Status Quo for Drybulk Lending Signs

by Alan Ginsberg

When we focused last fall on drybulk market finance, we posed the question:”Should bankers have butterflies?” At that time, all of the so-called “industry fundamentals” pointed to a sharp, if not precipitous decline: the Baltic Index had dropped below the 1000 level for the first time since the Gulf War; Clarkson put the drybulk order at 13.9% of the fleet (as compared with 7.1% for the tanker fleet); scrap prices had fallen; time charter rates had declined across the board; and secondhand prices had declined although not nearly as much as many had hoped for. Rumblings were heard in Greece of certain owners being in trouble. Certainly, the dam was about to break.

What happened then? Why has the sky not fallen? While there is no one single answer, the most commonly cited reasons are two: first, owner liquidity; second, prudent levels of gearing. Now there are always exceptions: certain banks continue to aggressively market high advance rate loans; further, owners’ pockets are only so deep and the true level of their cash reserves may yet be tested.

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