Opinion ID: 409578
Heading Depth: 2
Heading Rank: 5

Heading: The Bay Ridge Decision

Text: 27 In 1969 Seatrain Shipbuilding Corporation, a subsidiary of Seatrain Lines, Inc., commenced construction of a series of four VLCCs. The third vessel in that series was the Stuyvesant. The fourth was the Bay Ridge. The Bay Ridge was constructed largely through government financing-a $28.8 million CDS and $81 million in debt obligations guaranteed by the United States. 22 The financing was pursuant to a contract between MarAd and Fillmore Tanker Corp., a subsidiary of Seatrain. 23 As required by the Act, that contract contained a provision, Article 9(b), limiting the vessel to the foreign trade. 24 28 In May 1979 the Bay Ridge was sold in a leveraged lease transaction to the United States Trust Company, acting not in its individual capacity but solely as owner-trustee on behalf of two owner-participants, Security Pacific Leasing, Inc., and American Road Equity Corp. The vessel was then bareboat chartered to Richmond Tankers, Inc., for 22 years, its full economic life. Richmond was originally organized by Seatrain specifically for this purpose. Substantially all of the obligations of Richmond with regard to the charter-hire payments to the owner-trustee are guaranteed by Seatrain. Seatrain is also required to pay all of the operating costs of the Bay Ridge, and all other costs of Richmond should revenues fail to cover such costs. 25 29 The upshot of this somewhat confusing leveraged lease transaction is that the government's only recourse, in the event of default on the loans it has guaranteed, is against Seatrain or Richmond or, ultimately, the vessel itself. 26 The owner-trustee and the two owner-participants have managed (such is the nature of the leveraged lease transaction MarAd has allowed) to remain free of any entanglement or any ultimate financial responsibility. 30 Upon its delivery on 17 May 1979 there was no employment available for the Bay Ridge in the foreign trade. It went immediately into lay-up where it remained until early 1980. On 17 April 1980 it entered the domestic trade pursuant to a six-month waiver of the domestic trade limitations. 27 During that time, the Bay Ridge carried Alaskan crude from Valdez to the western terminal of the Panama Canal, completing six voyages. The vessel then went into lay-up again. 31 It was readily apparent that the vessel had no prospects of supporting itself in the foreign trade, even with a six-month waiver each year allowing it to operate in the domestic trade. 28 As a consequence, Richmond was in grave financial straits. Seatrain was all but bankrupt. 29 32 By application dated 1 May 1980 Richmond requested that MarAd amend the CDS contract with respect to the Bay Ridge to remove trading restrictions in exchange for CDS repayment. Richmond's application was noticed in the Federal Register on 15 May 1980, and comments were received on the application. By letter dated 13 November 1980, less than a month after publication of the interim rule, MarAd announced its determination that it would grant Richmond's application. 30 At the same time, MarAd announced that it had considered and decided to defer other pending CDS-repayment applications. MarAd stated that it acted immediately on Richmond's application because of grave financial difficulties not faced by the other applicants. 33 On 19 January 1981 the CDS was repaid. The money was raised through the issuance by the owner-trustee of Title XI bonds guaranteed by the government. 31 Since that time the Bay Ridge has been profitably employed in the Alaskan trade.