with CTM has provided us with extensive acquisition sourcing capabilities, including opportunities to acquire high quality vessels at attractive prices. We plan to continue to remain active in the secondhand market as we believe this offers the best value opportunity and do not anticipate participating in the newbuilding market at this time.

 

The key component of our acquisition strategy is to focus on high-quality assets at attractive prices, and maintain a disciplined approach focused on protecting and increasing shareholder value as we evaluate new acquisitions. When considering potential acquisitions, we will evaluate several factors, including, but not limited to, our expectation of fundamental developments in the industry, the level of liquidity in the resale and charter market, the vessel’s earning potential in relation to its value, its condition and technical specifications, expected remaining useful life, the credit quality of the charterer, in the event there is an attached charter, and the overall diversification of our fleet and customers. Through this framework, we have demonstrated a successful track record of opportunistic vessel acquisitions and dispositions that has developed our fleet into one of the largest Capesize fleets today. While we actively pursue acquisition opportunities from Supramaxes to Capesizes, since inception, we have favored Capesize vessels as we believed that they offered the best relative opportunity. At a time when others have pulled back from the Capesize market, our conviction around the market opportunity has allowed us to take advantage of opportunistic prices and build our high quality fleet. We continue to see significant opportunity among the larger vessel classes given their strong earnings potential, favorable acquisition prices, and liquid secondhand market.

 

Capture Revenue Upside Potential Through Spot Market Exposure