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Paragon Shipping Inc. (NASDAQ:PRGN)

Q2 2013 Earnings Conference Call

August 7, 2013 09:00 ET


Rudy Barrio - Allen & Caron Inc., Investor Relations

Michael Bodouroglou - Chairman, President and Chief Executive Officer

Robert Perri - Chief Financial Officer


Christian Cantalupo - Davidson Kempner


Good day, and welcome to the Paragon Shipping Inc. Second Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Rudy Barrio of Allen & Caron Investor Relations. Please go ahead sir.

Rudy Barrio - Allen & Caron Inc., Investor Relations

Thank you, Denise. Good day, everyone, and welcome to Paragon Shipping’s investor conference call to discuss its financial results for the second quarter ended June 30, 2013. With us from management today is Michael Bodouroglou, Chairman, President and Chief Executive Officer; and Robert Perri, Chief Financial Officer.

Before we start today’s call, there are a couple of items I would like to cover. Many of you received a copy of the Paragon Shipping’s earnings results press release. It was disseminated yesterday afternoon. If you do not receive a copy of the press release, it is posted on Paragon Shipping’s website at and in the Investor Relations section of our website at It is also posted on Yahoo! Finance and most financial sites. You may also call our office in New York at 212-691-8087 and we will e-mail it to you.

As mentioned earlier, this call is being recorded. A replay will be available shortly after the call for seven days and may be accessed from North America by calling 877-870-5176 and entering pass code 105684. International callers should dial 858-384-5517. This call is also being broadcast live over the internet and maybe accessed via Paragon Shipping’s website. A replay of the webcast will be available shortly after the call and will continue for seven days as well.

Further, I would like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Some of the statements made during the call may contain forward-looking statements. The company’s actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statement in Paragon’s recent earnings release and in the Risk Factors section of the company’s most recent filings with the Securities and Exchange Commission, all of which are available at

I would now like to turn the call over to Robert Perri. Good day, Robert.

Robert Perri - Chief Financial Officer

Hi, good morning Rudy, and good morning everyone. Today, I will briefly give you highlights for our second quarter followed by an update on the latest company developments as well as our views on the drybulk industry. I will then present a more detailed overview of our second quarter and six months ended June 30, 2013 financial results before ending with our closing remarks.

Joining me on the call today is our Chairman, President, and CEO, Michael Bodouroglou, and we both will be available for questions at the end of this presentation.

Please turn to slide number four. In the second quarter of 2013, we reported net revenues of $13.9 million and EBITDA of $6.2 million. In addition, the company’s net results were once again positive compared to a net loss of $3.5 million that we reported in the first quarter of ‘13. During the quarter, we signed subject to certain contingencies and conditions, a new credit facility of up to $69 million with China Development Bank to partially finance our two 4800 TEU containerships currently under construction. In addition, we negotiated and in July 2013, we agreed with Morgan Stanley, the charterer of Coral Seas and Deep Seas on the vessels’ early redelivery for a total cash compensation of $2.3 million. Finally, yesterday, Box Ships prepaid an amount of $5 million and reduced the outstanding balance of the respective loan to $6 million.

On slide five, I would like to make some remarks on our leverage. Currently, our debt stands at $187 million while our cash position stands at $25 million. This translates into a net debt of $162 million representing a 60% net debt to capital capitalization. The right hand graph presents our outstanding debt and scheduled quarterly loan repayments for the remainder of the year. In the second quarter of 2013, we secured financing for outstanding newbuilding program. We still have up to $25 million available under our Nordea Facility to draw down for the delivery after fourth and last Handysize newbuilding, the modern vessel Proud Seas while we expect – which we expect to be delivered in the fourth quarter of ‘13. In addition to new credit facility of up to $69 million with China Development bank will be used to finance the two 4800 TEU containership newbuildings that are expected to be delivered in the third quarter of 2014. It’s important to note that Box Ships has the option to acquire these two containerships. And if they exercise that option this facility can be feely transferred to Box Ships.

On slide six, we provided an overview of the remaining carter period for each of our vessels. You can find full details of our charters for our fleet can be found under the appendix section of this presentation. In July 2013 we agreed with Morgan Stanley the charter of Pearl Seas and Deep Seas on the early termination of the respective time charter agreements for a total cash compensation of $2.3 million. Under the terms of the original time charter agreements, the vessels were expected to be redelivered to the company in December 2013 and in July 2014 respectively. Based on the early termination agreement both vessels will be redelivered to the company by the end of August. The total cash compensation of $2.3 million which was paid in July was agreed based on the difference between the vessels gross time charter rates and the equivalent FFA rates and the company was paid in full for the difference between these two rates.

Thus assuming charter rates do not deteriorate the early termination agreement was on favorable terms for the company as it allows us to take advantage of any strengthening in the market that may occur over the next several months to one year. Based on the earliest redelivery dates and after taking into consideration our latest fleet employment developments are fixed revenue days currently stand at 37% for the remainder 2013 and 4% in 2014.

On slide seven, you can see a graph that compares Paragon’s fleet wide average daily time charter equivalent rates since 2009 versus the average time charter rates for vessel types we own. We wish to emphasize the fact that our chartering strategy has continually outperformed the market since 2009 by an average of over 40% and we expect to continue to be able to outperform the market going forward. Thus at this time in this cycle we will mainly employee our vessel on short-term charters and voyage charters when their current employment end. And unless we see a strong improvement in the market, we will continue to operate those vessels on a short-term basis as we believe it gives us the flexibility to take advantage of potential upturn in the market and will improve our returns.

Now let me provide you with an industry update. The left hand graph on slide eight depicts the average time charter routes of the main drybulk sector since January 2012. As you can see from this chart Panamax rates along with most time charter rates bottoms in October of 2012 and have rebounded since. During the second quarter of 2013 the rates for Cape vessels picked up to about $15,000 per day before coming back slightly and Panamax and Supramax rates have improved to around $10,000 per day as the grain trades from South America heated up and the coal trades continue to strengthen.

We are also starting to see more congestion in major ports. This congestion is causing severe delays in deliveries and made put pressure on rates to increase further going forward. We believe that the charter market has more room for improvement since time charter rates remain below or close to breakeven levels in most sectors. The S&P market has also shown some signs of recovery as values have stabilized and then some institutes actually increased since the beginning of 2013.

Nonetheless values still remain at historically lower levels. On slide nine, we showed projected volume growth of drybulk cargos through 2016. As you can see demand is expected to remain healthy growing by more than 6% a year for the next four years. With the largest expected growth from iron ore and steam coal. That is being driven by the Far East. I note that iron ore and steam coal are one of the key cargos factors for Panamax vessels. The fact that demand growth has remained robust has been forgotten because of the over supply of tonnage, but the good news is this demand is expected to remain robust even after supply has been absorbed.

Thinking of supply on the top left hand graph on the slide 10 you can see the vast majority of the order book has already been delivered and it currently stands at only 18% of the existing fleet which is historically a low figure. Currently the aggregate capacity of the existing fleet is more than 700 million deadweight tons with about 125 million deadweight tons on order. And most of this order booking is for Capesize and Panamax vessels. In addition during the first half of 2013 about 13 million deadweight tons were scraped, which represents about 2% of the total drybulk fleet in six months. This is a continuation of the trend we saw in 2012, where record level of about 34 million deadweight tons were scrapped, which represented 5% of total fleet. Overall, however, net additions to the fleet are still significant as the net drybulk fleet growth was 10.1% in 2012. In 2013, we expect net fleet growth of 6.8% and as scrapping picks up 2012 levels, this net growth maybe lower. Nevertheless, we can finally start to see the light at the end of the tunnel as expected fleet growth in 2014 decreases to 3.8%.

Let me now proceed with a quick analysis of our financial results for the second quarter and first half of 2013. Please turn to slide 11. During the second quarter of 2013, we operated an average of 13 vessels at a time charter equivalent rate of $10,476 per vessel per day, which equates to net revenues of $13.9 million and a 100% utilization rate. Our EBITDA was $6.2 million while our net results were marginally positive. For the second quarter of 2013, our non-cash items totaled $0.1 million, which included $194,000 in share-based compensation expenses, and a net gain of $271,000 related to interest rate swaps. And excluding these, our adjusted EBITDA was $6.1 million and our adjusted net loss was $0.1 million, or $0.01 per share.

On slide 12, in conclusion ladies and gentlemen, the market remains challenging what we can finally see the makings of recovery as demand remains strong and the order book is finally back to manageable levels. As a company, we continue to execute our strategy of fleet renewal and conservative growth through the current downturn in the drybulk market. We took a proactive approach with our lenders and we successfully completed our debt restructuring in order to secure the company through this downturn and we can now concentrate on positioning the company on taking advantage of many opportunities that may arise. We are confident that the company will emerge stronger from this current crisis.

Thank you for your attention. And I will now turn the call back to the operator for questions.

Question-and-Answer Session


Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question will come from Scott Vogel of Davidson Kempner. Please go ahead.

Christian Cantalupo - Davidson Kempner

It’s actually Christian Cantalupo for Scott. I noticed that you guys had drydock expenses this quarter, what vessel is that for and how should we think about that expense going forward? And then the second question I had was the $25 million of availability on the Nordea facility is that based on vessel value or is that full amount available for drawing?

Robert Perri

That’s based on basically vessel values of the four vessels on average, but right now based on where values are, we should be able to draw up to $24 million roughly.

Christian Cantalupo - Davidson Kempner


Robert Perri

Going back to the drydocking question, we had two vessels in drydock in the second quarter, the Kind Seas and the Sapphire Seas. If you go to the appendix of the presentation, we have a breakdown of all the drydockings that are upcoming. We have one in the third quarter and then a few in 2013 then we have a few in 2014.

Christian Cantalupo - Davidson Kempner

Okay, great. Thank you.

Robert Perri

You are welcome.


(Operator Instructions) And at this time, I am showing no additional questions in the queue. I would like to turn the conference back over to Mr. Robert Perri for his closing remarks.

Robert Perri - Chief Financial Officer

Thanks for taking the time to join the call today everyone and have a great day. Look forward to talking to you next quarter.


Thank you. Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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