As Regency Cruises remains in Chapter 11 and works toward reorganization, questions are surfacing as to why a red flag was never raised to indicate the cruise line's seemingly longterm financial troubles.

It is a joke when cruise industry executives were quoted in the travel trade press to be "totally surprised" by Regency's demise. There were signals a long time ago that all was not well when suppliers called this newsletter voicing concern about Regency's financial capabilities. Travel agents could also have told those industry executives that commissions were late.

Furthermore, simple arithmetic stacked the odds against Regency as its low priced advantage was wiped out in a market characterized by heavy discounting.

The big question is why management didn't come to terms with their situation and announce an orderly shutdown and reorganization?


Voluntary bankruptcy was filed for Regency Holdings (Cayman), INC. and six affiliated firms, including Regency Cruises, by Antonios Lelakis, president of the holding company. At press time, Lelakis is reportedly ensconced in Regency's New York headquarters working with a team of court­ appointed accountants, along with a skeleton crew of Regency staff members, to decipher financial figures and outline a reorganization plan.

According to Regency Vice President of Sales John Ruzich, at press time the company is in discussions with investors to devise a plan to "pay back the secured and unsecured creditors."

According to the bankruptcy filings, Regency's assets are estimated at $184 million; liabilities at $149 million; and secured and unsecured debt at $42 million. Additionally are initial lists of creditors holding the top 20 largest unsecured claims against Regency Maritime Corp. and Regency Cruises which total another $12 million.

(The asset estimate of $184 million seems excessively optimistic if it is based on ship values. Cruise Industry News has estimated the value of Regency's ships at $90 million, at most, of they were put on the auction block.)

The petitions highlight several reasons for Regency's sudden ceasing of operations: "The Debtor is suffering the effects of a weak balance sheet. Over the last twelve (12) months, liquidity has deteriorated as the result of a combination of factors, the most prominent of which was major investment spending on the acquisition of the Regent Jewel, a departure from the Debtor's focus on low cost tonnage."

The filing noted investment spending totaling $31.4 million in 1994 "principally representing advances to affiliates in connection with the construction of the Regent Jewel." It also cited construction delays of about five months which led to increasing investment costs and 20 canceled voyages.

The cost per berth value of the 1967-built Regent Jewel is a whopping $135,833, as compared with $27,810 for the Regent Sea to $82,541 for the Regent Rainbow, according to the bankruptcy papers.

Regency does not explain why the line decided to invest so heavily on the Regent Jewel particularly when Regency states: "The Debtor established its market position focusing on mature vessels with low per berth capital costs."

(Cruise Industry News estimated that when the Lelakis Group acquired Regency in 1993, the transaction suggested a per berth value of $20,000.

CIN calculations also show that the Regent Jewel's per berth cost outstrips the $113,414 per berth price of the nearly new Crown Jewel, whtch was sold in 1991 by Effjohn International to the Singapore-based Star Cruise. In particular, the Regent Jewel costs far more than such other recently sold cruise ships as Royal Caribbean Cruise Line's Nordic Prince for $54,347 per berth; and Norwegian Cruise Line's Southward, with a $31,914 per berth price tag.)

Regency also said that the investment spending on the Regent Jewel exacerbated the line's inability to float a $40 million public offering in 1994, which was followed by an unsuccessful private placement.

The company also blames a fourth quarter 1994 industry slowdown in business; and expanded management in anticipation of a successful IPO and subsequent fleet expansion.

If Regency formulates a reorganization plan, it would have to be submitted for court approval and pass muster with a creditors' committee, consisting of some of the company's secured and unsecured creditors, which will be formed within the next few weeks, noted Ruzich.

Regency may have an uphill battle in regaining the trust of many members of the travel agent community as thousands of agents and clients with future bookings were virtually left on a sinking ship.

A positive note, however, is that Regency has a $15 million guaranty posted with the Federal Maritime Commission (FMC) and issued by Newcastle Protection and Indemnity Association in the UK.

However, this bond only covers sea transportation and does not cover passengers booked on sailings departing non-U.S. ports. Hence, a significant number of passengers may be left with no financial recourse.

The bond was issued by the National Bank of Greece which presently holds $7 million in cash as partial collateral, according to the bankruptcy papers. The bank is listed as a secured creditor of $29 million.

At press time, Heather Hardy of Freehill Hogan and Mahar, a law firm which represents Newcastle in the U.S., said it is believed the bond will be sufficient to cover all claims that fit within the guidelines.

One scenario for reorganization would have a revitalized firm handle operations for the Regency ships which would be chartered. Ruzich confirmed that Regency has had discussions with other cruise lines.

Regency Cruises announced its shutdown on Oct. 29 after several sailings were canceled primarily because the line did not receive financing for the purchase of Princess Cruises' Fair Princess in mid-October. Events which preceded that included the sudden resignation of Ron Santangelo, the company's President; the arrest in Tampa of the Regent Rainbow; and an accident involving the Regent Star as she transited the Panama Canal.

A Man's Vision

Sometimes, a man's vision cannot easily be translated to hired management and quick profit motives. William Schanz, the former President of Regency, ran the company as tight-fisted as anybody could and was seemingly involved in every minute detail. He also made money until the downturn in the market when smaller losses started to mount. Still, Schanz had a cash reserve of more than $30 million in the bank and could have weathered a long storm.

However, when Schanz could not fill four ships profitably, what made the new management think they could fill six ships?