Maritime Asset Recovery and Protection: Effective Mortgage Enforcement

Few if any maritime loans are entered into with the possibility of default and enforcement to the fore, but shipping loans and investments are among the highest-risk adventures with high “casualty” rates from failing shipowners, and also among the most difficult to enforce and foreclose, by the nature of the easy ability of the security asset – the ship – to move out of jurisdictions and out of range of seizure.

Lenders and secured investors are thus often slow to take up “ultimate” enforcement – repossession. Various other means are tried first; restructuring, refinancing and extending of additional funds are among the most common. Sometimes this helps a shipowner-borrower through a difficult patch or until some assets are voluntarily liquidated; but often the result is that the lender has dug himself even deeper into the mire.

Repayment problems tend not to arise singly. Difficult market circumstances generally affect all owner players in the market, and especially those owners who are only active in that one market and have no counterbalancing healthy sector from which cross-subsidy may flow. The consequence is that, at the same time as the negative cash flow bleeds the company, the resale market value of the asset-securities is dropping so that it no longer covers the outstanding loan: which has meantime no doubt been growing as payments have been deferred.

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