A ‘tidal wave’ of liquidity washed into the industry last year. What will be the dominant ship finance themes over the coming 12 months?
Shipping finds itself in a strange position going into 2022. With the notable exception of the tanker trades, the industry looks an attractive one to lend to for the first time since the global financial crisis.
Setting the scene, Matt McCleery, the president of Marine Money, recounts how in 2021, a “tidal wave” of liquidity washed into the shipping industry. The liquidity was generated by very strong containership and bulk carrier markets combined with exceptionally loose fiscal and monetary policy. This led to robust bond issuance, prepayment of expensive debt, asset inflation, attractive terms on refinancings and not a lot of demand for new capital.
Plenty of owners are using the bounty of 2021 to pay down debt
Shipowners are likely to be more asking for a lot more of their ship finance sources in 2022.
“They will ask for money and higher leverage in view of the good markets and unusually good cash flow and a lot of optimism,” says Dagfinn Lunde, the veteran ship financier recently appointed chairman of Cleaves Securities.
Shipowners will likely seek loan-to-value (LTV) ratios as values rise, suggests Tim Huxley, chairman of Hong Kong-based Mandarin Shipping. For Huxley, though the big story for ship finance in 2022 will likely be how much debt will get repaid. “Plenty of owners are using the bounty of 2021 to pay down debt and look to become debt-free,” Huxley observes.
Michael Timpone, partner and head of law firm Seward & Kissel’s transportation finance group, sees the discontinuation of LIBOR as a big theme in 2022.
“Banks are no longer able to issue new loans based on LIBOR, and alternative rates such as SOFR will replace LIBOR,” he explains.
Ted Petropoulos, head of Greece’s Petrofin Research, reckons this year will see an increasing shift away from S&P-related loan transactions to newbuilding ones.
“The higher newbuild prices will pose some difficulties for lenders and owners alike,” Petropoulos predicts.
Club loans, especially for newbuildings, will become more usual, he reckons. These may involve pre-delivery finance.
“Owners will ask for flexibility and commitment as well as built in interest hedging facilities to meet the rising interest rates risk. Owners will look for loans not necessarily linked to period charters as well as for higher loans to values,” Petropoulos tells Splash.
Everyone polled for this ship finance survey agrees that sustainability loans will take greater prominence this year and there will be an increased focus by lenders into emission-related regulations and their impact on shipping.
Easier access to capital?
As to whether access to capital will be easier in 2022 than in 2021, Marine Money’s McCleery has a nuanced view. There is no shortage of capital for bankable deals, but there are still challenges, he argues.
“For larger borrowers, they need to constantly expand their funding sources because banks will reach credit limits long before an ambitious shipping company will stop growing,” McCleery says.
For smaller borrowers, they really need to know the “nooks and crannies” where they can find funding on the most competitive terms possible, says McCleery, the author of the Shipping Man trilogy. This is something that he concedes is very challenging, a point of view that Lunde wholeheartedly agrees with.
“Smaller and medium sized owners will still find it difficult to get proper support,” Lunde concludes.
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