Page 22: of Marine News Magazine (September 2015)

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COLUMN FINANCE

There are the so-called ‘Five C’s of Lending’:

Credit (ability to repay), Capital (amount borrowed), Collateral (quality of mortgaged asset), Character (track record) and Conditions (covenants). These Five C’s have always been crucial, and the changing market conditions at present don’t erase any of them.

Instead, it merely shifts the relative weighting during the ? nancing process.

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EW ORMAL RIVERS

Higher documentation and due diligence hurdles also Zooming out and trying to see the domestic sea-transport have meant that much of the information has to be in black- industry from 10,000 feet, one can see that coal becomes and-white, tangible and quanti? able, for origination pur- less important source of energy domestically and globally poses to begin with, but also, for auditing and second-guess- (for whatever reasons, right or wrong) while shale oil and ing purposes, as well. The process is now more ‘transparent,’ natural gas have been substituting it in the energy markets. at least as far as ‘optics’ are concerned, and the element of As with the international tanker market, transport of oil and ‘relationship lending’ where a handshake and personal ver- gas is a much more concentrated industry in terms of asset bal promise to repay have moved lower on the totem pole of ownership, terminal and charterers, and also segment of the importance for receiving credit. As the process has become industry held to higher operating and regulatory standards.

more quanti? able, with a grading system favoring certain For shipping asset owners and operators in the ‘brown types of transactions in terms of credit and size, the subjec- water’ industry, in order to be successful, at least in the eyes tive element and personal relationship have been relegated a of the ? nanciers, they have to demonstrate that they oper- couple of notches lower. ate on the ‘right side of the history,’ with larger, modern

Higher documentation and due diligence hurdles also ? eets that have critical mass and can offer full shipping so- have meant that preparation and access to the borrowers ? - lutions to the larger charterers. And these larger charterers nancials become imperative. Access to borrowers’ ? nancials are getting larger and more sophisticated themselves, even to has been a typical prerequisite to lending, but now depen- the extent that they are large, well-established, institutional dence on the ‘numbers’ becomes ever more crucial, with clients like the ever-more-active in the Jones Act market lesser personal discretion to work around the numbers. Also, Kinder Morgan as a provider of transport solutions to their bigger banks and higher standards have meant that lenders energy clients.

are now satis? ed with purely accounting reports, but they There are ‘fads’ and ‘trends’ in all industries all the time, want to see ‘vision’ and strategy, through a business plan or and right now the ‘brown water’ industry faces a changing other proof for desire to grow with the market. seascape brought onto them by structural factors but also

It’s not only how good the numbers are, but also ? nan- variables in other industries, such as in the ? nancial and ciers are asking themselves the question on whether they are banking industry. We are of the opinion that the present ? nancing a ‘winning horse’ player in the market; after all, changes in the industry are more than just a ‘fad’ and require ? nancing two more tug boats or ten tank-barges requires the the attention of the owners and operators who would like to same effort whether for mom-and-pop-TX or mom-and- position their companies favorably in order to bene? t from pop-LA, but the differentiating factor will be which com- the new order of things. And, for such a capital industry, pany has a better plan to be a strategic player over time, to positioning favorably for the future requires competitive ac- have stronger resources to withstand any market headwinds, cess to capital.

and ultimately, that they will be players in the market when There is more than suf? cient amount of capital at present the loan matures and bring repeat business to the ? nanciers looking for opportunities to get deployed, but such capital (again, repeat business means lower costs to originate and has only been prepared to be invested for the right oppor- administer ? nancing, providing high probability of growth.) tunities, mostly for owners who can demonstrate that they

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