German banks have offloaded debt to private equity firms that are keen to exit their loans, presenting shipowners with a unique opportunity to acquire it at discount, a leading German financier believes.
“It is the chance of a lifetime,” Jan Hagemann, managing partner of Hamburg-based financial advisor Five Oceans told TradeWinds.
He added new lenders such as Cerberus Capital Management are already talking to owners about refinancing.
The low price paid by private equity firms for the shipping loan portfolios means the funds should be able to exit at a profit.
But, according Hagemann, it is also a chance for owners to take control of their debt cheaply and without fear of breaching loan-to-value ratios or similar constraints.
No time to waste
“You need to get immediately prepared to find another bank or another fund who will take Cerberus out,” he said. “You should waste absolutely no time because these guys are also wasting no time.”
Even owners with performing loans might still be “uncomfortable with the situation” and seek to refinance, he said.
“If in the future you have problems, the new owners [of loans] may not be flexible.”
The drawback is that it will cost shipowners more to refinance with new owners.
“The finance that you would have to take up is almost certainly way more expensive,” Hagemann added.
An existing loan with a German bank of 5.5% interest could easily go up to 9.5%.
“That leaves little room for fresh equity to find this attractive because [it is] paying so much interest on the new loan.”
Now there’s also a big chance for the owners to buy back their own debt, cheaply
So, Hagemann recommends using interim lenders to get away from private equity.
Interest rate hit
That could mean taking the hit of a higher interest rate bridging loan for one or two years until cheaper finance can be found.
But he deems the higher rate worth paying due to the possibility of getting a “significant discount” from the private equity lenders.
Lenders could accept a discount to the market value and still make a profit due to the low price at which the portfolio’s were acquired.
Hagemann sees the entrance of funds into the German market as a good thing as it means banks have finally stopped “kicking the can down the road”.
“Finally, we have some interested debt in the market again,” he said.
“That might not necessarily be good for all the owners, because certainly in the process more ships will leave our cluster. But it drives people to go out and seek solutions and drives people to do things differently.
“Now there’s also a big chance for the owners to buy back their own debt, cheaply.”