On December 12, 2013 I conducted a direct, one-on-one interview with Mr. Bodouroglou. Below you will see the transcript from that interview, less, of course, cursory introductions, niceties, and friendly, albeit professional, chatter. It is also important to note that the answers seen below are not verbatim in the traditional sense. Occasional breaks from formal discussion, and minimal communicative misunderstandings, have been omitted or passed over. None of the details absent from the transcript were of any consequence to the integrity of the transcript herein. The below details represent the full embodiment of the interview.
The questions being asked will appear in bold text, whereas the answers will appear in italicized text. The interview transcript begins directly below;
Where I would like to start is at the most recent point of relevance. On December the 9th an announcement was made from Paragon pertaining to the consolidation of a previous order made for two 4800 TEU containerships. This announcement was made in tandem with the news that Paragon had purchased two additional eco-design ultramax new builds. Could you offer some insight as to why these decisions were made, and what sort of strategic advantage these maneuvers provide Paragon moving forward?
Yes, of course. These containerships were ordered 2-3 years ago for a price of 57.5 million each. Values soon fell in that asset class. Our 23 million dollar deposit was soon nearly underwater and while there was no recourse really, we had the option of walking away, but would have lost our money. By canceling one ship though, and conducting a transfer of the deposit from one ship to the other, we reduced the purchase price from 57.5 million to 55 million and save 2.5 million dollars as opposed to losing the total 23 million dollar deposit. Then, we assign, or sell that container ship for perhaps 45 million dollars, and when all is said and done we will get back 13 million. That 13 million then becomes an infusion of equity by the end of quarter two in 2014. This upcoming infusion of equity gave us comfort to go ahead and order two more ultramax ships that we can easily afford. This is great news. I fear that shareholders or investors do not fully understand how great this news is.
In terms of these new builds, when compared to your current fleet, your election to opt for ultramax vessels represents a parting from the majority of your current convoy, which is comprised of mostly panamax vessels. Could you elaborate as to what the thought process was behind adding to your fleet these ultramax builds?
Yes, this is really two fold. First, this allows us to evenly diversify exposure to the sector and the sector demands. We feel it is best to fully diversify our vessels. We also own a few handysize vessels as well. The goal being to be as well balanced and diversified as possible. Second, most of the expected growth in the sector is going to come from developing nations in locations such as Southeast Asia and Africa. So, for those area's cargoes and needs, ultramax's can best fit there. We feel bullish on the whole sector, but see a need to be filled with our fleet diversification.
During the most recently reported third quarter, Paragon experienced a transformative period. There were significant improvements across the board and you were quoted as having said that Paragon had switched its focus to "growth and execution". Please, if you would, comment further about the third quarter and enlighten prospective investors as to how Paragon managed to make these strides during a historically down season for dry bulk shipping, in an already downtrodden year for shippers.
Thank you for this question, because this is an important one. This business is very cyclical. The duty of shippers is to prepare for when the downturn comes. We, Paragon, in my opinion were very well prepared. Liquidity, cash, equity - they were all solid. In the five years of the downturn we were able to pay off 400 million in debt, and keep our banking relationships happy and strong. We then expected 2013 to be when the turn began back, and were again prepared with cash and equity to be ready. We've been active this year and have entered into, and kept up on, lucrative contracts for continued recovery and growth. All of this is only the beginning for Paragon. Soon everyone will see the benefit of these efforts and foresight.
Certainly recent years have not been kind to the dry bulk shipping sector. In February of 2012 the BDI hit a record low of 647, and only in the last few days did the BDI again return to above 2200. Obviously, despite some recent momentum, these numbers represent a significant departure from its 2008 peak of 11,793. Given the lethargic rate of recovery the last two years, what sort of expectations does Paragon have, for both the company and the sector, as you look ahead into 2014 and beyond?
It is a question of simple fundamentals in the sector. The demand side of the equation is improving quarter by quarter. But for the big picture, what the dry bulk sector is really about is development and urbanization. Globally, there are about 3 billion people currently being urbanized. Building, industrialization, urbanization, this is what dry bulk shipping serves. This growth - it will not stop. Weak rates during the down turn were not a result of weak demand. It was a result of oversupply. This was a problem that we, the shippers, created. But this is now improving. We have a good idea of the vessels in demand, as well as the vessels being delivered in 2014 and 2015, and these demands and deliveries are in favor of the shippers. We know what to expect with rates and expectations. Paragon, specifically, is doing well in the spot market, and I really mean spot. We're talking 30 or 60 day contracts. We trade all of our ships spot! Every month or so we get to re-price and adjust our income with current rates on about one third of our fleet. Every month we re-charter about 4 vessels at the new rates. Also, it is very important to note, rates in the market, especially for certain vessels, are already approaching 10 year averages. This trend is similar for asset values. This will have a profound affect. Asset values and rates, as they begin to meet and exceed 10 year averages, will greatly increase the valuation of the company.
Speaking of looking forward, there have been updates to many analysts' price targets for Paragon in just the last 48 hours. Clarkson Capital for example recently upgraded Paragon stock to a "strong buy" recommendation with a rating of "outperform." Moreover, analysts at Global Hunter Securities also upgraded shares to a "buy" rating with a forward looking price target of ten dollars per share. Whereas many other dry bulk shippers have faced significantly more sluggish forecasts from analysts, what do you think it is about Paragon specifically that has fueled this recent optimism?
I believe these analysts already see what we have known - that the value of our stock is trading at a significant discount to the assets. Our market cap should be, at least, 200 million. Most compelling here is that we are able to capture every incremental improvement noticed in the market given our contract flexibility across our fleet, and our prompt delivery. They see improvements in our earnings, appreciate our true asset values, and they see the way we carried ourselves, responsibly, during the crisis. They know that we are the shipper most ready to seize these improving conditions.
I'd like to now gain some further understanding into your customer relations. On your website you allude to "strong customer relationships" as a competitive strength of Paragon Shipping. You cite, among other things, the quality of your fleet and your reputation for dependability as contributing factors. How have you forged these kinds of relationships, and how have you successfully maintained them over the years?
This, I think, comes down to what customers want. They want quality management, a quality product, and quality service. They want, they need, a dependable partner who insists on these things, and who can be flexible to their needs. This is why they choose us. Our ships, all of them, are chartered to first class customers - first class. Quality and dependability are our responsibility, and we take this very seriously. This commitment, on our part, brings customers to us, and keeps them with us.
In continuing this discussion as it pertains to relationships, could you please discuss the importance of creating value for shareholders at Paragon? Obviously, shareholders are a pivotal segment of your operational financing and continued growth, so what sort of priority is placed on creating value for them at Paragon, and what steps are taken to ensure strong returns to shareholders?
Obviously, the interests of Paragon and shareholder's go hand in hand. I am, and have been, the largest shareholder in the company. Prior to our most recent equity offering, I owned something like 56% of the company. Now, since the new offering, I am still the biggest shareholder at about 38%. I can say, for sure, that my interests are fully aligned with shareholder interests. Therefore, the strategic decisions we make in the best interest of the company are also in the best interest of shareholders. We are in a better position than anybody in the dry bulk sector to perform for shareholders for all of the reasons we have already discussed. Responsibility, liquidity, equity, growth, and so on.
In keeping with the theme of customer relationships and creating shareholder value, we naturally transition into revenues and operations. We are now in the midst of what is considered peak season for dry bulk shippers, especially for those operating largely in the spot market, and the BDI is slowly creeping upward. Would it be safe to assume that the momentum from your successful third quarter has carried over into the fourth quarter, and do you foresee it continuing to the end of the peak season in April of 2014?
Yes, absolutely. My response is very positive here. October and November are usually very good, this is true. But December is actually usually slow. However, it has not been the case this year. Of course, August is always the slowest month, but this year the rates in August almost doubled. This tells us something special is going on. Supply and demand is rebalancing, and this gives us great confidence that the spring will be a very strong market. This is what my logic and experience tells me. Historically there has always been a lag between rate increases and revealed improvement. So, the results of these increases and improvements will reflect this moving forward as the recovery continues.
In regards to the cyclical nature of the dry bulk shipping sector, and the ongoing global recovery, what sort of catalysts do you see ahead for either Paragon as a company, or for the sector at large? Obviously, over supply, depressed commodity prices, and increased fuel costs contributed to the sectors recent hardships, but what will be the catalysts for the ongoing recovery and how is Paragon prepared to seize those opportunities?
I don't see things as any single catalyst. I believe it is very much fundamentals. Supply and demand is rebalancing, and that cumulative affect changes everything. In shipping there is a point of inflection, we say it is 87%, but it is around 87-90%, when rates go rapidly higher. Once we exceed that limit, that point in the rebalancing, rates will increase and grow exponentially. I would not be surprised if we saw this in 2014. As for Paragon, we will show significant earnings and growth, and I believe we will see this sooner than later due to our approach. We see what is coming very well, and like I said, we make sure we are always prepared.
Lastly sir, maritime commerce has long been a staple of global trade. It is an essential component of the world economy, and will continue to be. Thus, as it pertains to investment opportunity in the sector, why is it that prospective shareholders should elect to put their hard earned dollars into Paragon Shipping? What would you say to investors currently contemplating whether or not to assume a position in your company? Why should they invest in Paragon?
What I would like to say is this - Paragon is the best positioned dry bulk company to capitalize on the recovery. I am not just saying this, truly. In my opinion, we have easily the best upside potential. We are already undervalued, and trade at a significant discount to assets. Our customers are the very best, the most loyal, and most reliable. In the spot market, we see the recovery month to month, and capitalize on this. During the good times, it is easy, everybody does well. But, when times were tough, and nobody was paying or performing, we were. We paid 400 million dollars in debts when other companies were crumbling. We managed our cash, and our assets, most effectively. We were brave, and self-assured, when others were afraid. I expect the market value of this company to increase significantly.
When all is said and done, Paragon offers, especially from our current market valuation, the best value for the money in the sector. At Paragon, we are not just managers of the company, we are owners. Our interests, and shareholder interests, are one in the same. We succeed together, and work for each other.
Interview in Hindsight
In my career, I have worked with, or alongside, multiple executives and entity chairmen. In fact, strictly in terms of contributions to publications and periodicals, including here at Seeking Alpha, I have personally interviewed and questioned a vast number of corporate lynchpins. I rarely choose to publish their details. Quite frankly, I find most executives standoffish, arrogant, and undeserving of additional publicity. However, when I find myself enamored with not only ones character, but also their insight, professionalism, ambition, and courtesy, I share these details with the public. Such is the case with Michael Bodouroglou at Paragon Shipping.
Mr. Bodouroglou was a gentleman of the highest order. He was punctual, well informed, courteous, humble, authentic, and unashamed to be tirelessly devoted to his company, his visions, and his shareholders. There are truly no words I can employ to reasonably convey to readers what a privilege it was to speak with him. He made himself accessible to me in the future, and was genuinely grateful to be in possession of my full attention and interest. If Paragon Shipping is a reflection of its founder and CEO, then the future of Paragon is bright indeed.
For the Prospective Investor
Like all shipping companies currently competing in this recovering, but still somewhat inhospitable, market climate, there exists moderate risk. The BDI remains nearly 9500 points shy of its all-time high, and its predictability is suspect at best. Supply and demand ratios are improving, however they remain short of ideal. Furthermore, as it pertains to Paragon specifically, while their recent quarterly numbers and equitable offerings indicate improvements of note, they remain vulnerable to net losses per share, and have seen slight decreases, year-over-year, in adjusted EBITDA. In addition, their current float is relatively small. Therefore, one should not view Paragon Shipping as an infallible investment. There remains a considerable road ahead and some relative uncertainty.
That being said, these challenges are not exclusive to Paragon. These are industry wide obstacles which every dry bulk shipper is navigating. Paragon managed to pay down considerable debt when other shipping companies were panicking. They also have excelled in the spot market, and maintain strong relationships with first class charter partners. Their fleet is comparatively young, and they are taking actions to diversify and further enhance their vessels and their ability to provide service. Unlike many other shippers, they are responding to need accordingly, as opposed to reacting in an overzealous manner. Lastly, they are led by a man whose humility is rivaled only by his commitment. In an uncertain and volatile investment sector, Paragon may well be the very best-in-class.
Thank you for your email. In response to your question, the presentation Friday, and Bob's today, was a “round table” 1x1 Q&A to investors. Ie there wasn't a formal presentation and no webcast. We did, however, update our PowerPoint presentation with updated information. Thus the required SEC filing announcing the presentation. You can find this hard copy on our website under investor relations. Whenever we have a webcast presentation we will press release that information alongside a link to the webcast. Hope this helps.
lillibridge west pad....
new eagle ford acqerage...
maybe im missing here something,here is the qoute from the cc on nov 6:
"the Lillibridge West pad is currently being frac-ed. They could all be on production in a couple of weeks. As of this morning, we pumped 44 out of the planned 130-some-odd stages, all is going well. And so that job should continue for another 7 or 8 days, and then we'll be in a position of putting those wells on production"
didnt that say that they finished the frac-ed at about 12-13 to november and now its already 34 day of production?
sector is bulish!!
north to 200m$ at the current levels of bdi,that's 12$ a share or higher.
if bdi keep increasing,ships will be worth much more and so is the .
We are in a better position than anybody in the dry bulk sector to perform for shareholders for all of the reasons we have already discussed. Responsibility, liquidity, equity, growth, and so on.