32nd annual marine money week · top 40 banks lending to shipping has fallen from us$ 463bn to us$...

24 June 2019

32nd Annual Marine Money WeekShipping Loan and Loan Portfolio Sales –Update & Outlook for Deal-flow

, by Richard Jansen

Private & confidential www.braemar-naves.com2

Loan portfolio sales – Concluded deals

BDI: Baltic Dry Index, BDTI: Baltic Dirty Tanker Index, Boxi: Braermar Container Index; Bank financing data from Braemar & Marine Money Research

Y Values

Historical portfolio sales – Major shipping indices (rebased on 100 at 12/2007)

Loan portfolio sales – Concluded deals Loan portfolio sales process Expected portfolio developments

0

25

50

75

100

125

150

175

200

BDI BDTI Boxi

-82%Average drop

from top

3-year gap until first wave of sales

Ship finance “exodus”

Shipping market conditions

Extended market downturn 2008 – 2019, and ongoing:• TC rates significantly reduced• Asset values at historical lows• Capital markets limited/closed

Stricter banking regulatory framework

Basel III & IV:• Higher minimum capital requirements• Introduction of minimum “leverage ratio”• Introduction of minimum liquidity requirement• Gradual implementation with full effect starting on

01/01/2022 to be completed by 2027 EBA’s March 2019 reports:

• European banks’ Tier 1 capital requirement to increase by 19.1% by 2027.

• Compliance with the new framework would require EUR 39.0bn of additional capital, of which EUR 24bn is Tier 1.

Regulatory and market impact on ship finance

Top 40 banks lending to shipping has fallen from US$ 463bn to US$ 345bn between 2008-2017.

European bank exposure to shipping has reduced from US$ 374bn in 2010 to US$ 206bn in 2017, with Asian banks’ exposure rising from US$ 66bn to US$121bn during the same period.

Chinese leasing and alternative lenders have stepped up activity but have not filled the entire funding gap.




Y Values


Loan portfolio sales – Concluded deals Loan portfolio sales process Expected portfolio developments

0

25

50

75

100

125

150

175

200Lloyds

US$ 400mnDK

RBS syndicate

US$ 985mnBAML

syndicate

DSFUS$710mnAxcel, PFA,

PKACommerzbank

US$ 376mnOCM

CommerzbankUS$ 216mn

KKR & Borealis


KKR & Borealis

BDI BDTI Boxi

-82%Average drop

from top


First wave
















Y Values


Loan portfolio sales – Concluded deals Loan portfolio - Due diligence Loan portfolio – Sales process Expected portfolio developments

0

25

50

75

100

125

150

175

200Lloyds

US$ 400mnDK

RBS syndicate

US$ 985mnBAML

syndicateRBSUS$ 290mnORIX

RBSUS$ 300mn

Berenberg

CommerzbankUS$ 300mn Berenberg,

Cross Ocean Partners

Nord LB US$ 2.9bn Cerberus Capital

HSHUS$ 1.23bn

Cerebrus, J.C. Flowers etc.

Deutsche Bank US$ 1bn Oak Hill, VardePartners

DSFUS$710mnAxcel, PFA,

PKACommerzbank

US$ 376mnOCM


KKR & Borealis


KKR & Borealis

Piraeus US$ 950mn DK

MPSUS$ 160mnTaconic Capital and SC Lowy

BDI BDTI Boxi

-82%Average drop

from top


First wave Second wave













Private & confidential5 www.braemar-naves.com

Braemar Naves supports clients through the entire due diligence process with an integrated set of services

Loan portfolio - Due diligence

Financial due diligence• In-depth analysis on borrower and situational background (including

credit quality assessment and moral hazard topics)• Guidance on potential exit strategies

Commercial due diligence• Vessel appraisal including vessel specific commentary and valuation

rationale• Charter analysis – rate benchmarking, counterparty rating, alternative

employment scenarios

Technical due diligence• Desktop review of publicly available reports and/or records (e.g. port-

state & class records• Review and benchmarking of OPEX, maintenance costs and budgets• Vessel inspections (when/where possible)

Financial modelling• Comprehensive modelling of loan portfolios including performance

assessment and indicative pricing

Market intelligence• Market reports on relevant asset classes

Braemar Naves due diligence reporting

Financial due diligence

Commercial and technical due

diligence

Financial modeling

Market intelligence

Legal due diligence• Comprehensive review of loan documentation by maritime-focused

law firms



Loan portfolio - Sales process

Seller

Pre-sale

• Data Preparation• “Good house-keeping”• Information

Memorandum preparation

• VDR testing

Pre-acquisition - stages & tasks

Buyer

• Pre-marketing in order to receive invitation to bid



Loan portfolio sales process

Seller

Pre-sale Round 1



• VDR testing

• Initial bidder selection• Distribution of NDA &

Information Memorandum

• Initial due diligence• Financial, technical,

and legal advisor selection

• Short window for bid submission


Buyer





Seller

Pre-sale Round 2Round 1



• VDR testing



• In-person due diligence days

• Finance case officer access


• Due diligence• Financial• Commercial• Technical• Legal

• Model exit scenarios• Final pricing• Submission of binding

bid


Buyer








Seller

Pre-sale Round 2 Exclusive RoundRound 1



• VDR testing








bid

• Finalize SPA• Seek approvals from

borrowers (where applicable)


• Finalize SPA• Set up funding vehicle• Set up fund

administrator• Begin specific exit

scenario preparations• Possible arrangement

of back-leverage

Buyer








Seller




• VDR testing








bid







of back-leverage

Final Sale

Buyer

• Legal transfer of loans

• Payment of purchase price

• Secondary loan sales• Vessel sales• Refinancing/

restructuring








Seller




• VDR testing








bid







of back-leverage

Post-acquisition - tasks for Buyer

Final Sale

Buyer

Borrower Management Restructuring

Collateral inspections

Loan administration and servicing Loan and covenant monitoring

Insurance

Settlement and payment processing

Final exits Refinancing

Restructuring

Secondary loan sales

Vessel sales

• Legal transfer of loans

• Payment of purchase price

• Secondary loan sales• Vessel sales• Refinancing/

restructuring







Expected portfolio developments

Graph data: Braemar Naves research

Portfolio sales trends

Expected shipping loan portfolio sales for 2019-2020:More portfolio sales expected from traditional shipping banks based in:

• EU: Netherlands, Germany, Norway, and Greece

• RoW: Singapore, Middle East

“Hybrid” Portfolio run-down processes:1. Greek banks:

a. Eurobank loan portfolio sale completed – Portfolio rundown to be managed internally

b. Piraeus loan portfolio sale ongoing – Portfolio rundown coordinated by third-party

2. NordLB:

a. Project Big Ben – Sold to Cerberus Capital

b. Project Towerbridge – Sale process cancelled; to be internally run-down

Individual secondary loansBanks will continue to sell/restructure remaining shipping NPLs on an individual basis.

Additionally, other lenders (particularly credit funds) are exiting loans acquired through wholesale processes on an case-by-case basis, in line with exit strategies to maximize returns.

Bank financing – Total & breakdown by region

374

10

66

361

8

87

317

12

93

292

11

98

276

10

105

254

16

128

221

17

117

206

19

121

0

50

100

150

200

250

300

350

400

Europe USA Far East andAustralasia

US$

billi

ons

2010 2011 2012 2013 2014 2015 2016 2017



Expected portfolio developments

Graph data: Braemar Naves research

Portfolio sales trends

Expected shipping loan portfolio sales for 2019-2020:More portfolio sales expected from traditional shipping banks based in:

• EU: Netherlands, Germany, Norway, and Greece

• RoW: Singapore, Middle East

“Hybrid” Portfolio run-down processes:1. Greek banks:

a. Eurobank loan portfolio sale completed – Portfolio rundown to be managed internally

b. Piraeus loan portfolio sale ongoing – Portfolio rundown coordinated by third-party

2. NordLB:

a. Project Big Ben – Sold to Cerberus Capital

b. Project Towerbridge – Sale process cancelled; to be internally run-down

Individual secondary loansBanks will continue to sell/restructure remaining shipping NPLs on an individual basis.

Additionally, other lenders (particularly credit funds) are exiting loans acquired through wholesale processes on an case-by-case basis, in line with exit strategies to maximize returns.

Global offshore exposure:In the shipping markets it took 5 years from the downturn before banks were ready to sell-down positions on a wholesale basis:.

• Hopes of an early recovery had faded

• Market improved enough to close bid-ask spreads

Offshore market currently in fifth year of the downturn, with many companies embarking on second or third round restructurings, and many assets still idle:

We expect to see more offshore portfolio sales over the coming years, particularly compared to shipping, once market has improved a bit further.

Bank financing – Total & breakdown by region

374

10

66

361

8

87

317

12

93

292

11

98

276

10

105

254

16

128

221

17

117

206

19

121

0

50

100

150

200

250

300

350

400

Europe USA Far East andAustralasia

US$

billi

ons

2010 2011 2012 2013 2014 2015 2016 2017


HamburgBraemar Naves Corporate Finance GmbHDomstraße 1720095 HamburgGermany+49 40 357 177 78 70

LondonBraemar Naves Corporate Finance Ltd.One Strand, Trafalgar SquareLondon, WC2N 5HRUnited Kingdom+44 203 142 4270

SingaporeBraemar Naves Pte. Ltd.80 Robinson Road #24-01/021Singapore 068898Singapore+65 6579 1099

Braemar Naves office Braemar office

THANK YOU

32nd annual marine money week · top 40 banks lending to shipping has fallen from us$ 463bn to us$...

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