Where the deals get done
Phil Roberts, Executive Director at J.P. Morgan Private Bank, outlines his views on superyacht financing and the wider market…
After a career in the military, serving in both the Royal Air Force and British Aerospace as an aircraft engineer, Phil Roberts, Executive Director at J.P. Morgan Private Bank, moved into specialist asset financing in 2004 with RBS Global Banking & Markets, where he played a pivotal role in the creation of the Superyacht & Corporate Aviation Financing Division. From there, he joined Lloyds Banking Group as global head of aerospace and defence, then latterly Barclays, and finally, J.P. Morgan. SuperyachtNews speaks with Roberts to better understand J.P. Morgan’s view on yacht financing and his thoughts on the wider market.
“I have been at J.P. Morgan since 2016 and within that time we have looked seriously at what we are doing in the yacht and aviation space, as well as various other lending markets, and revised how we approach the superyacht market,” starts Roberts. “Our approach is based on our experience through the entire cycle. Since 2004, we have seen everything, from superyacht-financing businesses opening within big global banks, to the ‘me-too’ lenders who wanted to get into the space because it looked like a lucrative place to be. What we have seen is that these types of businesses tend to disappear as quickly as they come into the market. But you will certainly find within the private banks, such as J.P. Morgan, that there are people that understand the business, who have been around it for a long time and who are able to take fairly thoughtful and determined views on what’s come and gone and where we are in the cycle right now.”
During the halcyon days of the mid-to-late 2000s, finance was freely available to superyacht clients from any number of banks and financial institutions that had limited knowledge of the superyacht market and fewer scruples than in today’s market. As a result, in the wake of the global financial crisis in 2008, many institutions were left with assets they were ill-qualified to manage and maintain when clients began to default on their payments.
"For us, client, yard and yacht selection are of paramount importance and at the forefront of our minds..."
“We approach these things on a through-the-cycle basis. For us, client, yard and yacht selection are of paramount importance and at the forefront of our minds when determining whether to write business, as well as factors including structure and jurisdiction,” continues Roberts. “If you look at the writing of business in the corporate aviation world, there is a correlation between the requirement for private jets, the markets, and general business performance. In contrast the yachting world - whilst you can conduct business on a superyacht - it is mostly about downtime, escapism and family contact, making them emotional decisions rather than business decisions. As a result of the business element of aviation - as well as tighter regulations - there is far less customisation in this market. Whereas, in the world of superyachts, you have everything from the semi-custom class all the way through to the area that our clients are primarily focussed on, the full-custom class of superyachts typically associated with the Northern European builders.”
Phil Roberts, Executive Director at J.P. Morgan Private Bank
Central to J.P. Morgan’s willingness to engage with superyacht financing, whether that be lending for the purchase of a new or pre-owned vessel, the refinancing of an asset to release equity, or financing large construction projects (which is increasingly rare in today’s market), is an adherence to strict criteria. Typically, for instance, J.P. Morgan will finance a superyacht purchase if it is 50m-plus, from a reputable shipyard and less than seven years old (‘new and nearly new’ in brokerage parlance), with a funding term of up to seven years.
“My experience tells me that, on occasion, when new entrants have joined the market, the market has been able to exploit that to a certain extent. For instance, transactions that we may have looked at and decided they weren’t for us, may tempt other businesses to deploy their balance sheets without necessarily having the experience to determine whether or not that is a good or bad decision,” explains Roberts. “Our knowledge of the market, that is largely focussed on individuals in London, is deployed broadly throughout our businesses across EMEA, ensuring that this knowledge is available and applied to all transactions.
“Leveraging this knowledge, we can determine what good and bad looks like, where it concerns yachts, shipyards and client profiles. We have a list of shipyards that we find acceptable, a list of projects that we find acceptable and a list of clients that would be appropriate. When these three elements combine, the deals get done within that space. For us, the superyacht market, where financing is concerned, really starts at 50m-plus and tends to focus on Northern European projects, which is where J.P. Morgan clients tend to focus their energy.”
Commenting on the current state of the superyacht market, Roberts acknowledges that the COVID-19 pandemic will undoubtedly have an effect on delivery drag, given that many shipyards have significantly scaled back their operations if they haven’t shut down completely. Equally, the charter market, most notably the Mediterranean season, is going to be affected by the crisis, with many guests looking to cancel their charters. He believes the crisis, however, will have less of an effect on J.P. Morgan’s clients, who typically choose to operate their vessels commercially as a means of mitigating costs, with Roberts describing charter as a “nice to have” method of defraying costs, as opposed to a ‘must have’.
“We have a strong enquiry book and we are executing transactions as we speak."
“In terms of the market in general, for us it has been quite robust,” continues Roberts. “We have a strong enquiry book and we are executing transactions as we speak. Indeed, we closed a large project last week with a longstanding client of ours. In the past 24 months we have seen a great deal of activity from North America, where the clients have changed their build profiles to favour the larger Northern European models. We have also seen an upturn in enquiries from Asia, although the appetite for increasing vessel size is less prominent, and we have also seen a steady flow of business from the core European markets, which have generally been active in the superyacht space.
“One notable trend that we are seeing, however, is that while the appetite for larger vessels is on the rise, the appetite for building the very largest vessels, in the 110m-plus range, is tailing off, with many preferring to build or buy in the 60-110m sweet-spot. On the one hand, clients may be taking note of the relative lack of flexibility associated with the very largest vessels, but we have also seen restrictions on vessels of this scale from a number of European jurisdictions, which may have coloured the desire to engage with projects of this size, as well as there being a greater emphasis placed on efficiency and environmental credentials.”
As with all other sectors in the superyacht industry, there is a swingeing scale of quality between those individuals and enterprises that are in the market to make a quick buck and those that intend to stay within the market for the long-term benefit of their clients. J.P. Morgan’s strict financing criteria, as well as its longevity, suggest that it falls within the latter category. With lean times ahead for the industry, and indeed for some of the clients on which we are so reliant, access to diligent financing systems may be more important than ever before.
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