Viking Raid

by Matthew McCleery

  “Actually,” Robert said, “I am going to be the one who gets you out of whatever mess you’re in that requires $500 million. I can get you the $500 million in America!”

  “You can?” Coco’s face went from sullen to smiling. He knew that whatever Fairchild had just schemed-up was probably completely naïve and unrealistic but the truth was that since Alistair was stealing his tanker party money, the American was Coco’s only remaining chance – a fact he found highly distressing.

  “But how are we going to get the free money this time, Fairchild? Will we do another junk bond?”

  “We’re not going to do a bond, Coco, but we are going back to Wall Street,” Robert said.

  As Coco Jacobsen and Alistair Gooding looked on with wonder, Robert Fairchild went to work sketching out the MLP transaction on two alcohol-soaked cocktail napkins. It was the second time in his shipping career that he had performed his analysis in such a manner.

  He began by drawing half-a-dozen rectangles and filling them with unusual looking names like “NewCo,” “VesselCo,” and “OpCo” to illustrate the various special purposes companies that would be involved in the structure. Next, he began linking the boxes together with solid lines, dotted lines, diagonal lines and all kinds of arrows and curlicues. Moving with the speed and sleight of hand of a three-card Monte dealer, Fairchild finished his masterpiece by scribbling the economics of the charters he had concluded with Rocky. In the end, his work resembled the series of Miro etchings that hung in the guest rooms aboard the Kon Tiki.

  “What is that yucky thing?” Coco asked with disgust as he looked at the pair of soggy serviettes.

  “It’s a financial structure called a Master Limited Partnership and it’s the key to getting the $500 million you need,” Robert said.

  “Really?” Coco asked.

  Free Money…Economics – Per Ship

  $50,000 charter hire

  ($10,000) operating expenses

  ($20,000) principal and interest

  =$20,000 free cash x 355 days/year= EBITDA $7,000,000

  Times 10 Ships = $70 million

  Raise $500 million of new equity through MLP

  Dividend Yield on New Equity: 14%!!!

  “Yes, just as long as you agree to honor the five-year time charters with American Refining Corporation on ten of your ships I am highly confident we can capture a meaningful valuation arbitrage by marketing the Initial Public Offering of Viking Tankers as a synthetic MLP with a high-dividend yield.”

  Coco grumbled, but Robert pressed on.

  “This will either make an attractive pair trade or a meaningful arbitrage opportunity. And don’t worry, we will put the ten ships into a new company,” he said and put his finger on the box that said NewCo. “And keep the rest of the Viking Tankers fleet out of the deal…just in case.”

  Robert deliberately put up the thick smoke screen of Wall Street mumbo jumbo to disable Coco’s arguments. “It will even have some tax enhancements we can leverage.”

  “But I don’t want to do an IPO of Viking Tankers,” Coco said.

  “Why not?” Robert asked.

  “I don’t even know where to start,” Coco said. “I hate having shareholders, I hate having time charters, I can’t stand doing business with Rocky DuBois…and don’t even mention the word tax! There must be another way.”

  Robert had always caved-in to Coco’s unrealistic expectations about the cost and terms of capital, but not this time. Like a seven-year-old in a new classroom, the American knew it was time to test his boundaries and hold his ground, even if that meant suffering some consequences. After all, how much worse could the situation possibly get?

  “Coco, do you remember when you just said that free money is helpful to your business model?” Robert asked.

  “If it weren’t for the cost of capital, shipping would be a decent business,” Coco confirmed, temporarily tranquilized by the mention of free money.

  “And do you remember when you said that the free money lowers the daily breakeven on the tankers?” Robert asked.

  “Don’t start what you can’t finish Fairchild,” Coco said with swelling enthusiasm, “because I’m getting very excited right now!”

  “And you should be excited, Coco, because doing the MLP IPO in America is the solution to all your problems!” Robert said. “You’ve been begging me to find $500 million of free money and now I’ve found it!”

  “Ja, but…”

  “Don’t ‘Ja, but’ me Jacobsen!” Robert snapped at his boss with a degree of self-assured independence that silenced the giant Norwegian and startled the British banker.

  “I’m so sorry,” Coco cowered. Maybe the Greek was right after all; maybe Coco did need to give Robert some room to run so he would gain confidence; it seemed to be working already.

  “Don’t you get it, tanker man? If I can sell 50% of Viking Tankers at 200% of net asset value through the MLP then it’s like you haven’t sold anything at all!” Robert proclaimed.

  Coco turned to face his banker as he aggressively scratched his considerable cranium. “Allie, does that make any sense?”

  “Of course it makes sense,” Robert chimed in without having thought through the logic of the deal. “What’s more, you can buy back the shares whenever they get cheap and unlike the junk bonds you never have to pay the IPO money back! Not even for fifty-nine cents.”

  “Never?” Coco asked.

  “Ever!” Robert confirmed. “What money is freer than that?”

  “That sounds pretty free,” Coco Jacobsen agreed as he drummed his long fingers on the varnished table and considered which scenario he despised more – putting his ships on long-term time charter to Rocky DuBois or missing an opportunity to haul in a huge slug of free money in America that he could invest alongside the Greek.

  As Coco was hesitating, Robert Fairchild knew it was time to use his secret weapon.

  “And here’s the best part, Coco…doing the IPO is going to be just like launching a Viking raid on Rocky DuBois – a real Viking raid in which you will be triumphant!”

  Coco instantly cocked his head askew like a curious canine. “Did you say a ‘Viking raid’?”

  Had the towering tanker tycoon known more about his own genealogy he would have known why his eyes brightened the moment Robert spoke the magical words – Viking raid. Coco would also have known why he possessed substantially more pigmentation than your average Norwegian. It was because Coco Jacobsen was a direct descendant of the risk-seeking and highly emotional Viking leader Jarl Olav, AKA Olav the Unpredictable, who had met his wife Zaraya while plundering North Africa five hundred years earlier.

  “Ja!” Robert proclaimed. “If we have the ships on charter to Rocky DuBois we will be able to raise two times the value of those ships on Wall Street!” Robert Fairchild boomed. He was delighted that the Viking raid metaphor had produced the desired effect. “This will be like Rocky DuBois handing you $500 million from his own pocket! What better way to get even with him for trying to steal $64,000 from you as a result of the minor gunplay in West Africa ten years ago?”

  “Now that’s a good return on my equity,” Coco smiled.

  “It sure is,” Robert said.

  “You know something, Fairchild, maybe you’re right,” Coco said and nodded. “Maybe a Viking raid on Rocky DuBois will do me good. Maybe that’s just the sort of activity that will make me feel happy again,” Coco said.

  “Let’s do it!” Robert cried.

  “Yes,” Coco said. “Let’s do it; why not? And my only condition is that we go on this Viking raid together,” Coco said.

  “One for all, and all for one,” Alistair exploded with an upward thrust of arm as though he was celebrating his winning horse at the Royal Ascot.

  “My boys, we will be together in blood and glory,” Coco said.

  “Did you say blood?” Robert asked.

  “Be not afraid,” Coco said like a chari
smatic cult leader as he laid his hand on top of Robert’s. “If this Viking raid succeeds then we all succeed, but if it should fail and not price at 200% of NAV like you have just promised me, then we will all go to Valhalla together,” Coco said as he eagerly tore off the green foil from the neck of the second bottle of aquavit. “We will all have skin in the game this time and not just Coco.”

  “Valhalla?” Robert asked and shot a look at Alistair. “Coco isn’t even allowed to enter the country; why would we go to Westchester County, New York?”

  “No, Robert, Valhalla is where Viking warriors go after they die in battle,” Coco explained solemnly and then rose to his feet. “Valhalla is where Odin will reward us for our bravery in this valiant battle against the evil, bloodsucking monster sea monster known as Rocky DuBois.”

  After he finished speaking, the towering Norwegian walked to the dead center of the crowded room and climbed onto one of the few unoccupied chairs. His overflowing glass of liquor was still in his hand.

  “Is he okay?” Robert asked Alistair as the multi-cultural occupants of the taproom stared up at the massive, dark-skinned man perched atop the wobbly chair. “He’s acting sort of crazy.”

  “This is perfectly normal. Coco always sings a Swedish drinking song called Helan Går before he goes into battle,” the banker said before popping a handful of peanuts into his mouth. “He’s says it’s the only thing he likes about Sweden. You should have seen him the night before he and Oddleif launched their raid against Knut Shipping. They camped out in Knut’s lobby like Occupy Wall Street and sang that song all night.”

  “What does it mean?” Robert asked.

  “It means something like ‘he who doesn’t take the whole, doesn’t get the half one either,’” Alistair said, “which pretty much sums up Coco’s approach to life.”

  After Coco had sung the song, he closed his eyes and chanted the following words: “Vel keðu vér um konung ungan sigrhljóða fjöld syngjum heilar enn inn nemi er heyrir á geirfljóða hljóð ok gumum segi!”

  When Coco finally opened his eyes and stepped down from the chair, the thoroughly confused but wildly enthusiastic 1% of the 1% gave him a standing ovation so thunderous that it seemed to rock the Donovan Bar. The big man took a dramatic bow before returning to the Naughty Corner.

  “What did those sounds mean, Coco?” Robert asked unsteadily.

  “It’s Viking and it means let us ride our horses hard on bare backs with swords unsheathed away from here!” Coco said. “The Viking raid on Rocky DuBois has officially begun!”

  Three Months Later

  Chapter 12

  Cornelius Vanderbilt

  Known as the “Commodore,” Cornelius Vanderbilt was an American industrialist and philanthropist who built his wealth in shipping and railroads. Vanderbilt was born in Staten Island, New York and began working on his father’s ferry in New York Harbor as a boy, quitting school at the age of eleven. At the age of sixteen, Vanderbilt decided to start his own ferry service. According to one version of events, he borrowed $100 from his mother to purchase a periauger (a shallow draft, two-masted sailing vessel). He began his business by ferrying freight and passengers between Staten Island and Manhattan. Vanderbilt bought his brother-in-law John De Forest’s schooner Charlotte, and traded in food and merchandise, in partnership with his father and others.

  What on earth was I thinking? Robert Fairchild derided himself as the Hawker 900 bumped across a narrow taxiway and inched toward the main runway at Teterboro Airport, a private airfield ten miles west of Manhattan.

  Exactly ninety days had passed since his life-altering encounter with Coco Jacobsen at Brown’s Hotel in London. During that exhausting three-month period he had spent most of his waking hours in Wade Waters’ conference room high above New York Harbor assembling the phonebook-thick prospectus for the Initial Public Offering of Viking Tankers.

  During the process of drafting the offering document for the MLP-in-drag, Robert had lived on sandwiches and cookies wheeled in on a cart, debated grammatical principles with first-year associates and massaged the financial model to make the offering appear more like a floating pipeline and less like a clutch of crude oil tankers.

  The biggest setback to the process came when the U.S. Securities and Exchange Commission (S.E.C.), the government agency charged with approving any offering of securities before it was brought to market, casually advised that they considered each ship to be its own individual operating “company.” As a result of this seemingly subtle distinction, the S.E.C required Viking Tankers to produce three years of audited accounts for each and every one of Coco’s vessels – a process that required more forensic analysis than the season finale of CSI.

  By the time the so-called “red herring” offering document was deemed effective by the regulators in D.C., Robert Fairchild had spent nearly $1 million on accounting expenses, legal fees and a variety of sundry services. He had nothing to show for the investment but the dark circles under his eyes and the stack of paper sitting on the tiny table in front of him – a document that would probably be read by fewer people than his senior thesis.

  But all that was history. Now he was fifteen minutes away from launching a ten-day roadshow for the $500 million Initial Public Offering of Viking Tankers. Like a sailor in days of yore, Robert had packed his bag, kissed his wife and son goodbye and told them he wouldn’t come home until he was victorious in his epic battle to raise the cash and preserve his job.

  The equity-raising road trip was scheduled to officially kick off in a few hours at the trendy Delano Hotel in South Beach, Miami. The urban resort was the unlikely location where he was scheduled to meet with none other than Luther Livingston, the same money manager for LOF, the Lutheran Opportunism Fund, who had fired Robert from his own hedge fund a year and a half earlier for the misdeed of buying the old freighter from Spyrolaki in his personal account and not with the fund’s money. Luther’s interest in Robert’s deal was proof that investors couldn’t afford to hold a grudge.

  As the stubby little jet engine wheezed outside his window, Robert felt uncomfortable knowing he had more at stake than his job and his reputation; he had put his own family on the line. After an inexplicably open-minded Coco finished his phone call, the Norwegian agreed to go along with the IPO as long as Robert and Allie have “skin in the game.” It was not until they had finished the second bottle of Aalborg that the financiers learned just how much of their flesh Coco had in mind.

  By the time the three inebriated men stumbled back into the blizzard on Dover Street several hours later both Robert Fairchild and Alistair Gooding had sold their souls. Alistair had agreed to stretch-out the pay-back period, known as the “amortization profile” in banker-speak, of Viking Tankers’ loan from twelve years to twenty years. This unorthodox amendment to the loan agreement allowed Viking Tankers to generate even more free cash flow – which would be used to give Coco “a little walking around money in my jeans.”

  While Allied Bank of England’s commitment to the success of the IPO was substantial, Robert Fairchild’s was substantially more personal; Coco agreed to rescind Fairchild’s firing from Viking Tankers, but only on the condition that Robert to put at risk the 10% of the company he had given Oliver Fairchild in lieu of his father’s cash bonus the previous year.

  Coco had insisted that Robert wager the boy’s shares in Viking Tankers, double or nothing, that the MLP IPO would price at no less than 200% NAV as Robert promised. Simply put, if Robert wasn’t able to deliver on his late-night promise he would likely be unemployed and homeless after his wife summarily divorced him for reckless risking their child’s only financial safety net.

  To memorialize the various agreements, Coco had made Alistair and Robert sign their names on the back of the same wet napkins on which Robert had initially scribbled the structure and economics. The Norwegian had even dragged a barrister from a London law firm out of bed to serve as witness – and affix a legal seal to the soggy servi
ette.

  The following morning, as Robert Fairchild lay in bed trying to sober up by scanning valuation tables that appeared on the website of Marine Money, he came to the horrifying realization that he’d made a grave mistake. According to the information provided by the ship finance publication of record, not only had a shipping IPO never been priced at 200% of NAV, but many had priced below the value of their ships. The idea that Robert had suggested, selling a shipping deal as a Master Limited Partnership, had never even been attempted never mind achieved.

  The only time deals were valued at more than the liquidation value of the ships was if they happened to operating in a red-hot sector or had new ships with time charters double or even triple the duration of the ones Robert had agreed with ARC. Unfortunately, neither the lawyers nor Alistair Gooding or Coco had been well-versed enough in the U.S. Capital Markets to save him from himself. Robert had once again done the unthinkable; his unbridled enthusiasm had led him to recklessly gamble his son’s financial well-being on an outcome over which he had no control.

  The only thing Robert Fairchild had going for him was that it was a decent time to try to sell the deal. After being watertight for years, the relentless flooding of money by the U.S. Federal Reserve had brought the yield on Treasury bills below zero, which served to shamelessly coax-out enough yield-starved capital to revive the dead IPO market.

  As he stared through the plane’s tiny oval window, Robert recognized the Viking raid metaphor he had used to convince Coco to do the IPO was about the only thing he’d said that was accurate. Just as the longboats left the fjords of Norway after the Vikings outstripped the agricultural potential of their native land, the armada of thirty-five rent-a-jets humming all around him at the private airport ten miles west of Manhattan was preparing to embark on a similar quest – a quest for other people’s money.

  Robert loosened his pink Vineyard Vines necktie, removed the jacket of his gray flannel suit and wiped the sweat from his brow with the sleeve of his blue button-down shirt. Lulled by the vibration of the tiny jet engines outside, he gazed pensively at the leafy New Jersey suburbs. In an attempt to ease his troubled mind, he tried to shift his focus to that lowest of all common human denominators – the unseasonably warm autumn weather – but even that gave him pause.