Shipping Finance

Shipping finance by Lord Justice Roskill

()The Bank advances to one or more owning companies a large sum of money. It of course requires security. It will take a mortgage on the ship for that security. It may take other mortgages on other ships for the same security. If the ship, as often happens, is about to be time chartered, the the bank will take an assignment of the the time charter in order that the bank as assignee can benefit from the time charter in order to reduce the mortgage debt. In addition it will take an assignment of insurance policies and P&I club cover in order that in the event of total or partial loss of the ship the bank as the lender nay be suitable secured The effect of this is to ensure that the lending bank is completely secured against the insolvency of the borrower who intends that the bank shall obtain complete priority over the claims of other creditors against the borrower

PANGLOBAL FRIENDSHIP [1978] Lloyds Rep 368, 371

Why a shipowner will look for finance?

To rebuild the ship

Buy a second one

Convert, repair, alter a ship Refinance existing indebtedness secured on a ship

International element

Greek Shipwoner

Citibanks London Office

USA

Greek Shipwoner

Citibanks London Office

Cyprus Flagged Ship

USA

Two Common Elements

US dollars

English Law

Categories Assets
Immovables

Tangibles movables
Intagibles

UNCLOS 1982
Article 90 Every State has the right to have a
merchant fleet under its flag

Article 91 Every state shall fix the conditions for the

grant of nationality to ships in its territory, and for the right to fly its flag. Ships have the nationality of the state whose flag they are entitle to fly. There must be a genuine link between the state and the ship

Open Registries
Flag of Convenience

Second Registers

Why is the Flag relevant?

The law of the flag will invariable govern the Mortgage

The law of the flag will invariable govern the Mortgage

The law of the flag will invariable govern the Mortgage

Lenders security

Lenders concerns
Ship satisfies the requirements of the flag state

Extend of the any regulatory requirements with which

the owner will need to comply as a result of having the ship registered on the flag in question

 Flag

International Safety Managemen (ISM)t Code

International ship and Port Facility Security (ISPS)Code

How will this have an influence on the lender?

A lender will be looking to the ships earning capacity as a primary source of debt service

Hence

He needs to consider:
Maritimes Liens

Ship Detention
Political instability of the flag

Bareboat Charter Registration / Parallel Registration

Allows the registration of a vessel in a particular country to be temporarily suspended for the duration of a bareboat, or demise charter, with the vessel being registered in the name of the charterer on a an alternative register for the duration of the charter, during which tome it may fly the flag of the charterers chosen register

Characteristics
The owners title remains registered on the primary
register (registration merely suspended)

Mortgages will remain registered on the primary

register (Concern?)

The vessel will fly the flag of the country of the

secondary register for the duration of the bareboat charter

The One-Ship Company

Greek Shipowner

Cyprus company Liberian Company Panamanian Company

1 Liberian Ship

1 Panamanian ship

1 Cyprus

One Greek Shipowner

Three Ships

Under Three Different Companies

International Convention relating to arrest of Seagoing ships Article 3

A claimant may arrest either the particular ship in respect of which the maritime claim arose, or any other ship which is owned by the person who was, at the time when the maritime claim arose, the owner of the particular ship

In England, this provision can be found in section 21of the Supreme Court Act 1981 See EVPO AGNIC [1988] 2 Lloyds Rep. 411

Sister Ship Arrest

Loan and Guarantee facilities

loan payment in instalments

Currency Most often US Dollars

Interest fixed by Reference to the London Interbank
Offered Rate (Libor) - to be fixed periodically

The Revolving Facility

Term loans Revolving facility

Re-borrowing available up to the maximum amount of the facility

Guarantee Facility
The bank agrees to issue the required guarantee when called on to do so, while the owner agrees to counterindemnify the bank for any sums that the bank is called on to pay under the guarantee and pays the bank commission, usually calculate on an annual basis, for its services. The owner will will secure the counter indemnity in the same way as a loan, by mortgaging the ship to the bank

Syndicated Loans
Value

Risks

Bank 1

Bank 2

Bank 3

Agent Bank

Shipowner