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Creditors May Have To Hire Pirates To Seize Oil Ship From "Deadbeat" Ex-Billionaire

Tyler Durden's picture




 

Sometimes it’s not worth it for creditors to seize collateral when a deal goes bad. 

Just ask Deutsche Bank, or any of the other investment banks which would have been forced to book billions in mark-to-market losses on Canadian asset-backed commercial paper deals gone bad in 2007 had they chosen to collect the available collateral and cancel their swaps rather than negotiate a restructuring. 

Or you could ask OSX Brasil SA bondholders who are technically entitled to take possession of an oil ship the size of the Chrysler building which is currently sitting 130 miles off Brazil’s coast.

As Bloomberg explains, OSX effectively forfeited its claim on the ship when the company - part of former billionaire Eike Batista’s crumbled empire - defaulted in March, giving creditors the option to sail out and tow the vessel in. 

The issue, of course, is that there are significant logistical problems associated with repossessing a giant oil ship and while creditors work on figuring those problems out, OGpar (another Batista venture) is still pumping 10,000 barrels of oil a day, because...well...because why not if no one is going to come and stop you.

To add insult to injury, OGpar is refusing to pay the nearly $300,000/day rental fee to use the vessel, money which, considering OSX is bankrupt, presumably also belongs to creditors. Here’s more from Bloomberg:

The clash is the latest chapter in the saga of Brazil’s once-richest man, an investor-darling-turned-pariah who sold shares in six companies in a span of six years and lost more than $30 billion even faster when his commodities and energy empire collapsed. It’s also a cautionary tale for Brazilian creditors, whose claims can get tied up for years and even decades in the nation’s maze-like legal system.

 

[Bondholders] could try to seize the ship, but only if a court and the government approves. And the tumble in crude prices means the vessel isn’t worth what they’re owed, anyway. They could leave the rig to OGpar while waiting for asset prices to rebound, but the oil producer is refusing to pay rental fees of as much as $265,000 a day.

 

OSX’s bondholders -- including Redwood Capital Management LLC, DW Partners LP and Rimrock Capital Management LLC -- are asking a Brazilian court to make OGpar pay $70 million in past-due fees.

 

Batista and OgPar and OSX’s management "are doing what they can to abuse the Brazilian legal system to prevent investors from being paid what they are owed," said Ruben Kliksberg, a partner at hedge fund Redwood Capital. Batista and the management teams, as well as courts, "are having a material impact on the reputation of Brazil as a foreign investment jurisdiction."

Maybe so, but as OGpar CEO Paulo Narcelio will patiently explain to you, the company (which is also bankrupt) is trying to squeeze out a living here, and if it is forced to pay the money it owes, then the offshore oil operation that it shouldn’t be allowed to run in the first place will cease to be economically viable.

OGpar Chief Executive Officer Paulo Narcelio said paying the $70 million could force the Rio de Janeiro-based company to shut down and liquidate. OGPar also has been operating under bankruptcy protection since 2013.

 

The oil company is producing only about 10,000 barrels a day -- about 10 percent of capacity -- from the vessel in Brazil’s offshore Tubarao Martelo field. Paying the full daily rate would make the operation unprofitable, Narcelio said.

 

"There will only be losers if they keep insisting,” Narcelio said in an interview in Rio de Janeiro. "It’s stupidity. They’re portfolio-management kids just out of college, and they think they’re powerful."

Yes, these newly graduated greenhorns were under the mistaken impression that the bond covenants represented legally-binding agreements between creditors and borrowers (thanks a lot undergrad finance professors). What these "kids" don’t understand is that in a world ruled by debt, "insisting" that people pay back what they borrowed produces nothing but "losers."

You know, it’s the old "if I owe you a dollar that’s my problem, but if I owe you a 1,000 foot oil ship, that’s your problem" argument - or something. 

As Bloomberg goes on to note, "disconnecting and hauling away the 284,000-ton vessel would cost millions of dollars and require approval from Brazil’s oil regulator and maybe even the Navy," meaning there aren’t really any good options here for the bondholders.

Well, that’s not entirely true.  

Leonardo Theon de Moraes, a bankruptcy expert in Sao Paulo who spoke to Bloomberg did say that there was one possibly cheaper alternative creditors could pursue: 

"The costs of executing the collateral are very high unless creditors send pirates from Algeria to go and get the vessel."

 


 

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Tue, 08/04/2015 - 17:09 | 6391229 ted41776
ted41776's picture

oops she sprung a leak... and the lesson of the day is:

never take out a secured loan on anything that cannot be turned into a pile of ashes or be sent to the bottom of the ocean. oh fuck, did i say that aloud?

Tue, 08/04/2015 - 17:10 | 6391249 J Jason Djfmam
J Jason Djfmam's picture

This "not paying" thing is really starting to grow legs.

Tue, 08/04/2015 - 17:12 | 6391257 ted41776
ted41776's picture

fuck them all! when will they pay?

Tue, 08/04/2015 - 17:25 | 6391297 Billy the Poet
Billy the Poet's picture

Ask for Bilbo Baggins. Tell him Gandalf sent you.

Tue, 08/04/2015 - 17:38 | 6391341 Gen.Ackbar
Gen.Ackbar's picture

Its a Trap!

Tue, 08/04/2015 - 19:13 | 6391625 enforcer92677
enforcer92677's picture

"We're in the pipe 5 x 5."

Tue, 08/04/2015 - 20:52 | 6391887 0b1knob
0b1knob's picture

How much is that tanker worth in the current market?  

And if a ship is at anchor (like this one apparently is) it deteriorates very rapidly.  I might not even be seaworthy without time in a drydock.

Tue, 08/04/2015 - 21:36 | 6392031 Row Well Number 41
Row Well Number 41's picture

I think this calls for a shanty.

https://www.youtube.com/watch?v=7YUiBBltOg4

#41

Tue, 08/04/2015 - 23:27 | 6392297 StychoKiller
StychoKiller's picture

Hmm, does it have to be "Algerian" pirates?  Listen up Puerto Ricans...

Tue, 08/04/2015 - 18:04 | 6391421 Buck Johnson
Buck Johnson's picture

The system of debt is slowly coming apart.  People just won't pay and then what? 

 

Tue, 08/04/2015 - 19:39 | 6391698 TweedleDeeDooDah
TweedleDeeDooDah's picture

A rebirth of civilization, or something like that... certain realizations have to be made. "Rule of Law" hasn't been applicable for some time now.

Tue, 08/04/2015 - 20:35 | 6391843 Chuck Walla
Chuck Walla's picture

No sane person ever pays a BK, make them come and get it.

 

FORWARD SOVIET!

Tue, 08/04/2015 - 17:53 | 6391385 Bunga Bunga
Bunga Bunga's picture

Or the collateral has wheels, buy buy US, hello South America.

Tue, 08/04/2015 - 17:08 | 6391239 Secret Weapon
Secret Weapon's picture

Pirate wearing Hammer pants.  Nice!

Tue, 08/04/2015 - 17:11 | 6391254 J Jason Djfmam
J Jason Djfmam's picture

"Can't touch this."

Tue, 08/04/2015 - 17:09 | 6391241 g speed
g speed's picture

they can hire the same guys to get the gold from comex

Tue, 08/04/2015 - 17:13 | 6391263 Urban Roman
Urban Roman's picture

it only works if there is some collateral there to seize

Tue, 08/04/2015 - 17:36 | 6391335 ParkAveFlasher
ParkAveFlasher's picture

Make Jeff Christian walk the plank anyway.  rrrrr now here be a boatin' accident!

Tue, 08/04/2015 - 17:34 | 6391328 The central planners
The central planners's picture

Theres a vessel full of gold/silver future contracts in the middle of the pacific.

Tue, 08/04/2015 - 17:10 | 6391251 Perseus son of Zeus
Perseus son of Zeus's picture

Bloomberg, more from Bloomberg. Bloomberg. Bloomberg.

Tue, 08/04/2015 - 17:13 | 6391264 wmbz
wmbz's picture

 "It’s stupidity. They’re portfolio-management kids just out of college, and they think they’re powerful.


 LOL!  What, they are not?

Don't tell them that, they may throw a tantrum, lie on the floor and hold their breath, kick scream...stuff like that! 

Tue, 08/04/2015 - 17:13 | 6391265 franciscopendergrass
franciscopendergrass's picture

You say repo man, i say pirate

Tue, 08/04/2015 - 17:45 | 6391359 NotApplicable
NotApplicable's picture

Privateer, perhaps?

Tue, 08/04/2015 - 17:17 | 6391269 grunk
grunk's picture

We've turned into a lawless Party Planet.

Nobody controls anything.

Tue, 08/04/2015 - 19:56 | 6391748 exi1ed0ne
exi1ed0ne's picture

Good.  The few have enjoyed no laws or consequences for a good while now.  Risk is going to reassert itself with a vengeance.

Tue, 08/04/2015 - 17:17 | 6391274 Oh regional Indian
Oh regional Indian's picture

Increasingly bizarre newsflow...

Tue, 08/04/2015 - 17:50 | 6391376 BlindMonkey
BlindMonkey's picture

I will call your bizarre news flow and raise you an increasingly bizarre reality.

Tue, 08/04/2015 - 20:09 | 6391778 Charming Anarchist
Charming Anarchist's picture

This is when every Hollyweird movie you have ever seen start to coalesce as 1 and they all start to make sense. 

Tue, 08/04/2015 - 17:20 | 6391282 Bill of Rights
Bill of Rights's picture

The shit that's coming will make the 1920's look like good days. Billionaires and bank start eating each other... Great theater.

Tue, 08/04/2015 - 17:26 | 6391299 Its_the_economy...
Its_the_economy_stupid's picture

What was that again? If you don't hold it, you don't own it?

 

Tue, 08/04/2015 - 17:38 | 6391342 fascismlover
fascismlover's picture

Guessing they will be using sonar to find their ship.

Tue, 08/04/2015 - 17:41 | 6391354 arrowrod
arrowrod's picture

It's supposed to be easy.  Send your lawyer to his favorite judge, get a "court order", have the sheriff go get it.

Kinda like evicting a tenant in California.  Start the paperwork, then someday, you get your rental back (provided you pay the tenant to leave).

Tue, 08/04/2015 - 18:08 | 6391435 Ms No
Ms No's picture

In Arizona it is a different ballgame. They told basically that I will pay the exorbitant rent on time but they prefer early, I will have Mexicans care for my yard (or do a damn good job myself) and I will have it pest sprayed quarterly.  They provided me a number for "their" Mexicans (which I don't use) or I will be out on the street with a swiftness.  There is no squatting here, it is a an owners state.  Good place to own a rental if there is ever a future after the reset. 

The place is over 1600 a month and is a shithole.

Tue, 08/04/2015 - 17:47 | 6391371 Westcoastliberal
Westcoastliberal's picture

Multiply times 10 Million when the "Great Reset" comes a'knockin.

Tue, 08/04/2015 - 18:31 | 6391509 Kprime
Kprime's picture

that's so old school.  million lol.  Multiply times 10 Trillion when the great reset comes knockin.

Tue, 08/04/2015 - 17:50 | 6391375 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The ship is only worth what people are willing to pay for it. With supply outstripping demand, and the cost associated with handling, and maintenance, as well as, FUEL, storage costs, the ship ain't worth the time it takes to cross a line through that particular account. In brief, the creditors must be well versed at eating crow by now, methinks. Frankly, the REPO Man must be tired or the creditors would not be mentioning pirates. They should chalk it up to experience, and move on to the next account in arrears. Good God, these guys are green.

 

Before I went bankrupt I purchased an answering machine real cheap at WalMart. Creditor's Collection Agency got so frustrated they called my neighbour to prompt them to knock on my door to let me know the Collection Agency was trying to get ahold of me. No shit.

 

When you finally get through Bankruptcy you are officially a 'Discharged Bankrupt' in the eyes of the law.

 

Now I'm MASTER OF UNIVERSE and they are going bankrupt.

 

:|

 

 

Tue, 08/04/2015 - 17:58 | 6391393 BlindMonkey
BlindMonkey's picture

I just finished mine last month. Damn near 3 mil in liabilities 'poof'. It feels fuckin fantastic...

And I can assure you I will never hold title to anything larger than a #2 pencil ever again.

Tue, 08/04/2015 - 18:13 | 6391449 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

I hear you, BlindMonkey. I will never make a purchase without cash ever again. And, yes, it sure feels good when that weight is lifted and you can think, and concentrate, once again without that DEBT Elephant on one's back.

Tue, 08/04/2015 - 17:58 | 6391396 Ms No
Ms No's picture

It's a ship, you blockade it and tell the crew to disembark or be starved out.  Then you put your own crew on and motor it out of there.  This will be expensive so stop making bad investments...you...dumb....fuckers.

Tue, 08/04/2015 - 18:14 | 6391453 graftvshost
graftvshost's picture

I just assumed that this was going to be an Onion article...

Tue, 08/04/2015 - 18:15 | 6391457 apberusdisvet
apberusdisvet's picture

So when will "they" erect the debtor's guillotines to scare the sheeple full retard?

Tue, 08/04/2015 - 19:24 | 6391664 CHC
CHC's picture

Ahhhhhh damn it - the old pirate trick!

Tue, 08/04/2015 - 19:35 | 6391689 stocks up every...
stocks up everything else down's picture

So are Algerian pirates going to come and take most college diplomas, automobiles, mcmansions, and leveraged stock portfolios?  If the pirates have to collect from deadbeat oil companies, why not everybody else?

Tue, 08/04/2015 - 20:23 | 6391812 Stormtrooper
Stormtrooper's picture

Call the repo man! He will gladly turn in his tow truck for a tugboat for a 10% cut.

Tue, 08/04/2015 - 19:36 | 6391691 Handful of Dust
Handful of Dust's picture

Repossession is a very tricky and at times dangerous matter.

 

https://www.youtube.com/watch?v=dRi9jRa448w

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