Financing your yacht in 2015
Leon Batchelor, managing director, Arc & Co Marine & Aviation, reviews the state of the superyacht finance market.
Superyacht Investor: Why would a buyer choose to finance their superyacht?
Today’s superyacht finance leverage is at an average of 50%. As a result we find that in the majority of cases clients leverage their superyachts in order to maximise their return on capital. If one can borrow at between 3% and 5%, but make north of 10% on their capital the business case speaks for itself. Furthermore, the compound effects of the return on capital over a five year loan term really magnify this argument. In some cases, when we work with clients from the emerging markets who make in excess of 20% return on their money, often the returns pay for the yacht by year three of the loan.
Looking at the more conservative end of the return scale, by using finance one is hedging against the depreciation of the asset and therefore mitigating the reduction in value over time.
Superyacht Investor: How easy is it for a buyer to find finance in September 2015?
Superyacht finance is not readily available to all. There are pockets of capital available to a specific profile of client. At the upper end of the superyacht scale the private banks are there to provide the loans to those clients willing to start a wealth management relationship. At the entry level, 25 metres to 40 metres, liquidity is still very scarce. This segment falls between those lenders ready to provide yachts loans to the production yacht sector and the private banks, who are mainly interested in the mega yachts. The UK and US are leading the way to service the lower to mid sector of the superyacht market.
The determining factors are; client nationality and residency; the superyacht shipyard; the superyacht age; the flag state and where the superyacht will be moored/sailing.
Superyacht Investor: At what stage should they start looking for finance?
It depends on how much of a priority leveraging the asset is to a client. The lending mandates for the active superyacht lenders are very specific, so if a client will only purchase a superyacht if they can finance it then I recommend having the finance dialogue from the start. A good asset finance advisor will be able to guide a client on which superyachts will fit which lenders mandates and the respective financing terms.
Superyacht Investor: How much should they expect to pay in September 2015?
There is no fixed or straight forward answer to this question. Rough ranges would be:
Emerging Market clients: 3m Euribor + 220bps to 450bps
Western Economy clients: 3m Euribor + 200bps to 350bps
Emerging Market clients: 3m Euribor + 550bps to 700bps
Western Economy clients only; 3m Euribor + 300bps to 500bps
Superyacht Investor: With interest rates so low would you advise fixed or floating rate finance?
This depends on each individual client’s view on where interest rates are going. Logic would say that because interest rates have been so low for so long then there’s only one way for them to go. In my view, if a low rate can be secured it is sensible to lock it in as a fixed rate and then at least one has certainty on the monthly debt servicing.
Superyacht Investor: Are there any areas of the market that are not served well?
There is a big gap for the 25 metres to 40 metres sector for both Western European and Emerging Market clients wanting a straight loan against the superyacht and no involvement of a wealth management relationship.
Superyacht Investor: What one piece of advice would you give to a buyer looking for finance?
If leverage is a priority in a superyacht acquisition, a client should be prepared to keep an open mind on their superyacht selection and ownership structure. This is on the basis that the client wants to strike the balance between buying a beautiful asset, which they and their family will enjoy for years and making a financially sound decision. Such a balance does exist.
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