Pickle Leases May Be More Practical With the OECD Agreement to End Shipbuilding Subsidies

A longstanding problem in trying to use Pickle leases to finance vessel transactions has involved coordinating the lease with the multitude of national shipbuilding subsidy programs that exist around the world. This problem may be alleviated by the international Organization for Economic Cooperation and Development (OECD) Agreement to end shipbuilding subsidies which is going into effect next year. And, while some remain skeptical that the Agreement’s restrictions will stimulate use of Pickle leases, the truth remains that shipbuilding subsidies continue to be a deterrent despite structured finance and leasing companies’ claims that potential investors are plentiful. (Pickle leases still face the problem of being unattractive to asset players who don’t want long-term commitments to the vessels).

“The reason they [Pickle leases] are not getting done is not for lack of investors, or that there is something wrong with the structure, but primarily because of the difficulty of combining it with shipbuilding subsidies,” B. Harriss Cook of the Kleinwort Benson Group in London said. “There is also the trading issue; but, a possible solution to that is simply to bareboat sub-charter,” the structured finance expert said.

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