MARITIME FINANCE 2019
Updated: Aug 4, 2019
Maritime Sector Update Summer 2019
July 2019: Specialty Lenders Eye the Maritime Sector
While lower freight rates, the fallout from Basel III, and pockets of distress are limiting the funding appetite of traditional marine lenders, speciality lenders are stepping in to fill the gap. In the first half of 2019, six major banks and equity research firms terminated their shipping research - including stalwart Morgan Stanley. Taking advantage of the scarcity of capital and rising rates, are the alternative lenders including: specialty lenders, PE firms, opportunity funds, leasing companies, insurance companies, and family offices.
Positive Trends Buoying Specialty Lender Activity After a decade, the sector is finally benefitting from the long term structural improvements that followed the financial crisis of 2007/2008. These include: improvements in transparency, compliance, better corporate management, sustainability, sustainable/green investment projects and syndication structures with banks.
Strong Macro Growth Boosting Container Trade
IMF projected global GDP growth of 3.3% in 2019 and 3.6% in 2020 should propel container trade as world economic growth continues. Increases in retail container miles are expected as advanced economies seek cheaper production centers around the world that are farther from existing consumers. Container trade grew by 4.2% in 2018 and is forecasted to rise by 3.8% in 2019 which is above than the 2.6% long term growth trend.
The Opportunity for Nimble Capital Providers
The industry now faces the halfway period were much of the oversupply of tonnage created around the time of the credit crisis is accelerating the scrapping of older vessels. This drives the need for ship owners to find new financing sources for vessel acquisitions and new buildings. As finance has always been a key driver in maritime, financial institutions who remain active and are positioned for the new cycle in the industry will have a unique opportunity to provide profitable loans on favorable terms that are well secured to select names in the industry.
Competitive Advantages of Specialty Finance Specialty finance companies have a higher degree of tolerance and agility to navigate the lack of organizational structure and transparency of family-owned shipping businesses. In addition, they are more comfortable adjusting their financing structures and pricing to allow for the volatility associated with freight rates and assets prices
Emerging Specialty Finance Options
Private equity firms, hedge funds and venture capital are finding opportunistic investment options to provide capital, acquire shipping loans and manage non-core and distressed assets. We have seen several PE funds apply for banking licenses in order to compete head to head with conventional lenders.
Lender Terms: Pricing & Tenor
Return expectations vary from low double digits for mezzanine and junior tranches to a high teen for true equity investments, and a holding period preference of 5 to 7 years
Seven Shipping Segments Expected to Benefit from Alternative Capital Inflows:
Tanker (Product, Chemical, Crude)
Green Shipping Projects
Top Four Emerging Growth Regions
Europe (Greece, Norway, Germany)
Asia (China, Japan)
Middle East-Saudi Arabia (Qatar)
Characteristics of the Specialty Finance Players
Leasing Companies: Seek higher margins
Insurance companies: Prefer stable contracts, long term charters
Pension Funds: Prefer stable contracts, long term charters
ECA: Focus on profitability
HNI: Seek tax incentive and high margin
IPO & Stock market: Driven by growth projections and sentiment
The Need for an Advisor: The Role of Kligier Capital
As transaction layers increase and new entities enter the market there is a need for experienced intermediaries to arrange the transactions, negotiate and advise borrowers and create cost efficient and workable capital structures.
Avi Zukerman| Principal & Founder
email@example.com | (646) 552-7701
Rick Cosse| Executive Managing Director
firstname.lastname@example.org | (917) 836-6280