A unique dual-broker approach to a UK admiralty court drillship auction has been agreed by Deutsche Bank (DB) after it tried to bring in its own shop for the sale.
A court ruling has revealed that DB wanted to cut out traditional admiralty broker CW Kellock, which has been carrying out such sales for more than 150 years.
DB, as the vessel mortgage holder, had argued that its choice, Pareto Offshore, had the relevant experience in such a specialised sale and purchase market.
But the admiralty marshal had objected to Pareto handling the sale of the 61,600-gt Sertao (built 2012) on a number of grounds.
Justice Nigel Teare said in his ruling that the marshal places enormous value on the long relationship with CW Kellock.
"Not only do Kellocks have knowledge, experience and contacts in the shipping markets but they also have experience of operating with the court and its processes," he added.
"This is of particular importance to the marshal in circumstances where, unlike in the past, he does not devote all of his time to the role of marshal but has other responsibilities within the court system and so there is not the same level of experience within the marshal's office as there once was."
The second argument was the need for an independent broker
And thirdly, the court said: "The marshal fears that if another broker is appointed Kellocks might cease to be willing to act as the marshal's broker in the future on those sales of vessels of modest value the sales of which generate a modest commission.
"He might then have to conduct a tender process in the future to find a willing broker which would delay the sale process."
CW Kellock has said it does not anticipate difficulty in marketing the vessel.
"These appear to me to be sound reasons for questioning whether Pareto should be appointed the marshal's broker," Teare said.
DB said the facts of the present case are so special that if the marshal were required by the court to appoint Pareto it would hardly set a precedent and "given Pareto's expertise in this specialist market which at present is very depressed Kellocks could not reasonably expect to be appointed in place of Pareto."
"That submission appears to me to have merit in the unusual circumstances of the present case," Teare said.
"It does not appear that this type of question has been considered before."
But the judge did not have to decide on a broker, because it emerged that DB was willing to have Pareto and CW Kellock appointed as joint brokers, which is acceptable to the marshal.
Brazilian troubles
The case arose after the vessel's owner, Dleif Drilling of Delaware, US, which was an affiliate of Grupo Schahin, a Brazilian engineering conglomerate, ceased paying mortgage instalments to DB in 2015.
The owner had time-chartered the vessel to Brazilian major Petrobras, but Petrobras had terminated the deal.
DB had lent $750m to Grupo Schahin, secured by a mortgage on the vessel.
In late 2015 the ship sailed from Brazil to England in order to be laid up in a place where it might later be conveniently be sold.
It was arrested in Teesport and is now laid up in Tilbury.
The amount outstanding including interest is $808.1m. "Numerous events of default are said to have occurred," Teare said.
Pareto Offshore has been advising DB since shortly after the vessel was arrested.
Commissions revealed
Kellock's commission for admiralty sales since 1998 has been 6% on the first £5,000 ($6,800), 5% on the next £10,000 up to £15,000, 3% on the next £15,000 up to £30,000 and 1% on the balance over £30,000.
For the valuable drillship, the commission is effectively 1%.
Pareto, when first instructed, accepted 0.25% but, having worked on the matter for two years with no reward, had sought 0.5% which had been agreed by DB.
It has been suggested in talks between the parties that the 1% be split 50/50 between the two brokers.
But Kellocks said Pareto should take 0.25% and itself 0.75%.
"I am grateful that Kellocks have considered giving up part of their commission," Teare said.
"That seems appropriate in circumstances where the vessel has already been appraised and where the vessel will be marketed and hopefully sold by two brokers rather than one.
"Indeed, there appears to be considerable sense in the proposal that the 1% commission be split 50/50 between the two brokers."
"Whereas the one brings its experience of the drillship market the other brings its experience of effecting sales on behalf of the marshal through the court. I would very much hope that that split could be agreed. If agreement cannot be agreed so that the joint broker solution is not viable then the court would have to resolve the question as to which broker to appoint."
A sale has been ordered subject to there being no objection from DB that the marshal is entitled to charge a reasonable fee if a sale does not take place and also that there is an agreement on the broker-commission split.
Teare added that the value of the drillship as assessed by Pareto is well below the debt. But this is not being published due to the impending sale.
DB has been funding the costs of maintaining the vessel under arrest at $750,000 per month.
Tor Olav Troim’s Magni has previously looked at the rig but had a $75m offer rejected in November 2016.
George Economou’s Ocean Rig purchased the Sertao’s sister in 2016 in a $65m auction sale.
