Preparation Propels Financial Peace of Mind

Like marine coatings, preparation is everything when it comes to sourcing and attracting marine finance support.

1. Earnings: We want to see three to six months of positive earnings before interest, tax, depreciation and amortization (EBITDA). We’re looking for an indication of your performance despite industry conditions.
    
2. Leverage: How much debt do you have currently? What debt trends can we see in your company history?
    
3. Liquidity: We’ll look for cash, line availability and outside sources of liquidity.
    
4. Asset quality: What are you looking to finance? And, what is the quality of your existing fleet?
    
5. Outlook: How far out can we see this company’s earnings with comfort?

• The fanciest software isn’t necessary, but every company should have an accounting and information system in place to provide a quality financial statement presentation that details current and trailing 12 month earnings and EBITDA. A lender wants to see detailed projections demonstrating financial flexibility.
   
• Is your house in order? Are you up-to-date on invoicing clients, accounts receivable and payables, and managing vendors? Many lines of credit use accounts receivable as security against the loan. Delinquent account receivable activity can negatively impact a company and jeopardize a deal. Basically, we want to see evidence that everything is up-to-date, how things have been handled in the past, and then detailed projections demonstrating sufficient financial flexibility to withstand minor fluctuations with no covenant issues.
   
• One thing you can do that will go a long way with a lender is to provide updated appraisals on the subject vessel or vessels, potentially, the entire fleet. Ideally, you want an appraiser or a known marine lending surveyor to complete the detailed valuation of your equipment. This allows a lender to get a sense of the actual company equity, not just the “book equity,” which doesn’t always give a marine operator full value of the fleet.
   
• Provide documentation on your current debt. Your lender should have a schedule of all outstanding notes and terms and have the detailed collateral for each. This gives the lending source the overall picture of what is outstanding.
   
• Have you navigated something like this in the past? Lenders will take management quality into consideration, so any evidence you can provide showing how you handled a market downturn in the past will be helpful. When a company has ‘weathered the storm’ in the past, that can be very appealing to a lender.
   
• Marine operators can also provide management analysis to give an operational snapshot. This allows you to guide financial parties efficiently and effectively through the company’s future plans. A company-initiated analysis will give management the opportunity to remain in the control of future expectations, set the tone for debt restructuring, and, in the process, avoid lender preconceptions.