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Box Ships (NYSE:TEU) is scheduling a $160 million IPO with a market capitalization of $242 million at the price range mid-point of $16, for Thursday, April 14, 2010. The full IPO calendar lists seven other IPOs for this week.

SUMMARY & CONCLUSION: TEU is a newly formed Greek company buying six container ships with an average remaining charter duration of 35.3 months. The parent company, Paragon Shipping (NASDAQ:PRGN), has a market capitalization of $163 million. PRGN’s stock declined 30% in the last six months. PRGN is spinning off two of its 14 ships to TEU.

TEU’s management company, Allseas, is controlled by Michael Bodouroglou, the top officer at both PRGN and TEU. Allseas will receive significant direct cash flow from TEU -- a red flag.

The top officers are the same and will run both companies, which is not an endorsement based on PRGN’s six month stock decline -- another red flag.

BUSINESS: TEU was incorporated on May 19, 2010, and has no vessel operating history. It intends to purchase an initial fleet of six containerships with a TEU (twenty-foot equivalent unit) weighted-average age of 2.5 years, a total capacity of over 28,000 TEU and a weighted-average remaining charter duration of 35.3 months.

DISTRTIBUTION POLICY – NO TARGET: TEU intends to distribute to shareholders on a quarterly basis substantially all of operating cash flow less any amounts required to pay cash expenses and capital expenditures, service its debt and maintain reserves for drydockings, surveys and other purposes as the board of directors may from time to time determine

SELF DEALING MANAGEMENT AGREEMENTS: Four of six ships are to be purchased from TEU affiliated companies. Significant cash will be going to a CEO-controlled management company.

TEU will pay Allseas (controlled by Chairman/CEO Michael Bodouroglou) a technical management fee of €620 per vessel per day, or approximately $849 per vessel per day.

TEU will also pay Allseas (i) a fee equal to 1.25% of the gross freight, demurrage and charter hire collected from the employment of the vessels, and (ii) a fee equal to 1.0% calculated on the price as stated in the relevant memorandum of agreement for any vessel bought or sold on TEU’s behalf, with the exception of the four vessels in the Initial Fleet that that are being acquired from affiliated companies.

Allseas will get a 1% commission on the purchase price of the Siena (4,500 TEU 2006-built) and the Maule (6.500 TEU 2010-built).

USE OF PROCEEDS: TEU will receive $148mm from the sale of 10mm shares to partially fund the acquisition of the Initial Fleet along with $130.0 million under the two credit facilities, together with 5.0 million shares of TEU common stock.

Source: Self-Dealing Red Flags for Paragon Spin Off IPO Box Ships