Appendix Attachment 1: Overview Financing Methods Financing Finance Method summary Upside Downside method type Private Equity Owner or partner Limit to losses Lack of leverage limits investment invest personal assets growth opportunity Mortgage Debt Bank offers credit Book vessel value Shortage in cash flow backed loan backed by vessel generates investment means loss of vessel capital Asset backed Debt Bank offers credit Book asset value Losses may be greater loan backed by assets generates investment than vessel value alone capital Charter Debt Bank offers credit Future charter income Freight are volatile backed loan backed by charter generates investment so default are prevalent contract capital High yield Debt Investor gives capital Gives capital without Interest rates are stable Bond against future cash encumbering assets but market income is not flow generation Junk Bond Debt Investor gives capital capital without Ratio capital investment against possible future encumbering assets to future payout is high asset value growth IPO Equity New equity attracted New working capital Free rider, stock market to company without more debt based buyout Ship fund Raising new working Counter-cyclical asset Speculative investment, capital independent of play possible long term investment shipping market mismatch Source: (Pallis 2007, Stopford 2009) Attachment 2 Balance sheets of SPVs during different periods of lifetime Attachment 2.1: Value SPV vessel at moment commissioning: Assets Liabilities
Appendix Attachment 1: Overview Financing Methods Financing method Finance type Method summary Upside Downside Private investment Equity Owner or partner invest personal assets Limit to losses Lack of leverage limits growth opportunity Mortgage backed loan Debt Bank offers credit backed by vessel Book vessel value generates investment capital Shortage in cash flow means loss of vessel Asset backed loan Debt Bank offers credit backed by assets Book asset value generates investment capital Losses may be greater than vessel value alone Charter backed loan Debt Bank offers credit backed by charter contract Future charter income generates investment capital Freight are volatile so default are prevalent High yield Bond Debt Investor gives capital against future cash flow generation Gives capital without encumbering assets Interest rates are stable but market income is not Junk Bond Debt Investor gives capital against possible future asset value growth capital without encumbering assets Ratio capital investment to future payout is high IPO Equity New equity attracted to company New working capital without more debt Free rider, stock market based buyout Ship fund Raising new working capital independent of shipping market Counter-cyclical asset play possible Speculative investment, long term investment mismatch Source: (Pallis 2007, Stopford 2009) Attachment 2 Balance sheets of SPVs during different periods of lifetime Attachment 2.1: Value SPV vessel at moment commissioning: Assets Liabilities
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