Cruise Finance Simon Hartley Partner Norton Rose Fulbright LLP 19 May 2015

Transcription

1 Cruise Finance Simon Hartley Partner Norton Rose Fulbright LLP 19 May 2015

2 Cruise Financing Introduction Background to our involvement (i.e. shipping focus of firm but particular involvement with cruise financing over a long (>20 year) period Well connected with: owners financiers ECAs yards involved in the cruise sector Activity levels have remained strong in the sector notwithstanding the GFC Continued strong European presence in the cruise ship building industry and associated role of the ECAs, European banks and service providers Will look to share our experiences on cruise financing issues and some ECA issues within these 2

3 Britannia Norwegian Jade Oasis of the Seas MSC Preziosa Allure of the Seas Mein Schiff 3 Norwegian Breakaway Viking Star Norwegian Breakaway

4 ECA background Role in cruise finance Types of ECA support and structures: guarantee/insurance interest support ECA loan Construction and post delivery financing Risks covered (commercial and political) OECD Guidelines for Officially Supported Export Credits (the Consensus) Sector Understanding for Ships (Annex 1) 4

5 ECA support Sector Understanding Shipping Criteria ships and works (newbuildings/repair) covered minimum cash down-payments (20/80) repayment of principal (equal instalments and min/max repayment periods) min/max interest period (6-12 month periods) ECA and Lender interaction subrogation and transfer good faith/uberrimae fidei contractual interplay between ECAs and Lenders change of law/creditworthiness of ECA/illegality/cancelation of cover documentation risk 5

6 ECA support Main relevant ECAs France: COFACE/CFDI Germany: Hermes/KfW IPEX-Bank Italy: SACE/Simest Finland: Finnvera/FEC Documents France - supplier guarantee (in favour of builder) or buyer credit guarantee (in favour of lenders) issued by COFACE pre-delivery support issued by CFDI Germany Insurance policy/guarantee issued in favour of Lenders by Hermes CIRR support available from KfW Bankengruppe and managed by KfW IPEX-Bank Refinancing Agreement (Option A interest make up, Option B refinancing loan) entered into by KfW IPEX-Bank on behalf of KfW Bankengruppe Italy Insurance policy or guarantee issued in favour of lenders by SACE Interest make-up entered into by SIMEST Finland ECA guarantee issued in favour of lenders by Finnvera Interest equalisation and ECA loans from FEC 6

7 Financing Pre-delivery financing (i.e. builder construction financing) Post-delivery financing (i.e. owner financing) 7

8 Pre-delivery financing The Contract: Nature of cruise market influences the contract structure i.e. vessels are bespoke, non-commoditised, customer specific products Delivery of the specific (ordered) vessel crucial to cruise companies Timing of delivery is also key Ability to manage a problem project and protect legal interests key to the cruise companies As a result: payment profile 5/5/5/5/80 title passing arrangements protective liquidated damage regime, especially for late delivery rights on cancellation important 8

9 Pre-delivery financing Financing issues resulting from the contract structure: limits the pre-delivery exposure (and required financing needs) of the cruise companies and thus their pre-delivery financing requirements places the burden of the pre-delivery funding on the yard and accordingly the working capital requirements and funding of the yard is key Specific issues on working capital funding: leverage timing of advances (including first advance) basis for making advances security: mortgage insurance assignment contract assignment 9

10 Pre-delivery financing Mortgage security issues: who grants the mortgage? what obligations does it secure? what amounts are secured? when can it be enforced? standstill/negotiation periods when mortgage becomes enforceable? how are enforcement proceeds applied? maintenance of vessel mortgage on contract cancellation 10

11 Pre-delivery financing Insurance security issues: damage claims total loss claims: contract provisions re cancellation or rebuild lender position re rebuild how are total loss proceeds applied Refund guarantee issues: timing re facility arrangements security entitlement (e.g. mortgage and insurances but not contract assignment) 11

12 Pre-delivery financing ECA support issues: level of support level of control subrogation rights Other general issues capitalised interest conditions precedent covenants events of default 12

13 Post-delivery (or Buyer) finance Nature of financing: secured? corporate credit? If secured, nature of security Purpose and amount of loan: pre-delivery finance? ECA fees capitalised interest (pre and post delivery) overall amount available to cover contract price payments Covenants: financial covenants general corporate covenants or specific transaction covenants 13

14 Post-delivery (or Buyer) finance Interest calculation issues: fixed or floating Commercial Interest Reference Rate (CIRR) interest optionality Interest make-up arrangements Currency issues: currency options calculating loan exposure / hedging (currency equivalent) issues Drawdown mechanics 14

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