The visceral scene immediately took Robert back to his life-altering visit to the Astir Palace Hotel in Greece a little more than a year ago where he had met the smooth-talking shipping scion named Spyrolaki – and his man-eating companion, Aphrodite. It was there that Robert consumed the mind-altering “Shipowner’s Punch” and agreed to buy the 1977-built Delos Express in a deal that forever altered the arc of his life.
But what reminded him most of his Hellenic adventure was the warm wind blowing in from the Bahamas. Like centuries of men before him it had been the mysterious Greek wind that had given Robert the confidence to take a chance and buy the old cargo ship – a type of confidence that was more emotional than financial and one he had never experienced while huddled behind his computer screens in Manhattan.
Although he knew that Magnus had probably made an innocent scheduling mistake, Robert hoped he hadn’t. He hoped that Luther Livingston really was in the fashionable South Beach hotel because he knew first-hand that the meteorological conditions were ideal for selling a shipping deal.
Robert’s pulse quickened when he noticed the smudgy silhouette of half-a-dozen cargo ships suspended in the place where the smoky blue sky met the shimmering teal-green Atlantic Ocean. He hadn’t been in the industry for long but his brief ownership of the Lady Grace and his visit to the Viking Alexandra had taught him much about the ghostly apparitions floating on the horizon.
While most Americans would have indiscriminately thought of the vessels as “tankers” Robert knew from the cranes extending from their decks that they were actually bulk carriers or possibly small container ships. He also knew these ships were capable of loading and discharging cargo in the primitive ports of the Caribbean that didn’t have cranes on shore.
Although the anonymous and transient specks on the horizon would appear insignificant to most people, Robert knew each was in fact a multi-million dollar, multi-national corporation; they might have been built in Korea, China or Japan, owned by Greeks, Norwegians or Danes, financed by a bank in Germany, England or Holland, crewed by Indians, Filipinos or Ukrainians, and flying the flag of either the Marshall Islands, Panama or Liberia from their stern.
And while the geometric shapes appeared uninhabited from a distance, Robert knew there were at least twenty hardworking officers and crew representing a variety of nationalities and religions co-existing onboard. At that very moment, the ones on duty were working on the bridge, chipping paint on the deck or working in the burning hot boiler room. The off duty seafarers were watching movies, playing instruments or sleeping. If the shipowner had provided for an internet connection most were undoubtedly exchanging email with friends and family on the other side of the world.
Most significantly of all, Robert knew that every one of the ships on the horizon were “in ballast” because of how high they were sitting in the water. The high freeboard meant the ships were empty and every day a ship is empty is a day the shipowner loses money that can never, ever, be recovered; cargo space was the ultimate perishable commodity.
Deflated by the anticlimactic start of his first-ever roadshow, Robert withdrew the BlackBerry from his pocket and called Magnus to check in. But just as the telephone began to emit the heavy tone of a European telephone number, Robert’s eyes were drawn to a figure emerging slowly from one of the white canvas cabanas next to the swimming pool. He switched off his phone and watched the silhouette lash the sash of a robe and raise his left arm directly above his head, as if striking a sun worshipping yoga pose.
When Robert Fairchild squinted and placed his hand over his forehead to block the glare of the afternoon sun, he instantly recognized that among models and movie stars, has-beens and would-bes, rappers and their hangers-on, stood his former boss – Luther Livingston.
Despite the tropical conditions, Robert instinctively tightened his necktie and began to walk slowly down the steps toward the pool for his dramatic entrance. Having spent the last fifteen years on the “buy-side” as an investor at Eureka! Capital he had grown accustomed to wearing a more subtle uniform of zip-neck cashmere sweaters, Patagonia vests and gray flannel trousers. But for the next ten days, he would be on the “sell side,” which meant asking for money, begging for it – an activity that called for altogether different attire. The unspoken sartorial understanding on Wall Street was a simple one: the people who had cash didn’t wear ties and the people who needed it did.
As he drew closer, Robert realized that the man standing in front of the white cloth cabana was altogether changed. Luther’s trademark navy blue suit had been replaced by the white terrycloth robe. His wingtips had yielded to white Japanese slippers and his perpetually porcelain skin had been baked to a fiery red. The two men stood several feet apart, silently examining one another with mutual amusement; Luther was amused that Robert looked like he now had a real job and Robert was amused that Luther looked like Jack LaLanne on steroids.
“I don’t think I’ve ever seen you wearing a necktie,” Luther said as he opened his arms and exposed his cherry-red trunks.
“I know I’ve never seen you wearing a red Speedo,” Robert chuckled as he surmised that Luther had lost his marbles as a result of too much clean Lutheran living.
“Where are all the baby bankers?” his host asked with renewed energy as he peered over Robert’s shoulder at the stairs leading up to the white Art Deco hotel. “Are they bringing your luggage upstairs or looking around for a Kinko’s to make copies of the pitch book?”
“Nope,” Robert said. “I’m flying solo.”
“You’re doing a $500 million IPO roadshow and you don’t have any young kids running around carrying spiral bound books and critiquing your performance?” Luther asked.
“It’s just me,” Robert said and couldn’t help but laugh at his own ridiculous predicament. “Coco Jacobsen is sensitive to expenses so he is making me do the first ever self-service IPO in exchange for paying the investment bank a smaller underwriting commission.”
“Smart guy,” Luther said. “Does he have you flying commercial?”
“Not yet,” Robert smiled, “but if you don’t order some shares in the next twenty minutes I bet I’ll be going home in the back of a JetBlue plane.”
“We can’t have that,” Luther said.
“So how have you been, Luther?” Robert asked. His soothing tone was intended to invite a discussion of the potentially compromised mental state of the investors who had first put him in business at Eureka! Capital.
“Never better, kid,” Luther said as he pulled open his robe to showcase his ripped abdomen. “Punch me, baby!”
“Excuse me?” Robert asked as he looked at the man. He couldn’t help but wonder whether this entire encounter was part of a new reality TV program that tracked the movement of out-of-work hedge fund managers like wild animals tagged with GPS beacons. He scanned the carnal scene at the Tiki Bar but couldn’t find a single Kardashian sister.
“There’s just nothing like a young wife, a few milliliters of human growth hormone and a little synthetic testosterone with your organic granola every morning,” he said.
“Sounds like the Breakfast of Champions,” Robert said. “Listen Luther, I appreciate your taking the time to learn about the Viking Tankers deal,” Robert said gently. “I know how precious vacation time is and it means a lot to me that you are.”
“I’m not on vacation,” Luther snorted.
“Oh,” Robert said, “are you down here for a conference?”
“Hell no, baby, there’s no vacation and there’s no conference – that’s my new office!” Luther said and pointed toward the cabana enshrouded by white linen curtains. “I live here now. My wife and I live in the penthouse suite of the Delano Hotel – and it’s free, dude, totally free.”
“Your wife?” Robert said to Luther, a man who had spent his life married to his portfolio of distressed investments.
“Things happen fast in the tropics,” Luther said.
“I bet,”
Robert said. “Congratulations.”
“Thanks, bro,” Luther said and looked admiringly at the hoard of attractive men and women standing around the Tiki Bar. “She was my life coach,” he said.
“But how can you live here for free?” Robert asked. “What does that mean?”
“It means there isn’t any income tax in Florida,” he said. “This place costs me less than I paid in income tax to Utah,” he said. “How cool is that?”
“Very cool,” Robert confirmed.
“And the real estate taxes I don’t pay by not owning a home in Salt Lake City are enough to buy us dinner at Nobu every night! We’ve been living on black cod and spicy rock shrimp!”
“It sounds like you’ve really figured out the system,” Robert said.
“Everything in life is a trade,” Luther said. “I went short my job and long my life. I just wish I’d figured it out thirty years ago when I was a bit more vigorous.”
“You look pretty vigorous to me,” Robert said.
“Thank you,” Luther said.
When Robert looked into the canvas cave from which Luther had emerged, he spotted the red herring for the Viking Tankers IPO. The waterlogged document was sitting on the low teak table next to an asthma inhaler, a tiny syringe and a white ceramic ashtray in which two of Luther’s fat cigars sat smoldering.
Even from a distance, Robert noticed that there were dozens of tiny multi-colored plastic flags attached to the various pages of the swollen offering memorandum. Judging from the volume of flags Robert figured Luther was going to have a lot of questions about the deal.
“I see you’ve been doing your homework,” Robert said.
“I’m probably the only human being in the world who has read your entire prospectus other than you and the lawyers,” the old man laughed as he tossed his robe over a teak lounge chair and stepped out of his slippers. “I bet even your mommy hasn’t read that term paper.”
“I really appreciate your taking the time,” Robert said.
“It’s nothing. Actually, the steroids keep me up at night,” Luther said. “I picked up your prospectus thinking it would put me to sleep but that sucker read better than a John Clancy novel.”
“I’m glad you enjoyed it.”
“It was awesome. Now come with me, Bobby,” Luther said and motioned toward a pair of chaise longue chairs submerged in the shallow end of the swimming pool. “We’re taking a voyage together.”
“Pardon me?” Robert asked unsteadily.
“Get in this pool right now or I won’t give you any of the Church’s cash…which means you’ll spending the rest of your roadshow in the back of the airplane with the screaming babies,” the old man barked.
“I’m all yours,” Robert laughed as he kicked off his loafers and peeled off his black socks. “Just be gentle.”
“And what better place is there to talk about a maritime deal than in a swimming pool by the sea? I even noticed some tankers out there,” Luther added and pointed toward the empty bulk carriers on the horizon. “I bet those babies are making money as we speak. This is perfect.”
“It sure is,” Robert agreed, “except that I’m wearing a wool suit.”
“We both know you’ve suffered far greater indignities working for me than this,” Luther chuckled. “Besides, that’s the beautiful thing about Miami Beach,” Luther said as he waded toward the furthest chair and sat down. “Nobody cares what you do down here as long you got the scratch – especially a couple of old guys like us.”
“Us?” Robert choked. That an octogenarian included him in his generational peer group did little to ease Robert’s anxiety about turning forty in less than two weeks. Then again, Luther seemed sharper and more physically fit than Robert was at thirty-nine, so maybe he could learn something.
Once he had removed his shoes and socks and rolled- the pants of his suit above his knees, Robert waded fully clothed across the shallow end of the pool. Sure enough, not a soul at the crowded Tiki Bar looked twice; not even Luther’s new bride.
“So why don’t you tell me about this little offering of yours, Robert,” Luther said as he splashed water over his crispy red flesh and lovingly admired his bouncing pectoral muscles.
“With pleasure,” Robert said, relieved to finally be getting down to business. “Viking Tankers is one of the largest owners of…”
“Bobbie, did you know I’ve made money for those Lutherans in almost every distressed industry in the world – coal, steel, telecoms, mining, autos, pulp and paper…you name it and I’ve tamed it, but reading the Risk Factors in your prospectus was more exciting than watching Argo.”
“Um, thanks,” Robert said. “We tried to articulate the risks and opportunities associated with…”
“Tanker shipping is a spicy dish in a world of bland investments,” Luther interrupted. “I don’t think I’ve ever seen an industry where rates can quadruple one month and drop almost to zero the next.”
The psychotherapist who worked on the institutional sales and trading desk at Haakon Gate Capital had counseled Robert about how to deal with American investors who were nervous about the inherent volatility of tanker shipping.
“And that’s the beauty of this deal, Luther,” Robert said. “We were able to lock in very high time charter rates on the ten vessels at a time when the supply and demand for ships was imbalanced in our favor. That’s how we’ve been able to get the risk out of the deal.”
“Zip it, Fairchild,” Luther buzzed.
Robert glanced down at his suit pants and said, “It is zipped.”
“Look, I know you shipping guys are used to buttering up your bankers by telling them there’s no risk in your business, but I’m an equity investor, kid; you need to tell me a different kind of story.”
“I do?”
“For the true equity investor risk isn’t something to be ashamed of, Fairchild, risk is something to be embraced – something to be celebrated! Risk on, bro! The way I see it, this is a business where you hit a homer or you strike out, which is perfect because I’m looking for a double,” Luther said.
“Huh?” Robert said, unable to follow the mix of metaphors.
“I want a two-bagger in three years or I want to lose all my money and the supertanker business appears to be one of the few that is sure to provide me with that.”
“Okay, so you are looking for an investment that will double your money or wipe you out?” Robert asked slowly as he struggled to process Luther’s line of reasoning.
“Just between you and me,” Luther said, “the Lutheran investment committee is going to take back all the un-invested money in my Distressed Opportunities fund at the end of the year.”
“Why?” Robert asked.
“Because they think there are no more Distressed Opportunities left,” Luther said, “which is why I’ve decided to give all my money to you.”
“Wow,” Robert said. This was, literally, a gift from God. “Just out of curiosity, Luther, how much un-invested money do you have left in your Distressed Opportunities fund?” Robert asked gently and stroked the string of worry beads that were in his pocket.
“About $125 million,” he said, “but I want twice that much.”
“You want $250 million worth of shares in Viking Tankers? But that’s half the deal.”
“You always were good at math,” Luther said. “Your deal is a no-brainer, right? Here’s how I see it; I can get a 50% margin loan from a commercial bank which costs 4%. I can use that money to buy twice as much Viking Tankers which is going pay me a guaranteed yield of 14% thanks to those time charters you have with American Refining Corporation.”
“Okay,” Robert said slowly. He hadn’t even considered the idea of an investor putting leverage on the already highly leveraged shares of Viking Tankers; maybe Luther really was a shipping man after all, Robert thought.
“By the way,” Luther said, “those charters to ARC are rock solid, right?”
�
�Of course they are,” Robert scoffed.
“No chance of default?”
“Less than zero,” Robert confirmed.
“Good, that means that for every dollar I invest in Viking Tankers I get twenty-eight cents of dividends minus four cents for the cost of the margin loan. That means I make twenty-four cents on every dollar, every year, which is a 24% annual dividend and it’s secured by your leases to American Refining, a company that has bonds that yield about three percent. This deal is easy money.”
That was when Robert realized that he had been right all along; Luther really was investing in the dividend and not the actual value of the ships themselves. And he didn’t even seem to mind the fact Viking Tankers wasn’t amortizing much of its bank debt or that half of his coupon was a return of his own money while the other half was a return on his money; God bless America.
“And here’s the kicker,” Luther said. “I only have to pay 15% tax on my turbo-charged dividend thanks to George W. Bush,” Luther shouted. “What am I missing here?”
What Luther was missing, of course, was that the initial valuation of the IPO was double the value of the ships which meant that if anything went wrong with the time charters to ARC the value of the company would plummet to the value of its old tankers – and Luther’s church would lose 50% of his money overnight.
As Robert stared at the nearly naked Luther Livingston, an inconvenient moral dilemma formed in his mind: was there any sort of ethical issue associated with selling $250 million worth of shares in Viking Tankers to a religious organization whose investment manager was clearly in the throes of a personal crisis? Given more time, Robert might have written an anonymous letter to Randy Cohen, who wrote “The Ethicist” column for The New York Times, to seek an answer to the moral quandary.
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