Cayman Islands Orphan SPVs in Shipping

On Friday 17 February 2017, the two week period for appeal expired and the court in Seoul declared Hanjin Shipping bankrupt. Hanjin will not be the only headline-capturing casualty of 2017 as the shipping market continues to suffer. Earlier this year, one of the major names in the market, Norwegian bank DNB, announced loan losses of US$903 million for 2016. This, as well as the bank’s NOK 25.7 billion ($3.08 billion) of non-performing and doubtful loans, attributed to clients across the shipping and offshore sectors.

New lending is generally not available except for the “blue chip” of shipping companies with tried and tested relationships. We see two trends emerge: on the one hand, enforcements of existing bank facilities due to non-performance or where re-financing is not available; and, on the other, Chinese liquidity in the form of lease finance where traditional bank finance has dried up. As reported by Tradewinds, industry data and projections in November 2016 estimated the top ten largest Chinese lessors to have spent around $11.5 billion on vessels last year.

In this article, we look at why financiers use Cayman Islands orphan SPVs as preferred vehicles for enforcement as well as for new leasing deals and how these structures add value.


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