Risk adjusted Lending Conditions

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The loan repayment at the end of the ships lives the balloon payment is well covered
by the scrap metal value of the ships that was expected at that time.
According to the bank s calculations the break-even freight rate amounts to about 0.09 per
day, based on details supplied by the shipowner and on comparison with similar ships the
current freight rate of 0.11 per day was thus quite well sufficient.
The ship owner s management team was judged to be very capable and reliable.
11.3.3 Assessment of the Loan Risk by the Banks
The bank that made the documentation available had assessed the loans with a loan risk of
80 basic points according to its internal rating system. This classification was made on the
strength of comparisons with loans in similar positions.
11.3.4 Determination of Loan Risk According to the Model
Additional factors for determining loan risks according to the model must include the volatility
of ship prices and of scrap metal prices, realisation costs in the event of bankruptcy, time scales
and ship depreciation:
132 Risk-adjusted Lending Conditions
Volatility
Details from the spring 98 issue of the bi-annual Clarkson Shipping Review and Outlook
from the Clarkson firm of shipbrokers were used for determining the volatility. Both the
time series from 1979 to 1998 for the tankers in question (Page 16, column 280k 1975) and the
relevant scrap metal prices (Page 153) are to be found there. The following volatility figures
for each of the years concerned may be calculated by using this information:
Ship prices: 1979 98: 43%
1993 98: 27%
Scrap-metal prices: 1979 99: 20%
1993 98: 12%
Behind the use of two different time periods is the consideration that the 1979 98 sequence of
numbers allows calculation of the worst case, and the five-year 1993 98 period is most likely
to be representative for the last part of the term of the loans. As it was possible to depreciate the
ships using the straight-line method (see below), it may be assumed for the sake of simplicity
that volatility of the ship prices moves in line with volatility of the scrap-metal prices (see
Table 11.3).
Realisation Costs in the Event of Bankruptcy
These amount to about 4.5 per ship, according to the bank s information. Costs of about 27
have therefore to be allowed for six ships.
Time-scale Considerations
The loan agreement contains a clause covering the event of default. Thus, if the shipowner is
at any point not in a position to service the debt on time, then the consortium of banks has the
right to make the loan repayable immediately and to realise the value of the ships. According
to the bank s information, such ships can be realised within three to six months, be it privately
or by means of auction. The loan may be utilised on a roll-over basis in the form of advances
in Euro of, in each case, terms of from one to 12 months. The longer-term advances have
intermediate interest deadlines, in each case after three months. So every three months the
banks may establish whether the shipowner is still in a position to service its debts. On top
of the time needed for realisation of the ships, a reaction time of from six to nine months is
worked out for the banks. The following risks are examined in terms of their time-scale aspects
on the basis of this situation:
High volatility: 6, 9, 12 and 15 months from the most recent proper payment service the
debt.
Low volatility: 6, 9, 12 and 15 months from the most recent proper payment service the debt.
Depreciation of the Ships
According to the bank s information, the ships may be depreciated using the straight-line
method from their current value of 1000 as at 29.9.98 to their scrap value of 212 as at 30.6.03.
Applications 133
Table 11.4 Ship mortgages: results in %
Low volatility High volatility
Whole term 0.5070% 2.8073%
Term Term
From end
of quarter 6 months 9 months 12 months 15 months 6 months 9 months 12 months 15 months
III 98 0.0004 0.0077 0.0318 0.0749 0.2025 0.6320 1.1287 1.6099
IV 98 0.0003 0.0063 0.0271 0.0653 0.1795 0.5751 1.0398 1.4939
I 99 0.0002 0.0048 0.0219 0.0545 0.1530 0.5091 0.9373 1.3610
II 99 0.0001 0.0030 0.0151 0.0401 0.1156 0.4142 0.7904 1.1724 [ Pobierz całość w formacie PDF ]

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