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Investor keeps Odyssey buoyant

The Tampa marine explorer gets a cash infusion of $7-million.

By SCOTT BARANCIK
Published September 18, 2007

Odyssey, which scans the ocean floor for valuable shipwrecks, received nearly $7-million from Fortress Investment Group.
	[AP Photo]

Odyssey Marine Exploration nabbed a small treasure last week, and it didn't even get wet.

The Tampa company, which scans the ocean floor for valuable shipwrecks, received nearly $7-million from Fortress Investment Group.

In exchange, Odyssey issued preferred stock to the New York-based investment management firm, which already was its second-largest shareholder at 8.7 percent.

The cash infusion will buy Odyssey extra time to resolve a frustrating legal battle with Spain over ownership of a much more valuable treasure: the shipwreck code-named Black Swan. In May, Odyssey announced that it had pulled more than 500,000 coins from the Atlantic Ocean wreckage of what it believes to be a 17th-century vessel. The coins could fetch an estimated $500-million.

But Spain filed legal challenges to Odyssey's claim, speculating that the company may in fact have stripped the coins from a Spanish-owned wreck.

The court battle forced Odyssey to spend millions of dollars on legal and diplomatic efforts that it might otherwise have spent generating income, such as by cleaning and selling Black Swan coins.

It also left the company with a cash shortage. Starting this year with just $2.4-million in cash reserves, Odyssey suffered an operating loss of $10.1-million during the first half of the year. Private investments - $6.6-million in January, then $7.7-million in May - kept it afloat.

For Fortress, last week's $7-million investment was a veritable drop in the bucket. The firm's clients, which include pension funds as well as wealthy individuals like presidential contender John Edwards, have $43-billion worth of investments in its various hedge funds, private-equity funds and other vehicles.

According to a federal regulatory filing, Fortress purchased preferred Odyssey stock that are convertible to common shares at the rate of $5.35 a piece. That amounted to roughly a 10 percent discount from the stock's market price as of the Sept. 13 transaction date. Another provision said that if Odyssey ever filed for bankruptcy protection, Fortress would be repaid its entire $7-million investment before common-stock holders received a penny.

Steve Vazquez, a securities lawyer at Foley & Lardner in Tampa, said such deals are not uncommon. Private investors like Fortress receive preferential terms for two reasons.

First is the size of their investment; the only other way Odyssey could have raised $7-million so quickly was to borrow it, which can be costly. Second, Vazquez said, Fortress' investment is risky. If Odyssey's stock price were suddenly to leap up or dive, it would take Fortress weeks or months to liquidate its stake in the thinly traded equity.

Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

[Last modified September 18, 2007, 12:36:51]