Page 20: of Marine News Magazine (May 2016)

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COLUMN FINANCE

Through the lease ? nancing exception, AMSC owns 10 product tankers built at Aker Philadelphia Shipyard between 2007 and 2011 at a reported aggregate construction price of more than $1 billion. The AMSC vessels are on long-term bareboat charters to Overseas Shipholding Group, Inc., which in turn time charters the vessels to major U.S. oil companies.

Prior to 1996, a lender who provided loan ? nancing for ly, lease ? nancing. Lease ? nancing for U.S. ? ag vessels, in- the construction or purchase of U.S. ? ag vessels could not cluding U.S. coastwise vessels, has been effectively used for secure its loan with a mortgage on the vessel unless the lend- decades. It has provided a way in which foreign companies er itself met the U.S. citizenship requirements. With the that have both strong credit and a need for transportation sources of capital rapidly becoming global in their scope, in the U.S. coastwise trade could provide the credit support this limitation had the effect of excluding foreign banks needed to ? nance the construction of Jones Act vessels. For and ? nancial institutions that would like to have provided example, Shell Oil Company does not meet U.S. citizen- loan ? nancing for the construction and purchase of Jones ship requirements due to the percentage of its stock that is

Act vessels, but were unwilling to do so without the protec- owned by Royal Dutch Shell. Yet, through lease ? nancing, tion of a ship mortgage. It also raised concerns for poten- Shell, as a time charterer, was able to provide the credit tial lenders in the United States for whom the prospects that supported the construction in the United States in the of being acquired by or combined with a foreign ? nancial late 1970’s of two U.S. ? ag oil tankers for use in the U.S. institution were no longer as remote as they had once been. coastwise trade by a U.S. citizen bareboat charterer to carry

To address this development in the ? nancial markets, in crude oil from Alaska to California.

1996 Congress amended the law to permit foreign lenders Useful as lease ? nancing has been in such circumstances, to secure their loans with preferred ship mortgages. This it still required that the leasing company meet the U.S. did not mean that a foreign mortgagee could now become citizenship requirements of an owner under the Jones Act, the owner of a Jones Act vessel by foreclosing on its mort- thereby restricting the source of the lease ? nancing to U.S. gage. The protection for the foreign mortgagee is that, if a ? nancial institutions. Finding a way to permit lease ? - foreclosure becomes necessary, the mortgagee will receive nancing from foreign sources was more of a challenge than the proceeds from a foreclosure sale to the extent of its out- clearing the way for foreign-source loan ? nancing, since in standing loan. In nearly every instance, a ? nancial institu- the lease ? nancing of a vessel, the leasing company actu- tion would in any event prefer to receive the sales proceeds ally takes title to the vessel. However, a way was eventu- than to take title to the vessel. ally found to permit a vessel that is documented with a coastwise endorsement to be owned by a leasing company

L F that does not qualify as a coastwise citizen, by requiring

EASE INANCING

A more daunting task was to ? nd a way to access foreign that several additional conditions be met. This was done capital through another popular ? nancing structure; name- through changes in the law made by Congress in 1996, as th

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May 2016

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