Financing the purchase of a superyacht allows buyers to enjoy returns on their other financial investments without tying up working capital that could be used for other opportunities. Financing also allows buyers to benefit from low interest rates and accurately budget for payments. Private banks are well positioned to provide yacht financing due to increasingly strict banking regulations. Most buyers leverage financing to maximize returns, as borrowing rates are often lower than returns on investments. Financing can help hedge against the yacht's depreciation by mitigating its reduction in value over time.

1. 74 ISSUE TWENTY–THREE
Superyacht Buyer
CC: When buyers wish to start the process of building
a megayacht, they need to consider a minimum period
of two years to a maximum of five years until the
delivery of the yacht.
Financing the acquisition during this phase allows
them to enjoy all the benefits of the returns or income
they may be receiving on their financial assets without
tying up working capital in what can be a rapidly
depreciating asset. This allows for increased financing
flexibility to respond to opportunities in the market
and/or invest in other value-adding aspects of their
business. Financing can also allow buyers to benefit
from today’s very low interest rates and accurately
plan for their finance payments in advance, helping to
simplify their budgeting process.
It is also important that the private banker plays the
role of conductor to oversee the transaction, assesses
the buyer’s needs and liaises with all the other parties
involved in the process. The private banker’s goal is to
build a trusting business relationship with final buyers
and help them to develop asset-management synergies.
LB: Today’s superyacht finance leverage is at an
average of 50 per cent. As a result, we find that in the
majority of cases, clients leverage their superyachts in
order to maximise their return on capital. If one can
borrow at between three per cent and five per cent, but
make north of 10 per cent on their capital, the business
case speaks for itself. Furthermore, the compound
effects of the return on capital over a five-year loan
term really magnify this argument. In some cases, when
we work with clients from the emerging markets who
make in excess of 20 per cent return on their money,
often the returns pay for the yacht by year three of the
loan.
Looking at the more conservative end of the return
scale, by using finance one is hedging against the
depreciation of the asset and therefore mitigating the
reduction in value over time.
A BUYING
ADVISORY:
YACHT FINANCING
The categorisation of yacht financing as ‘high risk’ by increasingly regulated banks, and the
inclination of clients to build bigger, sees private banks best placed for yacht lending activity.
In this section, we dip our toes into this multifaceted sector to ascertain what financiers demand
of their clients. Superyacht Buyer speaks to Chrystelle Cavernes of Societe Generale Private
Banking, Leon Batchelor of Arc&Co and Bob Atkinson of B Capital Partners LLP.
“The private banker’s goal is to build a trusting
business relationship with final buyers and help
them to develop asset-management synergies.”
– CHRYSTELLE CAVERNES
“In the majority of cases, clients leverage their
superyachts in order to maximise their return
on capital.”
– LEON BATCHELOR
“The yacht buyer does not have to give up the
investment returns that would be expected to
create a positive cash flow. You can have both!”
– BOB ATKINSON
UNDER WHAT CIRCUMSTANCES WOULD A BUYER
OF A NEW BUILD OR SECONDHAND YACHT
BENEFIT FROM USING FINANCE?

2. 75ISSUE TWENTY–THREE
Superyacht Buyer
for this activity for the next few years is very
positive, bearing in mind that the order books
of main European shipyards are in good
health.
In conclusion, it is not so much the yacht
financing sector that is changing, but rather
it is the banking industry which is fast moving
and needs to adapt to dealing with these
specific assets.
LB: Pre-global financial crisis, there were
plenty of lending options available that didn’t
require a wealth-management relationship.
As a fall-out of the crisis and the increased
regulation, yacht loans are categorised as high
risk. To keep compliant with Basel III (a set
of reform measures put in place to improve
regulation, supervision and risk management
in the banking sector), banks are required to
keep 100 per cent balance-sheet coverage for
these types of loans, making them unprofitable
for the banks. One way in which the banks
reduce this ratio of required balance-sheet
coverage is to make Assets Under Management
(AUM) and give personal guarantee conditions
of the loan. In light of the already conservative
loan-to-value (LTV) (50 per cent), the inclusion
of AUM further de-risking transactions and
yacht lending being a useful tool to win new
clients, we have seen an increase in private
banks starting yacht lending practices.
BA: In 2011, the effects of the earlier banking
problems and non-performing loans were still
a feature, with distressed yachts to be disposed
of. Banks have moved on; as some exit, others
enter the market, which is good to see. They
have a clear focus of what they consider to
be an attractive or acceptable client. I say this
intentionally as they require an acceptable
client who is buying a yacht that meets the
parameters set by the bank regarding shipyard,
value, size and age. They are especially focused
on supporting existing clients to retain
relationships so clients are not drawn away to a
competitor. They are relationship-driven rather
than transactional.
No private bank will provide ‘stand-alone’
yacht financing today. If a bank is putting its
balance sheet at risk, it requires a broader
relationship that involves the client having a
level of AUM – a share portfolio/funds/bonds
invested and held with the bank.
Additionally, after the experiences of the
recession, the banks also require a cash reserve
pledged to the bank. This allows the bank
to access funds to maintain the yacht should
the client default, enabling the value of the
collateral to be preserved without the bank
having to incur additional costs and increase its
exposure to preserve the position.
BA: This is a regular question, and buyers
of new or pre-owned yachts can invariably
benefit from using finance to reduce
the amount of capital that they invest in
the yacht and use their resources more
effectively. This helps to ensure they retain
a level of liquidity that they are comfortable
with. The buyer’s funds will already be
invested, and time and thought will have
gone into the investment selection process
for income generation and capital growth/
capital protection. The yacht buyer does not
have to give up the investment returns that
would be expected to create a positive cash
flow. You can have both!
The yacht should provide experiences,
enjoyment and memories, and there will
be costs associated with the purchase and
ongoing operation. It makes sense to retain
your positive investment’s returns and
borrow to buy the yacht rather than losing
all the investment return and incurring the
costs of ownership.
Retaining the investments and liquidity
provides the opportunity to still take
advantage of future business ventures or
projects, and this helps the buyer maintain a
wider set of options and future security.
HOW HAS THE PRIVATE BANKING
LANDSCAPE, FROM A YACHT FINANCING
PERSPECTIVE, CHANGED IN THE PAST
FIVE YEARS?
CC: Since 2008, the private banking industry
has faced a series of challenges related to
the sharp increase in the volatility of capital
markets, the low-rates environment and the
increasing scope of regulations in the US,
Europe and elsewhere.
The yacht financing environment has also
changed in the past five years with banks
closing their yacht financing departments,
while other new actors have entered the
market by setting up specific and dedicated
departments. Societe Generale Private
Banking (Monaco) entered the market in
2010 by successfully developing an office
dedicated to megayachts (40m+ LOA).
During the 2008 crisis, the mid-range and
large pleasure-boat segments, with units up
to 40 metres in size, were particularly hard-
hit. However, the steady growth in orders for
megayachts, and the appetite for ever-bigger
vessels, as well as demand for authenticity,
justified Societe Generale Private Banking’s
positioning on this segment. Exceeding
40 metres has a significant impact on the
purchase price of yachts, and this category
of vessels attracts UHNWIs, who constitute
our core target clients. Our current outlook