Understanding Ship yard securitization

by Richard Henderson, Watson, Farley & Williams

Background
Securitisation in shipping is very much in vogue.

We have seen securitisation of banks’ shipping portfolios such as DNI’s program over the last couple of years.We have seen securitisation by owners of receivables, particularly container receivables, such as the high profile COSCO transactions but also the Wightlink (ferry) receivables and others. And we have seen securitisation by shipyards of their newbuilding projects. It is this which I intend to review here. As a firm Watson, Farley & Williams has been involved in a number of the pioneering projects in these markets. Last year Watson, Farley & Williams was involved in over $1bn of newbuilding securitisation and currently have another $1bn of such projects under way.

“Securitisation” is about the packaging up of receivables and obtaining funding by the issue of securities on the strength of the credit risk of those receivables. In a sense, it is a glorified form of factoring financed by the securities markets. However, the term has such a wide meaning that it is not necessary either to have a “receivable” or to issue any securities for a transaction to be described as a securitisation. Shipbuilding securitisation is a case in point. In practice, shipyards are looking for off balance sheet construction finance. This is not new and in one form or another it has been around for several years. If banks want to call it “securitisation”, fine. “Off-balance sheet work in progress finance” would probably be more accurate, but calling it “securitisation” seems to make it easier to sell.

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