Mezeron & Steam Packet Master Thread

[hboy]

I think the level of indebtedness of the operating company itself is open to debate, hboy. I agree (without reading his comments in detail) that Cannan his talking bollocks (all the evidence I need is that his lips are moving), but I reckon the Aussies are, in the end, going to have to sell, and they are going to have to sell for less than they paid. Conceivably that might be a point where government ownership is an option (though Christ, I really really hope not).

 

The banks extending the credit hold the cards not Macquarie. Macquarie might want to get rid but if a portfolio of banks are into the company for £200m they are going to want at least £200m to off load it otherwise they are writing debt off. How could that not be the case?

[Tugger]

I agree, but the reality is that with a freight competitor the Racket is not worth £200m any more. It appears to be finding it difficult to service its debts and if that is the case it will default on its loan. The banks can either take that on the chin or force a sale. Of course they can place a 200m reserve on it, but only if they want to guarantee that it won't sell.

[ThankU]

Are the SP still contracted to Jim Sherwood and Heysham port, if not the SP should look at Liverpool again

[Frances]

Are the SP still contracted to Jim Sherwood and Heysham port, if not the SP should look at Liverpool again

covered earlier in thread - Liverpool Pierhead is PAX only (light vans but no RoRo) - Birkenhead is very much a shared facility and can't be that convenient to operate for the SP especially for footies besides adding any extra 45min or more to offload time as need to be bused across to port gate, then bused again to Lime St

[ThankU]

Liverpool are investing £100s millions on port facilities and welcome further investment from shipping companies. Could be the time to make a big decision.

http://www.merseydocks.co.uk/port-of-liverpool/

 

http://en.wikipedia.org/wiki/Seaforth_Dock

Edited December 5, 2010 by ThankU

[Barrie Stevens]

I agree, but the reality is that with a freight competitor the Racket is not worth £200m any more. It appears to be finding it difficult to service its debts and if that is the case it will default on its loan. The banks can either take that on the chin or force a sale. Of course they can place a 200m reserve on it, but only if they want to guarantee that it won't sell.

 

 

 

 

I am probably the only one here who has been in the Steampacket etc situation ie ship broking/owning/tramping/line-running/and eventually experiencing the banks move in. (Aegis Shipping/Captain N. D. Papalios 120 ships)

 

Currently, I am archiving family papers, photos and biographies for the National Maritime Museum, the Liverpool Maritime Museum and the London Metropolitan Archives. Therefore:-

 

Firstly, most real and tangible shipping assets subject to borrowing would be covered by a marine mortgage.

 

This can take the form of a Consortium of lenders (Allegedly six in the case of the Steampacket) and possibly, but not necessarily, more than one Mortgagee ie First/Second/Third preferred mortgage. (Many people get this bit wrong but the one borrowing is the Mortgagor and the Bank is the Mortgagee)

 

Ships by the way are owned by being divided into 64 portions or shares in most countries of an “Anglo-Saxon” legal tradition. The idea I believe stems from ancient Venice.

 

One assumes that the ships “the Ben” and presumably the fast craft, (Unless the latter are time chartered or Demise Chartered which latter term is like a “Lease“), have all been mortgaged.

 

Whatever may be borrowed (if at all) to cover the “Goodwill” (Ha!) and the Linkspan User Agreement can hardly be mortgaged and indeed one assumes could not be sold if the Steampacket were up for sale.

 

This leaves the literally floating assets.

 

The Mortgagee(s) would assess the worth of the ships if sold on the global Sale and Purchase market as well as assessing the value of the ships as a going concern if chartered out.

 

Banks lend money and do not like operating ships. But in my experience if the Steampacket did not itself voluntarily sell the assets, (ie ships and any shore property the latter which I think they have already sold), then the Banks would arrest the ships.

 

It is very easy to arrest a ship anywhere in the world and not a complex procedure although rather hard to find a mast on which to nail the warrant which is what you are meant to do! (In my experience they use “gaffer tape”.)

 

Ships are notoriously vulnerable to being arrested by any Tom, Dick and Harry with prima facie a cause as the law globally favours preventing ships immediately sailing away from their problems.

 

Once the ships/assets are arrested then nothing moves so bang goes your RoPax service etc and you just have Mezeron. It is as quick as that! So you are vulnerable if push comes to shove. But this is very much a last resort!

 

Therefore the Steampacket can be broken up and sold “as is” (and the User Agreement falls) and the Owners make their peace with the Banks by settling the debt in whole or in part or by making an “accommodation.”.

 

In the alternative, it is often the case that the Mortgageees will grant a stay of execution known as “A Year of Grace” ie a Moratorium being a reduction or suspension of repayments. However, they will require the ships to be well maintained pending any future sale or charter. They may even grant subsequent “Years of Grace”.

 

An alternative for the Steampacket/MacQuarie is to charter the ships out independently or as part of a Consortium and simply pull out of the Island altogether. They will need the agreement of their Mortgagees for this.

 

Such will probably mean “flagging out” to an easier going jurisdiction viz a viz crew wages etc.

 

The ships currently chartered by Mezeron come from a depressed market at a low rate of daily charter hire but I bet their Mortgagees and Owners are glad of what little they get by way of cash flow for the Mortgage as it is better than nothing.

 

Once again, all this is a matter of what the market will yield but there are globally many operators, ferries and lines using ships like the “the Ben” (Not sure if the fast craft would get very far though!)

 

Thus combine the above options and the Owners could (i) stagger on supported by the banks (ii) Sell up and go (iii) Charter out if possible?

 

This then leaves the possibility that the Mortgagees will move in and confiscate the mortgaged assets which will probably not yield very much compared to overall borrowings reported as £200,000,000.

 

The Banks/Mortgagees can only seize tangible assets they have a charge over. Anything else requires more complex litigation.

 

They can then sell the assets. (Excluding the Linkspan Agreement one supposes) But! The market is down! What to do?

 

In my experience a Bank/Mortgagee faced with a depressed market will eventually arrest the assets, take the ships out of the Isle of Man register and then “flag out” to somewhere else like Cyprus, Liberia, Panama etc. (Cheap and cheerful!)

 

Likewise , they will appoint a ship manager to run, operate and charter the ships. In my experience the Bank/Mortgagee was then merchant bank Hill Samuel and the appointed managers Wallem Ship Management (Isle of Man) Ltd.

 

The bank sold the seized ships for the mythical price of $1 each to companies it had established for the purpose and then claimed a massive “Book Loss“.

 

At the same time it pursued those whose personal assets had been covenanted by way of Personal Guarantee for the balance of about $600,000,000 per person.

 

Such Personal Guarantees subsist when the owning company and its shares have little nominal value compared to liabilities.

 

In the meantime, the Sale and Purchase Market being low (as now) the Bank had the ships chartered out on short time charter and this earned income over the next few years until the second-hand tonnage market sufficiently rose and they were able to sell at an overall profit sufficient to cover most of the original borrowings

 

The Bank still pursued the Directors for Personal Guarantees for the balance arguing a massive loss at $1 a ship, but the Court in London eventually threw this out and they had to pay back some of the profits made on arrested assets. (ie Bank had Duty of Care etc).

 

Hope this helps you to see how the system works!

 

Even if the original price paid were £200 million (plus) the Owners/MacQuarie might just have to settle for this as a loss and get what they can by way of sale or more likely charter for a few years.

 

Therefore, IF the Isle of Man wanted to run its own ferry it would have the choice of buying “the Ben” at the going price in any distress sale and putting the service in the hands of a local ship management firm.

 

But if “nationalising” (Impossible politically between Australia/UK/IOM and the UK would block the law’s Royal Assent) they would have to compensate Macquarie and Mortgagees etc.

 

A cheaper way would be let the Steampacket go if it wants to and do as Mezeron and period charter in by way of an economical “Ben” replacement (but not so fancy) as then all you do is pay monthly hire in advance.

 

The Owner runs the ship and your Peoples’ Steam Packet service you put in the hands of a ship management firm so Government does not get its hands dirty at all!

 

The problem you have is that the RoPax service is apparently not that viable while a Mezeron type operation is taking good paying freight based on cheaply chartered-in tonnage of basic simple design ie gearless/single hold and hatch but not bothering with burdensome passenger services. (This is like the role of the prostitute throughout history ie “Power Without Responsibility”)

 

Likewise, a Mezeron type operation (ie lean and mean) would not be viable if it took on the Steampacket’s passenger and wheeled traffic role. So the demise of the Steampacket gives you all a personal problem!

 

Therefore, whoever came in to run a service based on the Linkspan so as to emulate the traditional role of the Steampacket would also have this same viability problem if Mezeron continued being lean and mean. This then restricts not only a Government-owned operation but also any other operator taking a view.

 

In these circumstances, it is the Custom of the Trade for an operator to, “Call in to Douglas” and emulate the Steampacket “By Inducement”.

 

The “inducement” for the Steampacket to offer a regular minimum service, coupled with the obligation to make massive capital investment, (as opposed to chartering) was and is the exclusive Linkspan Agreement.

 

Any other company not wishing to commit like the Steampacket, and be saddled with the Linkspan, might call in “as and when” but the “inducement” would be greatly increased “spot” rates for trailers, cars and passengers and then only when such had been sufficiently consolidated to make it worthwhile.

 

“Inducement” and “Consolidated” are terms of the trade.

 

Of course, the above can only be a speculative broad outline as none of us really know how the Steampacket/MacQuarie are fixed corporately in terms of Mortgagees, ownership, debts, shares, etc.

 

There are other permutation s of course subject to the market and local political conditions ie. the Steampacket dissolving its present form and obligations to the Island, chartering out “the Ben,” giving up the Linkspan exclusivity, resorting to minimum passenger services on fast craft as and when weather allows whilst chartering in a couple of “cheap as chips” box ships like Mezeron.

 

This might service the debts and keep the Steampacket “in the game” pending a resurgence during the period that Mezeron is, as it were, “On the game!“ Who knows?

 

Regarding MacQuarie’s Isle of Wight involvement. I am not sure this could be in some way merged with the Island as is is it not the case that the EU part helps those services? (The Island not being in EU)

 

One thing is certain you folks have a problem. The Island offers very limited market. It may be a niche but it is a low area of catchment in the great scheme of things. The Island’s viability may even be threatened.

 

Many have wished for the downfall of the Steampacket. But never wish too hard for what you want as you may just end up by getting it!.

 

Barrie Stevens.

[manshimajin]

Regarding MacQuarie’s Isle of Wight involvement. I am not sure this could be in some way merged with the Island as is is it not the case that the EU part helps those services? (The Island not being in EU)

Barrie thanks for your post which is an interesting overview. At the end of the day it is probably not that different to any other business inasmuch as what you borow and what the business is worth if sold are two different numbers +/-. How the banks handle securities that have diminshed in value is something that they are currently dealing with a lot (often because of their unrealistic original valuations). You have explained some of the specific intricacies involved in this type of business. Every business has its intricacies in terms of borrowing and valuation but shipping sounds to have ones that are specific to itself and noone else.

 

If re the Isle of Wight you were referring to my comment further back I think you have missed the word 'synergies'. There is nothing under EU law to prevent companies within and outside the EU sharing certain activities within a 'shared service company'. This very different to the 'merging' that you mention and which I would not think is practical. So for example there might be some synergies in having common booking system software or a common call cente with dedicated lines for each company. Or if there are training or recruitment needs it might be possible to use one lot of staff to do this for the three MacQ companies rather than each having their own resources and facilities. Unless one is on the inside one can't tell what can or can't be done.

 

My point in raising it was that it may be another area in which the IOMSPC could make some effective cost savings. Mind you the main savings may still be in relation to service levels and the possibility to negotiate the UA further as implied by Phil Gawne in the ITV interview.

[Alias]

Barrie - I'm calling shit.

 

Why would the bank have any reason to 'seize' ships? It's the holding company in trouble, and if so the bank can just seize the still (decently) profitable SPCo as a going concern.

[Tugger]

Yay, well done Alias, one line to address the real point, which Barrie couldn't find in forty. The shares in the Racket will be the security that the banks want to realise, not the fucking Ben

[John Wright]

Well no actually, whilst the share owners are the borrowers from the financing bank, and thus the entities who owe the money, the SPCo has mortgaged all it's assets to guarantee performance by the borrowers of their obligations. That includes the ships.

 

The competition situation is not one the SPCo has not faced before. Talk of nearly 200 years of unbroken service with no competition leading to complacency is a distortion of history. Until the end of WW2 the Railway companies LMS and LNWR operated their ships out of ports such as Fleetwood and Heysham and served the IOM. The Liverpool and North Wales Steamship Company operated from Llandudno Douglas link in summer until 1961, Norwest Laird Lines from Fleetwood in the late 1960's, Manx Line from Heysham from 1978 to 1985. That is just passenger services. Ramsey Steam Ship Company and Ronangency operated freight, in lift on lift off, loose and containers for may years and then Mezeron.

 

Each event has had its own outcome. The railwey companies pulled out on nationalisation and consolidation of their Irish Sea services into Sealink, North Wales steamers were taken over by the Steam Packet, Ronangency became part of Manx Line, Manx Line became part of Sealink, was privatised and bought by Seacontainers and merged with the Steam Packet (for merger read take over) to stop them both going bust in 1985.

 

Don't forget the IOM Government had a substantial strategic holding of Steam Packet shares, and a seat on the board, but could never manage to resolve its dilemma or identify and separate its conflicts arising from its differing interests and roles as national government, regulator, harbour authority, director with commercial interest to keep confidential, shareholder wanting a return on investment etc. It all came to a head when Roy Mc Donald chair of the harbour Board pressed ahead with the first link span. Whilst the link span was paid for and owned by Manx Line, the land side infrastructure, ie the short pier and jetty to which it was affixed was a government owned and paid for development.

 

There are a number of reasons for the present mess. They need identifying clearly and without emotions, in my view. There are a number of suggested solutions which are also not very constructive. I think that they are:-

 

First, the idea of state ownership resolving anything is a myth.

 

Second as a government there is nothing wrong with regulation or even an artificial market for a monopoly, if it is correctly drawn up and implemented. That is what in effect the User Agreement is. I am not saying in its present form that it is fit for purpose however.

 

The present User Agreement has worked comparatively well, until now. It has made the SPCo invest (whether their investments are wise or the specific requirements are sensible is another matter, during its time we have had new shipping tonnage, Ben, Mannanan. It has delivered a reliable and frequent service for passengers and cars and freight. In the last few years the service level has been more sailings per year than in the golden days of the Steam Packet having 9 passenger ships and 2 freighters.

 

Third the world shipping market is very depressed, so a chartered vessel can be had very cheaply with a crew and so can undercut the Steam Packet freight rates

 

Fourthly the change in Company law which enabled the Steam Packet to be bought for an inflated sut by bankers and speculators, and rather than using their own money and assets to fund the purchase, allowed them to make the Steam packet mortgage its assets as collateral, rendering it vulnerable to any downturn in incomes.

 

Fifth that by operating new routes the Steam Packet can expand out of the crisis. That ignores the saturation of the existing shipping market, the fact that within the European ferry industry it is consolidation, not new set ups which is the order of the day. It also ignores the fact that there is no cash to acquire the ships needed.

 

It is against this background that the drama is being played out.

 

Clearly the Steam Packet made a mistake in negotiating a deal which did not give it exclusivity to container traffic in Douglas. That is it's fault, it has no one to blame but itself

 

Likewise the requirement that it use fast craft which are now being phased out all over the world due to high operating costs and limited sea going ability for substantial parts of the year is a factor needs examining. maybe better a second slower versatile boat that can run all year round. ie Ben 2.

 

Shipping charter rates will go up if/as the world economy improves. Mezeron and their owners are opportunists and will back out if the route is not profitable. Will that be before the damage to the Steam Packet is irreparable? Who knows?

 

The management of the Steam packet needs some lessons on diplomacy and public relations and commercialism. The utterances of Mr Woodward have not helped. indeed if my inside information is correct, and no one has denied it, in part this is a direct result of the Steam Packet trying to poach Graylaw on Island business. Graylaw then went actively soliciting Mezeron to introduce the new service.

 

That brings us to the need, demand for and economics of running the combined freight and passenger operation. We wold all suffer if service frequency was reduced. There are peaks and troughs in the need for passenger services, all year round, quiet days and months. There is an all year round freight load requirement however. The side loaders of the '60's and 70's and their limited freight capacity and the advent of Manx Line showed us, if nothing else, that the days of separate freight and passenger services were uneconomic and that passenger services could not survive on their own without the freight.

 

The current situation, where it is alleged that freight subsidises passengers needs examining. each needs to be justified and at rates the market will stand. If there is no competition then the regil;ation needs to be of both. If passenger fares are subsidised by freight, then either the Steam packet was operating like that when it entered into the User Agreement or the User Agreement has had an effect on passenger fares, by keeping them down, meaning that unregulated freight fares have risen disproportionately. Reduced passenger Numbers may also have had an effect on the mix and revenue ratios in the 15+ years of the user agreement.

 

Of course what drives the actual cost, above and over operating expenses and the need for a return on actual capital employed and to provide for deprecation and provision for fleet replacement, more than anything else is the amount paid for the Steam Packet by its present owners and the need for a revenue stream to pay the interest and reduce their capital debt. That then added to the way they have been able to finance the deal so as to secure their indebtedness on the assets of the Steam Packet. We need that scam to be changed, We also need transparency with all infrastructure companies having to publicly file their accounts. (Although I do believe that the Steam Packet is F registered in England and may have to file them publicly there, even if not here)

 

So what do I think is the answer. Well we can always leave it to the market place, but I think that would be too damaging. I think that Government has a place in all this. It should call in the Steam Packet and Mezeron and tell them they have to negotiate for the Steam Packet to take over the Mezeron service to Douglas. The reward for the Steam Packet would be that the User Agreement would be renegotiated with a full review of the type and number of ships, to increase the minimum service treatment, and to review the division between freight and passenger fares to overheads and for both freight and passenger fares to be regulated in future, with 5 yearly reviews of the revenue and carriage stream mixes. I would favour getting rid of the fast craft and for a 20 year franchise with exclusive use of link spans and fright facilities in Douglas would want a new Ben 2 within 3 years and a Ben replacement in 10

[Tugger]

Fourthly the change in Company law which enabled the Steam Packet to be bought for an inflated sut by bankers and speculators, and rather than using their own money and assets to fund the purchase, allowed them to make the Steam packet mortgage its assets as collateral, rendering it vulnerable to any downturn in incomes./quote]

 

Sorry, but this part of the analysis is flawed. It's really easy to figure out how much the boats are worth, and it is nowhere near £200m. The banks would have lent £200m less the cost of the mortgaged assets of the Racket even under the old company law regime (in other words, nearly £200m), because the value was in the user agreement.

[John Wright]

It is a floating charge debenture over all assets, that includes whatever value is attributed to the User Agreement, ie the goodwill

[Lost Login]

Fourthly the change in Company law which enabled the Steam Packet to be bought for an inflated sut by bankers and speculators, and rather than using their own money and assets to fund the purchase, allowed them to make the Steam packet mortgage its assets as collateral, rendering it vulnerable to any downturn in incomes./quote]

 

Sorry, but this part of the analysis is flawed. It's really easy to figure out how much the boats are worth, and it is nowhere near £200m. The banks would have lent £200m less the cost of the mortgaged assets of the Racket even under the old company law regime (in other words, nearly £200m), because the value was in the user agreement.

 

That may be the case but what John is saying is essentially correct in that the 2006 Companies Act does away for the requirement for the old "whtewash" report when a company basically uses the assets of the company it is buying to finance the acquisition. Yes the banks may have lent the same amount to the SP but the 2006 legislation makes it much easier for a buyer to use the assets of the company it is acquiring to finance the acquisition.

[Tugger]

The User Agreement is non-assignable, so worthless in the hands of a mortgagee of a company's assets. It is only useful if you acquire the company's shares. Plus if you think this mob wouldn't sign the stat dec for a whitewash then you have a higher opinion of them than I do

[John Wright]

And that is why the owners will want to keep the company going and keep the user agreement