A family feud within the operations of Richard Neu and shipowning company General Ore International Corp has laid bare allegations that Neu has crippled the finances of the bulker and gas carrier owner through reckless bets in the stock market.
According to a legal complaint filed by his daughter, Amy, Richard Neu allegedly suffered losses approaching $150m on risky option trading in the stock market, bringing General Ore to its knees during 2017, when the lawsuit was filed.
The legal drama includes the revelation of a $60m liquidity lifeline offered by Norwegian lender DNB, with a condition that former Teekay Corp chief executive Peter Evensen plays a key leadership role in the shipowner going forward.
'Tragic case of father acting outrageously'
Amy Neu seeks to have her father removed as administrator for the family trusts behind General Ore and install her in his place.
Meanwhile, Richard Neu has fired his daughter from her leadership of the family’s real-estate interests and charged that she has mishandled funds, court filings indicate.
1947: Hugo Neu Corp established.
1961: First freight contract between Neu and the Bergesen family of Norway.
1985: Hugo Neu dies aged 80.
1994: Hugo Neu Corp's assets divided between sons John Neu and Richard Neu. Richard selects 'shipping assets', while scrap business goes to John.
2001: General Ore buys out bulker fleet of German steelmaker ThyssenKrupp for about $365m.
March 2013: John Neu dies aged 74.
March 2017: DNB assesses General Ore liquidity challenges, sets conditions on $50m loan.
April 2017: Richard Neu fires daughter Amy Neu from job as head of family’s real-estate business.
31 May 2017: Richard Neu files claims against daughter Amy Neu in US District Court, New Jersey.
1 June 2017: Amy Neu files cross claim against father.
“This is a tragic case involving a father who is acting outrageously, recklessly and maliciously to the detriment of his daughter and grandchildren,” Amy Neu alleged in her complaint.
The elder Neu denies the allegations and “[has] asserted very serious cross-claims in response”, Evensen said in an email this week after TradeWinds sought comment from Richard Neu’s counsel.
Litigation has played out in the US District Court in New Jersey for almost a year without being publicly reported. The case is in the legal-discovery phase, with 100,000 documents circulated between the parties thus far, according to a recent update.
Richard Neu, believed to be in his 70s, is a reclusive Los Angeles-based businessman who has operated in the LPG and dry bulk sectors for decades through companies including General Ore, Neu Holdings Corp and Hamburg-based Neu Seeschiffahrt.
He is a son of the late Hugo Neu, a Jewish immigrant to the US who made a fortune in the scrap-metal business and forged shipping relationships with the likes of the Bergesen family of Norway that stretch back to the 1960s.
'Reckless gambling'
At the centre of Amy Neu’s claim is the allegation that her father drained millions of dollars out of General Ore’s coffers for his stock investments. That, together with a decline in its key VLOC and LPG sectors, brought the owner to a state of financial distress by early last year, she charges.
“Richard has gambled away approximately $150m on shockingly non-diverse stock portfolios primarily funded through purchases on margin even though the business purposes of all the companies owned by the trusts — essentially shipping and real-estate companies — are entirely unrelated to stock market investing,” Amy Neu claimed in a complaint filed by Allen Harris of New Jersey law firm Budd Larner.
“Because of his reckless gambling, General Ore International Corporation Ltd, the company which operates the Trusts’ shipping business, is functionally bankrupt.”
Trading on margin refers to the practice of stock investing with funds borrowed from one’s brokerage. Amy Neu states that the claimed losses took place in 2008 and then in 2015 to 2016.
The complaint focuses on Richard Neu’s purported attempts to keep General Ore running through a $50m borrowing under negotiation last year with DNB, which insisted on the principal injecting $10m of fresh equity.
In support of her complaint, Amy Neu attaches a document prepared by DNB last March that analyses General Ore’s liquidity challenges, and also indicates concessions required from the owner in order to borrow $50m.
“Trading [and] securities account to be closed and all funds to stay in GOIC [General Ore International Corporation]” is one of the conditions.
Another is a “change of control [and] management clause tying Peter Evensen and key employees in Hamburg to GOIC”.
The deal also would require a restructuring of an existing $805m syndicated loan agreement with 13 lenders, including Commerzbank, Unicredit, DNB, HSH Nordbank, Belfius, Kfw, Helaba Landesbanken Hessen, Natixis and Santander.
Serious cross claims
DNB volunteered to take the lead in negotiations.
Richard Neu’s responses to his daughter’s claims are not clear from the court file because he persuaded the court that his reply should be filed under seal to protect business secrets.
TradeWinds contacted Richard Neu’s attorney, Ronald Davison of New Jersey law firm Starr, Gern, Davison & Rubin, for an explanation, but the query was answered by Evensen.
“Since a number of the filings in the litigation have been submitted under seal, I am not and will not be in a position to address the court proceedings in any detail, although I think it appropriate to note that Mr Neu and his affiliated entities not only deny the allegations against them, but have asserted very serious cross claims in response,” Evensen wrote in an email.
Allegations of liquidity woes
The General Ore International Corp fleet is listed by VesselsValue as being under the ownership of Neu Seeschiffahrt, the Hamburg-based company created when Neu purchased the bulker fleet of German steelmaker ThyssenKrupp in 2001.
The fleet of 15 vessels includes nine capesize or VLOC units and six large gas carriers ranging from 60,000 cbm to 82,000 cbm. The average age of both vessel classes is nine years and the overall fleet is valued at $596m.
In a claim filed on 1 June last year, Amy Neu described General Ore as “functionally bankrupt”.
While an attached analysis prepared by lender DNB in March last year does not use that language, it does suggest serious financial issues.
DNB forecast General Ore would have “insufficient liquidity” from the third quarter of 2017 and would run out of cash in early 2018 if freight markets continued as projected and nothing was done to address the situation.
DNB held out the possibility of Richard Neu selling part or all of the business but noted that, since he preferred not to, it would be willing to extend a further $50m in credit in return for a $10m equity injection and other conditions, including Peter Evensen’s continued involvement in management.
It is unclear from further filings in the case whether DNB and Neu did reach a deal on the financing. But the dry bulk market has improved over the course of 2017, and analysts project improved LPG rates in 2018.
Evensen would appear to be a logical choice to help get General Ore back on course. Prior to his nearly 15 years at Teekay Corp, he spent 20 years with JP Morgan Chase, where he was managing director and head of global shipping.
As such, Evensen had his share of shipping workouts from the other side of the negotiating table.
And his time at JP Morgan Chase overlaps General Ore’s 2001 acquisition of the ThyssenKrupp fleet, for which JP Morgan was reported to be the lead financier. So his connection with Neu and General Ore appears to have some roots.
DNB notes that any refinancing would need to amend General Ore’s existing $805m syndicated loan, and suggests that Evensen’s presence could be crucial.
“GOIC [General Ore International Corp]'s hiring of Peter Evensen is a positive development for GOIC from a management perspective and should also alleviate lenders’ concerns with respect to succession plans,” DNB said in the loan proposal.
“We believe that the company should take advantage of this new development to visit all the banks in the syndicate to establish Peter as the new point of contact.”
Evensen grudgingly admits 'retirement' not that quiet
Peter Evensen has kept a relatively low profile since retiring from Teekay Corp in January last year after six years as chief executive.
He has been known to tell some industry figures that he spends a lot of time managing his investments.
Word began to circulate recently that Evensen is doing more than that, with fingers pointing towards veteran shipping figure Richard Neu and his General Ore International Corp.
The talk is strongly supported in filings from a 2017 lawsuit in which Norwegian bank DNB — a member of General Ore’s lending syndicate — seems to be quite happy that Evensen is now involved in running the company.
Approached recently by TradeWinds, Evensen was at first somewhat circumspect about discussing his role.
“I am happily retired from Teekay and day-to-day management,” he said. “When I am not working on charitable causes or skiing, I consult to a few shipping and non-shipping companies who pay me to keep my mouth shut.”
Evensen had a bit more to say after TradeWinds contacted counsel for Richard Neu about allegations levelled by Amy Neu, who suggested in the lawsuit that huge losses in the stock market had brought General Ore into financial distress in early 2017.
“The litigation... to which you refer is a family dispute that does not affect the operation of General Ore,” Evensen said. “As you seem to be aware, I am now working with General Ore and Mr Richard Neu has asked me to take responsibility for the operation of General Ore.
“I am glad to take this on as General Ore is stable and its financing secure. It is well positioned to take advantage of recent improvements in the LPG and VLOC markets in which it operates.”
