After several years of legal wrangling in bankruptcy court in Houston (Case No. 20-34682 (DRJ)), earlier this month (July 2021) most of the marine assets of Bouchard Transportation Co., Inc (“Bouchard”) were sold at auction with the Asset Purchase Agreements (APA) to be finalized imminently and the bankruptcy judge formally approving the transfer of ownership.
By way of quick introduction, Bouchard was established in 1918 and had been active in Jones Act marine transport of liquid chemical and energy products. It was amongst the oldest and largest shipping companies in the US, a family business nonetheless, bearing the last name of its founder and managed by family members since inception, and an estimated Enterprise Value (EV) at its peak in excess of $1.2 billion. In 2019, the Company owned and operated fifty (50) ocean tank barges (ranging from 35,000 to 260,000 bbl in capacity and built 1979 – 2019) and tug vessels (ranging from 3,000 – 10,000 hp and built 1970 – 2019). In 2017, one of the Company’s barges in Corpus Christi, TX, exploded resulting in the death of two crew members, with the NTSB Report citing as Probable Cause the “lack of effective maintenance and safety management of the barge”. Ever since the fatal accident, the Company struggled to retain its chartering book, which led to idling vessels and eventually to a cash death spiral. In 2020, the Company (actually each Debtor company) filed for voluntary petition for relief under chapter 11 of the Bankruptcy Code. It was originally envisioned for the Company to re-organize itself, under the leadership of its CEO Mr Morton S. Bouchard, and the approval of the court. Debtor in Possession (DIP) financing was obtained in two tranches, and until early in 2021, the Company seemed poised to a plausible turnaround scenario.
In May 2021, Mr Bouchard was removed as CEO of the Company, and soon thereafter, twenty (29) of the Company’s marine assets were placed on the auction blog. In July 2021, Hartree Partners LP were selected as the stalking horse for the bidding process with $110 mil reserve price. Later in the month, one of the DIP financiers offered marginally higher than the stalking horse bid price and were awarded the auction sale at $115 mil.
The auction process and sale price achieved could make themselves subject to commentary, given that some parties were left scratching their heads. To be sure, 29 Jones Act marine assets very rarely hit the sales bloc, and typically, if they do so, it’s via the venue of corporate finance, M&A, etc, and not via the auction blog. Given that certain assets of the Company were making up close to 30% of certain segments of the Jones Act market, many competitors kept a very close eye on the transaction even if they had minimal interest in acquiring the assets per se. And, in an overall weak Jones Act market (driven down by the COVID19 pandemic and minimal shale oil drilling activity), many players hoped to buy precious Jones Act asset, twice distressed (an auction sale in a possibly artificially weak market). In short, this has been a very high profile case, and quite frankly, the “talk of the town” for more than a year now.
And, the $110 mil stalking horse price for 29 Jones Act assets seemed awfully tempting: ballpark, $4 mil per asset, in a market known for its 5x-7x higher newbuilding costs than international shipbuilding, where new barges get built in excess of $50 mil each (just ask OSG), and a market where ocean-going vessels costing in the range of a quarter-billion dollars to build (just ask SeaRiver, Matson, Crowley, etc) An average price of $4 mil per Jones Act asset can be achieved by casually perusing the steel hulks in a scrapyard on many a bayou in Louisiana.
One may argue that the 29 vessels on the bloc were an oddball package offered for sale, since it included tugs as old as 1979-built and some of the largest ocean tank barges in the US, built as recently as in 2016: seldom a motivated buyer of marine assets would have interest in vessels having four-decades difference in age or straddling several segments of the market; the one-package assets on the sales bloc meant to service different markets; any buyer of the assets would have to prune them down to two or three groups of homogenous assets and be marketed to buyers who would extract most value out of each sub-group. Thus, the sale of diverse type of assets in one transaction may have caused an unnecessary price discount that could have been addressed. And, of course, selling 29 marine assets in a niche market (Jones Act), and in segments of that niche market where Bouchard was making 30% of the market, it would have depressed asset prices even more. It would appear the only commonality amongst these 29 vessels were their collateralization against the $90 mil “JMB DIP Facility” (with JMB Capital Partners Lending, LLC, of course, being the winner bidder / buyer).
Likewise, one could argue about the condition of these 29 marine assets as they had been idle or laid-up for more than a year with minimal maintenance. And, indeed, a few independent survey reports that our firm has reviewed this year, there have been estimates of $1 mil - $2 mil for even the modern assets to get market ready; and, indeed, these assets had their (ABS) Class withdrawn and a great deal of their U.S. Coast Guard certificates were not valid. So, indeed, in this respect, a certain discount, may have been warranted under the circumstances.
But still, the discounts and the numbers do not seem to add up.
In our experience, just the tank barges “B. No 280”, “B. No 282”, and “B. No 284” alone could collectively be valued (Fair Market Value (FMV)) in the $25 – 30 mil range, while the larger “B. No 272” in the $60 mil range. Likewise, for the three most modern tugs in the sales package (MV “Denise A. Bouchard”, MV “Donna J. Bouchard” and MV “Frederick E. Bouchard”), our estimate of their aggregate current FMV would be more than $30 mil. In short, just seven (7) of the 29 marine assets on the auction bloc are exceeding the sale price achieved; sales proceeds of the rest 22 Bouchard assets would make for the proverbial cherry on the cake, and a generous cake for that matter.
For those familiar with the appraisal process, there is a distinction of Fair Market Value (FMV), Orderly Liquidation Value (OLV), and Forced Liquidation Value (FLV) [for Appraisal definitions please click here], which account, among other considerations, for the time allowed for properly marketing the assets for sale. True, the Bouchard bankruptcy was known for a while, but it was known as a re-organization, and not as a liquidation, which effectively took just about two months from announcement to marketing to execution. Talk about efficiency! Probably some of the potential buyers may not have been able to get their financing in place, not to mention time to strategize, inspect, do their due diligence.
Life is not fair, and auction sales are amongst the least fair things in this world. But again, what is “fair” and “fair” for whom? The secured creditors, the unsecured creditors, the employees, the shareholders? Was the sale price maximized? Was a diligent effort made to maximize the sale price at the auction? Would a reasonable investor / seller / owner had done a few things better?
Was the Court process “fair” and maximized the benefit to all?
Parenthetically, the legal, advisory and other fees in the case are getting ever closer to the $100 mil mark; that’s correct, $100 mil, just a bit shy of the sale price achieved for the hard assets.
Some are just philosophical questions, and some are practical questions!
And, speaking of practical questions, would this low sale price (sale comparable, in Appraisal parlance) set a lower benchmark for the market, for other shipowners in the market and the banks and financiers that have financed similar assets? Would this low sale price affect the sales process and offers of other comparable assets in the market? Our firm, Karatzas Marine Advisors & Co, currently markets exclusively two modern ocean tank barges for sale (“DBL 79” and “DBL 76”, similar to “B. No 280”, “B. No 282”, and “B. No 284”), but again, sale pricing implied in the Bouchard auction sale would seem ludicrous, to us.
As Warren Buffett once said: “price is what you pay, value is what you get”. Sometimes, it takes an appraiser to tell them apart those two. In other cases, a good broker. Unless, of course, you are a billionaire investor, in the first place.
And, yes, the tank barges “DBL 79” and “DBL 76” are in very good shape, fully in class with all their documentation current, ready to be employed on demand, and owners looking for fair market values (for sale, bareboat charter or lease) in an improving market! Give us a call!
Basil M Karatzas is an Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), Certified Marine Surveyor (CMS), and Fellow with the Institute of Chartered Shipbrokers in the UK.