The shipping debt overhang

Even the most experienced so-called 'shipping banks' (Nordea, DnBNOR, DVB for example) lent substantial sums at the top of the shipping cycle. What was worse they often did so under aggressive terms with loan to values (LTVs) of more than 80% and loose covenants. Since then vessel values have plummeted and with them equity has been extinguished. I have been looking at a number of fleets that are now probably worth less than their debt. I would, for example, put Freeseas Inc www.freeseas.gr and Maritime Capital Partners www.maritime-capital.com in this category to name just two. The number of shipping company bankruptcies has been limited to just a trickle so far (from Allco's mistimed foray into shipping to Eastwind Maritime but in 2010 the flow will increase as banks are unable to put off the inevitable with their clients. Estimates of how much will be written off by the banks vary but around $50billion seems about right. These same banks are now taking a conservative stance and will sit across the table from the shipowner talking about risk and struggling to fund anything over 50% of LTV. The irony. The best time to lend into shipping is the bottom of the cycle when asset residual value risk is lower and pricing higher. Despite this anyone lending in 2010 will have the market to themselves....