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Alternative Financing in the Shipping Industry

In the decade since the global financial crisis, ship financing has undergone considerable change. Traditionally, debt financing with banks and equity financing were the most common methods used by shipping companies to raise money. However these forms of traditional financing have been increasingly replaced by alternative sources of funding such as convertible debt, private equity and sale-and-leaseback arrangements. This trend has increased over the past year caused by, in part, the volatility in the sector as a result of the COVID-19 pandemic, and certain banks, most notably many European banks, exiting the sector and selling their shipping portfolios or not taking on new business while existing loans are paid off.

Sale-and-leaseback arrangements have increased in popularity recently. Under a sale-and-leaseback arrangement the original ship owning company sells a vessel to another company, and then leases it back from them. The original ship owner then becomes a lessee and the new buyer a lessor. Sometimes the transactions will also include a purchase option, pursuant to which the lessee has the right of first refusal to repurchase the vessel at the end of the lease. Due to the increased popularity of sale-and-leaseback arrangements in 2020, BIMCO introduced SHIPLEASE, which is a standardized term sheet for use in sale and leaseback transactions.

 

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Alternative Financing in the Shipping Industry

 


Guy Cooper
Director

Bermuda   +1 441 299 4938



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