Shipowners in stand-off with banks

[Joanne98]

Published: March 17 2009 19:13 | Last updated: March 17 2009 19:13

Shipowners in one of the shipping sectors worst hit by the global downturn are locked in a complex stand-off with lenders after most breached conditions of their loans.

The defaults have left banks facing a difficult choice between waiving the loan terms or seizing vessels whose earning potential and value have both plummeted.

Dry bulk ships’ average earning power has fallen more than 80 per cent since its peak last May as plummeting demand for iron ore, coal and other dry bulk commodities combined with excess vessel supply to drive earnings downward.

One analyst estimated that, if vessel values had halved and banks had lent only 80 per cent of a ship’s value, their total losses on loans secured against dry bulk ships were about $100bn. Prices had fallen far more in many cases and banks lent some owners 90 or 100 per cent of a vessel’s purchase price, the analyst added.

Harry Theochari, head of the shipping group at Norton Rose, the London-based law firm, described the position as a “phoney war”.

“I’d say that most of the shipping loan facilities that we as a firm have done are in technical default,” he said. “There is a tremendous amount of discussion between the banks and shipowners at the moment.”

The problems are particularly acute for the many listed dry bulk shipowners, few of which have the cash reserves more traditional shipowners build up to deal with crises. Many promised when listing to pay out all or a fixed proportion of their earnings as dividends.

Among the many listed companies to have announced breaches and negotiations with their banks, Athens-based, Nasdaq-listed DryShips, one of the sector’s highest-profile companies, has had to renegotiate nearly $1bn of loans. Star Bulk Carriers, another listed operator, has won agreement from its banks to waive the value clauses in its loans until January next year.

“When asset prices start falling and you’ve paid out the majority of your operating cash flow in dividends, you of course are left with a smaller liquidity buffer against the challenging times that these companies now are facing,” said Martin Sommerseth Jaer, an analyst at Oslo’s Arctic Securities.

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http://www.ft.com/cms/s/0/73a2e2ca-1321-11de-a170-0000779fd2ac.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058

[DJ13]

1. Ever notice its always one group or another verses the banks?

The common thread over the last year is the banks are responsible for most all our problems.

[pa28]

2. I guess the banks would rather gamble on a turnaround than become shipowners.

With no resale market and scrap values in the tank they might as well.

Not all the publicly traded shippers are in this position though. A couple of them paid off their outstanding debt during the boom rather than speculate on new ships.