Are the Few Remaining U.S. Sailing Yacht Brands Circling the Drain?
THE RECENT ELEVENTH-HOUR DEAL TO KEEP CATALINA YACHTS ALIVE FOUNDERS AFTER JUST A FEW MONTHS ...
Peter Swanson, Editor and Publisher of the Loose Cannon newsletter on Substack, recently reported that the latest attempt to revive the nearly moribund operations of Catalina Yachts (Largo, Florida) appears to have fallen apart just a few months after being initiated.
The Loose Cannon piece, coupled with all the industry hoopla at the recent Fort Lauderdale International Boat Show, got me to thinking about what can only be described (politely) as a “general lack of financial transparency” in the boat and yacht building sector.
More on that in a moment. But first, as the annual series of South Florida boat shows kicked off last week with FLIBS, the current state of the U.S. economy, tariffs and, specifically, the yacht manufacturing sector, led me to ponder the danger signals that a boat builder or manufacturer may be facing imminent business failure.
This is especially important to potential boat buyers because boat buyers who order a new boat for construction and delivery at a later date almost always end up in the position of being unsecured creditors of the seller. And that means their deposits and any “progress” payments they’ve paid to date at exceedingly high risk in the event of a builder’s financial failure. The same also applies to any marketing entity (dealer, etc.) that may stand contractually in the sales chain between the buyer and manufacturer in question.
If it looks like a red flag and waves like a red flag…
Ironically, the single most telling sign of an impending financial failure is a backlog of multiple pre-sold or deposit-paid units sitting unfinished on the builder’s shop floor. Never mind the common wisdom that a bunch of builds in process are an indication of a thriving business.
A backlog of unfinished units, without any visible, significant progress being made toward completing them for delivery to their buyers, signals that the manufacturer is out of working capital. Since otherwise, the company would be finishing the builds in order to secure the remaining payments due. And a lack of working capital is a condition no company can survive for any serious length of time.
In such cases, if there is to be any chance of effecting a turnaround, without resort to bankruptcy filings, it’s essential to structure a creative financial plan that includes eliciting the agreement of secured and unsecured financial and commercial creditors, as well as the agreement and cooperation of the workforce (which is frequently owed back wages), plus buy-in from any existing dealers (who may be awaiting delivery of boats), as well as the consent of any boat buyers involved.
Even then, a successful turnaround generally requires fresh, but significantly experienced, management that can run lean with one primary short-term goal in mind, namely, the completion and delivery of all pending unfinished builds. This because completion and delivery generates necessary cash flow. Anything less sets up a turnaround effort for almost certain failure.
A reasonable level of caution and common sense…
If you’re a potential (or actual) boat buyer, what does all this mean for you?
If you’re contracting to have a boat or yacht to be built for you to order with, say, 10% down and the balance upon delivery of the finished vessel, then read no further. From a buyer’s standpoint, that is generally about as good as it gets.
True, few buyers would be elated over losing $10K on a $100K, and even less so losing $100K on an unfulfilled million dollar contract. But to put 10% at risk is usually manageable for someone in a position to “afford” the full-ticket sale price of a discretionary luxury purchase, in the first place.
However, if you, as a buyer, are required to put up more than that as a deposit, or if you’re required to make periodic “progress” payments during the build, you have to be particularly careful when entering into a purchase for a boat or yacht that is to be built-to-order.
First and foremost, you must have a clear written agreement as to delivered price, all included options and features, and a firm final delivery date (often called a “drop dead date”), after which you have the option of cancelling the order and receiving a full refund of all monies paid to date.
Note that I said you should have “the option”. You may ultimately decide that, even though the builder is far behind schedule on completion and delivery, you really want the boat and are prepared to wait, just not forever. The drop-dead date in the sales contract assures that you won’t have to wait ad infinitum for your boat because the manufacturer just can’t get it done. And if you think that can’t happen, just take a look at the history of builders like Catalina which end up stalled with a dozen or more partially completed boats on their workshop floor, boats being built on contracts with significant payments outstanding to collect when those units are completed and delivered. Again, more on that later.
There are several important additional steps you can (and should) take to protect your interests, under the Uniform Commercial Code (UCC), which has been adopted, in part or in whole, by most states in the U.S. These steps are straightforward and focus on establishing a preferred first security interest in the boat during the period of time it is still in-process and not yet in your possession. If you don’t achieve this type of secured interest in the work-in-process, your deposit and any interim payments could be subject to the superseding claims of secured creditors, should the builder fail financially.
This preferred security interest will extend to all monies paid to date by you, the buyer, in the form of deposits and progress payments. And will grant you a first secured mortgage on the vessel, which lien will have to be “perfected” (properly filed) with the state where the builder is registered to do business.
Of course, you will not only have to bear the added cost(s) of proceeding under the UCC, you will generally have to push hard to gain the necessary cooperation from the dealer and/or the manufacturer involved. But keep in mind that you will need to gain cooperation from the dealer and the manufacturer before you place the order and pay your initial deposit.
With a preferred first security interest and a perfected lien, you will stand ahead of unsecured creditors for satisfaction of your claim in the event that a company is liquidated in bankruptcy or the company assets are sold in “liquidation for the benefit of creditors”. Except, of course, for the bankruptcy lawyers and court costs.
Your preferred first secured interest and lien would mean you would stand in line before and have to be paid out fully before any of the proceeds of liquidation went to satisfy unsecured claims, for example, those for materials and fittings supplied by vendors to the boat manufacturer.
Nothing in life is completely without some risk…
Admittedly, it’s not a perfect solution, as there might not be sufficient value in liquidation to pay you out 100%. And it certainly won’t get you a completed boat. The most it does is preserve your investment to date. You would then need to take possession of the build in process and find a way to get the boat or yacht completed. Still, it’s better than the alternative which, for unsecured creditors, is usually losing everything they’ve invested.
Whether what you stand to get, in the instance, would be worth the effort and hard costs of establishing a preferred first security interest, depends on how much money is at stake. And that depends on your net worth and resources.
If you’re in a position to sustain, say, a five hundred thousand dollar loss without much noticing it, then perhaps the extra time and costs of obtaining and perfecting a preferred first secured interest isn’t worth the extra cost and effort. Understand that it’s entirely your call. Just don’t delude yourself into thinking a business failure will never overtake the firm manufacturing your boat. Yes, it never happens… until it does. And nobody ever loses money in a boat deal gone bad… until they do.
— Phil Friedman
Copyright © 2025 by Phil Friedman and Port Royal Group — All Rights Reserved
Postscript:
Read the latest update on the Catalina Yachts saga, from Peter Swanson and the Loose Cannon newsletter:
If you’re interested in the subject of transparency in the boat and yacht building sector worldwide, you might also want to look at the Loose Cannon article on the suit that’s recently been filed against Bering Yachts (Turkey) by two YouTube boat reviewers":
Author’s Notes:
1) The author of this article (namely, yours truly) was an active consultant in the acquisition of the assets of Tartan/Legacy Yachts by Seattle Northwest Yachts LLC in 2020, and later oversaw the completion and delivery of nineteen new yachts that, at the time of that acquisition, sat in various stages of in-completion, as Tartan/Legacy Yachts circled the drain.
2) Nothing in this article is presented as legal advice, but rather is purely the expression of personal opinion based on more than 40 years experience in the recreational marine industry. Anyone placing a substantial deposit or other payment with a boat dealer or manufacturer for building a boat to order, with a future delivery date, is advised to first review the potential issues and suggested remedies delineated here with a lawyer who has the necessary and appropriate experience. — PLF
Copyright © 2025 by Phil Friedman and Port Royal Group — All Rights Reserved
An interesting, informative, and incredibly useful article, especially for new vessel purchasers, written by an obvious professional in the industry.
Thanks for the effort you put in to write this.
Wow- illuminating and authoritative piece, Phil. I think I was talking about the "robbing Peter to pay Paul" syndrome just last week. A colleague was doing a routine inspection at a builder's facility and noted how hull numbers weren't matching up and that they were using deposits to finish older builds. The doors were locked inside of a week.