More and more players are leaving the superyacht finance market.
Yet some banks still regard it
as a profitable business with a good future. What does the future
have in store?
In 2008’s third quarter, boat shows in Monaco, Cannes and Genoa
closed with similar statements to those made at the Southampton
show that Leasing Life covered in October – sales had been
made, and the market for luxury yachts was buoyant, even expanding.
But, at the same time, the yacht finance market is looking ever
more deserted.
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Despite the industry-wide talk of the superyacht market’s
strength based on “economy-proof”, ultra-high net worth (UHNW)
customers, there are cracks showing in that confidence. As The
Yacht Report editor, Tork Buckley, wrote in December’s
edition: “Are we fiddling at boatshows while Rome [or the
superyacht market] burns?”
Certainly, whether the high end of the yacht market is catching
sparks from the world’s financial conflagration or not, the marine
finance world has been caught in the flames already.
Kaupthing Singer & Friedlander is unlikely to do business in
2009, after being put into administration in October, while
stricken HBOS’s marine finance division has been extremely quiet
since September.
Fortis Yacht Group, according to its director John Stephens,
will continue to write new business in 2009, despite Fortis’s
present difficulties, though he acknowledges the completion of BNP
Paribas’ purchase of Fortis “can only be good news for our business
going forward”.
Meanwhile, private bank Ansbacher, although still “robust and
definitely in the market”, according to head of special lending
Robert Morrall, will be extremely cautious about doing business in
2009.
Others in private banking, however, are committed to maintaining
the same levels of funding as they provided in 2007.
“We have always been very careful and selective in our yacht
lending,” said Gillian Keeler of Arbuthnot Latham. “We have never
been a high-volume lender, and we will continue to lend on
virtually the same basis as before, to the right clients where
there is a good prospect of a meaningful, long-term
relationship.”
Sales will persist
Whereas virtually all finance providers agree that the marine
“core” market of sub-30m pleasurecraft has experienced a
significant sales hit in 2008 (hence Fortis’s planned introduction
of a minimum loan size scheme later in 2009), most acknowledge the
fact that sales of super-yachts will persist, and even grow, so
long as there is a ready supply of UHNW customers.
According to UK lessor Lombard Marine Finance, this would appear
to be the case. Ian Braham, its head, commented that whereas
superyachts formed the same percentage of Lombard’s deals in 2008
as in 2007, the volumes lent in those transactions had increased by
70 percent, and overall business volume rose by 9 percent despite
difficulties in the core markets. While some of this success is
perhaps attributable to market share picked up from dormant
competitors, the rising value of the deals done supports the view
that super-yacht sales have not suffered from the doldrums of the
core markets. The rationale is nothing new: all pleasurecraft are
discretionary purchases, and such discretionary spending will take
much longer to disappear amongst the ranks of the UHNW.
“Economy-proof,” indeed.
Also, Alastair Hazell, who has just stepped down as head of
marine finance at Kaupthing, stated that superyachts were a good
financing bet for banks even without their potential to introduce
UHNW banking business.
“These things are real and maintain their value, and don’t
depreciate like a second-hand car. But in straitened credit
circumstances, it’s perhaps more of a leap of faith for an
institution,” he said.
But regardless of any continued demand for superyacht finance,
funders keep disappearing from this marketplace, either due to
parent bank problems, or to a “flight to quality” decision to
concentrate on more well-understood assets.
Even though the risk involved in superyacht finance is arguably
low, banks – in the opinion of yacht law specialist Jay Tooker –
would much rather fund more traditional assets in a period of
consolidation.
“A yacht is less of a commodity than, say, a share of a loan on
a gas tanker. It is an expensive asset but a fundable one – one is
fairly similar to another, and there’s a market for them,” said
Tooker.
“There’s also a fairly standard form of loan agreement and
security package involved, and there tends to be a long-term time
charter – you know what you are getting into. As a result, with
yachts there are many fewer players interested than there would be
in financing a gas carrier.”
Serious experience needed
Superyacht finance, then, is a market that it is easy to leave
and hard to enter without serious experience. The yachts are still
being made and sold – in some cases for ever higher prices – while
the number of liquid funders continues to shrink.
Syndications between smaller lenders, once a common thing in
financing high-end vessels, are rapidly becoming a thing of the
past as credit markets continue in turmoil and fewer potential
participants remain.
The situation was summed up succinctly by Remco Immink of Ciris,
when asked how business had been in 2008.
“We have over €600 million of applications on our desk but no
place to take them, as there are so few banks available with
funding at the moment,” he said.
“We have no idea why so many have pulled out. They all have
solid yacht finance portfolios, can make a good return on the
margins involved and have limited risk. So where are they?”
