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Friday 28 November 2008
Half of Commodity Shipping Lines Seen Breaching Loan Terms
Half of commodity shipping lines are likely to breach loan terms in the months ahead as rental rates and vessel prices fall, according to Nordea Bank AB, the world’s largest arranger of loans to the industry.
Half of Commodity Shipping Lines Seen Breaching Loan Terms
(LONDON) Half of commodity shipping lines are likely to breach loan terms in the months ahead as rental rates and vessel prices fall, according to Nordea Bank AB, the world’s largest arranger of loans to the industry.
Banks will use the breaches to renegotiate lending terms and prices, Carl Steen, head of Nordea’s shipping, oil services and international division, said after a seminar in Stockholm on Wednesday. Typical loan accords stipulate that fleets must be worth between 120 per cent and 140 per cent of outstanding loans. Such clauses, or covenants, are likely to be the first to be broken, he said.
‘I’ve been in shipping for 30 years, I’ve never experienced something like this before,’ he said. ‘It’s very dramatic.’
The Baltic Dry Index, a measure of commodity shipping costs, has fallen 94 per cent to almost a 22-year low since reaching a record in May as the recession saps demand for raw materials. That spurred mining companies and steelmakers to renegotiate rental accords, according to Oslo-based shipbroker Lorentzen & Stemoco A/S, and caused the failure of at least two operators.
Twelve per cent of Nordea’s 14.1 billion euro (S$27.6 billion) shipping and oil services loans are to companies that haul coal, ore and grains by sea.
The bank arranged 35 transactions in the first nine months of the year, according to data from Dealogic.
Shippers that fail to meet conditions are unlikely to be forced into bankruptcy, Mr. Steen said.
Nordea’s comments echo those of Norway’s Dnb NOR Bank ASA, which said on Monday that it would use breaches of loan accords to reprice loans, renegotiate terms and block dividend payouts.
HSH Nordbank AG, a German competitor that does most of its ship lending to container shipping lines, had its long-term debt and deposit ratings lowered last week by Moody’s, which cited ‘accelerated weakening’ in the shipping business.
The German bank has 34 billion euros in outstanding credit and loan commitments compared with total assets of about 200 billion euros, spokesman Christian Buchholz said on Tuesday.
Shipping banks generally won’t use technical breaches of loan terms to repossess vessels, Mr. Steen said. ‘We don’t want to be shipowners, we always try to find a solution.’ - Bloomberg
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Half of Commodity Shipping Lines Seen Breaching Loan Terms
(LONDON) Half of commodity shipping lines are likely to breach loan terms in the months ahead as rental rates and vessel prices fall, according to Nordea Bank AB, the world’s largest arranger of loans to the industry.
Banks will use the breaches to renegotiate lending terms and prices, Carl Steen, head of Nordea’s shipping, oil services and international division, said after a seminar in Stockholm on Wednesday. Typical loan accords stipulate that fleets must be worth between 120 per cent and 140 per cent of outstanding loans. Such clauses, or covenants, are likely to be the first to be broken, he said.
‘I’ve been in shipping for 30 years, I’ve never experienced something like this before,’ he said. ‘It’s very dramatic.’
The Baltic Dry Index, a measure of commodity shipping costs, has fallen 94 per cent to almost a 22-year low since reaching a record in May as the recession saps demand for raw materials. That spurred mining companies and steelmakers to renegotiate rental accords, according to Oslo-based shipbroker Lorentzen & Stemoco A/S, and caused the failure of at least two operators.
Twelve per cent of Nordea’s 14.1 billion euro (S$27.6 billion) shipping and oil services loans are to companies that haul coal, ore and grains by sea.
The bank arranged 35 transactions in the first nine months of the year, according to data from Dealogic.
Shippers that fail to meet conditions are unlikely to be forced into bankruptcy, Mr. Steen said.
Nordea’s comments echo those of Norway’s Dnb NOR Bank ASA, which said on Monday that it would use breaches of loan accords to reprice loans, renegotiate terms and block dividend payouts.
HSH Nordbank AG, a German competitor that does most of its ship lending to container shipping lines, had its long-term debt and deposit ratings lowered last week by Moody’s, which cited ‘accelerated weakening’ in the shipping business.
The German bank has 34 billion euros in outstanding credit and loan commitments compared with total assets of about 200 billion euros, spokesman Christian Buchholz said on Tuesday.
Shipping banks generally won’t use technical breaches of loan terms to repossess vessels, Mr. Steen said. ‘We don’t want to be shipowners, we always try to find a solution.’ - Bloomberg
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