The loan ranger
With both secondhand sales and new orders down YoY, SuperyachtNews.com speaks to B Capital's Bob Atkinson about how clients can sate the appetite of superyacht lenders in a constrained market.…
As we approach the halfway point of 2015, data from The Superyacht Intelligence Agency, shows that both new build orders and secondhand sales are considerably down on those of 2014. As a historical market driver, the availability of finance, or lack thereof, in recent times has contributed to shaping this landscape.
SuperyachtNews.com contacted B Capital's Bob Atkinson, who below offers this overview of the options available to potential buyers who are seeking seeking mortgages to finance new and secondhand yachts...
Whilst there are a small number of banks prepared to finance a superyacht, of these banks only a few will consider construction finance, some will only provide finance at the point of delivery or the final payment, which results in the buyer having to finance the construction through this period.
In these circumstances financing can all be arranged and put in place during the construction phase ready to take effect at delivery and provide for some reimbursement/refinancing for the buyer and the degree of certainty, but the fact remains the buyer is bridging this period.
Where a bank will support construction finance, the buyer (mortgagee) and the bank are in a similar position, in so far as they both have an acute interest in the yard's ability, both technically and financially, to be capable of building and delivering the completed vessel to the required standard and timeframe.
Construction finance will require the buyer to invest their deposit/ equity first ahead of the bank advancing funds; during this period the buyer will be seeking adequate security from the yard by way of acceptable Refund Guarantees from the yard/their bankers in the event of yard failure.
Any bank involved in the construction phase will require sufficient security during the interim period ahead of completion and delivery; this is when the bank is most vulnerable and its risk is highest. Should there be a failure by the yard, or default by the buyer during this period the bank is holding a partially built yacht, with either a failed yard or no end user, and therefore no means of repayment.
In certain jurisdictions a mortgage under construction may be an acceptable form of security for the bank, but this of course needs to be acceptable and agreed with the yard, and the original build contract should ideally have been drafted to provide for financing as an option, even if this was not planned at the outset. A yard may need 'encouraging' to adjust an already signed contract to accommodate bank financing later in the construction; it is more straightforward when this can be negotiated at the outset prior to the build contract being signed.
During the construction phase the financing bank may well be seeking additional security or collateral from the buyer/mortgagee to help reduce the bank's risk and effectively move the interim risk from the bank to the buyer.
Banks will require project management oversight and regular reporting to monitor and control the milestone payments due, helping them to control and understand their risk. Their monetary exposure will increase as the project advances towards completion, whilst at the same time their risk until a completed vessel is delivered is reduced. Often banks will charge a higher interest margin during the construction phase to reflect the higher risk, but this should be tempered by whatever the agreed collateral position is. All costs involved in the additional monitoring and controls will be payable by the client/ mortgagee.
By choice banks would prefer to provide finance in respect of a completed vessel, whether new at delivery or a pre-owned vessel. This allows the buyer to grant the bank a mortgage over a complete vessel with a more recognised value. In a default scenario a completed vessel will be more marketable and realisable for the bank than a partially completed project sitting in a yard.
Even with a completed vessel, whether new or pre-owned, banks may only be supportive and accommodating for vessels from the established yards with stronger reputations. The bank relies on the vessel as one of the ways to gain repayment in the event of a default, and therefore, has a strong interest in the value retention and marketability of any vessel financed.
SuperyachtNews.com contacted B Capital's Bob Atkinson, who below offers this overview of the options available to potential buyers who are seeking seeking mortgages to finance new and secondhand yachts...
Whilst there are a small number of banks prepared to finance a superyacht, of these banks only a few will consider construction finance, some will only provide finance at the point of delivery or the final payment, which results in the buyer having to finance the construction through this period.
In these circumstances financing can all be arranged and put in place during the construction phase ready to take effect at delivery and provide for some reimbursement/refinancing for the buyer and the degree of certainty, but the fact remains the buyer is bridging this period.
Where a bank will support construction finance, the buyer (mortgagee) and the bank are in a similar position, in so far as they both have an acute interest in the yard's ability, both technically and financially, to be capable of building and delivering the completed vessel to the required standard and timeframe.
Construction finance will require the buyer to invest their deposit/ equity first ahead of the bank advancing funds; during this period the buyer will be seeking adequate security from the yard by way of acceptable Refund Guarantees from the yard/their bankers in the event of yard failure.
Any bank involved in the construction phase will require sufficient security during the interim period ahead of completion and delivery; this is when the bank is most vulnerable and its risk is highest. Should there be a failure by the yard, or default by the buyer during this period the bank is holding a partially built yacht, with either a failed yard or no end user, and therefore no means of repayment.
In certain jurisdictions a mortgage under construction may be an acceptable form of security for the bank, but this of course needs to be acceptable and agreed with the yard, and the original build contract should ideally have been drafted to provide for financing as an option, even if this was not planned at the outset. A yard may need 'encouraging' to adjust an already signed contract to accommodate bank financing later in the construction; it is more straightforward when this can be negotiated at the outset prior to the build contract being signed.
During the construction phase the financing bank may well be seeking additional security or collateral from the buyer/mortgagee to help reduce the bank's risk and effectively move the interim risk from the bank to the buyer.
Banks will require project management oversight and regular reporting to monitor and control the milestone payments due, helping them to control and understand their risk. Their monetary exposure will increase as the project advances towards completion, whilst at the same time their risk until a completed vessel is delivered is reduced. Often banks will charge a higher interest margin during the construction phase to reflect the higher risk, but this should be tempered by whatever the agreed collateral position is. All costs involved in the additional monitoring and controls will be payable by the client/ mortgagee.
By choice banks would prefer to provide finance in respect of a completed vessel, whether new at delivery or a pre-owned vessel. This allows the buyer to grant the bank a mortgage over a complete vessel with a more recognised value. In a default scenario a completed vessel will be more marketable and realisable for the bank than a partially completed project sitting in a yard.
Even with a completed vessel, whether new or pre-owned, banks may only be supportive and accommodating for vessels from the established yards with stronger reputations. The bank relies on the vessel as one of the ways to gain repayment in the event of a default, and therefore, has a strong interest in the value retention and marketability of any vessel financed.
Bob Atkinson.
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Superyacht Intelligence Agency
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