Paragon Shipping Releases Quarterly Earnings

Paragon

Paragon Shipping Inc., a global shipping transportation company specializing in drybulk cargoes, announced its results for the third quarter and nine months ended September 30, 2015.

Third Quarter 2015 Highlights & Recent Developments

  • Net revenue, net of voyage expenses, of $6.4 million in the third quarter of 2015.
  • Reduced average daily adjusted total vessel operating expenses by 7.4% year-over-year.
  • Adjusted EBITDA of negative $2.3 million in the third quarter of 2015.
  • Adjusted net loss of $8.3 million, or $0.33 per common share, in the third quarter of 2015.

Third Quarter 2015 Financial Results
Gross charter revenue for the third quarter of 2015 was $8.0 million, compared to $12.8 million for the third quarter of 2014. The Company reported a net loss of $13.4 million, or $0.54 per basic and diluted share, for the third quarter of 2015, calculated based on a weighted average number of basic and diluted shares outstanding for the period of 24,460,642 and reflecting the impact of the non-cash items discussed below. For the third quarter of 2014, the Company reported a net loss of $6.0 million, or $0.25 per basic and diluted share, calculated based on a weighted average number of basic and diluted shares of 24,253,142.

Excluding all non-cash items described below, the adjusted net loss for the third quarter of 2015 was $8.3 million, or $0.33 per basic and diluted share, compared to adjusted net loss of $6.1 million, or $0.25 per basic and diluted share, for the third quarter of 2014.

Adjusted EBITDA, excluding all non-cash items described below, was negative $2.3 million for the third quarter of 2015, compared to positive $0.7 million for the third quarter of 2014.

The Company operated an average of 13.1 vessels during the third quarter of 2015, earning an average TCE rate of $5,508 per day, compared to an average of 14.0 vessels during the third quarter of 2014, earning an average TCE rate of $6,570 per day.

Adjusted total vessel operating expenses, which included vessel operating expenses, management fees and general and administrative expenses, and excluded share-based compensation, were $7.9 million for the third quarter of 2015, compared to $8.3 million for the third quarter of 2014. On a daily basis, adjusted total vessel operating expenses for the third quarter of 2015 were approximately $6,559 per vessel per day, compared to $6,471 per vessel per day for the third quarter of 2014.

The loss from sale of assets of $0.1 million for the three months ended September 30, 2015, relates to the loss from the sale of the M/V Dream Seas, the M/V Gentle Seas, the M/V Peaceful Seas and the M/V Friendly Seas, that was concluded on July 27, 2015.

Based on the Company’s cash flow projections, it is probable that cash on hand and cash provided by operating activities will not be sufficient to cover the capital expenditures relating to the Company’s newbuilding contracts that become due in the twelve-month period ending September 30, 2016. Thus, as of September 30, 2015, the Company assessed as probable the potential sale of the five newbuilding contracts. As a result of this increased probability, the Company recorded an impairment loss of $3.2 million for the three months ended September 30, 2015, which relates to the write down to fair value of the contract price of the five newbuilding drybulk carriers.

Third Quarter 2015 Non-cash and One-off Items

The Company’s results for the three months ended September 30, 2015 included the following non-cash items:

  • Impairment loss of $3.2 million, or $0.13 per basic and diluted share.
  • Loss from sale of assets of $0.1 million, or less than $0.01 per basic and diluted share.
  • Unrealized gain on interest rate swaps of $0.3 million, or $0.01 per basic and diluted share.
  • Non-cash expenses of $0.3 million, or $0.01 per basic and diluted share, relating to the amortization of the compensation cost recognized for non-vested share awards issued to executive officers, directors and employees.
  • Write off of financing expenses of $1.7 million, or $0.07 per basic and diluted share.

In the aggregate, these non-cash items decreased the Company’s earnings by $5.0 million, which represents a $0.21 decrease in earnings per basic and diluted share, for the three months ended September 30, 2015.

Nine Months ended September 30, 2015 Financial Results
Gross charter revenue for the nine months ended September 30, 2015 was $28.7 million, compared to $41.7 million for the nine months ended September 30, 2014. The Company reported a net loss of $95.2 million, or $3.83 per basic and diluted share, for the nine months ended September 30, 2015, calculated based on a weighted average number of basic and diluted shares outstanding for the period of 24,460,642 and reflecting the impact of the non-cash items discussed below. For the nine months ended September 30, 2014, the Company reported a net loss of $41.6 million, or $1.78 per basic and diluted share, calculated based on a weighted average number of basic and diluted shares of 23,023,546.

Excluding all non-cash items described below, the adjusted net loss for the nine months ended September 30, 2015 was $25.2 million, or $1.01 per basic and diluted share, compared to adjusted net loss of $17.7 million, or $0.76 per basic and diluted share, for the nine months ended September 30, 2014.

Adjusted EBITDA, excluding all non-cash items described below, was negative $4.3 million for the nine months ended September 30, 2015, compared to positive $1.9 million for the nine months ended September 30, 2014.

The Company operated an average of 15.0 vessels during the nine months ended September 30, 2015, earning an average TCE rate of $5,252 per day, compared to an average of 14.0 vessels during the nine months ended September 30, 2014, earning an average TCE rate of $7,645 per day.

Adjusted total vessel operating expenses, which included vessel operating expenses, management fees and general and administrative expenses, and excluded share-based compensation, were $24.6 million for the nine months ended September 30, 2015, compared to $24.7 million for the nine months ended September 30, 2014. On a daily basis, adjusted total vessel operating expenses for the nine months ended September 30, 2015 were approximately $5,986 per vessel per day, or 7.4% lower than the adjusted total vessel operating expenses of $6,465 per vessel per day for the nine months ended September 30, 2014. The reduction in the average daily adjusted total vessel operating expenses is the result of the Company’s cost control efficiency and the economies of scale of operating an increased average number of vessels for the first nine months of 2015, compared to the same period in 2014, as well as of a favorable impact of the Euro / U.S. dollar exchange rate fluctuations.

The loss related to assets held for sale of $47.6 million for the nine months ended September 30, 2015, mainly relates to the write down to fair value of the M/V Dream Seas, the M/V Gentle Seas, the M/V Peaceful Seas and the M/V Friendly Seas, following their classification as assets held for sale as of June 30, 2015.

The loss from sale of assets of $0.1 million for the three months ended September 30, 2015, relates to the loss from the sale of the M/V Dream Seas, the M/V Gentle Seas, the M/V Peaceful Seas and the M/V Friendly Seas, that was concluded on July 27, 2015.

Based on the Company’s cash flow projections, it is probable that cash on hand and cash provided by operating activities will not be sufficient to cover the capital expenditures relating to the Company’s newbuilding contracts that become due in the twelve-month period ending September 30, 2016. Thus, as of June 30, 2015 and September 30, 2015, the Company assessed as probable the potential sale of the five newbuilding contracts. As a result of this increased probability, the Company recorded an aggregate impairment loss of $20.0 million for the nine months ended September 30, 2015, which relates to the write down to fair value of the contract price of the five newbuilding drybulk carriers.

In the second quarter of 2015, the Company proceeded with the sale of the total 3,437,500 shares of Box Ships Inc. (OTCQX:TEUFF) (“Box Ships”) at an average sale price of $0.8542 per share, which resulted in a loss on investment in affiliates of $0.2 million for the nine months ended September 30, 2015. The proceeds from the sale of such shares amounted to $2.9 million.

Furthermore, in the second quarter of 2015, the Company proceeded with the sale of the total 44,550 shares of Korea Line Corporation (“KLC”) at an average sale price of $21.68 per share. The total cash received from the sale of these shares amounted to $1.0 million, net of commissions. A loss from marketable securities, net, of $0.1 million was recorded for the nine months ended September 30, 2015.

Nine Months ended September 30, 2015 Non-cash and One-off Items
The Company’s results for the nine months ended September 30, 2015 included the following non-cash items:

  • Loss related to assets held for sale of $47.6 million, or $1.91 per basic and diluted share.
  • Impairment loss of $20.0 million, or $0.80 per basic and diluted share.
  • Loss from sale of assets of $0.1 million, or less than $0.01 per basic and diluted share.
  • Loss from marketable securities of $0.1 million or $0.01 per basic and diluted share.
  • Loss on investment in affiliate of $0.2 million or $0.01 per basic and diluted share.
  • Unrealized gain on interest rate swaps of $0.5 million, or less than $0.02 per basic and diluted share.
  • Non-cash expenses of $0.7 million, or $0.03 per basic and diluted share, relating to the amortization of the compensation cost recognized for non-vested share awards issued to executive officers, directors and employees.
  • Write off of financing expenses of $1.7 million, or $0.07 per basic and diluted share.

In the aggregate, these non-cash items decreased the Company’s earnings by $70.1 million, which represents a $2.82 decrease in earnings per basic and diluted share, for the nine months ended September 30, 2015.

Cash Flows
For the nine months ended September 30, 2015, the Company’s net cash used in operating activities was $5.7 million, compared to $3.7 million for the nine months ended September 30, 2014. For the nine months ended September 30, 2015, net cash from investing activities was $17.7 million and net cash used in financing activities was $15.2 million. For the nine months ended September 30, 2014, net cash used in investing activities was $65.6 million and net cash from financing activities was $57.0 million.

Liquidity
Given the current drybulk charter rates, it is probable that the Company will not be in compliance with several financial and security cover ratio covenants contained in certain of its debt agreements on the next applicable measurement dates in 2015 and 2016. As a result of the cross default provisions included in the Company’s debt agreements, actual breaches existing under its debt agreements could result in defaults under all of the Company’s debt and the acceleration of such debt by its lenders. Furthermore, based on the Company’s cash flow projections, cash on hand and cash provided by operating activities will not be sufficient to cover the liquidity needs that become due in the twelve-month period ending September 30, 2016. In addition, on November 27, 2015, the scheduled quarterly installment initially amounted to $480,500 and accrued loan interest of $46,620, under the loan agreement with Unicredit Bank AG, was not paid. In December 2015, Unicredit Bank AG gave notice to the Company that the lender reserved its rights in connection with any event of default under this loan agreement, and also released $0.4 million of the then pledged cash for working capital purposes. In January 2016, the Company entered into an agreement with its lender, subject to definitive documentation, to restructure the respective facility, as discussed below.

Subsequent to September 30, 2015, the Company reached agreements for the extinguishment and restructuring of its debt obligations with three of its lenders, as discussed below. The Company is currently negotiating with the remaining of its lenders to extend the existing waivers of the affected covenants and to restructure the affected debt. The Company is also exploring several alternatives aiming to manage its working capital requirements and other commitments if current drybulk charter rates remain at today’s low levels, including additional bank debt, future equity offerings and potential sale of assets. If the Company is unable to arrange debt financing for its newbuilding vessels or extend the respective deliveries from the shipyards, it is probable that the Company may also consider selling the respective newbuilding contracts.

Recent Fleet Developments
In connection with the settlement agreement with Commerzbank AG dated December 8, 2015 discussed below, on November 9, 2015, the Company entered into memoranda of agreement, as further supplemented and amended, for the sale of three vessels of its operating fleet, the M/V Sapphire Seas, the M/V Diamond Seas and the M/V Pearl Seas, to an unrelated third party. The M/V Sapphire Seas and the M/V Diamond Seas were delivered to their new owners in December 2015. The M/V Pearl Seas was delivered to her new owners in January 2016.

In connection with the supplemental agreement with Bank of Ireland dated January 7, 2016 discussed below, on December 1, 2015, the Company entered into a memorandum of agreement for the sale of the M/V Kind Seas to an unrelated third party. The M/V Kind Seas was delivered to her new owners in January 2016.

On December 23 and December 30, 2015, the Company entered into memoranda of agreement for the sale of the M/V Deep Seas and M/V Calm Seas, respectively, to an unrelated third party. Both vessels were delivered to their new owners in January 2016.

Financing Update

Commerzbank AG

On December 8, 2015, the Company entered into an agreement with Commerzbank AG for the full and final settlement of the outstanding principal amount of the respective facility of $38.2 million. According to the agreement, the facility will be settled with the total net proceeds from the sale of the mortgaged vessels, namely the M/V Sapphire Seas, the M/V Diamond Seas and the M/V Pearl Seas, in line with the memoranda of agreement dated November 9, 2015, as discussed above. This will result in an aggregate gain from debt extinguishment of $26.5 million.

Bank of Ireland

On January 7, 2016, the Company entered into an agreement with Bank of Ireland to apply the total net proceeds from the sale of the M/V Kind Seas, in line with the memorandum of agreement dated December 1, 2015 discussed above, towards the respective loan facility, while the remaining principal amount of $4.4 million would be treated as follows: i) $2.2 million will be written-off, subject to certain conditions, and ii) $2.2 million, plus any accrued interest, would be converted into an unsecured paid-in-kind note (“PIK Note”). The conversion occurred following the receipt of the net sale proceeds of the M/V Kind Seas and the application of such proceeds against the facility, in January 2016. The PIK Note is non-amortizing and has a maturity date of December 31, 2020, at which time it will be repaid at par. Interest on the PIK Note will accrue on a quarterly basis at an interest rate equal to the aggregate of 2.5% and the applicable LIBOR, and will be treated as payment-in-kind. Subject to certain restrictions, the Company will have the option to convert the PIK Note into its Class A common shares, partially or wholly, at any time until the maturity date and based on the twenty-day average closing price of the Company’s shares immediately prior to the conversion date.

Unicredit Bank AG

In January 2016, the Company agreed with Unicredit Bank AG, subject to definitive documentation, to apply the total net proceeds from the sale of the M/V Deep Seas and the M/V Calm Seas, in line with the memoranda of agreement dated December 23 and December 30, 2015 discussed above, towards the respective loan facility upon the completion of the sale, while the remaining principal amount of $8.3 million will be treated as follows: i) $4.9 million will be written-off, subject to certain conditions, and ii) $3.4 million, plus any accrued interest, will be converted into an unsecured PIK Note, with terms in line with those agreed with Bank of Ireland discussed above. The conversion will occur following the completion of the definitive documentation, as well as the receipt of the net sale proceeds of the M/V Deep Seas and the M/V Calm Seas, and the application of such proceeds against the facility.

At-the-Market Offering of up to $4.0 million of Class A Common Shares

On September 4, 2015, the Company entered into an equity distribution agreement with Maxim Group LLC for the offer and sale of up to $4.0 million of its Class A common shares. The Company may offer and sell the shares from time to time and at its discretion during the next twelve months. The net proceeds of this offering are expected to be used for general corporate purposes, which may include the payment of a portion of the outstanding contractual cost of the Company’s existing newbuilding vessels, and the repayment of debt. Under this offering, no shares were sold until September 30, 2015, while in the fourth quarter of 2015 the Company proceeded with the sale and issuance of 359,543 Class A common shares, resulting in net proceeds of $53,640.

Paragon Shipping is an international shipping company incorporated under the laws of the Republic of the Marshall Islands with executive offices in Athens, Greece, specializing in the transportation of drybulk cargoes. Paragon Shipping’s current fleet consists of six drybulk vessels with a total carrying capacity of 297,879 dwt. In addition, Paragon Shipping’s current newbuilding contracts consist of two Ultramax and three Kamsarmax drybulk carriers with scheduled deliveries in the first quarter of 2016. The Company’s common shares and senior notes trade on the NASDAQ Capital Market under the symbols “PRGN” and “PRGNL,” respectively.

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