Idle seized vessel giving bondholders a windfall

[MEXICO CITY] Drifting eight kilometres off the Aruba coast, the 591-foot-long (180 m) oil-servicing ship OSA Goliath has no projects to work on or contracts to fulfil. Yet in its idle state, the ship is generating a windfall for holders of a Mexican corporate bond that went bad.

The Goliath, once the property of Oceanografia SA, has been under the control of the bond trustee since it was seized four months ago following a default that was accompanied by accusations from Citigroup Inc that the contractor committed fraud on a US$400 million loan. Since that takeover, the bonds secured by the ship have soared 35 per cent to 115 cents on the dollar, almost seven times the average gain for Mexican corporate debt.

The trustee is now moving to liquidate the ship to compensate bondholders, tacking on penalties and missed interest payments to the payout amount. Estimated to be worth US$245 million as recently as last year, the ship could fetch a price that would be more than enough to cover the US$160 million of defaulted bonds. While there's still a risk that Mexico might try to claim the ship as an Oceanografia asset amid criminal probes, investors are betting the sale will go through.