Harvard-Linked Fund Sank More Into Ailing Global Maritime Investments Despite Losses

By Tiffany Kary and Michael McDonald

(Bloomberg) — A fund linked to Harvard University saved sinking cash right into a dry-bulk delivery enterprise even whereas losses persevered, because the investor tried modern methods to keep away from troubles which have plagued the ocean transport business for the reason that monetary disaster.

Cayman Islands-based Francolin invested in Global Maritime Investments as a part of a 2011 three way partnership and spent the subsequent 4 years advancing cash to the transport firm, restructuring its debt and making an attempt to show a revenue within the tough enterprise of transferring items similar to coal, ore and grain throughout a worldwide delivery glut. Francolin has an oblique stake of 48 % in Global Maritime, based on courtroom papers.

It didn’t work. Global Maritime and most of its models filed for chapter this week in New York in search of to wind down the enterprise.

“While the investors thought they had hit the bottom in 2011, that was not nearly it,” John P. Melko, a lawyer for models of the bankrupt shipper, instructed U.S. Bankruptcy Judge Shelley Chapman at a listening to Thursday in Manhattan.

According to Harvard Management Co.’s tax filings, Francolin is a automobile the college used to take a position a few of its $36.4 billion endowment. Paul Andrew, a spokesman for the endowment, declined to touch upon the Global Maritime case or Francolin. The Wall Street Journal reported earlier on the Harvard connection.

How a lot of Francolin’s cash got here from Harvard wasn’t laid out in courtroom filings. The fund is listed in courtroom papers below a Cayman Islands publish workplace field, together with a “harvard.edu” e-mail handle. The agency didn’t instantly reply to a request for remark despatched to the handle. Attorney James Wilton of Ropes & Gray LLP, listed as Francolin’s counsel in courtroom filings, didn’t instantly return a name and e-mail in search of remark.

Not First

The Ivy League fund isn’t the primary to run into bother within the delivery business. WL Ross & Co., Oaktree Capital Group LLC and different private-equity corporations purchased vessels since 2010 within the hopes a worldwide restoration would enhance the enterprise. Instead, private-equity investments within the sector plunged, and IPOs had been known as off.

Francolin owns 48 % of Slipway, a holding firm that owns 100% of the shares in the primary Global Maritime unit in chapter, based on a courtroom doc. Harvard tax filings present that it had an funding in Francolin for the reason that 12 months starting July 1, 2011.

That was an inauspicious time to get into the delivery enterprise. In 2011, each Korea Line Corp., South Korea’s second- largest operator of dry-bulk vessels, and General Maritime Corp., the second-largest U.S. proprietor of oil tankers, filed for chapter safety.

At Global Maritime’s inception, Francolin agreed to fund a $90 million unsecured credit score facility, based on courtroom papers. Over time, Francolin tried to vary Global Maritime’s enterprise, Melko instructed the decide.

For instance, it ran a buying and selling desk on freight ahead agreements — contracts that enable ship house owners to hedge in opposition to charge volatility — closing that guide after a 2014 restructuring. It additionally chartered vessels on long-term contracts to subcontract them for higher charges. Just this 12 months, the corporate began a enterprise that manages a pool of ships owned by exterior events in addition to Global Maritime. The supervisor will get a fee and each day administration price, based on Melko.

Annual Losses

Global Maritime has misplaced cash yearly, together with $93 million in 2012. Management agreed to restructure its three way partnership and sure debt and fairness in June 2013, Chief Restructuring Officer Justin Knowles mentioned in courtroom filings.

In 2014, Global Maritime restructured its debt and fairness once more, courtroom papers present. In reference to that restructuring, Francolin agreed to make advances below a brand new credit score settlement to fund the acquisition of dry-bulk ships.

Early this 12 months, Francolin agreed to make two $5 million advances. Despite the try to restructure, internet losses in fiscal 2015 had been $67.5 million.

Francolin and different buyers fashioned a pooling unit to which the corporate and outdoors events would contribute vessels, based on courtroom papers. Owners of vessels that transport liquid pure gasoline began an analogous venture this August, often known as “The Cool Pool.”

Still the losses continued, and final month Francolin stopped advancing cash.

Under a $2 million mortgage proposed by Francolin, the corporate can’t use mortgage proceeds to pursue lawsuits in opposition to sure events, together with Harvard Management Co.

The mortgage is required to keep away from getting ships, together with these owned by exterior corporations, caught in overseas ports and seized.

“This market is going to turn, it’s just not going to turn soon enough,” Melko instructed the decide.

The case is In re GMI USA Management Inc., 15-12552, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

–With help from Alaric Nightingale and Naomi Christie in London.