Wednesday, March 18, 2009


If no agreement on harbor expenses, state can exercise its third mortgage on the Superferry

by Larry Geller

Is there an alternative to socking harbor users for expenses that were to be covered by Hawaii Superferry? Here’s one that hasn’t been discussed in the press—a mortgage agreement between the ferry company on the state on this very issue.

The state holds a third mortgage on the Superferry that could be used if no other agreement is reached on paying harbor improvement expenses. You can read it from the link at the bottom of this article.

The fate of agreed payments by the Superferry company is uncertain and will have to be worked out. Due to the way the state set things up, if the Superferry doesn’t pay, press reports state that other harbor users will be saddled with the burden.

The issue is covered nicely in this Advertiser article:

State Department of Transportation and Hawaii Superferry officials met yesterday to discuss the fallout from Monday's court ruling, including whether the company will have to continue making monthly payments of about $191,000 to the state in accordance with its operating agreement with DOT.

Under the terms of the agreement, Superferry must pay $2.3 million or 1 percent of its gross revenues, whichever is greater, in each of the first three years of the 22-year deal.

The payments are going into the Harbors Special Fund, which is responsible for reimbursing the state for the general obligation reimbursable bonds it issued to build $40 million in ferry-related improvements at Honolulu Harbor, Kahului Harbor on Maui, Kawaihae Harbor on the Big Island and Nawiliwili Harbor on Kaua'i.

The Harbors Special Fund collects all commercial harbor income, including mooring, dockage, and permit fees, tariffs and lease rent, so if Superferry folds, money from other harbor users will be used to reimburse the state for the ferry projects.

The unmentioned option, which would spare other harbor users—the state holds a third mortgage on the Alakai itself. While a third mortgage is not a great piece of paper, it was executed for a purpose.

Instead of placing the burden for these expenses on other harbor users, couldn’t the state take this piece of paper out of the drawer and use it to recover expenses, should no other agreement be worked out? And shouldn’t a guard be posted starting tomorrow to prevent the ship from fleeing its creditors?

Here’s what I wrote in November 2007, taken from a longer article:

I was curious to learn that the state of Hawaii has a mortgage on the Superferry. To me, a mortgage is a loan, so I was thinking that the ship might be arrested if it tried to flee the state. I have this fascination with ship arrests, you see (in a previous life I've even given a paper on marine credit at a conference). But this mortgage isn't a loan, it's security against payments to the state called for in the Operating Agreement between the state and the Superferry corporation. If for some reason you too are curious, the mortgage document is here.

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I believe the State has a third lien "mortgage" behind two others. Those are the first lien bond financer ABN-AMRO (now owned by the Dutch Govt.) and the second lien I believe was a smaller interest by Austal-USA. MARAD guarantees the ABN-AMRO bond. I don't think the State will actually be able to jump ahead of the Dutch Govt.(ABN-AMRO). The press conference tomorrow at 6:30am I think will be at least a happy official announcement of what they HOPE to do. It will be more SPIN.

If I were guessing I would say they are moving the Alaka'i to Guam and will bring the second vessel to Hawaii in hopes of trying to find some "legal" way to use it here. I also think they might tell the public the name of the second vessel for the first time tomorrow. I think they will also say that they will continue to work with whatever authority ends up doing the Chapter 343 EIS and that they hope that can be completed in a "few months." They will not say the following, but they will continue pursuing other more viable options should all of this breakdown legally or otherwise.

Well I was wrong on that second paragraph. I did not figure they would give up so easily. Although we have talked about them pursuing military lease contracts, I figured they might at least give the appearance that they wanted to try to continue to make good on the Harbor Operating Agreement. I am a little bit surprised they are giving up so easily. I put a bet on it last night and so now own somebody a nice meal over that one. All I can figure is Lehman is tired of losing money on this one. Most business people would not have been willing to lose between $10 to $20 million on something like this as I believe may have been the case.

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