Page 23: of Marine News Magazine (April 2012)

debt service, expenses and profit for the Shipowner. The lender is assigned, under a blanket assignment ofcharter, all proceeds of the Charter agreement in the event of a loan default by the shipowner. TIMEIn a standard Time Charter Agreement, a vessel is under employment to a charterer for a term specified within the agreement, usually one to three years. Under most cir- cumstances, the shipowner is guaranteed at least 350 days of employment. Ideally, the Time Charter will include two important provisions: (1) Assignability of the charter (as above) to the lender or its designates in the event of an incurable default by the shipowner to the lender; and (2) a Hell and High Water? or Take or Pay? provision that obligates the charterer to pay the agreed daily rate under all circumstances. The charterer cannot withhold payment under any circumstance including fatal accidents, work stoppages, seizures, or strikes regardless of what happens to the Shipowner or the vessel under charter. THEUNDERLYING BOTTOM LINEBoth Bareboat and Time Charters with strong charterers are game changers for a story? or weaker credit. To be of real value in a credit analysis of your loan request, the charterer should be rated significantly higher than you as the shipowner to be of any effect on your businesss implied credit rating. If revenue streams and debt service are effectively guar- anteed by a highly rated third party (your charterer), upon approval by the lender, a considerable amount of risk for the lender has been removed from the loan or lease with the proposed borrower. By mitigating the level of risk associated with the transaction, and in consideration ofthe strength of the underlying credit of the charterer, you may enjoy some of the benefits of a higher credit rating than you would normally bring to market. So the trade-off is higher rates from the unreliable spot market or guaranteed rental revenue and cash flow (albeit at a possibly lower rate) from an established, high(er) quality credit. Guess which we lenders want to see. Richard J. Paine, Sr. is a recognized authority on U.S. com- mercial marine lending and leasing. He can be reached at [email protected] MN23