Eagle Bulk's shares are trading down by one fifth today after it launched a convertible note to help fund the purchase of up to six new vessels.
Selling pressure on the share is not unexpected given the structure of the notes offering and a fall in the Baltic Dry Index which has today dented the bulker peer group.
However, with Eagle stock down 20% to $4.33 in early trading the decline is eye-catching.
Eagle, which now holds a market cap of $335m, opened at $4.80 and has rebounded slightly to $4.75 by early afternoon.
Finance sources explain for funds to invest in the new paper they have to hedge their position.
With an existing investor lending shares to support this process, and the typical sell-off associated with a fundraiser, a decline in Eagle's stock price is not surprising today, they reason.
"I think that because this was set up by a lone shareholder, there may be a misconception that they're unloading but they're not," said Noble Capital Markets analyst Poe Fratt.
Throw in the overall drop in dry bulk shares linked to the dive in capesize rates and further reason for a dip becomes apparent.
However, analysts suggests some investors may have also been spooked by the idea a full conversion of the debt would lead to a major dilution in the company's stock.
"You're issuing 20% more shares if you convert," Fratt told TradeWinds. "The convert is putting pressure on the stock."
Fleet expansion usually pumps up share value but perhaps not in this case because Eagle has not identified what ships it plans to buy, he said.
"Plus, the stock is thinly traded so it puts pressure on the stock," he said.
