Viking Raid

by Matthew McCleery

  “Ever since the children returned to Greece after studying aboard they’ve wanted to bring Blue Sea Shipping & Trading into the twenty-first century by teaming up with investors in America and buying the kinds of ships that will carry the next generation of cleaner energy,” the Captain said. “Spyrolaki and Aphrodite said they believe this is the next logical step for the shipping industry.”

  “And you listened to them?” Robert asked.

  “He was happy to,” Aphrodite said and put her arm around her brother. “I think it’s the only thing my brother and I have ever agreed upon.”

  “But how do you people even know each other?” Robert asked.

  “That is a story for another time,” Coco said as he thought momentarily of the steamy night in Haiphong Harbor in 1970 when the two men met while smuggling cargo on behalf of their mutual client – the United States Government.

  “But Robert my friend,” Spyrolaki interjected, “didn’t you ever wonder why the Viking Aphrodite deviated from her course and saved the Lady Grace from those nasty pirates?” Spyrolaki asked.

  “I thought it was the sort of selfless act of kindness and generosity that still existed among people at sea,” Robert said. “I thought the closest ship was obligated to do that.”

  “Yes,” the Captain said softly, “but Coco’s ship wasn’t the closest ship. He came to the rescue of the Blue Sea officers and crew who were still sailing on the Delos Express after Spyrolaki sold her to you. My nephew from Chios was the chief engineer on that ship, you know.”

  “But you’ve put me through hell for the last ten days, Coco,” Robert wailed as he returned to the situation at hand.

  “That was exactly the point,” the Norwegian said.

  “What was exactly the point, to torture me?” Robert asked.

  “Yes! The point is that shipping really is torture a lot of the time; and it can be hell. I needed you to learn that there’s more to this business than doing multi-million dollar deals in five star hotels with my money, Fairchild. Don’t you remember when I told you the only way to really understand shipping is to lose money?”

  “They all told me that,” Robert sighed and glanced at each of the Greeks, the old British shipbroker and the Great Dane just as Coco offered each of them an earnest smile.

  “That was excellent reinforcement, boys!” Coco winked and offered a double “thumbs-up” toward his faculty. “Alistair and I really wanted that to be the central theme of our curriculum; we wanted you to feel like you had something at stake,” Coco said, “because without having something at stake…”

  “You can’t properly price risk,” Robert finished one of Coco’s favorite maxims. “It’s called moral hazard.”

  “By the way, Moral Hazard in ship finance would make an excellent thesis topic for you, Mr. Fairchild,” Professor Grammenos said.

  “Animal spirits in ship finance would be better,” Robert replied. “Which reminds me, Coco; how could you possibly have bought $3 billion worth of ships when you don’t have any money?” Robert said plainly.

  “A lack of money never stops a good shipowner,” Coco said.

  “But where, exactly, do you plan on finding your $500 million if the IPO is dead?” Robert asked.

  “Tell him, Alex,” Coco said and turned toward Alexandra.

  “Robert, when I went to Davos to see Coco last week to apologize for the incident on St. Bart’s and tell him he’s going to be a daddy, Coco showed me the prospectus for the Viking Tankers IPO that you drafted.”

  “And what do you think?” Robert asked and braced for her critical reply.

  As he waited for Alex to speak, Robert realized there was something very different about her. It wasn’t just her swollen tummy or her shorter hair or the absence of the tiny blonde dreadlock she had always tried unsuccessfully to conceal. It was something else. Then it hit him. What looked different about Alexandra Meriwether was that she was actually looking him…and not glancing at her BlackBerry every fifteen seconds.

  “I think you totally nailed it, Fairchild,” she said.

  “Really?”

  “Absolutely,” Alex replied. “The idea of using the Master Limited Partnership structure as a mean of financing shipping assets was pure genius.”

  “It was?”

  “Your concept was absolutely right; the long-term cash flow generated by long-lived assets like ships really should be given a lower cost of capital and therefore a higher valuation,” Alex said.

  “I know, right,” Robert said with surging confidence. “It makes no sense for all shipping risk to be priced the same way.”

  Hearing Alexandra Meriwether, one of the most talented transportation bankers on Wall Street, praise him profusely in front of Grace, Oliver and Coco was one of Robert’s proudest moments.

  “The only problem is that you missed something really obvious,” she said.

  “What?” Robert asked slowly as he prepared to hear the glaring fault in his logic.

  “What you missed is that Coco’s VLCCs are too old, the five-year time charters are too short and the capital structure is too highly leveraged to have the risk characteristics of an MLP,” she said.

  “I’d like to remind you that Luther Livingston committed to take $250 million of the deal,” Robert said in his own defense.

  “I’d like to remind you,” Alex said, “that the preferred shares Luther was demanding were more expensive than the unpaid balance on a Visa card.”

  “Hey, I did the best I could with what I had to work with just like every CFO does. Besides,” Robert said, “I actually think Luther’s pricing was appropriate based on the risk.”

  “In retrospect, you’re right,” she said. “But the important thing is that you built a beautiful piano; all we need to do now is tune it.”

  “Okay,” Robert said as began to feel better about his prospects. “Now I get it what’s going on here; we’re going to sell the LNG carriers to China and make enough money to pay off our loans with Allie so we can do the IPO of the crude oil tankers,” Robert said.

  “Come on!” Coco exploded with laughter. “Do you actually think I’m would let Rocky DuBois out of the boxing ring by helping him sell his company to the Government of China?”

  “China? What are you talking about?” Robert asked. He was lost once again.

  “That’s the reason why Rocky needed the gas ships in the first place,” Coco said. “Because the Peoples’ Republic of China agreed to buy ARC but only if ARC came along with control of those fifteen LNG carriers which they need to export shale gas from America to China,” Alex said.

  “I finally found a way to get even with that wily old wrangler for putting me on the naughty boy list!” Coco said and clenched his fist triumphantly. “Oh yeah, baby!”

  “Now I’m confused again,” Robert said. “If we don’t sell the LNG carriers to China then we won’t have any charters to ARC. If we don’t have any charters to ARC then we won’t have an IPO and if we don’t have an IPO then we won’t have any money to complete the purchase of the LNG carriers,” Robert said as he attempted to connect all of the new information.

  “Tell him, Alex,” Coco said.

  The Norwegian leaned back and admired the woman to whom he would soon be married in an unusual ceremony aboard the Kon Tiki. The mega yacht would be anchored three miles outside Ambrose Channel, the entrance to New York Harbor, and guests would be shuttled back and forth by helicopter. As long as Coco stayed out of America’s territorial waters, Wade Waters had advised him, Coco would not be subject to search and seizure by the United States Government.

  “Tell me what?” Robert asked and turned to look at the pregnant investment banker.

  “The thing is, Robert,” Alex explained, “Mr. Xing and China never really needed to buy ARC or the LNG ships in the first place,” Alex said.

  “You just said they are keen to buy clean energy,” Robert stressed.

  “They are, but that doesn�
��t mean they needed to buy ARC,” she said. “They just needed to buy ARC’s gas. And they didn’t need to own the gas ships – they just needed to control them.”

  “I see,” Robert said even though he didn’t. “So what happened?”

  “So Coco, Mr. Xing and I put together a simple deal that works for everyone: China agrees to buy enough gas from ARC to fill the fifteen gas carriers for twenty years and Coco agrees to time charter the gas carriers to China for the same period,” Alex smiled as she began to maneuver her pregnant body in preparation for getting off the couch.

  “So now we have twenty-year charters with China, but Viking Tankers still doesn’t have the $500 million we need to pay for our share of the equity in the ships,” Robert insisted.

  “That’s where you and my investment banker come in,” Coco sang and looked at Alexandra.

  “She’s your investment banker?” Robert said. “But you told me you’d never do another deal with Allied Bank of England as long as you live,” Robert reminded his boss.

  “I never said that,” Coco said and swatted his hand. “Anyway, Magnus and Alex have teamed up to underwrite the IPO of our MLP in Norway and America,” Coco said. “That how everyone does it these days.”

  “The IPO of what?” Robert asked. “What are you talking about?”

  “The IPO of Viking Gas,” Alex smiled. “Wade Waters re-filed the IPO prospectus with the S.E.C. while you were on your little road trip last week. As it turns out, the fifteen gas carriers provide exactly the type of high credit quality, long-term cash flow visibility we need to make Viking Tankers into a real MLP and maybe even achieve that 200% valuation you promised to Coco.”

  “And Coco even said that if you get the deal done as you promised, he will buy us the house on Martha’s Vineyard as your bonus,” Grace said.

  “Wait a minute,” Robert said. “Does that mean…”

  “Yup,” Coco said by way of a sharp inhalation of breath. “The Viking Raid is about to begin!”

  “You and your co-CEO have your first investor presentation in Boston on Monday morning,” Alex added.

  “And who, exactly, is my co-CEO?” Robert asked.

  Just then, Spyrolaki Bouboulinas stepped out of the shadows, draped his arm around Robert’s shoulders and pulled him close.

  “It is me, my friend,” the Greek said in the same smoky voice that had first drawn Robert Fairchild into the shipping business. “I always told you we would find a way to be together again.”

  As Robert considered how to reply to Spyrolaki, Coco Jacobsen slowly rose to his feet and climbed up onto the couch.

  “What are you doing?” Robert asked, staring up at his boss.

  “Come up here with me,” the Norwegian said with a smile. “I think it’s time I taught you how to sing Helan Går.”

  The End.

  Post Fixture

  You’ve reached the end. Thank you very much for reading Viking Raid. I hope you enjoyed the book. I would be grateful for your feedback. My email address is:

  mmccleery@marinemoney.com.

  Finally, I just couldn’t resist including the image below which was created by my friends at Northern Shipping Funds. Although the external factors that influence each individual shipping cycle are unique, the process of having too many and too few ships (relative to demand) are generally the same in each boom and bust. The picture below provides a simplified but effective summary of how the shipping cycle works.

  Source: Northern Shipping Funds