Paragon Shipping Inc (NASDAQ:PRGN) Explodes Up The Charts

Shares of Paragon Shipping Inc (NASDAQ:PRGN) exploded up the charts after the company filed a law suit against Tradewinds and their financial reporter, Mr. Joe Brady Stamford for defamation damages. The reason for the suit is that Tradewinds reported that the company had obtained its Board of Directors approval for filing bankruptcy under Chapter 11. The company and its Board of Directors declared that the above statement was totally untrue. Paragon believes that such false statements had a negative impact on the company, its reputation and stock price. The lawsuit was submitted before the Prosecutor of the Criminal Court of Athens.The news sent shorts scrambling to cover their positions as many figured Paragon was left for dead like many other companies in the shipping industry. But the company is still not out of the woods. The company also said that in relation to the issued and outstanding senior unsecured notes due 2021 that bear interest at a rate of 8.375% per year ("Unsecured Notes"), the company will not proceed with the interest payment, which is due on May 15, 2016, due to lack of liquidity.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 newbuilding contracts consist of three Kamsarmax drybulk carriers. Paragon did extend the deliveries of its three Kamsarmax newbuilding drybulk carriers (Hull numbers YZJ1144, YZJ1145 and YZJ1142), to September 30, 2016, October 31, 2016 and November 30, 2016, respectively, subject to certain conditions.While short term investors benefited from the increase in price, long-term shareholders have been totally annihilated owning PRGN. PRGN and other shippers have been one of the hardest hit and worst sectors for investors to be in. Judging from its last earnings report, one can see why. 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.The global macro picture has been really bad for shippers like Paragon. The Baltic Dry Index, a measure of raw shipping materials, hit a low in February, down 76% from its August peak last year. CFO Nikolas Arachovas pointed to the devaluation of the Chinese yuan and the cooling global economy for the company's weak third-quarter results in September, namely reduced orders among market participants. He said:

"Although we are still far below historical averages, scrapping activity dropped suddenly from the alleviated level witnessed in the second quarter of 2015. Most recently, the Chinese surprised the world by devaluing the currency, which has created a turbulence in the various financial markets, including the trading of commodities. This recent development is expected to support exports and hinder imports, especially commodities going forward and our view is that that the valuation will only have a marginal effect on the dry-bulk sectors, as China cannot produce enough commodities internally to meet its needs."

Shipping companies like Paragon went on a debt-fueled spree to grow their fleets. With shipping rates at record lows, they are unable to service their giant debt loads. The reality is that PRGN is not out of the words and the current rally was nothing but a relief rally on the back of an enormous short squeeze. We urge investors that captured the move to book profits or to at least pull their initial investment off the table and let the rest ride. We will be updating Insider Financial as soon as we know more. For continuing coverage on PRGN, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in PRGN and have not been compensated for this article.