Page 18: of Marine News Magazine (June 2015)

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COLUMN FINANCE

Barging Ahead in Uncharted Waters

A Real-Life Study in Creative Vessel Financing, or What Happens When Plan ‘A’ Is Not Working.

By James A. Kearns

Much has been written on the vari- the ? nancing that BargeCo needed, in return for BargeCo’s ous structures and approaches that can agreement to pay HopperCo amounts suf? cient to cover be used to ? nance the construction and the periodic ? nancing payments plus a premium to com- purchase of vessels. Such articles typi- pensate HopperCo for assuming the additional risk. Since cally speak in general terms, presenting HopperCo did not want to own the tank barge, one way to what might be called the textbook ver- have structured the transaction would have been for Hop- sion of the approach under consider- perCo to obtain the lease ? nancing in the form of a “hell ation. But what happens when reality or high water” bareboat charter from a ? nancial institu- rears its ugly head, and forces the deal to leave the well- tion’s equipment leasing af? liate, and then to enter into a marked channel and to venture into uncharted waters? bareboat sub-charter with BargeCo. However, HopperCo

A recent real-life experience shows how creativity and did not want to be either a direct owner or a demise owner ? exibility can salvage a ? nancing transaction that other- of the tank barge.

wise would not have appeared to be feasible if measured It was agreed that HopperCo would provide credit sup- only by the textbook model. There is, of course, a certain port for a lease ? nancing in a two-tier structure: a bareboat risk in presenting a real-world case study: its pedagogical charter of the vessel from the leasing company to BargeCo, usefulness might be perceived by some as being limited to and a time charter from BargeCo to HopperCo contain- the particular circumstances of that speci? c situation, pro- ing the necessary “hell or high water” payment provisions viding only limited guidance when the facts are different. required by the leasing company. There would also be an

This account of how certain issues arose and were resolved assignment by BargeCo to the leasing company of Hop- in a particular case is not presented with the expectation perCo’s payment obligations under time charter.

that it will become a template for many other transactions. In itself, such an arrangement was hardly novel. The

Rather, it is offered in the hope that it will encourage busi- leasing company-bareboat charter-time charter structure ness teams and their counsel to continue to be patient, cre- has been used for many years for credit-worthy compa- ative and ? exible in getting deals done. nies to obtain the use of vessels as time charterers with operational control and responsibility for the vessel vested

EAL IFE EAL LIGHT

R L , R P in a bareboat charterer. In this case, however, the credit-

Our story begins with BargeCo (the names have been worthy time charterer, HopperCo, did not in fact want changed, as Sergeant Joe Friday would say, to protect the the use of the vessel. In order to convey its rights as time innocent), a company that wished to purchase a new in- charterer back to BargeCo, it was agreed that HopperCo land waterways tank barge for its ? eet. For various reasons, would grant a time sub-charter to BargeCo. The time sub-

BargeCo’s balance sheet would not support conventional charter, however, did not have the unconditional payment loan or lease ? nancing from the ? nancial institutions that obligations that were required by the leasing company in were the usual sources of ? nancing for this type of vessel. the time charter, since the leasing company was not look-

Word of BargeCo’s plight reached HopperCo, which was a ing to the credit of BargeCo to support the ? nancing.

provider of barge freight in the inland waterways dry cargo So far, so good. The leasing company had the necessary market. HopperCo had the creditworthiness to obtain the credit support from HopperCo; BargeCo had operational kind of ? nancing that BargeCo needed, and it had the ? ex- control and responsibility for the vessel under the bareboat ibility to assume more risk than would typically be accept- charter and the right to direct the use of the vessel under able to a ? nancial institution, but HopperCo did not have the time sub-charter; and HopperCo avoided ownership of a current interest in acquiring tank barges. the vessel and would be compensated for assuming the risk

HopperCo agreed to use its credit standing to obtain of BargeCo’s lesser credit standing.

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