Sale and leaseback transactions have seen a substantial increase in recent years as an alternative method of ship financing, and BIMCO has adopted a new term sheet which will facilitate the negotiation of sale and leaseback deals and make the process cheaper for parties involved.
Responding to the changes in the ship financing landscape, BIMCO’s Documentary Committee has adopted the new term sheet, SHIPLEASE, which is developed for sale and leaseback transactions involving second-hand ships but can be readily adapted for new buildings. SHIPLEASE will be available in the coming days.
Sabrina Chao, President Designate of BIMCO and Chairman of Wah Kwong Shipping Holdings Limited, which has had a representative on the drafting committee developing the term sheet, said: “This is a very timely step for BIMCO. In turbulent times, it is important for shipowners to be able to free up capital while maintaining the ability to operate a vessel and trade as owners under a long-term lease. The term sheet sets out a user-friendly basis for negotiating the deal.”
Sale and Leaseback Increasingly Used for Ship Financing
The bulk of sale and leaseback transactions originate in Asia and SHIPLEASE was therefore developed by an Asian-based drafting committee involving major shipping and ship leasing companies and law firms. It creates a balanced standard – an industry first – based on which the parties can conduct the negotiations. Nick Fell, Executive Vice President, Corporate Services and General Counsel of BW Group chaired the drafting committee.
“Sale and leaseback deals have become increasingly prevalent for ship financing. Efficient transactions depend on clear term sheets, which provide the foundation for final documentation. SHIPLEASE provides a better starting point for the parties to begin their negotiations and to arrive quickly at a result that is fair for everyone,” said Andreas Sohmen-Pao, Chairman of BW Group.
Sale and leaseback structures have benefits for both shipowners and leasing companies, and the drafting committee has focused on developing a standard which is useful for all parties involved. Wide industry consultation was carried out to ensure that the form reflects market practice. The result is a ‘one size fits all’ form which the parties can adapt to fit their needs.
“There are quite a number of newcomers in the market and having an industry standard is therefore a useful starting point. The term sheet will also facilitate the process for more experienced players,” said Wilson Liu, Senior Director at Minsheng Financial Leasing.
SHIPLEASE accompanies BIMCO’s two existing term sheets for bilateral and syndicated term loan facilities, SHIPTERM and SHIPTERM S. The forms have the same structure, are indicative in nature and allow the parties to adjust the term sheet to fit their individual transaction. SHIPLEASE is applicable to both operating and finance leases.
The drafting committee also consisted of Alexandros Laios of Navios Corporation, Catherine Smith of Wah Kwong, Conor Warde of Mayer Brown, Jia Zhang of China Development Bank Leasing, Jay Shi of China Merchants Bank Financial Leasing, Lawrence Chao of Island Navigation, Matt Hannaford of Hannaford Turner LLP, Olga Petrovic of Linklaters LLP and Shen Zhao of CSIC Leasing.
SHIPLEASE will be made available on BIMCO’s secure contract editing system SmartCon and the term sheet will be accompanied by explanatory notes.
BIMCO is the world's largest international shipping association, with around 1,900 members in more than 120 countries, representing 59 percent of the world’s tonnage. Its global membership includes shipowners, operators, managers, P&I Clubs, brokers and agents.