What are the Hawaii Superferries Worth?

There is a new KITV report on a MARAD official's statements yesterday in Honolulu on the expected auction of the two Hawaii Superferries here and here. In those reports the MARAD official is quoted as saying the lien that MARAD has on the vessels is a total of $150 million. The report further quotes,

"'I can tell you we already have a $150 million lien on both ships. So, you can of course, provide a cash bid higher than that amount and take ownership of both the Alakai and the Huakai,' said Matsuda. Matsuda was in Honolulu Friday for the groundbreaking ceremony for the renovation of the Pier 29 container yard at Honolulu Harbor. The project is funded with federal stimulus money. Matsuda said Maritime Administration wants the Superferry vessels for military and humanitarian projects."

Hold that thought.

You can look a number of places to try to find what the two Superferries actually cost to build including all the nice extras in the interiors and things added later like the Whale detection systems to the Alakai and the ramp, wastewater treatment, and desalination plants added to the Huakai. A simple place to look is Wikipedia which says each vessel's total costs were $88 million each, here and here. Of course that's just Wikipedia and the Huakai's costs were at least $5 million more than the Alakai. But a quick thumbnail estimate is that the combined cost for the two was at least $181 million new before depreciation. Hold that thought.

Now, it took a little bit of hunting but we went back and looked at some of the early Bankruptcy Court filings, and it looks like the outstanding senior lien that MARAD has on the two vessels is actually closer to $140 million, not $150 million. Additionally Guggenheim Corporate Funding, LLC has a lesser priority outstanding lien of about $48 million and Austal had an even lower priority lien of about $22 million. The State of Hawaii was junior to them. Austal wrote off their loan as a loss. Guggenheim's lien was "secured" in equity. It is understood that all equity holders would lose their money on this. So the key takeaway on the liens is that MARAD's is $140 million, not $150 million and that Guggenheim also has a lien and would be out $48 million. The total of those two adds up to $188 million, only slightly more than what the two vessels originally cost to build. Hold that thought.

Now, let's got back to that MARAD official's quote about $150 million. First of all, does MARAD determine and run the auction? NO, they do NOT. It is the Bankruptcy Court that does that. The MARAD official's comment, "So, you can of course, provide a cash bid higher than that amount ('$150 million') and take ownership of both the Alakai and the Huakai,' said Matsuda," is not something that MARAD will determine and is misleading. First of all, MARAD's outstanding lien is $140 million, and NOT $150 million and more importantly because these ships are possibly worth closer to $180 million than $150 million, but also because it is not for MARAD to say what exact dollar figure will be enough to take ownership of the two vessels, that's the purvue of the Bankruptcy Court.

So, what are these ships worth? Well, it's somewhere between $150 and $180. They have a tax depreciable life of at least 20 years, even though the Huakai is almost like brand new and should not be depreciated as much as the Alakai. The Alakai, if you will remember, had significant damage to the rudder, was run aground going into drydock, and fell off it's blocks in drydock. But, if they were both actually being used continuously over the past 2 to 3 years, then the total depreciation on $180 million would be about $4.5 million for the Huakai and about $13.5 million for the Alakai for a total of about $18 million off of $180 million equaling about $162 million, which is about what these two vessels are really worth, leaving $140 million for MARAD, not $150 million, and the other $22 million for Guggenheim, recovering almost half of their potential loss. Keep in mind, to build these brand new for commercial use would be at least $90 million each and also the builder Austal is being paid about $180 million to build just one of these very similar ships for the U.S. military as JHSV's.

Our conclusion is then that these two vessels together are worth no less than $160 million total. Their actual worth is probably a little more than that. We would expect Guggenheim to be a bidder on this in addition to MARAD. We believe MARAD will actually be satisfied to recover their $140 million, but we also believe MARAD when they say the, "Maritime Administration wants the Superferry vessels for military and humanitarian projects."

Now, let's see if somebody gets 'em for less than that?

By the way, Mufi, your cheap friends aren't in the running.

Guggenheim Corp. Funding Seeks Dismissal of HSF Holding Bankruptcy

From: http://www.netdocketsblog.com/2009/07/guggenheim-corp-funding-seeks-dismissal.html

Thursday, July 9, 2009

Guggenheim Corp. Funding Seeks Dismissal of HSF Holding Bankruptcy

On Wednesday, Guggenheim Corporate Funding, LLC filed a motion seeking the dismissal of the chapter 11 bankruptcy case of HSF Holding, Inc. HSF Holding, Inc. is the parent holding company of Hawaii Superferry, Inc., which operated a high-speed ferry business between the Hawaiian Islands before filing for bankruptcy and abandoning its ferries. Guggenheim does not seek dismissal of Hawaii Superferry, Inc.'s bankruptcy case.

Guggenheim holds a security interest in all of HSF Holding's assets, which consist solely of the stock of Hawaii Superferry, Inc., as a result of providing $47.75 million in senior secured funding in 2007. Guggenheim also holds $7.5 million in an escrow account, which is the subject of a joint stay relief motion of HSF and Guggenheim scheduled to be heard on July 20, 2009.

In support of its motion, Guggenheim argues that cause for dismissal exists because there is "a lack of good faith purpose" for HSF Holding's bankruptcy case. In furtherance of that argument, Guggenheim points to seven factors:

1. The only asset in HSF Holding's case is the Hawaii Superferry stock that is subject to Guggenheim's lien.
2. Guggenheim "appears to be the only creditor" of HSF Holding.
3. HSF Holding has no on-going business or employees.
4. HSF Holding's chapter 11 petition was filed "on eve of Guggenheim terminating the escrow account and retaining such funds."
5. The only parties-in-interest in HSF Holding's case are Guggenheim and HSF.
6. HSF Holding has no cash or income.
7. HSF Holding has no possibility of reorganization because it has no business to reorganize.

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Posted by Randall Reese

State Startin' to Look Like the Odd One Out on This

From: http://www.netdocketsblog.com/2009/06/hawaii-superferry-challenges-transfer.html

Monday, June 29, 2009

Hawaii Superferry Challenges Transfer Motion

On Monday, Hawaii Superferry, Inc. and HSF Holding, Inc. filed an objection, accompanied by a memorandum of law, to the motion of the State of Hawaii seeking the transfer of their bankruptcy cases from the bankruptcy court in Delaware to the bankruptcy court in Hawaii. Hawaii Superferry filed for bankruptcy protection in Delaware on May 30, 2009 and the State of Hawaii sought the transfer on June 19th. Details of the State of Hawaii's transfer motion can be found in an earlier posting, which is available here.

In support of its objection, Hawaii Superferry makes several arguments. First, the company asserts that venue is proper in Delaware because HSF Holding, Inc. was formed as a corporation under Delaware law. Second, the company states that its two largest secured creditors - the United States Maritime Administration and Guggenheim Corporate Funding, LLC - support the cases remaining in the Delaware bankruptcy court. In fact, the United States Maritime Administration quickly filed a joinder in support of Hawaii Superferry's objection. The objection also notes that MARAD holds a secured claim in excess of $136 million and Guggenheim holds a secured claim of $50 million, while the State of Hawaii asserts a disputed third-lien claim of only $1.3 million. The objection suggests that such third-lien claims are likely to be out of the money.

Finally, Hawaii Superferry challenges the assertions made by the State of Hawaii that there is a strong connection between the companies and the State of Hawaii. While that may once have been the case, according to Hawaii Superferry, the companies have ceased all operations in Hawaii and no longer maintain any significant connection to Hawaii. According to the companies, they ceased all operations in Hawaii in March following an adverse court ruling that prohibited their continuing operation, they have laid off all employees in Hawaii and none of their assets remain in Hawaii (most notably, their most significant assets - the high-speed ferries - are now docked in Alabama). Hawaii Superferry also challenges the assertion that most of its creditors are located in Hawaii, noting that less than half of its 30 largest unsecured creditors (and two of the three members of the Official Committee of Unsecured Creditors) are located outside of Hawaii. Finally, the company notes that both its retained professionals and the Creditors' Committee's retained professionals are located in Philadelphia, New York, Washington, D.C., and Wilmington.

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Posted by Randall Reese