KAMCO Delivers Impressive Report Card

We are excited to hear from KAMCO Ship Investment Management Corporation (“KAMCO”) that it has signed term sheets for five more shipping funds with a reputable Korean shipping company and for the very first time, a European bank will be providing the senior loans for these newbuildings. KAMCO is expecting to finance 10 more ships and by the end of this year, it will have close to 40 shipping funds under its belt.

During the Asian Financial Crisis in the late 1990s, cash strapped Korean shipping companies sold 112 ships at distressed prices to foreign buyers and the government was determined not to allow history to repeat itself. A year ago, the Ministry of Land, Transport & Maritime Affairs announced that it would spend up to KRW 1 trillion to acquire ships (not more than 15 years old) from local shipping companies in an effort to enhance their liquidity position and more importantly prevent a loss of national wealth. Continue Reading

Clarification

Last week, we had the privilege to discuss with KAMCO about its shipping funds and here is an update for our readers.

To recap quickly, the KAMCO fund structure resembles the Korean Ship Investment Company scheme that is incidentally modeled after Germany’s KG fund and Norway’s KS fund. Firstly, a ship investment company (“SIC”) is established with equity financing from KAMCO funds, pension funds, insurance companies, investment companies and individuals looking for tax benefits. Depending on each shipping fund, KAMCO’s own restructuring fund along with other investors (if any) will provide 40% junior loans to the SIC set up to own the vessel. Financial investors including Hana Bank and Korea Exchange Bank will provide senior loans of up to 20% of the ship’s market value to the SPC.

With the funds from the SIC and financial investors, the SPC will next execute a sale and bareboat charterback with the shipping company, in most cases BBCHP (Bareboat Charter Hire Purchase) for a minimum of 5 years. The BBCHP model allows rates to be set so that owners can continue to operate ships reasonably in the current environment. Typically, only interest payments are to be made over the life of the loans with a balloon payment at the end. The investors will be exposed to minimal residual and equity risks under the BBCHP structure as the shipping company will be obligated to purchase the vessel at the end of the charter. KAMCO can accommodate bareboat charters in the structure as well, depending on the preference of the shipping company. Continue Reading

Deal of the Year – 2002 Bank Debt

Determining the bank debt deal of the year is usually the most challenging of all the awards we give. Of the hundreds of revolvers, term loans and refinancing totaling about $40bn done for the shipping industry each year, it is generally very difficult to determine a winner – but this year it was easy.

This year’s Bank Debt Deal of Year award goes to Citigroup, the Korea Development Bank and the Korea Exchange Bank for the $1.05bn facility that they arranged to finance Wallenius Wilhelmsen’s (WW) acquisition of Hyundai Merchant Marine (HMM)’s car carrier business, including the term charters with Hyundai Motors and Kia Motors (HMC/KMC). The NewCo, known as “Korea Ro-Ro”, is to be jointly owned by Wallenius 40%, Wilhelmsen 40% and HMC/KMC 20%.

There were several things we liked about this deal. Perhaps more impressive that its sheer size was the fact that it attracted more funding from foreign lenders than any previous Korean leveraged deal. This Norwegian/Korean transaction was also extremely complex, requiring securitization of cash flow streams into three tranches with multiple security packages and pricing.

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