The Idle Goliath Off Aruba is Quietly Making Millions for Bondholders

OSA Goliath, image via Oceanographia

By Ben Bain

July 2 (Bloomberg) — Drifting five miles off the Aruba coast, the 591-foot-long oil-servicing ship OSA Goliath has no projects to work on or contracts to fulfill. Yet in its idle state, the ship is generating a windfall for holders of a Mexican corporate bond that went bad.

The Goliath, once the property of Oceanografia SA, has been under the control of the bond trustee since it was seized four months ago following a default that was accompanied by accusations from Citigroup Inc. that the contractor committed fraud on a $400 million loan. Since that takeover, the bonds secured by the ship have soared 35 percent to 115 cents on the dollar, almost seven times the average gain for Mexican corporate debt.

The trustee is now moving to liquidate the ship to compensate bondholders, tacking on penalties and missed interest payments to the payout amount. Estimated to be worth $245 million as recently as last year, the ship could fetch a price that would be more than enough to cover the $160 million of defaulted bonds. While there’s still a risk that Mexico might try to claim the ship as an Oceanografia asset amid criminal probes, investors are betting the sale will go through.

“The market is pricing in the fact that it’s not going to be too problematic” to sell the vessel, Jim Harper, the head of research at BCP Securities LLC, said by phone. “The way this is structured, the trustee is calling all the shots.”

Interest, Penalties

According to Oslo-based Nordic Trustee ASA, bondholders were owed $215.4 million at the end of February including accrued interest and penalties. With interest still accumulating at a 17 percent annual rate, the bonds, which were scheduled to mature in 2018, could be worth at least 142 cents on the dollar if paid in full, Harper estimated. That’s 23 percent above yesterday’s close.

Mexico took control of Oceanografia and its assets on Feb. 28 on the grounds that the company was critical to the operations of the state-run oil company, Petroleos Mexicanos. Oceanografia is now being managed by the Finance Ministry’s Asset Transfer and Administration Service.

The 12 percent bonds sank to a record low 83 cents on the dollar on Feb. 19, a month after trading as high as 106.5 cents, as Mexico suspended Oceanografia from bidding on government contracts and the company missed an interest payment on its other dollar debt due in 2015.

Less Valuable

The company’s $335 million of bonds due in 2015, which are backed by less-valuable vessels including a pair of almost 30- year-old tugboats, have plummeted to just 13.19 cents on the dollar. Since trading as high as 95 cents on the dollar on Jan. 16, the bonds have lost 86 percent of their value, according to to data compiled by Bloomberg.

Mexico’s peso was little changed at 12.9467 per U.S. dollar at 7:08 a.m. in New York.

Investors are so confident of the Goliath’s value that the ship’s holding company in May was able to raise $8.5 million through a sale of new bonds. Those proceeds were earmarked for recovery expenses, according to the trustee.

Fredrik Lundberg, Nordic Trustee’s head of corporate bonds, said in a June 24 phone interview from Oslo that the ship has attracted some potential buyers, without being more specific. Sale proceeds left over after bondholders are fully reimbursed could go back to the company, he said.

The Goliath, built in Indonesia in 2009, has a main crane that can lift about 1,600 tons and can accommodate 296 people. It’s one of the world’s largest ships for inspection, maintenance and repair, or IMR, a category of services provided to the offshore oil industry.

‘Strong Conviction’

Investors are showing “strong conviction of the marketability of the boat,” said Michael Roche, a strategist at Seaport Group LLC.

The Mexican government may still take steps to stymie the its sale, said George Baker, the Houston-based research director for energia.com, a website focused on the Mexican energy industry.

“There’s real cause for concern,” Baker said in a telephone interview. “We don’t know the legal ramifications of what’s going to come out of the Mexican prosecutors’ office. That could put attachments on the sale or other kinds of restrictions.”

Hector Orozco Fernandez, the head of Mexico’s Asset Transfer and Administration Service, known as SAE, told Radio Formula in March that the government has taken legal steps to preserve Oceanografia’s rights to the Goliath, according to a transcript. An SAE official declined to comment on the government’s current position regarding the Goliath.

‘Grossly Inequitable’

Thomas Heather, a lawyer working for the Finance Ministry to help craft an accord with Oceanografia’s creditors, said in an e-mailed statement that extra amounts the trustee is claiming for the 2018 bondholders over the original face value are “grossly inequitable, Norwegian law notwithstanding.”

Oceanografia Chief Executive Officer Amado Yanez was detained in May and then charged with violating the country’s financial-institution law by improperly using loan proceeds.

New York-based Citigroup says it loaned about $400 million to the contractor against collateral that didn’t exist. The bank has since fired at least 12 people, and Mexico’s attorney general disclosed that arrest warrants were pending for some officials of Banamex, Citigroup’s local unit.

Unlawfully Removed

A ship-tracking service used by Bloomberg lost contact with the ship in the days following its seizure by the trustee, only to reappear about two weeks later after leaving Mexican waters. The trustee said in a March 10 letter that speculation it had unlawfully removed the ship from Mexican waters was untrue and that clearance for the vessel to leave the country was obtained.

The Goliath is now floating southwest of Barcadera port, Aruba Harbor Master Rudy Beaujon said in a phone interview. The vessel is maintaining a full crew to stay operational, he said.

“What’s clear is that the value of this vessel is going to fetch a greater price than the remaining principal,” said Seaport’s Roche.

–With assistance from Jenna M. Dagenhart and Boris Korby in New York.

(c) 2014 Bloomberg.