Il seguente lavoro analizza le fonti di finanziamento tipiche di una società armatoriale nel contesto di crisi economico-finanziaria del settore. In primo luogo, si opera una distinzione tra le fonti di finanziamento di debito e di capitale. Delle prime si mettono in evidenza le caratteristiche del finanziamento navale e degli strumenti obbligazionari a collocamento sia pubblico che privato. Per quanto concerne le fonti di equity, particolare attenzione è rivolta all’IPO e alle forme alternative di ricorso al capitale, tra cui il private equity. In ultima istanza si presenta una simulazione di finanziamento navale mediante canale bancario, utilizzando appropriate tecniche di copertura, secondo le attuali condizioni di mercato. *** The following paper analyzes the typical financing sources for a shipping company in the context of financial crisis. Firstly, the paper focuses on the distinction between debt financing sources and equity. Where debt sources are concerned, the most commonly used are bank financing and private and public issues of bond. Moreover, regarding equity sources, particular attention is dedicated to IPO and its alternatives like private equity. The last part is dedicated to a bank ship-financing simulation and related financial hedging instruments, according to ongoing market conditions.

1. Finance Sources and Instruments for Shipping
Companies
Giuseppe Valerio Agovino
Eugenio Biancucci
Vincenzo Gregorio Del Sorbo
Alessandra Laudati
MIS – MASTER IN SHIPPING: LOGISTICA, FINANZA E STRATEGIA D’IMPRESA
Tutors:
Dott. Francesco Rotundo
Dott. Giovanni Barberis

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Shipping Companies
2/19
Capital
intensive
Family
business
High
leverage
Cyclical
business

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3/19
Market tendence and optimal behaviours
• ML term periods during which the market is stable, freight rates remain steady at
medium/low level
• During market peak, freight rates rocket
Supply and Demand trend

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4/19
Financial crisis and Shipping
Basilea 3
Credit crunch
Leverage ratio
decrement

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Debt financing
5/19
The main debt financing sources are:
Bank
financing
Bonds
Convertible
bonds
Private and
public
placement
Ship
financing
(Loan)
Bank credit

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Ship Financing
6/19
The Bank evaluation starts from the analisys of patrimonial status, resilience and
refund capacity, in order to estimate the internal rating.
the bank generates the contract proposal (term sheet), based on internal rating
and market conditions,
Internal
rating
Market
conditions
Term
Sheet

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Term Sheet
7/19
Interest rate
• Benchmark
• Spread
Refund
Conditions
• Ammortization
• Bullet
Guarantees
• Mortgage
• Holding guarantee
• [Refund guarantee]
Covenants
• Loan to value
• Negative pledge
• Next rata allowance

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How to choose the benchmark
8/19
The choice of the benchmark for the loan has to be evaluated on the
forecast of future interest rate trend.
Bullish view of the interest rate
 Pre-hedging
• chosing a fixed interest rate
Bearish view of the interest rate
 floating interest rate

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Bonds as an alternative for debt sourcing
9/19
The difficult conditions to access debt sources have prompted shipping
companies, traditionally linked to bank financing, to look for new forms
of financing.
• The emission of bonds by shipping companies has increased noticeable
during the last five years
46%
14%
24%
7%
4% 5%
Asian Shipping Bonds Issues
China
Japan
Korea
Taiwan
Singapore
Malaysia-1000
4000
9000
Asian Shipping Bond Volume
(in USD milion)
2009 2010 2011
Fonte: Bond Markets and Shipping: A Summary of 2011

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Advantages and Disadvantages of public and private
placement in bond allocation
10/19
Public
High number of potential
underwriters
Size ≥ 500 € M
Execution risk
Covenants
More complex and expences
procedures
More than one rating required
Private
Restricted number of selected
high standing investors
Size 50 – 250 € M
No execution risk
Less complexity and costs
More control on the emission
procedure
High risk tolerance by underwriters required

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Alternatives types of bond
11/19
Plain Vanilla Perpetual bonds
Sukuk Convertible bonds
Bonds

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Equity sources
12/19
The use of equity sources is not well developed in Italy, due to the high standing
required to enter this market and the cultural background of the shipping
companies’ governance.
IPOs Private
Equity
Mutual
funds
Mezzanine
instruments
(LBO,
convertible
bonds)
 Requires an open attitude to the market
 Access to mass investors
 Mandatory strong reputation, financial
resilience and company transparency
 Internal adequate structure
 Residual remuneration of the
shareholders

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The role of Private Equity in shipping industry
13/19
• IRR 25%
• Duration 3-7 years
• Capital gain
• Strong investment (more than 30%)
• Strong influence in the governance
IPOs
Private
Equity
Mutual
funds
Mezzanine
instruments
(LBO,
convertible
bonds)

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d’Amico International Ship s.p.a. (DIS): IPO in FTSE/MIB in 2007
14/19
Differently from competitors, d’Amico I.S. has percieved the exigency to wide its
horizon, in order to compete in the global market.
Capitalization (2007): 241,19,349.5
Fonte:Morningstar

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Ship financing simulation
15/19
According to nowadays market condition, the hypotesis concerns the buying of a
new Vessel with the following features:
• Vessel: HANDYSIZE MR2 (Product Tanker) 50.000 DWT
• Price: 35.000.000,00 USD
mm.dd.yyyy Tx (months) USD Causal
07.02.2014 T0 SAJ Form
underwriting
3.500.000 1st advance 10%
01.02.2015 T6 3.500.000 2nd advance 10%
04.24.2015 T10 Steel Cutting 3.500.000 3rd advance 10%
07.02.2016 T24 Ship delivery 24.500.000 final payment 70%
(bank committment)
SAJ Form Agreement The contract establishes the following conditions for the
ship building, terms of payment and delivery

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16/19
Loan Amount: 24,5 M USD
refoudable in 10Y with 15 Y profile
Refound procedure: Mixed (9 payments x 1,634 M
USD) + (1 baloon x 9,8 M USD)
Benchmark: 10 Y Mid SWAP (1,5%)
Spread: 280 BP  250 BP
Upfront: 1%  0,8 %
Commitment: 1%  0,8% x year, until 07.02.2016
Guarantees: Mortgage; Holding Guaranty
Covenants: Loan to Value 135% 130%
Bank Contact (T1) & Term Sheet negotiations
Company request: 70% of the vessel price (no execution risk)
Bank Evaluation on company health status and financial stability
(History; managment; reputation) internal rating

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Bank approves at T3 the following debt repayment plan:
17/19
Anno Quota
capitale
(USD)
Quota
interessi
(USD)
Totale
(USD)
Residuo
(USD)
T24 - - - 24.500.000
A1 1.633.333 65.333 1.698.666 22.866.667
A2 1.633.333 65.333 1.698.666 21.233.334
A3 1.633.333 65.333 1.698.666 19.600.001
A4 1.633.333 65.333 1.698.666 17.966.668
A5 1.633.333 65.333 1.698.666 16.333.335
A6 1.633.333 65.333 1.698.666 14.700.002
A7 1.633.333 65.333 1.698.666 13.066.669
A8 1.633.333 65.333 1.698.666 11.433.336
A9 1.633.333 65.333 1.698.666 9.800.003
A10 9.800.003 9.800.003 0
Totale 24.500.000 587.997 25.087.997
• 2 months later the Bank
stipulates the loan
agreement (T5)
Is possible to forecast the
sale of the vessel for a
particularly advantageous
offer.
Repayment the loan in
advance  need to pay the
value of the swap at mark to
market.
Is necessary to evaluate
whether the capital gain is
higher than mark to market.

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Conclusions
18/19
Complex pattern of financial sources and the inability of bank loan to
cover financial needs
Major emissions of bonds and
partecipatory financial
instruments
IPO and Equity finance
• coherent use of pre-hedging instruments (IRS)
• require a strong standing and reputation
• financial marketing
needed in order to get bank loan at better rate and
conditions and competitive advantage

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Thank you for your kind attention
19/19
Giuseppe Valerio Agovino
Eugenio Biancucci
Vincenzo Gregorio Del Sorbo
Alessandra Laudati