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Why Ship Finance Debt Arrangement is the New Investment Banking

Mar 1, 2024

Matt McCleeery

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The business model of a vessel operating leasing company like Ocean Yield (“OCY”) works like this: OCY uses its balance sheet to buy a vessel which they rent to someone who uses it to move stuff around. This may appear simple, but here’s the rub: it only works if OCY can charge a higher daily charter rate for the vessel than it costs them. Oh, and by the way, the cost has to be acceptable to the customer who has a lot of other alternatives, including their own balance sheet.


The idea that a business needs to capture a profit margin in order to survive is not unique to vessel leasing, but it does highlight how important cost of capital is to a company like OCY; a penny saved is a penny earned, literally. Cost of capital was a strategic reason why KKR Infrastructure bought OCY from Aker and took it private in 2022; they figured they could bring a lower cost of capital and thereby make OCY more competitive compared to other alternatives. We agreed and awarded them a Deal or the Year award for the transaction.


This week, Fearnley Securities announced that they had arranged $90 million of pre- and post-delivery debt financing for OCY to leverage two of the eight newbuilding Newcastlemax bulk carriers that they will own and charter to CMB for 15 years. The Fearnley transaction is an example of a trend that we see more and more these days: borrowers mandating Arrangers/Financial Advisors to help them get the best possible execution from lenders. In the old days, an OCY-caliber company would have simply phoned up (or had lunch at D/S Louise with) one of their house banks – and everyone would take the afternoon off having done a nice piece of business. Not anymore. The marketplace for shipping debt has become dramatically more complex and dynamic, especially when it comes to non-recourse borrowers.

These days there are more capital providers to shipping than ever, and they are hungry for high-quality deals like this one, but they are located in different markets all over the world and have their own unique desires and requirements. For example, investment bank Alantra has done an excellent job raising capital from lenders in the Middle East, a region that has not historically produced much ship finance. Alantra received a Marine Money Deal of the Year award for their work with Shuaa Capital, a prominent asset manager based in Dubai, that raised debt capital from a consortium of UAE and Saudi Lenders. Alantra has also raised capital for a prominent UK Asset Manager to fund the pre- and post-delivery payments of a fleet of Containerships and is currently raising debt for a Greek owner from the UAE. Fearnley used two Chinese banks for the OCY deal and recently raised $29 million in Japan for non-bank lender Maritime Asset Partners. Alantra has been quite active with Taiwanese banks, having raised in excess of $250m in 18 different transactions from two different lenders.


In today’s dynamic marketplace, getting the best possible terms for shipping loans and leases requires a lot of price discovery, global marketing, and the creation of competition among a wide swath of lenders, which is not always efficient for borrowers. We have even heard of arrangers taking borrowers on roadshows and setting up auctions for the arrangement of lease financing – something borrowers might be uncomfortable doing over lunch with a relationship banks. So, with equity issuance down, it seems that lease and loan arrangement are the new investment banking – minus the roadshow lunch at the St. Regis.

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