Did the Bouchard Tug and Barge Auction Achieve the Right Prices?

After several years of legal wrangling in bankruptcy court, most of the marine assets of Bouchard Transportation were sold at auction earlier this month, with the asset purchase agreements to be finalized imminently and the bankruptcy judge formally approving the transfer of ownership.

By way of quick introduction, Bouchard was established in 1918 and had been active in Jones Act marine transport of liquid chemical and energy products. It was among the oldest and largest shipping companies in the US, a family business nonetheless, bearing the last name of its founder and managed by family members since inception. It had an estimated enterprise value at its peak in excess of $1.2 billion. In 2019, the company owned and operated 50 ocean tank barges (ranging from 35,000 to 260,000 bbl in capacity and built 1979-2019) and tug vessels (ranging from 3,000-10,000 hp and built 1970-2019).

In 2017, one of the company’s barges in Corpus Christi, Texas exploded, resulting in the death of two crew members. The NTSB report concluded that the probable cause was the “lack of effective maintenance and safety management of the barge.”

Ever since the fatal accident, the company struggled to retain its chartering book, which led to idling vessels and eventually to a cash death spiral. In 2020, the company (actually each subsidiary debtor company) filed for voluntary petition for relief under Chapter 11. It was originally envisioned as an opportunity for the company to re-organize itself under the leadership of its CEO Mr Morton S. Bouchard, with the approval of the court. Debtor in possession (DIP) financing was obtained in two tranches, and until early in 2021, the company seemed poised for a plausible turnaround scenario.

In May 2021, Mr Bouchard was removed as CEO of the company, and soon thereafter, 29 of the company’s marine assets were placed on the auction block. In July 2021, Hartree Partners LP were selected as the stalking horse for the bidding process with a $110 million reserve price. Later in the month, one of the DIP financiers offered marginally higher than the stalking horse bid price and were awarded the auction sale at $115 million.

The auction process and the sale price left some parties scratching their heads. To be sure, 29 Jones Act marine assets very rarely go on sale at once, and typically if they do so, it’s via the venue of corporate finance, M&A, etc., and not via the auction block. Given that certain assets of the company were making up close to 30 percent of certain segments of the Jones Act market, many competitors kept a very close eye on the transaction, even if they had minimal interest in acquiring the assets per se. And, in an overall weak Jones Act market - driven down by the COVID-19 pandemic and minimal shale oil drilling activity - many players hoped to buy precious Jones Act assets, twice distressed (an auction sale in a weak market). In short, this has been a very high profile case and - quite frankly - the “talk of the town” for more than a year now.

The $110 million stalking horse price for 29 Jones Act assets seemed awfully tempting: ballpark, $4 million per asset, in a market known for its 5-7 times higher newbuilding costs than international shipbuilding. In the U.S., new barges get built for more than $50 million each (just ask OSG), and ocean-going vessels cost in the range of a quarter-billion dollars to build (just ask SeaRiver, Matson, Crowley, etc). An average price of $4 million per Jones Act asset can be achieved by casually perusing the steel hulks in a scrapyard on many a bayou in Louisiana.

One may argue that the 29 vessels on the block were an oddball package, since it included tugs as old as 1979-built alongside some of the largest ocean tank barges in the US, built as recently as in 2016. Seldom a motivated buyer of marine assets would have interest in vessels with a four decade difference in age or straddling several segments of the market. The one-package assets on the sales block are meant to service different markets, and any buyer would have to separate them into two or three groups and market them to operators who would extract the most value out of each sub-group. 

Thus, the sale of diverse types of assets in one transaction may have caused an unnecessary price discount, which could have been addressed. Selling 29 marine assets in a niche market (Jones Act) - and in segments where Bouchard had a 30 percent share of the market - would have depressed asset prices even more. It would appear the only commonality among these 29 vessels were their collateralization against the $90 million “JMB DIP Facility” (with JMB Capital Partners Lending, LLC, of course, being the winner bidder / buyer).

Likewise, one could argue about the condition of these 29 marine assets, as they had been idle or laid up for more than a year with minimal maintenance. Indeed, in a few independent survey reports that our firm has reviewed this year, there have been estimates of $1-2 million for even the modern assets to get market ready. These assets had their (ABS) Class withdrawn and a great deal of their U.S. Coast Guard certificates were not valid. In this respect, a certain discount may have been warranted under the circumstances.

But still, the discounts and the numbers do not seem to add up.

In our experience, just the tank barges “B. No 280”, “B. No 282”, and “B. No 284” alone could collectively be valued (fair market value, or FMV) in the $25-30 million range, while the larger “B. No 272” could be in the $60 million range.

Likewise, for the three most modern tugs in the sales package (MV “Denise A. Bouchard”, MV “Donna J. Bouchard” and MV “Frederick E. Bouchard”), our estimate of their aggregate current FMV would be more than $30 million.

In short, just seven of the 29 marine assets on the auction block are exceeding the sale price achieved. Sales proceeds for the other 22 Bouchard assets would make for the proverbial cherry on the cake, and a generous cake for that matter.

For those familiar with the appraisal process, there is a distinction between fair market value (FMV), orderly liquidation value (OLV) and forced liquidation value (FLV), which account, among other considerations, for the time allowed for properly marketing the assets for sale. True, the Bouchard bankruptcy was known for a while, but it was known as a re-organization and not as a liquidation. It effectively took just about two months from announcement to marketing to execution. Talk about efficiency! It is likely that some of the potential buyers may not have been able to get their financing in place, not to mention time to strategize, inspect and do their due diligence.

Life is not fair, and auction sales are among the least fair things in this world. But again, what is “fair” and “fair” for whom? The secured creditors, the unsecured creditors, the employees, the shareholders? Was a diligent effort made to maximize the sale price at the auction? Would a reasonable investor/seller/owner had done a few things better? Was the court process “fair” and maximized the benefit to all?

Parenthetically, the legal, advisory and other fees in the case are getting ever closer to the $100 million mark; that’s correct, $100 million, just a bit shy of the sale price achieved for the hard assets.

Some of these are just philosophical questions, and some are practical questions. Speaking of practical questions, would this low sale price (sale comparable, in appraisal parlance) set a lower benchmark for the market, for other shipowners in the market and the banks and financiers that have financed similar assets? Would this low sale price affect the sales process and offers of other comparable assets in the market? Our firm, Karatzas Marine Advisors & Co, currently markets two modern ocean tank barges for sale, but the pricing implied in the Bouchard auction would seem ludicrous to us.

As Warren Buffett once said: “price is what you pay, value is what you get.” Sometimes, it takes an appraiser to tell these two apart. In other cases, a good broker. Unless, of course, you are a billionaire investor, in the first place.

Basil M Karatzas is an Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), Certified Marine Surveyor (CMS), and Fellow with the Institute of Chartered Shipbrokers in the UK.