The US bulker owner’s Nasdaq-quoted stock enjoyed double-digit gains in midday trading before losing a little bit of traction but was up 7.09% at $1.36 in the hours leading up to the close.
Industry observers admit they were caught off guard by the surge but believe it suggests that investors are pleased with the terms of Eagle Bulk’s pre-packaged bankruptcy proposal.
“I don’t understand [the spike in share price] but clearly a lot of folks see an opportunity to pick up shares on the cheap for a chance at a big payday at some point down the road,” said one Wall Street veteran.
Critics are quick to note there are “no guarantees” that shareholders will walk away with what Eagle Bulk is offering since its proposal must be approved by the bankruptcy judge overseeing the overhaul, which will take place in New York’s Southern District.
“It’s not unusual for investors to lose most, if not all, of their investment during a bankruptcy when the dust settles and smoke clears,” added one well-known industry commentator when pressed for an opinion about Eagle Bulk’s Chapter 11 filing and rising share price.
“There seems to be some upside potential [for shareholders] in the plan but the real winners, regardless of how the case plays out, will be the firms that have amassed Eagle’s debt, those with the resources and experience one needs to all but guarantee the odds of a favourable outcome.”
If no creditors object to the terms of the Eagle Bulk’s plan and the court approves the proposal in its current form the owner’s US-quoted stock will be cancelled. In exchange, shareholders would receive a 0.5% stake in the restructured company and warrants to acquire an additional 7.5%.
Eagle Bulk is the latest in an increasingly long string of shipowners that have pursued Chapter 11 restructurings. While many of the campaigns seen in recent years have been successful a handful of petitioners have been forced into liquidation, a risk that is often forgotten.
The list of shipping companies that had to close their doors following failed attempts to overhaul their balance sheets with the aid of a US bankruptcy court include the likes of Omega Navigation Enterprises, Marco Polo Seatrade and Today Makes Tomorrow.
While there’s a chance that Eagle Bulk will follow suit few believe this will happen. “The odds Eagle Bulk will fold are extremely low,” said one market source. “Eagle Bulk filed after securing the support of its lenders. Pre-packaged bankruptcies have had a high rate of success as of late.”
The same individual noted General Maritime, Genco Shipping & Trading, Overseas Shipholding Group and most of the other Chapter 11 success stories the shipping industry has seen in recent years followed pre-packaged petitions, an approach that typically reduces the time spent in court.
Eagle Bulk Shipping is based in Manhattan where it oversees a fleet of more than 40 bulkers. Of these, the majority are supramaxes. VesselsValue.com, a valuation portal backed by a leading sale-and-purchase broker, believes the stable is worth roughly $880m in total in today’s market.
