A Greek shipowner is fighting the arrest of his handysize bulker by lenders earlier this year, in a case that reveals unusual inconsistencies in the way ships are valued for the purpose of calculating loan covenants.
The controversy revolves around the 36,000-dwt Alkyon (built 2015). The Jinling Shipyard-built vessel is managed by Piraeus-based Ariston Navigation but owned by Stallion Eight Shipping, a company directed by Yiannis Triphyllis on behalf of members of his family.
NatWest Markets, the former Royal Bank of Scotland Plc, seized the ship in the UK in June, on the basis of a valuation issued in March 2018 by French brokerage BRS, which showed the vessel to be in breach of loan-to-value (LTV) limits.
Triphyllis, however, is pointing to several other valuations by equally reputable brokerages that find the vessel was worth up to $3m more at the time. Among them is a second valuation by BRS issued just a few weeks after the initial, lower one.
It’s like crucifying someone on the grounds of a single snapshot desktop valuation
If any of those alternative valuations had been taken into account, the ship’s arrest could have been avoided because the loan-to-value shortfall would not have existed at all or would have been much lower than the $1.75m demanded by lenders, Triphyllis said in testimony to the UK High Court of Justice.
The issue has drawn the attention of the UK Defence Club and the Greek shipping community.
“It’s like crucifying someone on the grounds of a single snapshot desktop valuation,” a senior manager with a Greek company told TradeWinds.
Stallion Eight Shipping took on a $15.7m loan with RBS to acquire the Alkyon as a newbuilding back in early 2015. In January 2018, when RBS' successor NatWest Markets was already known to be quitting shipping, it brought on Bank of America as a “sub-participant” to the loan.
Two months later, NatWest Markets served Triphyllis a cure notice demanding payment of a $1.75m LTV shortfall, claiming that the ship’s value had fallen to 112.5% of the loan’s outstanding amount, which is below the minimum 125% set out in the agreement. The calculation was made on the BRS valuation estimating the ship was worth $15.25m at the time.
Triphyllis promptly disputed the valuation. Within a few weeks he provided three alternative ones by Clarksons, which was the broker RBS used to periodically monitor the LTV ratio before Bank of America entered, as well as Braemar and Maersk Brokers — these three brokerages valued the Alkyon at between $17m and $18m.
Triphyllis also asked BRS to provide a second valuation of the ship in April, which resulted in a price of $16.5m. By way of compromise, Triphyllis offered NatWest Markets the second BRS valuation, which would have resulted in a much narrower LTV shortfall of about $500,000.
NatWest Markets, however, ignored the offer. In June, the Alkyon was arrested as it was berthing in Newcastle. The ship is still laid up there, losing more than $11,000 per day in charter hire.
NatWest Markets declined to comment on the matter.
Two online valuation tools TradeWinds consulted independently provide wildly varying estimates of what the Alkyon was worth early this year.
VesselsValue shows the vessel was worth about $15.4m in mid-March. Maritime Strategies International, however, estimates its value at an average $18.4m in the first quarter of the year and $19.3m in the second quarter.
A deal in early April for another three-year-old, Chinese-built handysize suggests that anything below $16m or $17m for the Alkyon might have been far too low. Nova Marine spent about $17m to buy the 38,000-dwt Western Baltic (built 2015).
In a written submission to the UK High Court, Triphyllis said he suspects that the initial BRS valuation was done in bad faith.
Crying foul
The Alkyon case is not the first in which Greek borrowers have cried foul over BRS valuations used by lenders to declare their loans in breach of LTV covenants. Oxygen Maritime and Transmed are another two.
Oxygen saw two of its tankers arrested by Bank of America and hedge fund Davidson Kempner Capital Management (DK Partners), which jointly took over the company’s original $69m loan in 2013 from RBS.
According to litigation documents filed in the central district court of California, BRS valued Oxygen’s 74,600-dwt Megacore Philomena (built 2010) in October 2016 at between $26.5m and $27m, while Braemar said it was worth $30m. BRS valued the 36,700-dwt Megacore Honami (built 2010) at between $17.5m and $18m as opposed to the $21.5m or higher than what Braemar and other brokers said the Megacore Honami was worth, according to Oxygen’s lawyers.
Breach of covenants
Oxygen’s LTV breach led to a refinancing the loans to less favourable terms. The ships were arrested after yet another LTV breach in late 2017. Litigation continues in US courts between Oxygen and lenders Bank of America and DK Partners, which are represented by their London agent, TMF.
Both Oxygen vessels and the Alkyon were valued on behalf of lenders by BRS analyst Gregory Wauthier. The same analyst was also involved last year in a dispute over valuations with another Greek company, Charalampos Mylonas-controlled Transmed. TradeWinds understands that this dispute was settled but Transmed declined to comment or provide details on the terms.
In US court proceedings in the Oxygen case, Wauthier testified he was the BRS person “taking care” of the relationship with DK Partners. He provided about 10 valuations for them since 2011 and also received a $3.1m commission on the sale of two containerships in the period.
Asked by Oxygen lawyers whether he could say “with absolute certainty” that his business relationship with DK Partners did not bias him in his valuation work for them, Wauthier said: “I can affirm that, yes.”
It is unknown whether DK Partners is also a partner in Triphyllis’ Alkyon loan with NatWest Markets, alongside Bank of America.
Contacted by TradeWinds to comment, BRS chief executive Francois Cadiou said it was company policy not to discuss individual valuations with outside parties.
BRS, however, was “satisfied that valuations issued are given in good faith as BRS' professional opinion of the prevailing market value as at the date indicated”, Cadiou said.
In the meantime, Triphyllis is trying to slow down the eventual sale of his ship. On 6 November, the UK High Court heard his appeal for NatWest Markets to provide a cross-guarantee for more than $10,000 per day of lost revenue since the Alkyon’s arrest.
His main complaint against the arrest is expected to be heard early next year.
