I can get it for you Wholesale – Award for Innovation

There is no limit to the creativity of people in this industry. From the time when bilaterals ruled to today’s emphasis on capital markets, there is seemingly an endless toolbox of financial structures to provide capital to the industry. It was therefore very difficult to choose a transaction that epitomized the concept of innovation or, by definition, a new idea, method or device. Nonetheless, our attention was drawn to Germany, which historically was able to deliver what appeared to be infinite amounts of equity to the KG system with or without tax benefits.

In the orderly world of Germany, competitive forces have wrought change in one of the most successful ship financing models extant. Pressed to compete effectively with the leasing companies or operating lessors such as Seaspan and Danaos, the KG market had to find a way to reduce the front-end sales costs that burdened their transactions. Even the low equity return requirement could not offset the impact of the higher capitalized cost on cash flow resulting in less attractive returns. To combat this problem, new asset classes, including reefers and OSVs, that were less price sensitive were considered. A focus on newbuildings helped by minimizing maintenance requirements in the early years. Utilizing unhedged yen financing for part of the debt also kept expenses down thereby allowing more cash to flow to investors. However, these were mere band-aids on the problem. The solution was to attract a new type of investor at a lower cost, hence the need for an innovative solution. Institutions were an obvious target, but there were barriers to their investment in this industry.

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