Cautious optimism: The lawyer’s view
Guest Author Will MacLachlan, Partner at HWF, takes a look at the state of the current sale and purchase market and the availability of yacht finance…
While HFW’s yacht team remains busy and is handling a solid flow of second-hand and new-build deals across the market, it’s clear that the volume of transactions is well down on this time last year.
Demand for yachts is still strong in certain markets, including the US and Middle East, but relatively few vessels are being listed for sale. This is impacting the deal flow while helping to keep asset prices high. On top of this, there are growing signs of a gap between would-be sellers and buyers, and of European buyers, in particular, exercising caution.
The limited supply of large second-hand yachts and the full new-build order book means those who might wish to move up the ladder risk being without a yacht for a protracted period. This is an unattractive prospect for many when everyone just wants to be on the water and enjoying the freedom of their yachts.
That said, there are opportunities out there to pick up yachts at a reduced price, either because the sellers wish to cash out quickly before the winter season or the yachts are, for whatever reason, in a distressed state. We are routinely approached by clients asking to be notified of such opportunities.
Of particular note are the various Russian-owned yachts currently circulating on the market. These undoubtedly present good opportunities for some, but with the complex web of sanctions to navigate and the significant penalties available for those who get it wrong – including lawyers, banks and brokers – these deals can be hard to complete even where the required extensive due diligence permits them.
With the fortunes of the yachting industry so closely related to macro-economic and political events, anything could happen. However, unless there is another seismic event in global markets, we don’t see the current fundamentals changing any time soon.
We continue to see a number of experienced lenders active in the yacht finance market, including geographically focused commercial banks, private banks and alternative financers backed by private equity and private wealth. However, is the cost of finance currently too high? There is no doubt that high interest rates are having an effect, and at the moment the cost of funding is perhaps the biggest challenge facing both financiers and borrowers.
This applies equally to owners who need finance to realise that dream purchase or financiers looking to attract cash-rich owners to the concept of a low-rate loan releasing equity in their yacht to invest elsewhere for higher returns. Historically, this has been an attractive option, but if interest rates are too high it becomes less compelling. The lower rates offered by private banks are usually tied to an assets-under-management requirement, which many owners looking for pure asset finance are not willing to provide.
We are, however, optimistic that there will be an upturn in transactions as interest rates and other geopolitical factors begin to stabilise. On a further positive note, a new source of capital has just been announced in the form of the UK Government’s Shipbuilding Credit Guarantee Scheme, a new finance initiative designed to assist domestic shipbuilding, including yachts. It allows UK Export Finance to provide partial guarantees to lenders, making funding available to new-build and refit and repair projects.
We will be watching how this welcome news is received by the financiers, owners and UK-based yacht builders and ship-repair yards.
This article first appeared in The Superyacht Owner Report. To gain access to The Superyacht Group’s full suite of content, publications, events and services, click here to join The Superyacht Group Community and become one of our members.
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