They invested in Germany’s most popular cruise ship — and now their money is sinking beneath the waves.
In 2012, around 2,000 investors put more than €50 million, or $55.6 million, in a bond for the MS Deutschland, which for eight years has doubled as the setting for the popular German soap opera "Das Traumschiff," or Dreamboat.
Now the dream is over. On Tuesday, insolvency administrator Reinhold Schmid-Sperber, who has been managing the ship’s bankrupt operator MS Deutschland GmbH since November, confirmed the sale of the 175-meter-long cruise ship. But Mr. Schmid-Sperber was tight-lipped about the details, giving no details about the sale, the price or the buyer.
But Handelsblatt has learned details that raise questions about the deal and show that investors have lost most of their money.
According to an account statement from Berenberg-Bank, a U.S. firm called Absolutus 66 transferred $16.8 million to the account of the insolvency administrator on May 11. Its designated use was “MS Deutschland.”
But what the investors' money would actually be used for was buried in the fine print, and for good reason.
According to internal documents, the new owner is Absolute Nevada, based in Las Vegas. Insiders say it had already made a 20-percent down payment in March, suggesting it paid around $21 million for the cruise liner.
The cash will not all be passed to creditors, however. The MS Deutschland is currently moored near Gibraltar awaiting rescue by a new owner. It’s an expensive holiday: For safety reasons, a crew of at least 30 persons must remain on board to keep the vessel seaworthy. This is costing around €500,000 a month without generating a single cent in revenues.
Then there are the ongoing expenses of the insolvency administrator and consultants. Investors will be lucky to see a fraction of their €50 million.
Things were very different three years ago. Back then, the Munich private-equity fund Aurelius attracted prospective investors to pump money into the MS Deutschland with the lure of 7-percent interest — a lucrative proposal. “We estimate the current market value of the vessel to be $100 million,” wrote Hamburg appraiser Bernd Holst in the brochure.
But what the investors' money would actually be used for was buried in the fine print, and for good reason. “The issuer intends to refinance […] the current financial liabilities,” it said. In plain language: Investors’ money would be used to pay off short-term debts and prevent a bankruptcy. Classic debt restructuring, in other words. The plan failed.
Aurelius acquired MS Deutschland as part of its takeover of Deilmann, a long-established German cruise company, in 2010. At the time, no one suspected that the cruise liner would one day put out a financial mayday call.
But two years later, the operators suddenly needed money and issued a mid-cap bond. But in 2014, after the 2,000 investors had signed up, Aurelius suddenly jumped ship and sold MS Deutschland GmbH, which included its majority stake in Deilmann and the MS Deutschland, to Callista Private Equity, a Munich-based turnaround specialist.
But Callista couldn’t stave off bankruptcy.
Now the Americans are trying to set things straight. Strangely, it appears that Absolute Nevada, based in Las Vegas, could immediately pass the vessel on to a businessman called George Scarborough. In correspondence Handelsblatt has seen, he is listed as the “ordering party” and “final purchaser of the vessel.”
Mr. Scarborough is known to people familiar with the MS Deutschland. He has already tried and failed to buy the ship and is said to have good contacts with the senior management of Aurelius. It is not known why Mr. Scarborough seems to be acquiring the vessel through an intermediate company, or what he intends to do with it. He did not respond to inquiries from Handelsblatt.
The cruise ship, built in 1998, is an old lady compared to the cutting-edge cruising giants of today. Industry experts say that in recent years, the average age of its guests was 62. But that is set to change: The MS Deutschland is slated to sail for an American student organization.
It looks like seniors will be swapped for scholars when the ship returns to the open seas.