New financing models and sources of finance Nicholas Valenzia - Mamo TCV Advocates Malta Maritime Law Association – Developing Trends in ship finance

Current Market Overview 2008 – Global Financial Crisis (GFC); Prior to GFC – shipping was typically a ‘strong’ secure sector – good / quick returns – fairly stable market; GFC: Global fall in demand for commodities – effecting freight rates; Protracted market difficulties (recovery was not immediate as initially anticipated); Default on ship building contracts – ship ‘dumping’; Resultant ship oversupply.

Current Market Overview Heavily hit sectors: Dry Bulk Container Ships Tankers (depends on type and area of use) Stronger sectors: LNG AHSV/Tugs Specialist vessels/off shore/ alternative types

Resultant effect: Banking sector down turn/restrictions: Traditional financiers needing to curb their ‘high risk’ portfolios and ensuring that the financed assets value were in accordance with Basel III requirements; Initial repossession and sell offs of entire fleets – (has it worked ?); Traditional finance model would be reserved to assets which did not suffer from a drop in demand and/or freight/hire rates; Extensive restructuring exercise of shipping groups has to be implemented.

New Sources of Finance/Financial Instruments Restricted access to traditional financiers due to lack of appetite or otherwise inability to source funds has resulted in the emergence of ‘new’ models for ship finance: Capital Markets; Private Equity; IPO; Exim/EF support; Lease financing.

New Sources of Finance/Financial Instruments Why? Less consolidation restrictions when compared to traditional banks; More flexibility granted to owners in a refinancing scenario – subject to the usual caveats (asset value, group strength); Possible long term low margin yield for investors who do not have any other avenue where to ‘place’ their investment; Supported by flexible regimes – US bonds/notes - Norwegian OTC; Still subject to the traditional security regime (mortgages); IPOs – initially an interesting prospect – however, the protracted lack of recovery of the bulk/container ship market has resulted in a decline of interest in this option.

New Sources of Finance/Financial Instruments Exim/Export Finance: Supporting entities based/operating from a particular state; Used to prevent/control a defaulting scenario or otherwise to provide financing where operators are finding difficulty in sourcing financing; Used to support leasing groups.

Finance Leasing & Leasing Is it that new? Not really Common in France and Italy especially in the yachting sector; Principally derived from equipment finance models (including rail finance); Used quite frequently in Exim/EF scenarios, where Exim/EF banks would lend money to a lease financier which would in turn finance lease the asset to the end user/owner/operator; Used by lease finance arms of ship builders having difficulty in sourcing finance; Advantages: Flexibility; Allows for a longer loan period/spread; Downside: Could be expensive; Default scenario (e.g. yachting market in 2009)

Looking ahead Growth factors and Stability: Tipping point: when will the containership/dry bulk market recover? tipping point between supply and demand for these ships; Recovery from global recession; Realistic valuations. Key factors today to kept into consideration when sourcing finance today: Asset, Asset, Asset; Consolidation of group structure and strength.

Looking ahead Malta: Possible new initiatives? Revision of shipping organisation/company regime – rights upon insolvency; Multi-tier registration of lease interests; Facilitation measures.

Malta Maritime Law Association Thank You Malta Maritime Law Association Mamo TCV Advocates Telephone: (+356) 21231345 ; (+356) 21232271 Fax: (+356) 21244291 ; (+356) 21231298 Email: nicholas.valenzia@mamotcv.com www.mamotcv.com