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In May, we analyzed the first-quarter 2009 results of Paragon Shipping, Inc., (NASDAQ: PRGN). Paragon, which has its headquarters in Voula, Greece, owns ships that carry dry bulk cargoes.

The downturn in global trade has caused shipping rates, such as those tracked by the Baltic Dry Index, to collapse. Not surprisingly, lower rates have also reduced the value of the vessels themselves.

Nevertheless, Paragon's first-quarter earnings exceeded market expectations, and the price of the company's shares soared in response. Mesmerized by the good news, we didn't give Paragon's credit situation enough attention. We have since decided the matter was worth a second look.

Paragon, in regulatory filings, has discussed liquidity and actions to improve it. We constructed the following summary from the various documents the company submitted to the SEC.

There might have been earlier indications, but Paragon's announcement on 18 March 2009 of its results for the fourth quarter of 2008 contained the first inkling of a concern we could find.

Chairman and Chief Executive Officer Michael Bodouroglou commented:

“In addition, we amended our six credit facilities that will be in effect through December 31, 2009 and on terms that allow Paragon to maintain its high level of liquidity.”

Mr. Bodouroglou announced that the company had decided to reduce its quarterly dividend from $0.50 to $0.05 per share. He also stated:

"While we believe 2009 will be a challenging year for the drybulk market, we expect Paragon not only to weather the storm but to have the financial strength and ability to seek investment opportunities in the year to come.”

The six credit facilities mentioned by Mr. Bodouroglou are listed below, along with the year-end amounts outstanding. This table is derived from the company's 20-F Annual Report.

31 December 2007 31 December 2008
Commerzbank AG Senior Secured Revolving Credit Facility $139,000,000 $110,310,000
Bayerische Hypo-und Vereinsbank AG Secured Credit Facility 90,000,000 90,000,000
Bank of Scotland plc Secured Revolving Credit Facility 89,000,000 80,000,000
First Business Bank S.A. Secured Revolving Credit Facility 28,300,000
Bank of Ireland Secured Revolving Credit Facility 30,000,000
HSH Nordbank Credit Facility 48,875,000
Total $318,000,000 $387,485,000


A Form 6-K submitted on 7 April 2009 to the SEC included the following information about the status of Paragon's credit facilities:

As a result of the decline in the value of our vessels securing the six credit facilities that we are party to, as of December 31, 2008 we did not meet the security cover and certain of the financial covenants contained in those credit facilities. During the first quarter of 2009, we have amended four of our existing credit facilities, have entered into an agreement with the lender to amend our fifth credit facility and we have refinanced our sixth credit facility with a replacement credit facility with the same lender. The terms of the amendments that we have entered into or have agreed to enter into and our replacement credit facility waive our prior breaches of covenants relating to (i) security coverage ratios, (ii) market adjusted net worth requirements and (iii) indebtedness to total capitalization ratios or market value adjusted total assets as contained in the applicable credit facilities and temporarily suspend or amend such covenants. As of December 31, 2008, we had an aggregate of approximately $387.5 million of outstanding indebtedness, of which approximately $53.2 million was payable within 2009 after giving effect to the 2009 amendments and refinancing. Subsequent to the amendments and refinancing of our credit facilities, we may not draw any additional amounts under these facilities.

[emphasis added]


Just a week later, on 15 April 2009, Paragon submitted a Prospectus Supplement indicating an intention to offer up to 10 million shares through Cantor Fitzgerald.

Results from the first quarter of 2009 (mentioned above) were released on 19 May. By this date, more than 60 percent of the shares in this "Controlled Equity Offering" had been sold, according to the Management's Discussion and Analysis of Financial Condition and Results of Operations.

Last week, on 5 June, Paragon filed a second Prospectus Supplement that signaled its intent to sell up to 10 million additional shares, again through Cantor Fitzgerald. The company reported that the first offering had been completed and had brought the company approximately $42.6 million.

To put these offerings in perspective, readers should be aware Paragon had about 27 million shares outstanding on 31 December 2008.

Note: InvestmentTools.com was the source of the BDI chart. Yahoo! Finance was the source of the share price chart.

Full disclosure: Long PRGN at time of writing

Source: A Close Look at Paragon Shipping's Credit Situation