ITEM 1A. RISK FACTORS
The Company’s business (including our reputation as a safe and reliable operator), results of operations and earnings, financial condition (including our liquidity and our ability to meet our current and long-term financial obligations), cash flows (including our ability to pay dividends) and stock price can be affected by a number of factors, whether known or unknown, including those described below. When any one or more of these risks occur from time to time, the Company’s business, results of operations, earnings, financial condition and cash flows could be materially and adversely affected and the Company’s stock price could decline.
Macroeconomic and Industry Specific Risk Factors
Deterioration of the global economic environment could have a material adverse effect on our operating results, financial condition, cash flows and stock price.
Demand for seaborne transportation of drybulk commodities is highly correlated to the global macroeconomic landscape. According to the International Monetary Fund (“IMF”), global GDP growth is estimated at +3.1% in 2023, down from +3.5% in 2022. For 2024, the IMF is projecting GDP growth of +3.1% as it viewed economic pressure stemming from the COVID-19 pandemic, Russia’s invasion of Ukraine and high rates of inflation to have peaked during 2022. Potential downside risks to their projections include disruptions to global trade caused by attacks on commercial vessels in the Red Sea, deepening property sector issues in China, the withdrawal of fiscal support by central banks as well as elevated debt levels.
If global economic conditions deteriorate, our results of operations, financial condition, cash flows and stock price could be materially and adversely impacted in one or more of the following ways:
• A decrease in drybulk shipping demand could reduce freight rates, which could materially and adversely affect our results of operations and cash flows. Employing our fleet below breakeven levels for a prolonged period of time could adversely affect our ability to meet certain financial obligations, including the payment of interest and principal on our debt, causing potential financial covenant breaches under our existing debt agreements.
• Charterers could fail to meet their obligations under existing time charter or voyage charter agreements, which could materially and adversely affect our financial position, results of operations and cash flows.
• A decrease in drybulk shipping demand could reduce the market value of drybulk carriers, which could materially and adversely affect our financial condition and results of operations, our ability to maintain compliance with certain covenants under our current debt agreements and our ability to obtain additional financing, including the refinancing of our existing long-term debt.
There can be no assurance as to the sustainability of future global economic growth.
Freight rates for drybulk carriers are volatile and could decrease significantly, which could have a material adverse effect on our operating results, financial condition, cash flows and stock price.
The drybulk shipping industry is cyclical with high volatility in freight rates, which have a direct impact on the Company’s profitability and cash flows. The degree of freight rate volatility among different types of drybulk carriers has varied widely. The BSI, a daily average of charter rates for key drybulk routes published by the Baltic Exchange, which tracks the gross time charter spot value for a Supramax vessel, is based on a 58,000 dwt, non-scrubber fitted Supramax and 10 trade routes across the world, and has been published, under its current definition, since July 31, 2015. From July 31, 2016 (i.e., one year after the inception of the current BSI index) through December 31, 2023, the trailing twelve-month average of the BSI has ranged from $5,617 (1) to $29,955 (1) and averaged $13,340 (1) over the entire period. For the year ended December 31, 2023, the BSI averaged $11,240 (1) .
Fluctuations in freight rates are primarily attributable to changes in the demand for seaborne transportation of drybulk commodities and the supply of vessel capacity. The factors that affect the balance of these supply and demand factors are outside of our control and are inherently unpredictable.
Factors that may influence the demand for seaborne transportation of drybulk commodities include:
• supply of and demand for energy resources, commodities, consumer and industrial products;
• changes in the exploration or production volume of energy resources, commodities, consumer and industrial products;
• the location of regional and global exploration, 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;
• natural disasters and weather;
• disruptions and developments in international trade, including trade disputes, the imposition of tariffs on various commodities or finished goods, or export controls;
• disruptions from conflict/war and any related sanctions or restrictions imposed on certain regions or/and countries;
• changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
• environmental and other legal regulatory developments;
• currency exchange rates.
Factors that may influence the supply of drybulk shipping capacity include:
• the number of newbuilding orders and the timing of deliveries (including slippage in deliveries);
• the scrapping rate of vessels;
• the number of vessels that are out of service (e.g., laid-up, drydocked, awaiting repairs or otherwise not available for hire);
• the impact of weather patterns on vessel scheduling;
• the impact of war and geopolitical hostilities on vessel routing;
• port and canal congestion;
• the speed of vessel operation;
• the number of shipyards and ability of shipyards to deliver, drydock or repair vessels;
• availability of financing for new vessels;
• vessel casualties;
• changes in national or international regulations that may effectively change the carrying capacity of vessels or cause early obsolescence of vessels; and
• changes in environmental and other regulations that may impact the useful lives of vessels.
Since we primarily charter our vessels in the spot market, we are exposed to the cyclicality and volatility of the spot market. Spot freight rates may fluctuate significantly based upon available charters and the supply of and demand for seaborne shipping capacity, and we may be unable to keep our vessels fully employed at any point in time in the spot market. Freight rates available in the spot market may also be insufficient to enable our vessels to operate profitably. As a result, fluctuations in freight rates may have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
(1)Source: Clarksons (February 2024)
Measures implemented by governments of various countries in response to a pandemic could have a material adverse impact on our operating results, financial condition, cash flows and stock price.
The COVID-19 pandemic significantly impacted the global economy as well as our business and the businesses of our charterers. In response to the COVID-19 pandemic, governments throughout the world implemented measures to protect their citizens from exposure and mitigate the spread of COVID-19. These measures included, but were not limited to, lockdowns, quarantine regulations and other emergency health policies.
As a result of these measures, the Company experienced delays in operations due to port restrictions and additional protocols. Travel restrictions imposed at various ports impeded our crew rotation plans. We experienced disruptions to our normal vessel operations and incurred additional costs and lost revenue from off-hire time due to route deviations to allow for crew changes and quarantine restrictions. We experienced delays in drydocking, vessel repairs and discretionary upgrades as a result of quarantine regulations as well as limitations of shipyard labor.
A pandemic can be dynamic in nature, as can the implementation of policies and procedures throughout the world in response to it. The severity and duration of business disruptions and the related financial impact on our business as a result of a pandemic is inherently uncertain. Sustained protection and mitigation measures similar to those that we experienced during the COVID-19 pandemic could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
An increase in trade protectionism globally or by certain countries could have an adverse effect on our charterers’ business and, in turn, could have a material adverse impact on our operating results, financial condition, cash flows and stock price.
National governments have utilized and may continue to utilize tariffs, export controls or other trade barriers to protect their domestic industries and economic interests. Trade protectionism, or the threat of protectionist actions, could adversely affect global economic conditions and international trade. For example, trade protectionism could increase (i) the cost of goods exported from or imported into a particular country or region, (ii) the length of time required to transport goods internationally and (iii) risks associated with transporting goods internationally. These factors could adversely impact the quantities and costs of goods transported internationally, which could have an adverse effect on our charterers’ business, and therefore, could adversely impact the demand for seaborne transportation of drybulk commodities.
Changes in the economic and political environment in China and policies adopted by the Chinese government to regulate its economy could have a material adverse effect on our operating results, financial condition, cash flows and stock price.
China is a significant source of global shipping demand for drybulk commodities and our vessels transport goods into and out of Chinese ports for the benefit of charterers across a number of industries. A deterioration in the economic fundamentals for this nation could adversely affect shipping demand, and therefore, freight rates. A worsening of the Chinese property sector could adversely affect the Chinese banking sector, which could exert downward pressure on overall economic growth in China. A decrease in the level of China’s imports or exports of drybulk commodities could have an adverse effect on our charterers’ business and, in turn, could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
The drybulk shipping market is subject to seasonal fluctuations, which could materially and adversely affect our operating results, financial condition, cash flows and stock price.
Demand for vessel capacity has historically exhibited seasonal variations and, as a result, fluctuations in freight rates. This seasonality may result in quarter-to-quarter volatility in our operating results for our vessels trading in the spot market. The midsize drybulk market, as measured by the BSI, is typically strongest in the third quarter (due to both increased North American grain shipments and higher coal purchases for heating fuel ahead of the winter months in the Northern Hemisphere). There is also seasonal volatility in the relative strength of the Atlantic basin as compared to the Pacific basin. From 2016 through 2023, the long-term average market premium in the Atlantic basin was approximately 33% (1) . This premium is generally highest in the months of December through February, primarily attributable to a general market slowdown in the Pacific basin in the weeks leading up to the Lunar New Year and due to an elevated number of newbuild vessels that are typically delivered in January, relative to other months. To the extent that we must enter into a new charter or renew an existing charter for a vessel in our fleet during a time when seasonal variations have reduced prevailing freight rates, our results of operations, financial condition, cash flows and stock price may be affected.
(1)Source: Clarksons (February 2024)
An over-supply of drybulk carrier capacity across the industry could depress market freight rates, which could limit our ability to operate our drybulk carriers profitably.
In addition to prevailing and anticipated market freight rates, factors that affect the rate of newbuilding, scrapping and laying-up of vessels 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 costs, insurance coverage costs, the efficiency and age profile of the existing drybulk fleet in the market, and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors are outside of our control and we may not be able to correctly assess and respond to the nature, timing and degree of changes in these factors.
Although global drybulk supply growth rates are expected to remain low over the next two years as a result of a relatively small number of newbuilding orders placed over the past three years and uncertainties relating to future regulations around decarbonization, an increase in overall drybulk carrier supply or an increase in newbuilding ordering levels could have an adverse effect on freight rates, and accordingly, a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Declines in freight rates and vessel values could cause us to incur impairment charges.
Our owned vessels are the most valuable assets on our balance sheet. We evaluate our vessels for impairment annually, or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amount of a vessel is based on a projection of future cash flows and is significantly impacted by freight rates and estimated costs of operations.
A decline in freight rates, or an increase in the costs of operating our vessels could cause us to incur impairment charges, which could have a material adverse effect on our results of operations and stock price.
The market values of our vessels are volatile and may decline which could limit the amount of funds that we can borrow or cause us to breach certain financial covenants under our Global Ultraco Debt Facility.
As of December 31, 2023, the fair market value of our owned fleet was higher than its carrying value; however, the fair market values of drybulk vessels may be impacted by a number of factors, which include, but are not limited to:
• prevailing market freight rates;
• general economic and market conditions affecting the drybulk shipping industry;
• the type, size and age of a vessel;
• the supply of and demand for drybulk carriers;
• the relative strength or weakness of the drybulk shipping industry as compared to other seaborne transportation industries (e.g., tankers and containers);
• the relative cost of other modes of transportation;
• the cost of new buildings;
• governmental or other regulations; and
• the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise.
A decline in the market values of our vessels could cause us to breach one or more covenants under the Global Ultraco Debt Facility, which would allow for the potential acceleration of amounts due under the Global Ultraco Debt Facility, which could have a material adverse effect on our financial condition, cash flows and stock price. Such a decline in the market values of our vessels could also reduce the proceeds received from the future sale of a vessel or the amount of funds able to be borrowed in the future under terms that are acceptable to the Company. See Note 7. Debt to our consolidated financial statements included elsewhere herein for additional information on covenants under the Global Ultraco Debt Facility.
Fuel cost, or bunker prices, could materially and adversely affect our operating results, financial condition, cash flows and stock price.
Fuel is a significant expense in our shipping operations when vessels are under voyage charter. In addition, while we generally do not bear the cost of fuel for vessels operating on time charters, the cost of fuel is a significant factor in negotiating charter rates. The price of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. For example, the volatility of market prices for fuel increased as a result of supply disruptions from the conflict between Russia and Ukraine as well as from the impact of recent attacks on commercial vessels in the Red Sea and Gulf of Aden. As a result, an increase in the price of fuel may have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Inflation could materially and adversely affect our operating results, financial condition, cash flows and stock price.
Inflation could adversely affect our operating results by increasing the costs of labor and materials needed to operate our business. During 2023, we experienced increased costs for crew, as well as higher prices on spares, stores and the costs of services integral to the operations of our vessels, which could continue into 2024. We may be unable to offset the increasing costs of our operations through increased shipping rates, which could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Compliance with safety and other vessel requirements imposed by classification societies could be costly and could materially and adversely affect our business, operating results, financial condition, cash flows and stock price.
The hull and machinery of every commercial vessel must be certified 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 vessel’s country of registry and SOLAS.
A vessel must undergo annual surveys, intermediate surveys and special surveys. A vessel must also be drydocked every two and a half to five years, depending on its age, for inspection of its underwater parts.
Compliance with current and future safety and other requirements imposed by vessel classification societies may cause us to incur significant additional costs and lost revenue from off-hire time. Compliance may include meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. If any of the Company’s owned vessels does not maintain its class or fails any annual, intermediate or special survey, that vessel will be unable to trade between ports until the issues that led to the failure are rectified. Accordingly, the vessel would be unemployable and could become uninsurable for a period of time, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.
We are subject to complex laws and regulations, including environmental regulations that could materially and adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. We are also required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. These regulations include, but are not limited to, OPA, CERCLA, the CAA, the CWA, the MTSA, requirements of the USCG and the EPA and regulations of the IMO, including MARPOL, as from time to time amended including designation of ECAs thereunder, SOLAS, as from time to time amended, the ISM Code, the LL Convention, the Bunker Convention and EU regulations. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect the fair market value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions, the management of ballast and bilge waters, restrictions on the discharge of wash water from and the use of open loop scrubbers, elimination of tin-based paint, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution . In addition, we may not be to obtain any or all permits, licenses and certificates, in a timely manner or at all, currently required to permit our vessels to operate. These costs or potential business could have a material effect on our business, results of operations, financial condition, cash flows and stock price.
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, which could have a material adverse effect on our business, results of operations, financial condition, cash flows or stock price.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are strictly, and jointly and severally, liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged 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 will not have a material effect on our business, results of operations, financial condition and cash flows. For additional information regarding the environmental regulations affecting our operations and matters related to the Company’s compliance with such regulations, see Item 1. Business and Note 11. Commitments and Contingencies to the consolidated financial statements included elsewhere herein.
Operating in warlike and high-risk geographic areas could have a material adverse effect on our business, operating results, financial condition, cash flows and stock price.
Acts of piracy and the risk of loss due to war, terrorism, military tensions and other hostilities have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean, the Gulf of Guinea and the Gulf of Aden. In addition, from October 2023 into 2024, the war between Israel and Hamas in Gaza has created political and potential economic uncertainty in the Middle East. Although the frequency of hostile events and sea piracy worldwide has decreased from 2014 to 2023, such incidents continue to occur, with drybulk carriers and tankers particularly vulnerable to such attacks. From 2020 to 2023, the Company experienced three acts of piracy on our vessels which were resolved peacefully and without significant losses to the Company and with no loss of life or personal injury to our crew members. In addition, in January 2024, one of the Company’s vessels, while underway in the Gulf of Aden, was struck by an anti-ship ballistic missile that resulted in limited vessel damage and with no loss of life or personal to our crew members. If acts of piracy or other hostilities continue to occur in regions that are characterized as “war risk” zones, or Joint War Committee “war and strikes” listed areas, our insurance costs could increase significantly and such insurance coverage may be more to obtain. In addition, crew costs and other costs for the employment of onboard security guards could increase. If our vessels were and as a result of such events, while we believe the charterer remains liable for charter payments, the charterer may this and withhold charter hire payment until the vessel is released. A charterer may also claim that a vessel was not “on-hire” for a certain number of days and is therefore entitled to the charter party, a claim that we would . from such in excess of our insurance coverages or an increase in cost, or , of insurance for our vessels, could have a material impact on our business, results of operations, financial condition, cash flows and stock price.
If our vessels call on ports located in countries or territories that are subject to comprehensive sanctions imposed by the UN, the United States, the EU or other relevant authorities, or if we are found to be in violation of such sanctions, our business, operating results, financial condition, cash flows, stock price and market for our common stock could be materially and adversely affected.
As the Company has U.S. and EU incorporated entities, we are subject to U.S. and EU economic sanctions and trade embargo laws and regulations as well as equivalent economic sanctions laws of other relevant jurisdictions in connection with our activities. The laws and regulations of these different jurisdictions vary in their application and do not all apply to the same covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to increase or reduce the restrictions they impose over time and the lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to sanctions. The U.S. and EU have enacted new sanctions programs in recent years. Additional countries or territories, as well as additional persons or entities within or affiliated with those countries or territories, have been, and in the future could be, the target of sanctions.
As a result of the conflict between Russia and Ukraine, the U.S., EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine and such sanctions apply to entities owned or controlled by such designated persons or entities. These sanctions could adversely affect our ability to operate in the region, restrict parties whose cargo we may carry and restrict the entities that we may use to hire and/or pay our Ukrainian and Russian crew.
In recent years, multilateral international sanctions targeting Iran have restricted and/or prohibited us and our charterers from engaging in Iran-related activities, including calling on ports in Iran. The United States continues to maintain comprehensive sanctions on Iran that generally prohibit persons and companies in the United States, as well as U.S. persons and persons owned or controlled by U.S. persons, wherever located, from engaging in nearly all Iran-related activity. In addition, following the U.S. withdrawal from the Joint Comprehensive Plan of Action (“JCPOA”), the U.S. re-imposed all of its previously-lifted sanctions that target non-U.S. companies for engaging in certain activities with Iran, including those related to Iran’s energy, shipping, shipbuilding and insurance sectors and has issued additional sanctions targeting other sectors of the Iranian economy. On the other hand, the EU has stayed in the JCPOA and maintained the lifting of nearly all of its sanctions targeting Iran, except for targeted asset freezes and travel bans against certain Iranian individuals and entities and restrictions on activities related to the military, nuclear proliferation and human rights abuses. The EU and Germany also have blocking rules in place intended to protect the interests of EU persons against the extraterritorial application of U.S. sanctions against Iran and Cuba.
Sanctions and trade embargo laws and regulations are generally subject to strict liability. Although we intend to maintain compliance with all applicable economic sanctions and trade embargo laws and regulations, there can be no assurance that, notwithstanding our compliance safeguards, we will not be found in the future to have been in violation, particularly as the sanctions and embargo laws and regulations are amended, the scope of certain laws and regulations may be unclear and the laws and regulations are subject to discretionary interpretations by regulators that may change over time. Further, charterers or other counterparties may violate provisions in contracts with us, or legal restrictions relating to sanctions. Any such violation could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price, including that any such violation could result in substantial fines or other civil and/or criminal penalties and could impact our ability to access U.S. capital markets and conduct our business. Additionally, our reputation and the market for our securities may be affected and/or some investors may decide to their interest, or not to invest, in the Company if we engage in activities in countries subject to sanctions, such as entering into permissible charters or engaging in permissible operations with individuals or entities in or associated with those countries. The determination by these investors and/or lenders not to invest in, or to from, our common shares may affect the price at which our common shares trade. Furthermore, detecting, and resolving actual or is expensive and can consume significant time and attention of our senior management.
We are subject to international safety regulations and the failure to comply with these regulations could subject us to increased liability, adversely affect our insurance coverage and could 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 ISM Code. The ISM Code requires shipowners, 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. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. Each of the vessels that has been delivered to us is ISM Code-certified and we expect that any vessel that we agree to purchase will be ISM Code-certified when delivered to us. However, increased liability, decreased or invalidated insurance coverage or port restrictions as a result of failure to comply with the ISM Code could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.
Increased inspection procedures and tighter import and export controls could materially and adversely affect our business, operating results, financial condition, cash flows and stock price.
International shipping industries are subject to various security and customs inspection and related procedures in countries of origin and destination and at trans-shipment points. 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.
Changes to inspection procedures could impose additional financial and legal obligations on us, could impose additional costs and obligations on our customers and could, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.
Our business may be interrupted by events or circumstances associated with operating ocean-going vessels, which could materially and adversely affect our business and reputation.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, adverse weather conditions, mechanical failures, human error, environmental accidents, or other catastrophic events, including war, terrorism and piracy. In addition, transporting cargoes across a wide variety of international jurisdictions can be adversely impacted by political circumstances in foreign countries, labor strikes and boycotts and the potential for government expropriation of our vessels.
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 have procured hull and machinery insurance, Protection and Indemnity Insurance (including pollution insurance) and war risk insurance for our fleet. We have also purchased insurance against loss of hire, which covers business interruptions that result from the loss of use of a vessel. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through P&I Associations and providers of excess coverage is $1.0 billion per vessel per occurrence.
By their nature, drybulk cargoes are often heavy, dense, easily shifted and react badly to water exposure. In addition, drybulk 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 to the sea. Hull breaches in drybulk carriers may lead to the flooding of the vessels’ holds and exposed cargoes may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads leading to a vessel casualty.
These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, delay or rerouting and may harm our reputation as a safe and reliable vessel owner and operator. 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. 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.
We may not be adequately insured against 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, including insurance against charter party defaults, that we have obtained in the past on terms that are acceptable to us or at all. The insurers may not pay particular claims. 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. Moreover, insurers may default on claims they are required to pay.
We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example, in the past, more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition, cash flows and stock price.
The loss of earnings as a result of insufficient insurance coverage and while an impacted vessel is being repaired and repositioned, as well as the actual cost of repairs could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.
Governments could requisition our vessels during a period of war or emergency, which could materially and adversely affect our operating results, financial condition, cash flows and stock price.
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 her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at unilateral 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 could be uncertain and may not be commensurate with current freight rates. Government requisition of one or more of our vessels could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Cybersecurity incidents or other security breaches involving our computer systems or the systems of one or more of our vendors could materially and adversely affect our business.
Our systems are exposed to cybersecurity risks and we are subject to potential disruption caused by such activities. Companies such as ours are subject to cyber-attacks on their systems. Such attacks may have various goals, from seeking confidential information to causing operational disruption and theft of company property. To the best of our knowledge, to date, such activities have not resulted in material disruptions to our operations, loss of assets or a material breach of any security or confidential information. However, no assurance can be provided that such disruptions, losses or breaches will not occur in the future. Additionally, any significant violations of data privacy could result in the loss of business, litigation, regulatory investigations, , ongoing expenses related to client credit monitoring and support and other expenses, any of which could have a material effect on our business, earnings, financial condition, cash flows and stock price. While we have deployed resources that are responsible for maintaining appropriate levels of cybersecurity and while we utilize third party technology products and services to help identify and protect our information technology systems and infrastructure security and cybersecurity as well as , and recover from such and , our responsive and precautionary measures may not be adequate or to prevent, identify, or mitigate attacks by hackers, foreign governments, or other actors or caused by employee , , or other .
Financial Risk Factors
The state of the global financial markets could adversely impact our ability to obtain additional financing, including to refinance our Global Ultraco Debt Facility and Convertible Bond Debt, on acceptable terms, restricting us from being able to operate or expand our business.
Global financial markets, as well as benchmark interest rates, are volatile and access to debt and equity capital may become more expensive or restrictive in the future. There can be no assurance that additional financing will be available if, and when, needed. There can also be no assurance that we will be able to refinance our Global Ultraco Debt Facility and Convertible Bond Debt, if we so choose, on acceptable terms or at all, prior to or upon maturity. If additional financing is not available when needed, or is available only on unfavorable terms, we may not be able to meet our obligations as they come due, which could have a material adverse effect on our financial condition, cash flows and stock price, nor be able to grow our business. For more information on our debt facilities, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources and Note 7. Debt to the consolidated financial statements included elsewhere herein.
We have outstanding indebtedness, and if we default under our loan agreements, our lenders may act to accelerate our outstanding indebtedness, which could adversely affect our business.
At December 31, 2023, the Company’s aggregate principal amount of debt outstanding was $492.1 million, of which $153.7 million is presented as the current portion of long-term debt.
As described under Note 7. Debt to the consolidated financial statements included elsewhere herein, the obligations under these agreements are secured by collateral, contain a number of operating restrictions, covenants and events of default and a breach of any of the covenants could result in an event of default under one or more of these agreements, including as a result of cross default provisions.
The use of derivative instruments could result in losses.
We utilize FFAs, which are derivative instruments, to economically hedge our exposure to the charter market by providing for the purchase or sale of a contracted charter rate for a specific period of time. Upon settlement, if the contracted rate is less than the actual BSI for the specified period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the BSI-based settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate is greater than the BSI-based settlement rate, the buyer is required to pay the seller the settlement sum.
We also utilize interest rate swaps to hedge our exposure to interest rate risk with the objective of effectively converting debt from a floating-rate to a fixed-rate obligation. Under these contracts, exclusive of applicable margins, we pay a fixed rate of interest and receive a floating rate of interest based on a benchmark interest rate and an underlying notional amount.
As of December 31, 2023, the Company had derivative liabilities of $2.0 million.
If our hedging strategies are not effective, we may incur substantial losses, which could have a material adverse effect on our earnings, financial condition, cash flows and stock price.
We currently maintain our cash and cash equivalents with eight financial institutions, which exposes us to counterparty credit risk.
We currently maintain our cash and cash equivalents with eight financial institutions. Our cash balances at certain of these institutions are in excess of insurance limits and may not be recoverable in the event of counterparty default. Losses as a result of counterparty default could have a material adverse effect on our earnings, financial condition, cash flows and stock price.
Company Specific Risk Factors
We are dependent on the spot freight market and any decrease in future market freight rates may materially and adversely affect our operating results, financial condition, cash flows and stock price.
During 2023, the vessels in our owned fleet were employed for charters less than one year in duration, which exposed us to fluctuations in the spot freight market. Historically, the drybulk market is highly competitive and volatile as a result of the many conditions and factors that can affect the price, supply and demand for drybulk capacity and the spot freight market is expected to continue to be so. There have been periods during which time charter and spot freight rates for drybulk carriers have declined below our per-day level of vessel operating costs.
If we are required to charter our vessels at a time when freight rates are below our “break-even” rates, we may have to accept reduced and potentially unprofitable rates or we may not be able to secure employment for our vessels at all. If we are unable to secure profitable employment for our vessels, we may decide to lay-up some or all of our vessels until such time that freight rates become attractive again. During a lay-up period, we would continue to incur certain vessel operating expenditures, such as insurance and maintenance costs. Additionally, before exiting lay-up, we would incur reactivation costs for any vessel to regain its operational condition. Furthermore, as freight rates for spot charters are generally fixed for a single voyage, which may last up to several weeks, during periods in which spot freight rates are rising, we will generally experience delays in realizing the benefits from such increases. Each of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Acquiring, taking-over and operating secondhand vessels could result in increased operating costs and reduced fleet utilization.
While we have the right to inspect previously owned vessels prior to purchase, such an inspection does not provide us with the same knowledge about their condition that we would have if these vessels had been built for and operated exclusively by us. A secondhand vessel may have conditions or defects that we were not aware of when we 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 fleet utilization. Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.
In addition, if we expand our fleet through vessel acquisition, we will need to recruit additional suitable seafarers and may need to recruit additional suitable shore-side administrative and management personnel. We cannot guarantee that we will be able to hire suitable employees and if we or our crewing agents encounter business or financial difficulties, we may not be able to adequately staff our vessels.
The costs of purchasing and operating secondhand vessels could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could materially and adversely affect our business, operating results, financial condition, cash flows and stock price.
We have entered into and may enter into in the future, among other things, charter agreements with our customers. We depend on our charter agreements for substantially all of our revenues and some of our charterers are privately owned companies for which limited credit and financial information is available to us in making our assessment of counterparty risk. The ability and willingness of each of our counterparties to perform its obligations under a contract 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 drybulk shipping industry, the overall financial condition of the counterparty, freight rates received for specific types of vessels and the supply and demand for commodities such as iron ore, coal, grain, and other minor bulks. If a charterer fails to meet its obligations under an agreement with us, or if a charterer attempts to renegotiate a charter agreement, we could sustain significant losses which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price. In addition, we may be required to change the flagging or registration of the related vessel and may incur additional costs, including maintenance and crew costs if a charterer were to default on its obligations. Our shareholders do not have any recourse our charterers. For the years ended December 31, 2023, 2022 and 2021, the Company had no charterers which individually accounted for more than 10% of the Company’s revenues.
In the highly competitive drybulk 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, capital-intensive and highly-fragmented market. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of drybulk 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 drybulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower freight rates or higher quality vessels than we are able to offer. If we are unable to successfully compete with other drybulk shipping companies, our business, results of operations, financial condition, cash flows and stock price could be materially adversely impacted.
The conflict between Russia and Ukraine may impact our ability to retain and source crew, and in turn, could materially and adversely affect our operating results.
We currently have relationships with Ukrainian crew managers which procure some of our crews. We also currently utilize Russian and Ukrainian crew on our vessels. The conflict between Russia and Ukraine may impact our ability to continue to source and retain crew from these countries. In addition, as new persons and entities may become subject to sanctions as a result of this conflict, these sanctions could adversely restrict the entities that we may use to hire and/or pay our Russian crew. Although we have relationships with crew managers outside of the Ukraine, including in Asia, if we are not able to procure Ukrainian and Russian crew in the future, we may experience operational delays and loss of earnings for our vessels until new or replacement crews are sourced. We may also incur increased travel expenses to repatriate Russian and Ukrainian crew members on board our vessels, as well as to expatriate crew members sourced from other regions. The cost of employing crew members may rise if the available supply of Russian and Ukrainian crew is diminished, which may have a material adverse effect on our results of operations, cash flows and stock price.
We may be unable to attract and retain key management personnel and other employees, which could materially and adversely impact our business, operating results, financial condition, cash flows and stock price.
Our success depends to a significant extent upon the abilities and efforts of our management team. Our future success will depend upon our ability to retain key members of our management team and to hire new members as may be desirable. The loss of any of these individuals could have a material adverse effect on our business, results of operations and stock price. Difficulty in hiring and retaining replacement personnel could have a similar effect. We do not maintain “key man” life insurance on any of our officers.
The aging of our fleet may result in increased operating costs in the future, which could materially and adversely affect our operating results, financial condition, cash flows and stock price.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. Older vessels are typically less fuel efficient and more expensive 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. Regulations and safety or other standards related to the age of vessels may require us to install new equipment, perform alterations or drydock vessels more frequently and may restrict the type of activities in which our vessels may engage, each of which could increase our operating costs and reduce our profitability. 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. The aging of our fleet could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
Failure to comply with the FCPA or other applicable anti-corruption laws could result in fines, criminal penalties, and a material adverse effect on our business, operating results, financial condition, cash flows and stock price.
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 FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and/or agents may take actions determined to be in violation of applicable anti-corruption laws, including the FCPA. Any such violation could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price. Further, any such violation could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors and/or lenders deciding, or being required, to divest their interest, or not to invest, in us or lend to us. The determination by these investors and/or lenders not to invest in, or to from, our common shares may affect the price at which our common shares trade. Any such could also result in substantial , sanctions, civil and/or and of operations in certain jurisdictions and could have a material effect on our business, results of operations financial condition, cash flows and stock price. In addition, actual or could our reputation and ability to do business. Furthermore, detecting, and resolving actual or is expensive and can consume significant time and attention of our senior management.
Technological innovation could reduce our revenues and the value of our vessels.
Freight 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 useful life. Efficiency is driven by speed, fuel economy and the ability to efficiently and effectively load and discharge cargo. Flexibility is driven by the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s useful life is driven by its original design and construction, its maintenance and the impact of the stress of operations. If newly-built drybulk carriers are more efficient, flexible or have longer physical lives than our vessels, our ability to profitably employ our vessels could be adversely impacted, which could have a material adverse effect on our results of operations, financial condition, cash flows and stock price.
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 could have a material effect on our results of operations, financial condition, cash flows and stock price.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo 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. In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own. The arrest or attachment of one or more of our vessels could result in a significant off-hire period, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price.
We may have to pay tax on United States source income, which could reduce our earnings.
Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as United States source shipping income and such income is subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury regulations promulgated thereunder.
We believe that we qualify for this statutory tax exemption for our 2023 taxable year and we intend to take this position for U.S. federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to U.S. federal income tax on our U.S. source income. Therefore, we can give no assurances on our tax-exempt status. If we are not entitled to exemption under Section 883 of the Code for any taxable year, we could be subject for those years to an effective 2% U.S. federal income tax on the gross shipping income we derive during the year that are attributable to the transport of cargoes to or from the United States. The imposition of this tax could have a material adverse effect on our earnings, financial condition, cash flows and stock price. For more information, see Item 1. Business - United States Federal Income Taxation of Our Company .
United States tax authorities could treat us as a “passive foreign investment company,” which could have a material adverse United States federal income tax consequences to United States holders.
A foreign corporation will be treated as a “passive foreign investment company,” or “PFIC,” for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest and gains from the sale or exchange of investment property and rents and royalties 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 does not constitute “passive income.” United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current method of operation, we do not believe that we have been, are or will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time and voyage chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time and voyage chartering activities does not constitute “passive income” and the assets that we own and operate in connection with the production of that income do not constitute passive assets.
There is, however, no direct legal authority under the PFIC rules addressing our method of operation and there is authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders may face adverse United States tax consequences and information reporting obligations. Under the PFIC rules, unless those shareholders made an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be liable to pay United States federal income tax upon excess distributions and upon any gain from the disposition of our common stock at the then prevailing income tax rates applicable to ordinary income plus interest as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of our common stock.
We may be subject to additional taxes, including as a result of challenges by tax authorities or changes in applicable law, which could materially and adversely impact our business and earnings.
We are subject to tax in certain jurisdictions in which we are organized, own assets or have operations. In computing our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that, upon review of these positions, the applicable authorities will agree with our positions. A successful challenge by a tax authority, or a change in applicable law, could result in additional tax imposed on us, including interest and penalties, which could have a material adverse effect on our earnings, financial condition, cash flows and stock price.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy certain of our financial obligations and to make dividend payments.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations and to make dividend payments in the future depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, we may be unable to satisfy certain of our financial obligations or the Company’s Board of Directors (the “Board”) may exercise its discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends.
In addition, the declaration and payment of dividends, if any, will always be subject to the discretion of the Board, restrictions contained in our existing debt agreements and the requirements of Marshall Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company’s earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms, the terms of its outstanding indebtedness and the ability of the Company’s subsidiaries to distribute funds to it.
Finally, the terms of the Merger Agreement limit the ability of the Company to declare or pay dividends prior to the completion of the Proposed Merger, other than the Company’s regular quarterly dividend with respect to our common stock (with declaration, record and payment dates and amounts consistent with past practice and in accordance with the Company’s dividend policy).
We are incorporated in the Marshall Islands, the laws of which may restrict our ability to make dividend payments.
The laws of the Marshall Islands generally prohibit the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at all in the future.
We conduct business in China, where the legal system has inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers or from time to time on our charterers’ instructions, our vessels may call on Chinese ports. Such charters and any additional charters that we enter into may be subject to new regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our vessels chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse impact on our business, results of operations, financial condition, cash flows and stock price.
Risks Relating to Our Common Stock
We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law.
Our corporate affairs are governed by our Third Amended and Restated Articles of Incorporation (as amended, the “Corporate Charter”) and Second Amended and Restated By-laws (the “Bylaws”) and by the Marshall Islands Business Corporations Act (the “BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States. The rights of shareholders of companies incorporated in the Marshall Islands may differ from the rights of shareholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction which has developed a relatively more substantial body of case law.
The market price of our common shares has fluctuated and may continue to fluctuate in the future.
The market price of our common shares has fluctuated since we became a public company and may continue to do so. In addition, the market price of shares of common stock of companies in the drybulk shipping industry, as a whole, may also be volatile. The market price of our common shares may be influenced by many factors, many of which are beyond our control, including:
• actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;
• differences in our operating results from those expected by investors or analysts;
• perceived future prospects of the Company, our competition, our industry or seaborne transportation industries in general;
• announcements concerning the Company or our competitors related to significant contracts, commitments or contingencies;
• the market price of Star Bulk’s common shares (as a result of the Proposed Merger);
• other mergers or strategic alliances in our industry;
• casualties (e.g., terrorism, piracy, or other catastrophic events);
• market conditions in our industry;
• general economic and regulatory trends;
• future sales of our common shares or other securities; and
• fluctuations in and the general state of the securities market.
These factors could cause the market price of our common shares to decline, regardless of our operating performance and as a result of these and other factors, you may not be able to resell shares at or above the price you paid for such shares.
The public market for our common shares may not be active and liquid enough for you to resell our common shares in the future.
Although our common stock is listed on the NYSE, periods of volatility in the market for our common stock could have an adverse effect on the market price or liquidity of our common shares and could impact your ability to resell your shares quickly, at market price, or above the price you paid for such shares.
Certain shareholders own large portions of our outstanding common stock, which may limit other shareholders’ ability to influence our actions.
Certain shareholders currently hold significant percentages of our common stock. To the extent a significant percentage of the ownership of our common stock is concentrated in a small number of holders, such holders will be able to influence the outcome of any shareholder vote, including the election of directors, the adoption or amendment of provisions in our articles of incorporation or by-laws and possible mergers, corporate control contests and other significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, merger, consolidation, takeover or other business combination involving us. This concentration of ownership could also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our common stock.
The effect of the sale of any borrowed shares, which sales, if any, may be made to facilitate transactions by which investors in our Convertible Bond Debt may hedge their investments, could cause the market price of our common stock to decline.
Certain holders of our Convertible Bond Debt may have sold borrowed shares of our common stock and use the resulting short position to establish or maintain a hedge with respect to their investments in our Convertible Bond Debt.
The existence of the Share Lending Agreement (as defined herein) and the short sales of our common stock effected in connection therewith could cause the market price of our common stock to be lower over the term of the Share Lending Agreement than it would have been had we not entered into such an agreement, due to the effect of the increase in the number of our outstanding shares of common stock being available for borrow and, in turn, sold.
Future issuances, sales, or availability for sale, of common stock could depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public market, including sales by any selling shareholder or sales pursuant to our ATM Offering (as defined herein), or the perception that large sales could occur could cause the market price of our common stock to decline. Such future sales, or perception thereof, could also impact our ability to raise capital through future offerings of equity or equity-linked securities. From time to time, we may issue additional shares in connection with the acquisition of vessels.
If we elect to deliver shares of common stock to holders of our Convertible Bond Debt at maturity or upon the holder’s exercise of the conversion option prior to maturity, the ownership interests of existing stockholders would be diluted. Any sales in the public market of our common stock so issued could adversely affect prevailing market prices of our common stock. In addition, the existence of our Convertible Bond Debt and its potential dilutive effect of conversion may encourage short selling of our common stock by market participants, which could cause the market price of our common stock to decline.
Our shareholders are limited in their ability to elect or remove directors.
The Corporate Charter prohibits cumulative voting in the election of directors. The Bylaws require parties other than the Board to give advance written notice of nominations for the election of directors. The Corporate Charter also provides that directors may only be removed for cause upon the affirmative vote of a majority of the outstanding shares of capital stock entitled to vote for the election of directors. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board for any reason may only be filled by a majority of the directors then in office, even if less than a quorum exists.
Our shareholders may take action only at Annual or Special Meetings.
The Corporate Charter and the Bylaws provide that any action required or permitted to be taken by shareholders must be effected at a duly called annual or special meeting of shareholders. Except as otherwise mandated by law, shareholders may not act by written consent.
Under the Bylaws, annual shareholder meetings will be held at a time and place selected by the Board. The meetings may be held in or outside of the Marshall Islands. These provisions may impede shareholders’ ability to take actions with respect to the Company that they deem appropriate or advisable.
The Corporate Charter and the Bylaws provide that, except as otherwise required by law, special meetings of shareholders may be called at any time only by (i) the lead director (if any), (ii) the chairman of the Board, (iii) the Board pursuant to a resolution duly adopted by a majority of the board stating the purpose or purposes thereof, or (iv) any one or more shareholders who beneficially owns, in the aggregate, 15% or more of the aggregate voting power of all then-outstanding shares of Voting Stock. The notice of any such special meeting is to include the purpose or purposes thereof, and the business transacted at the special meeting is limited to the purpose or purposes stated in the notice (or any supplement thereto). These provisions may impede the ability of shareholders to bring matters before a special meeting of shareholders.
The Board may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting.
Our shareholders are subject to advance notice requirements for shareholder proposals and director nominations.
The Bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. To be timely, a shareholder’s notice will have to be received at the Company’s principal executive offices not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first, in order for such notice by a shareholder to be timely. The Bylaws also specify requirements as to the form and content of a shareholder’s notice. These advance notice requirements, particularly the 60 to 90 day requirement, may impede shareholders’ ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Provisions of our Rights Agreement, which the Board adopted to protect the Company and its shareholders from coercive or otherwise unfair takeover tactics, could also discourage, delay or prevent the acquisition of the Company that an individual shareholder may deem to be advantageous.
In June 2023, the Company entered into a Rights Agreement (the “Rights Agreement”) with Computershare Trust Company, N.A., a national banking corporation, as rights agent. The Board adopted the Rights Agreement to protect the Company and its shareholders from coercive or otherwise unfair takeover tactics. In general terms, the Rights Agreement works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with each other) that acquires 15% or more of the outstanding common stock, including through derivatives agreements, without the approval of the Board (an “Acquiring Person”). Although the Rights Agreement will not prevent a takeover, it is intended to encourage anyone seeking to acquire our Company to negotiate with our Board prior to attempting a takeover. As the Rights Agreement generally allows shareholders, except for the Acquiring Person who triggers the exercise of rights, to purchase additional shares at significantly discounted market price, the potential dilution effect is dependent on the number of shares purchased by the Acquiring Person and other factors related to the acquisition and may not be estimated at this time. In addition, the existence of the Rights Agreement may also discourage transactions that an individual shareholder may otherwise deem to be advantageous. In December 2023, the Rights Agreement was amended to exclude the Proposed Merger from the Rights Agreement.
Certain super majority provisions in our organizational documents may discourage, delay or prevent changes to such documents.
The Corporate Charter provides that a two-thirds vote is required to amend or repeal certain provisions of the Corporate Charter and Bylaws, including those provisions relating to: the number and election of directors; filling of board vacancies; resignations and removals of directors; director liability and indemnification of directors; the power of shareholders to call special meetings; advance notice of director nominations and shareholders proposals; and amendments to the Corporate Charter and Bylaws. These super majority provisions may discourage, delay or prevent changes to the Corporate Charter or Bylaws.
The Corporate Charter provides that the U.S. federal courts located in the Southern District of New York or, if such courts lack jurisdiction, the state courts of the State of New York, shall be the sole and exclusive forum for certain disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
The Corporate Charter provides that, unless the Company consents in writing to the selection of an alternative forum, the U.S. federal courts located in the Southern District of New York or, if such court lacks jurisdiction, the state courts of the State of New York, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of a breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, (c) any action asserting a claim arising pursuant to any provision of the BCA or (d) any action asserting a claim governed by the internal affairs doctrine. This forum selection provision could apply to actions brought under provisions of the federal securities laws, including the Securities Act and Exchange Act. The forum selection provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
The Company may not achieve the intended benefits of having a forum selection provision if it is found to be unenforceable.
The Corporate Charter includes a forum selection provision as described above. However, the enforceability of similar forum selection provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that in connection with any action a court could find the forum selection provision contained in the Corporate Charter to be inapplicable or unenforceable in such action. If a court were to find the forum selection provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Risks Relating to the Proposed Merger
The termination of the Merger Agreement could negatively impact the Company and could result in payment of a termination fee by the Company.
If the Merger Agreement is terminated in accordance with its terms and the Proposed Merger is not consummated, the ongoing business of the Company may be adversely affected by a variety of factors. Our business may be adversely impacted by the failure to pursue other beneficial opportunities during the pendency of the Proposed Merger, by the failure to obtain the anticipated benefits of completing the Proposed Merger, by payment of certain costs relating to the Proposed Merger, and by the focus of our management and employees on the Proposed Merger for an extended period of time rather than on management opportunities, day-to-day activities, or other issues. The market price of shares of the Company’s common stock may decline as a result of any such failures to the extent that the current market prices reflect a market assumption that the Proposed Merger will be completed.
The Company may be required to pay Star Bulk a termination fee in the amount of $20 million in the case of certain events, including if the Board changes its recommendation that the shareholders of the Company approve the Merger Agreement or the Company terminates the Merger Agreement in order to accept a superior proposal. If the Merger Agreement is terminated and the Company determines to seek another business combination or strategic opportunity, the Company may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Proposed Merger.
The pendency of the Proposed Merger could adversely affect the Company’s business, results of operations and financial condition.
Beginning at the time of the execution of the Merger Agreement and continuing until the Proposed Merger closes or the Merger Agreement is terminated in accordance with its terms, the pendency of the Proposed Merger could cause disruptions in and create uncertainty surrounding the Company’s business, including affecting our relationships with existing and future customers, suppliers, partners in the business community and employees. This could have an adverse effect on the Company’s business, results of operations and financial condition, as well as the market prices of our shares, regardless of whether the Proposed Merger is completed. Any adverse effect could be exacerbated by a prolonged delay in closing the Proposed Merger. The Company could also potentially lose customers or suppliers, existing customers or suppliers may seek to change their existing business relationships or renegotiate their contracts with the Company or defer decisions concerning the Company, and potential customers or suppliers could entering into contracts with the Company, each as a result of uncertainty relating to the Proposed Merger. In addition, in an effort to complete the Proposed Merger, the Company has expended, and will continue to expend, significant management resources, which are being from the Company’s day-to-day operations, and significant demands are being, and will continue to be, placed on the managerial, operational and financial personnel and systems of the Company in connection with efforts to complete the Proposed Merger.
Third parties may terminate, alter or decline to renew existing contracts or relationships with the Company.
The Company has contracts with customers, suppliers, vendors, distributors, landlords, lenders, licensors and other business partners and these contracts may require the Company to obtain consent from these other parties in connection with the Proposed Merger. If these consents cannot be obtained, the counterparties to these contracts (and other third parties with which the Company currently has relationships, even if not contractual) may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships or terms of such contracts in anticipation of the Proposed Merger. In addition, counterparties to agreements that are near termination may determine not to renew such agreements as a result of the Proposed Merger or seek amendments to terms of existing contracts. The pursuit of such termination rights or amendments, or a determination not to renew such agreements, may result in the Company suffering a loss of potential future revenue, incurring liabilities in connection with breaches of agreements or losing rights that are material to our business. The adverse effect of such could also be by a in the completion of the Proposed Merger or the of the Merger Agreement.
The Company will incur substantial transaction fees and costs in connection with the Proposed Merger.
The Company has incurred and expects to continue to incur additional material expenses in connection with the Proposed Merger and the completion of the transactions contemplated by the Merger Agreement, including costs relating to obtaining required shareholder and regulatory approvals. The Company has incurred significant legal, financial and other advisory services fees in connection with the process of negotiating and evaluating the terms of the Proposed Merger and will continue to incur significant costs, such as legal, accounting, financial advisory, filing and printing fees, prior to and in connection with the completion of the Proposed Merger. Irrespective of whether the Proposed Merger is completed, the Company will need to pay certain costs relating to the Proposed Merger. These costs may be significant and could have an adverse effect on the Company’s results of operations, cash flows and financial condition.
Uncertainties associated with the Proposed Merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company following completion of the Proposed Merger.
The Company is dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. The Company’s success, irrespective of whether the Proposed Merger is completed, depends in part upon the ability of the Company to retain certain key management personnel and employees. Prior to the completion of the Proposed Merger, current and prospective employees of the Company may experience uncertainty about their roles following the completion of the transactions, which may have an adverse effect on the ability of the Company to attract or retain key management and other key personnel. In addition, no assurance can be given that the Company will be able to attract or retain key management personnel and other key employees to the same extent that we have previously been able to attract or retain our own employees.
While the Merger Agreement is in effect, the Company is subject to restrictions on its business activities. These provisions may discourage a potential competing transaction counterparty from making a favorable alternative transaction proposal.
Under the Merger Agreement, the Company, subject to certain exceptions, is subject to a range of restrictions on the conduct of its business and generally must operate its business in the ordinary course prior to completing the Proposed Merger (unless it obtains Star Bulk’s consent, which is not to be unreasonably withheld, conditioned or delayed). In addition, consent of Star Bulk (not to be unreasonably withheld, conditioned or delayed) is required for the Company to take a number of enumerated non-ordinary course actions. These restrictions may constrain the Company's ability to pursue certain business strategies. The restrictions may also prevent the Company from pursuing otherwise attractive business opportunities, making acquisitions and investments or making other changes to its business prior to the completion of the Proposed Merger or the termination of the Merger Agreement. Any such lost opportunities may reduce the Company's competitiveness or efficiency and could lead to an effect on the Company's business, financial results, financial condition or share prices.
In addition, subject to certain exceptions, the Merger Agreement prohibits the Company from (a) initiating, soliciting, assisting or knowingly encouraging or facilitating any inquiry, proposal or offer that constitutes, or would reasonably be expected to lead to, a takeover proposal; (b) entering into, engaging in, continuing or otherwise participating in any discussions or negotiations regarding, or furnishing to any person any non-public information relating to, or affording any other person access to the business, operations, assets, books, records or personnel of the Company in connection with, or for the purpose of facilitating or encouraging, a takeover proposal or any proposal that would reasonably be expected to lead to a takeover proposal; (c) approving, endorsing or recommending any takeover proposal or submitting a takeover proposal or any matter related thereto for the approval of the Company's shareholders; (d) waiving, terminating or modifying any provision of any standstill or confidentiality agreement that prohibits or purports to prohibit a proposal being made to the Board, unless the Board has determined in good faith, after consultation with its outside counsel, that to take such action would reasonably be expected to be with its fiduciary duties under applicable law; (e) entering into any contract, letter of intent or other document or similar agreement relating to a takeover proposal; or (f) authorizing or committing to do any of the foregoing.
These provisions may limit the Company's ability to pursue offers from third parties that could result in greater value to our shareholders than they would receive in the Proposed Merger. The termination fees payable to Star Bulk may also discourage third parties from pursuing an acquisition proposal with respect to the Company.
The Company may be a target of shareholder class actions or derivative actions, which could result in substantial costs and may delay or prevent the Proposed Merger from being completed.
Shareholder class action lawsuits or derivative lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Proposed Merger, then that injunction may delay or prevent the Proposed Merger from being completed. One of the conditions to consummating the Proposed Merger is that no governmental entity has enacted or promulgated any statute, rule, regulation or law that prohibits or makes illegal the consummation of the Proposed Merger and that there is no order or injunction issued by any governmental entity in effect preventing the consummation of the Proposed Merger. Consequently, if a claimant secures injunctive or other relief prohibiting, or otherwise affecting the Company’s ability to complete the Proposed Merger on the terms contemplated by the Merger Agreement, then such law or injunctive or other relief may prevent consummation of the Proposed Merger in a timely manner or at all.
