Actually, it’s the Swordfish… Nor bondholders have a problem…


Okay I was wrong…. it happens once in a while… McDermott it seems are going to go for the old Harkand Swordfish, since redelivered back to Veolia, and not one of the Nor Vessels to trade in the Middle East Africa. From an operational perspective it’s probably a better bet with the twin crane layout at the back to being a true multipurpose vessel, well suited to the regions. And the seller/ charterer was also realistic, or desperate (depending on how you look at it), cutting an unbelievable financial deal.

The Nor bondholders have a real problem now: they have two North Sea class DSVs in port at Blyth and no operational infrastructure at all. I have been told by two independent people over the last week that the new commercial managers are desperately trying to buy the Harkand management system off the receiver but don’t have a clue how to value it.

On November 7 2016 the bondholders did a liquidity issue where they raised USD 15m to fund the ongoing expenditure on the vessels. That money may have taken them through 2017, if they got one of the vessels away on a long-term charter, but if anyone wants a reminder of how expensive it is to own a DSV the bond documents showed they are spending USD 350k per month on OPEX per vessel. So the investors are c.10% through their liquidity in 8 weeks with no work on the horizon at all. Platitudes about not being forced sellers won’t mean much come June if a significant dent has been made in that cash pile through a lack of utilisation. Even worse in trying to secure potential charters the bondholders are now an extremely disparate group, ranging from the original investors (who in effect lent money to world’s greatest distressed debt house Oaktree Capital Management) to the distressed debt investors who have brought in. A second capital raising may not be so easy, something any potential charterer will have to consider as Nor’s cash buffer diminishes.

Quite why the vessels were brought to the North Sea in the first place remains one of the great mysteries… one of the most heavily regulated markets in the world, and only Technip  having the correct bridging documentation to use the Da Vinci as a DSV, with no guarantee the HSE regulator would accept the old Harkand system with new owners? Or even checking with the market if they wanted it? One would have thought the bondholders or their representative would have checked this most basic of points. I have been told the real reason was that the largest bondholder believed that the Port of Blyth was large enough to land a time machine which would take them back to 2013 and sky high day rates. The lack of appearance of the time machines not deterring the owners from continuing with this strategy.

In reality, the bondholders have a very difficult problem. They own something no one wants to buy that they desparately want to sell at a 2013 price. Just because something cost a lot to build doesn’t make it valuable. Markets are made where demand and supply meet not simply where supply provides. To use a hotel analogy the Nor bondholders have turned up in Aberdeen, which in the current downturn has lots of spare capacity in all the good hotels, with a half furnished hotel, no staff, no booking system, and no kitchen, and seem confused why no one wants to stay there when the Malmaison has loads of great rooms for £120 a night.

In the current downturn I see no market for these vessels in Aberdeen, and because I might be biased I have had a ring around some people I trust, and they confirm that this is their view as well (one of whom was rung by a shipbroker and asked how you valued a management system!). The problem at its root lies I believe in Knightian Uncertainty: a risk impossible to calculate. A kind of Rumsfeldian Unknown Unknown. This as opposed to risk which could be quantified by attaching probabilities and therefore measured and valued.

At the moment there are too many DSVs in the North Sea and given the safety focus why would any buyer, frankly at almost any price, take the risk of a new team, new contractor etc when they don’t need to? This has been acknowledged by Nor while saying they don’t intend to start dive operations. But there is no other credible dive contractor at the moment who is short of tonnage? Diving has relatively high entry costs for the North Sea, with a fair degree of asset-specific investment as a sunk cost, in a down market, there is no rational reason for anyone to make this investment. Particularly when a recovery looks like 2018 and an anemic one at that.

So the Nor investors are left with two ROV vessels with a medium crane and some deck space (with high fuel consumption);  who doesn’t even have basic ISO accreditation and a management system. There are a lot of competitive vessels (like the Grand Canyon and the Olympic Bibby) that are frankly better equipped and have more coherent teams. Why for the sake of a few thousand dollars would you charter a ship that has sat around for 7 months doing nothing and just have an agency crane driver? Crane maintenance history? When was the last time the wire was re-spooled etc.  Will the bondholders agree to see trials and crane trials before commencing operations? All this will eat further into their cash pile if they do but they cannot get work without doing so.

In the current market these, and an innumerable number more, are just incalculable risks that people just don’t need to take. For the same money they can get something better and safer. A decent risk assessment, the basis for any North Sea operator to take a new vessel, is going to have the auditors coming back with more a host more questions than answers, not just about the vessel but corporate structure and commitment as well.

M2 have some ROVs on board but it is very hard to see them committing that much to the vessels as they know the risks involved with such a dysfunctional ownership structure and the ultimate desire of the investors to bail out as soon as the market turns. Private equity companies traditionally don’t do favours for distressed investors and the logical reading here is M2 will just want to focus on getting their ROVs wet, they will want vessels they can build a business out of rather than just annoy Bibby with. I like the guys behind M2, and wish them every success, but they are a start-up. The Nor investors haven’t just taken market risk at the moment they have in effect taken equity risk (without any upside or financial gain) in M2 if they plan on them driving utilisation?

Can a DSV fit in the Tardis I hear you asking?…

Nor don’t have an operational problem they have a strategic problem: what are they and what are they going to do? Until they can answer those basic questions I would argue they are going nowhere.

Solstad today showed that the market for high-end CSVs is still hard and took a long term windfarm walk-to-work contract. When  WTW is strategically important for a vessel of that quality you know how tough the market is. The TSG connection may open up similar opportunities for Nor; but rates on those contracts have been as low as €14k per day, so a contribution to dry-docks etc is out of the questions. However, if you really believe the capital value will come back with high POB they would be praying for something like that to cut OPEX.

While the ownership units the Nor bondholders have are called “recovery bonds” they are in effect equity. The Nor owners are trying to start a shipping company without really being one and doing it on the cheap. It didn’t work for them last year and there is no real reason to believe it will this year with demand looking even worse.

Having had a rant I should note that the core point of Knight’s writing was that this uncertainty, as opposed to risks that could be insured, created the opportunity for profit and therefore the entrepreneurial enterprise or venture. Ultimately someone will make money off these vessels, I just doubt it’s the investors that lent money to Oaktree and frankly I doubt it will be in the North Sea. However, I also note with a degree of humility at the start of this post that I can be wrong… read into that what you will.


14 thoughts on “Actually, it’s the Swordfish… Nor bondholders have a problem…

  1. Interesting blog, quite enjoyable. It would be interesting to find out as per when Technip has the correct bridging documentation to use the Da Vinci as a DSV, is this a recent occurrence?


  2. I enjoyed this interesting perspective on the difficulties facing the Nor bondholders. If the monthly OPEX costs are accurate then the future will be extremely bleak for them. It would not be much more than that to have the vessel fully operational based on 270 days utilisation a year. It is unbelievable that is what their spend is with the vessels tied up alongside with no work.

    I cannot see any way out of this situation. With a marine management company operating the vessels who do not have any experience or competence with dive operations, good money they are already paying out offers no return in finding the vessels work or in preparing them for such. If they had this competence then a dive management system could be tailor made rather than bought.


  3. A good article, but this is Karma. Harkand who were operating the vessels when the bond holder took charge, had a relatively full workload for the vessels for 2016, but instead they went into administration. No vessels, no work, no income. Now the current owners are losing money each and every day for 2 vessels nobody wants… my heart bleeds… not.


  4. Technip do not have the required paper work to operate These vessels, lots of modifications have been made since they baled out.
    They are not fully crewed and they have been awash with agency dive techs, who don’t know the vessels.
    Only Davinci is able to operate its crane as Atlantis crane is us


  5. Yeah that’s true, Atlantis crane is downgraded to some 50 tonnes max or even less if I remember correctly due to main winch problems – another argument for the company being cheap – they have the new winch in warehouse in Montrose but no one wanted to install it, and it just sits there and get’s rusty (a winch for some 1 mln USD gosh…). The modifications done for Technip were to make a 3 way split of main bus bar, making both vessels something of a ‘DP 2,5’ but that was just some utter bullshit, making the retractable thruster powered by a separate generator which load was less than 5%..
    Anyway, I’m very, very surprised that with the current market situation, the Nor bondholders decided to make a paycut only by 10%, leaving the vessels fully manned on the bridge (DPO’s and all that stuff), but cutting the crew of the important part which is the deck guys and the engine room, and exchanging some european guys with Filipinos, who frankly cannot be compared to european standards of working. There are a lot of wrong decisions done – vessels are sitting ducks for 8 months already and bondholders are spending money on a full bridge crew with DP certification (for what I ask?), with only 10% paycut to all crew. And to save money they cut dive techs and engineers which actually keep the vessel going at the moment, making it still seaworthy and up to date with all certification (especially dive systems).
    From what I know, it’s the best paying place at the moment, as from what I heared masters are around 900 USD per day, CE around 800 and You can guess the rest. Preety lucriative for doing nothing, isn’t it?


  6. So what you are REALLY saying is…..NOR should be renamed NORwhere?

    Most management systems are plagiarized (from one or multiple previous employers) and re-branded as the current company’s own and is easily done.


  7. I hear the swordfish has finally found a buyer in the middle east for a charter on west coast of India.
    Does anyone have any info regarding the same?


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