Deal of the Year –2002 Tax Advantaged Structures

The term “shipping tax lease” is, for the most part, an oxymoron. This is because one of the key ingredients to a vibrant tax- leasing environment is something that is hard to find in the shipping markets – companies that pay taxes (“I have an allergy to paying taxes,” a shipowner once told us) and governments interested in encouraging shipping investment by retail investors. Yet having said that, this year we saw a lot of very interesting tax advantaged structures done and more so than any other variety of transaction seen in these pages, these deals may provide a blueprint for what can get done in 2003.

A quick around the dial: the KG market, driven mostly by accelerated depreciation benefits for individual investors, was not a fertile ground of innovative deals. In fact, until mid-November most every KG deal done in 2002 had been a holdover from 2001, due to the threat that tax benefits would be stripped away and the fact that deals announced before 12/31/01 were permitted to be executed in 2002. But necessity is the mother of invention and the threat to KG market inspired promoters to come up with the AG structure to tap the institutional market, such as insurance companies. We saw Konig & Cie team up with Columbia to form Konig & Columbia AG, Rickmers formed Oceanica AG and Hansa and Warburg teamed up to create an AG of their own. Although the Hansa fund is the only one to have raised money so far (about Eur 40 m) we expect this structure to gather momentum as traditional KGs are phased-out and insurance companies recover from a devastating year in the European equity markets.

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