Types of Finance and Their Parameters: Part Two

by Andrian Dacy

In the last issue, Marine Money compared the advantages and disadvantages of different sources of capital: bank debt, finance company debt and leasing. In this issue, we continue our comparison of raising capital, taking a closer look at bond issues, private placements and public equity.

Bond Issues
Bond issues are typically arranged by commercial or investment banks, and are purchased by corporations, insurance companies, mutual funds and private investors. The cost of a bond issue is calculated by a spread over US Treasuries, and based on the risk of the company and/or the specific transaction. Pricing depends on: the tenor of the transaction; whether or not fixed funding is sought; and the interest rate environment. Since most shipping companies are not considered investment grade, their long-term paper is categorized as high yield or junk debt, and priced accordingly. Given present conditions, rates for a mid-size operator for a 10-year, fixed rate transaction would begin in the region of 12%.

This is only an excerpt of Types of Finance and Their Parameters: Part Two

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