In December Ciris Capital informed us about the current modus operandi in the yacht finance market and the time is now ripe for an update. There is no escaping the fact that the last few months have been challenging ones, both for those looking to secure a yacht finance loan and for the folk working on these applications and cases at the bank.
The main sticking point has been uncertainty as to which direction the banks would go. Internal policies seemed to be changing quite literally overnight and that was not making it any easier to get clear guidance from the banks. Some banks had to wait until 2008 was over and a clear strategy and policy for 2009 had been put in place. Others were first seeing how their budget for 2009 would be allocated.
A new look at the market
So what have the results of all this been three months into 2009? In a nutshell, we can say that there is still a yacht finance market out there. But it’s not the same as it used to be. A number of institutions have left the market, others have implemented a new credit policy, and some have ambitious growth plans for the years ahead.
This does not mean that we are back to business as usual. We see a trend of banks preferring to stay on the smaller side of the market. A €15 million loan is about as high as they are prepared to go and the average transaction is well below €5 million. Moreover, there is a tendency to link loans to more general private banking relationships, the days of yacht finance as a stand-alone business appear to be over.
The demand from the market for yacht finance is still there and has become noticeably stronger in the last few weeks. At Ciris Capital we are managing to complete the process of having files approved, documented and closed. It is more time consuming than before but it is also very rewarding to see that our know how and expertise is still making a key difference for banks and clients alike.
• We start by getting an overall feeling of the project and issues such as yacht type, investment and build time.
• It is crucial to know who the prospects/clients are, have a copy of their passport, understand their general background and business activities, and have an indication of their private means.
• Another key issue is to know which other banks the prospects/clients have private or business accounts with. It is especially useful if one of their banking relations is related to a European bank.
• With respect to personal wealth, it is useful to know whether the activities of the prospects/clients or part of their wealth are based in Western Europe.
• Once these basics have been established, we will decide which banks are best to approach for this project and ask them for an indicative term sheet.
• If the conditions of one or more banks that are willing and able to produce a term sheet are acceptable to the client, we will decide together which banks to start the credit process with.
• For the credit process (writing up of the application), we carry out an intensive intake of all the information required in order to avoid having to frequently return to the client
• After the client has approved the write up, this will be presented to the bank. We will take care of monitoring the process and give any further explanations the bank may require.
As we have mentioned above, many banks stipulate the need for a private banking relationship before they will look at a new application. Should the client agree, we will arrange a meeting with the bank and make arrangements accordingly. In general this requires a seven-figure deposit in the newly opened private account.
Pricing the transaction Money has become more expensive for banks to loan from other banks. Taking this into account, for a loan in the range of 60% to 70% with a term of max 120 months, we calculate an interest rate of cost of fund, Euribor/Libor plus 2.5% to 3.5%, plus an upfront fee for the bank of 1% to 2% over the loan amount.
For our work we sometimes get paid by the bank and sometimes by the client, depending on the involved bank(s) and needs of the client. In return the Ciris Capital team members will use all their in-depth knowledge of how the banking system works to maximise the chance of a positive outcome. Our long-lasting contacts within the banking network are proving especially valuable in these turbulent times.
To use a sailing metaphor, the journey may take longer than was previously the case but Ciris Capital knows which route to follow and how to hold a steady course. In doing so we aim to keep the lines of communication as straightforward and open as possible with our clients.
Please contact Ciris Capital should you have any questions based on the above, or if they can be of assistance in any other way.