Tapping into U.S. Finance Companies

As most Marine Money readers have probably noticed, there are no less than a half dozen American finance companies presently peering through the window at the ship finance industry and deciding whether or not they want to come inside. There are a few reasons for this. First off, the current low interest rate environment has caused the expensive margins historically offered by finance companies to become more appealing to shipowners. Second, finance companies like Boeing Capital, GATX and GE Capital that are heavily invested in aircraft view ships as another so-called big-ticket asset class through which they can diversify sector risk while still capitalizing on their structuring expertise.88For finance companies, making inroads into shipping will not be without challenges. During the last few years, shipping has suffered from too many lenders chasing too few corporate credits and the resultant low pricing will not be appealing to finance companies. That said, though, the trend is favorable for finance companies, which represent the middle ground between banks the capital markets. The contracting liquidity and rising prices we saw in 2001 may give finance companies an edge they haven’t had in the past. In addition, as we steam into depressed markets, the finance company specialty the sale/lease back will probably be appealing to owners who have identified attractive investment opportunities in which to deploy their “unlocked” equity. The same deals that are getting done in KG market could start getting done with US finance companies. Whether it’s cash strapped companies that wish to sell and leaseback in order to raise cash or owners looking to window dress their balance sheets, US finance companies may provide the “dry powder” necessary to empower owners to make superior investments.88In reality, though, sale/lease backs are easier said than done. Infinite OPA 90 risk, which extends to financial parties, make the ownership of tankers especially tricky.

While giants like BP offer OPA indemnification, smaller owners don’t. The problem is hardly limited to tankers, as even a bunker spill from handy size bulk carrier can rack-up enormous claims. There have been some examples of finance companies owning tankers, but they have been few and far between, often resulting from bankruptcy redeliveries. For the lawyers able to crack this riddle, the riches will be plenty.

This is only an excerpt of Tapping into U.S. Finance Companies

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