HSH Nordbank, one of the world's leading shipping banks, said Wednesday it is has developed "an innovative financing solution for vessels, which are either in insolvency already or on the brink of filing for insolvency" together with the Navios shipping group.
Navios Group's shipping companies, with financing assistance by HSH Nordbank, will buy five tankers that can carry between 30,000 dead-weight tons and 80,000 dead-weight tons as well as five container 2,000- to 3,400-TEU container vessels. The ships, which belong to different owners, were all built in 2006 or later. The vessels are either operated "well below cost coverage" or are currently not in operation, according to the bank. The owners are not anticipated to keep providing financing or operational support.
In the deal, HSH's loan exposure comes in at around $300 million.
"Upon transferring the vessels to Navios, the current owners will be
released from their respective credit obligations. In return, Navios
pays approximately $130 million to HSH Nordbank -– around 40 percent of
the outstanding loan amount –- and secures continued operation of the
vessels for at least six years," the bank said. "The remaining approximately $170 million
of the loan amount will be converted into a participating loan held by
HSH Nordbank. 80 percent of the free cash flows -– post all operating
expenses and capital costs -– will be used to service the participating
According to the bank, this loan approach reduces the company's risk exposure, while at the same time reducing its balance sheet.
"Navios acquires, in its role as a new investor, the vessels and contributes fresh money to the capital structure," the bank said. "The remaining part of the credit amount will be converted into a participating loan that gives the financing bank the opportunity to participate in a market improvement and fully recover the original credit amount at a later point of time."
HSH officials see this financing approach, which was developed with Navios, as a new way to do business in a challenging industry.
“The insolvent vessels, or those on the brink of insolvency, are transferred to a highly professional operator that is able to secure an economically feasible operation of the vessels throughout the shipping crisis. In addition, there is a significant reduction of risk for the financing bank, while at the same time keeping the option to participate from a market recovery”, Wolfgang Topp of HSH Nordbank said in a statement. “The vessels where previous restructuring measures with the existing owners have been exhausted and failed, will, with the new operator, obtain a stable capital structure and thus a sustainable long-term perspective.”
The bank said "most of the prior concepts in the shipping industry, aimed to avoid firesales or foreclosures, only provided for an exchange of the vessel operator. The economic risk remained entirely with the financing bank. This new solution developed by HSH Nordbank represents an alternative to such previous approaches."
The bank said from its perspective "this structure provides a potential solution also for other shipping companies, portfolios and banks. It is an important step in response to the global shipping crisis, which also aligns the interests of the existing owners, the financing bank and the shipping industry. One requirement, however, is that the vessels are marketable and can be operated economically in the future."
HSH Nordbank said it is currently preparing further transactions in-line with this approach and is targeting a total asset volume exceeding 1 billion euros ($1.29 billion). Bank officials are currently in talks with Hambug shipowners about a transaction similar to the Navios deal.
HSH Nordbank also reported its first-quarter results Thursday, saying
it had a profit of 73 million euro ($94.24 million) compared to 124
million euro in the same 2012 period. It said the profit came "in spite
of the persistently difficult situation in the international shipping
sector and the still challenging macroeconomic setting."
HSH Nordbank’s loan loss provisions rose in the first quarter to 133
million euros compared to 43 million euros a year earlier. Company
officials chalked this loss up to, primarily, the rough international
"As global shipping capacity increased faster than the demand for
transport, freight and charter rates, together with ship values,
remained at an historically low level," it said in a statement. "Over
and above the specific risks on individual markets, a generally weak
economic setting in the past few months, especially in the eurozone, had
a negative impact, which has also increasingly affected the German
economy in the recent past."
Challenging conditions remain and
will likely continue to impact the bank's bottom line for the rest of
2013, according to the statement. The company added that "no perceptible
recovery can be expected for this market in 2013."
Navios is a group of global vertically integrated shipping and logistics
companies, including three listed on the New York Stock Exchange, that
control 109 vessels. The group provides transportation and storage services for
drybulk commodities, crude oil and clean petroleum products, and bulk
liquid chemicals.- Chris Dupin