At 09.05 hours on 22 April 1942 the unescorted Derryheen (Master Harold Richardson) on her maiden voyage was hit on the port side in the after end of #5 hold by one G7e torpedo from U-201 while steaming on a non-evasive course at 11.75 knots about 300 miles west of Bermuda. The U-boat had first spotted the ship two hours earlier and already fired a G7e torpedo that malfunctioned at 07.56 hours. The explosion blew off the after section of #5 hatches and the nitrate stowed in this hold immediately caught fire. The hit was directly underneath the accommodation for the gunners and collapsed all bunks, however all men managed to scramble out over piles of debris through the only exit. While most of the 35 crew members, eight gunners and one British passenger aboard assembled amidships to launch the lifeboats, the chief engineer went below to stop the engines as they raced due to a broken propeller shaft and the radio operator sent distress signals. #2, #4 and #3 boats were soon launched in fine weather and #1 boat waited alongside for the master, who decided to leave too after about 12 minutes as the fire was burning very fiercely and the ship developed a list to port. He ordered the boats to keep together and lie to their sea anchors in order to reboard the vessel at daylight. At 09.27 hours, U-201 fired one G7e torpedo as coup de grâce which struck on port side in the engine room under the funnel and caused Derryheen to settle quickly and to sink by the stern at 09.50 hours. The survivors could hear the diesel engines of the U-boat nearby, but could not see it in the very dark night and the Germans left the area without questioning them.

A roll call at dawn showed that everybody was present and the men were divided amongst the four lifeboats, with eight in each of the smaller two boats that were in charge of the master and the third officer. They also distributed provisions taken from the rafts between the larger boats and then set sail, steering west-southwest. In the afternoon, a PBM Mariner aircraft (VP-74 USN) was sighted and attracted with the help of smoke floats in position 31°25N/70°45W. It jettisoned two depth charges and landed near the lifeboats, but could only take a few men aboard, so the master detailed the eight survivors in the boat of the third officer to board the flying boat. It brought them safely to NAS Bermuda and returned a few hours later, however the sea became too rough to land so it flew off after circling the boats several times while the survivors tried in vain to get in contact with a wireless emergency set. On 23 April, the weather had worsened with a strong wind blowing and a heavy sea running that swamped the boat of the master after the painter to one of the larger boats parted. They had to bale hard to keep it afloat, lost contact to the other lifeboats and rode to the sea anchor during the night until they had fine weather again at dawn on 24 April. The bad weather had not only separated the boats, it also prevented patrol aircraft from Bermuda and the rescue tug HMS Roode Zee (W 162) to search for them. In the morning of 25 April, the red sail of the boat in charge of the master was spotted by the British motor merchant Lobos which had a few hours earlier passed several empty rafts about 20 miles from the sinking position. The eight men were picked up within seven minutes and landed at Havana, Cuba on 29 April.

The larger lifeboats were equipped with engines but the magnetos were so saturated that they could not be started when they neared land. In the early morning of 2 May, the chief officer and eleven survivors in one of the remaining boats were picked up by HMS Polyanthus (K 47) (Lt A. Hague, RNR) and taken to Charleston, South Carolina. Later that morning, the lifeboat in charge of the second officer was sighted by an OS2U Kingfisher floatplane (VS-1D7 USN, pilot Ens K.R. Peachee, USNR) that landed alongside to identify and help the 16 occupants, but had to return to NAS Banana River due to a shortage of fuel. A PBY Catalina flying boat sent from its base could not find the lifeboat, however it was relocated during a search carried out by ten aircraft and the survivors landed at NAS Banana River in the afternoon after being picked up by a PBM Mariner flying boat.