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

2. 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.

3. 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

4. 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.

5. 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.

6. 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.

7. 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.

8. 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)

9. 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.

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

11. Malta Maritime Law Association
Thank You
Malta Maritime Law Association
Mamo TCV Advocates
Telephone: (+356) ; (+356)
Fax: (+356) ; (+356)