Credit Risk Revealed

Marine Money and Marsoft have recently undertaken a joint effort to describe and evaluate risk management practice in ship finance. Our two groups bring together a unique range of information on mortgage practice and shipping earnings, valuation and risks.

This article focuses on actual lending practices in the dry bulk market and their consequences for credit risk. The companion piece from Alan Ginsberg looks at how the recent collapse of the dry bulk market is affecting banks today.

The Ship Mortgage “Model”
Most shipping bankers describe the terms of a “model” ship mortgage (for an existing vessel) along the following lines. The typical advance rate (the ratio of loan to market value of the ship) is between 60% and 70%. The tenor of the loan is five to ten years, with a margin over LIBOR of between 75 and 200 basis points. There is often a balloon payment at the end of the loan period, for 20% to 30% of the ship’s purchase price (less for older vessels).

This is only an excerpt of Credit Risk Revealed

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