FINANCE UPDATEHow Specialty Lenders can PropelMarine OperatorsBY ERIC DUSCHhe surge in the shale gas in- troleum products—they are more likely dustry in the U.S., as well as to lease certain marine assets than banks stepped up oil exploration in because they are more familiar and com-Tthe Gulf of Mexico, is creating fortable with the assets.enormous demand for marine assets to Leasing allows customers to use the transport fuels and supplies. To seize this equipment without tying up capital by growth opportunity, mid-size marine op- owning it. This helps borrowers to en-erating companies with annual revenues hance liquidity and manage cash ? ow. from $10 million to $1 billion must ad- The length of these leases are similar to dress several important issues. that of loans, and more specialized ma-First, what is the most ef? cient way rine asset might have a residual closer to ? nance equipment to keep up with to 50% after 8-10 years. Most leases in-the robust demand? Is ownership of the clude an early buyout option at 3 and 5 vessel through a loan structure the best years, or a ? xed price purchase option at option, or would a lease make better use the end of the lease. of working capital? Another issue that operators face is how to evaluate the Find a Strategic Allywave of marine lenders now entering From a lender’s point of view, marine the market and vying for their business. assets are very attractive for three rea-It’s more critical than ever to consider a sons: they tend to hold or even increase lender’s depth of knowledge and experi- in value over time; also, these deals in-ence in the industry to get the best pos- volve large dollar amounts that can be sible ? nancing and long-term ? nancial ? nanced over a longer term than most ally. other assets. That makes it easier for lenders to maintain a more stable portfo-The Collateral Equation lio of loans. But mid-size marine opera-Marine collateral can be varied and tors should be cautious of the newcom-can be dif? cult for inexperienced lend- ers attracted to their industry.through the entire business cycle. The lenders depending on credit quality.ers to value. These assets include in- Operators need to weigh the rela-One facet of the loan structure where tive strength of potential ? nancial allies land towboats and ocean tugs, inland industry is now booming thanks to oil and ocean barges, marine construction and gas, but this tight link to the oil and a specialty lender can often make a big very carefully. Deep domain expertise equipment and offshore oil? eld services. gas industries is a double-edged sword. difference is the term of the loan. For and knowledge of the collateral, length Adding to the valuation challenge is the A mid-size company borrower needs a new vessels, many lenders prefer to of time in the industry and familiarity absence of an active re-sale market to lender that’s committed to the industry offer a 3-5 year term loan with a 7-10 with the business cycles and the ability regularly and transparently value these and will not look to exit at the ? rst sign year amortization. But specialty lenders to offer a wide breadth of loan and lease of a downdraft.assets in an open market. are more likely to offer a 7-10 year, full products may outweigh another lender’s term, full amortization loan for new ves-As a result, a specialty lender with willingness to shave a few basis points deep domain knowledge is going to be Longer Loan Terms sels, allowing the borrower to lock in to-off a loan. Ideally, a specialty lender is Given all this insight, a specialty lend-more comfortable with the collateral, day’s ultra low interest rates for up to 10 more than just a lender; it’s also a stra-years. With a specialty lender, there’s no tegic ally to help build the business over which often means a higher residual er is likely to offer a wider range of ? -value and thus better pricing for the bor- nancial products with ? exible loan and adjustment period and no need to redo the long term.lease structures and payment terms. That the loan 3-5 years down the road.rower. A knowledgeable lender may also makes the lender better able to match be willing to ? nance individual compo-nents of the boat, such as a new engine the unique needs and goals of customers The Lease OptionThe Authorwhether the company is looking to op- Many banks don’t offer tax and non-or other technologies, as opposed to only timize depreciation, lower monthly pay- tax operating leases because they are being willing to ? nance the entire vessel.Eric Dusch is Chief Commercial Of? -ments or monetize assets. uncomfortable owing the asset given the cer—Equipment at GE Capital, Corporate Lending can be ideal for customers potential risks of costs and accidents. Long-Term CommitmentFinance, specializing in providing com-with long-life equipment needs, who Although specialty lenders will not lease mercial loans and equipment leases to A specialty lender that’s been involved prefer asset ownership and the associ- just any marine asset—for example, they mid-size companies. in the marine industry is also more ex-e: eric.dusch@ge.comperienced with the industry’s cycles and ated tax bene? ts. Typically, borrowers typically don’t offer leases on tank barg-more likely to stick with a borrower can get 80%–100% advance rates from es that carry hazardous material or pe-18 Maritime Reporter & Engineering News • SEPTEMBER 2014MR #9 (18-25).indd 18 MR #9 (18-25).indd 18 9/3/2014 9:46:22 AM9/3/2014 9:46:22 AM