Picture this: you are at the Monaco Yacht Show when you suddenly and perhaps unexpectedly find the superyacht that ticks off all your boxes. You want to purchase her, however, when it comes to acquiring or building a yacht, any potential owner will need to undertake a number of steps to ensure the final result meets all of their requirements. One of these steps may include securing external finance to help support your superyacht purchase. Over the years numerous private banking firms and companies have established special divisions dedicated to wealth management, many of which focus on financing high-value assets, such as superyachts. Photo: Aurélien Herman / SuperYacht TimesHowever, before you start considering your cash flow and tax implications prior to applying for a loan, there are several other issues you should think about - such as what type of financing you are looking for, what is the maximum amount you can finance and what the tax implications are for the ownership and operation of your future yacht? In order to help you find your way through financing your superyacht, we spoke to some of the leading financial advisors at BNP Paribas and Arc&Co, Olivier Blanchet, Head of Jet & Yacht Finance, Asset Finance and Wealth Management at BNP Paribas and Leon Batchelor, Managing Director at Arc&Co.
There are a number of different types of financing structures, such as construction financing, purchase financing, loan purchase and refinancing, as well as financing rates (fixed or floating) you need to take into account when looking to finance your superyacht. But before you can even begin to explore what type of yacht financing you may need, it is important to find out if you are even eligible for financing in your chosen country of build or purchase, as it is not possible to provide financing for all nationalities. “Banks need to take into account strictly and without exception all the international regulations and international sanctions policies,” explains Blanchet to SuperYacht Times. Although the feasibility of yacht finance is less relevant when it comes to a future owner's own nationality, it is strongly linked to where they, their business and their respective assets are located.Photo: Aurélien Herman / SuperYacht Times“In the current financial environment even being one or two steps removed from someone that is under sanctions or on a ‘sanctioned’ list is enough to hinder the chances of securing finance,” says Batchelor. “The mantra of ‘location, location, location’ in the property world is equally important to lenders when considering a client’s profile in reference to residency and jurisdiction of assets.” The location of a client's assets also offers lenders a sense of comfort when it comes to assessing the risk of securing judicial support from the respective country's legal system and being able to enforce on the loan, in case of the worst case scenario, such as the shipyard going bankrupt before the new-build is complete.
Once you have established what type of financing you need, another key question you may ask is what is the maximum amount or percentage you can finance a yacht for? While it is possible to finance up to 70% of the market value of the yacht, “it depends on the mix of parameters, ranging from the quality of the asset to its pedigree and quality of the relationship with the clients,” says Blanchet. The prospective owner’s business activities can also play a factor when it comes to financing a superyacht, as the lender could well be supporting the loan as part of a strategic step to develop a broader relationship. However, financing a superyacht with a 70% loan to value with just using the yacht itself as security is rare. In the current fiscal environment, the market average for a loan to value is closer to 50% to 60%, with most lenders requesting that this is combined with an investment relationship in return.Photo: Aurélien Herman / SuperYacht Times “If a client is open to including investment assets in the transaction, some additional security can be taken and the overall loan can be increased closer to 100% of the yacht value, but in my mind, this isn’t true yacht lending,” notes Batchelor. In the past few years, the total amount prospective yacht owners seek to finance has become more modest, with most individuals seeks a loan of 50% according to Arc&Co. What’s more is that not all owners finance their purchase with hard currency, a large number of them also leverage other assets, such as investment portfolios. “When you go for financing, you usually try to optimise your advance ratio for reducing the needs of cash already invested or to be invested in others financial products or in the owner’s business, where the return is higher than the cost of money borrowed,” notes Blanchet.
Whether lenders finance together with the mortgage on the yacht itself or have the mortgage on other assets, depends on the client. “From my own experience, I can say that clients instruct me because they want something different that does not involve the assets under management play,” says Batchelor. “Most owners already have private banking relationships, so they often seek a solution that keeps their investment assets separate from their liabilities.” Although the yacht itself remains the key security for the lenders, when a unique situation arises, lender may ask for additional securities, such as a refund guarantee issued by the shipyard during the build process of a new-build, or a partial pledge of a financial asset to ensure the gap between the leverage requested and the yacht value is covered. Overall, it seems as if the production yacht sector of the industry is better suited when it comes to ‘pure’ yacht financing. “The combination of the lower loan amounts and the wider secondary market is perceived by many lenders as a lower risk investment,” says Batchelor. So future owners whose hearts are set on purchasing a production yacht may have the best options when it comes to financing their dream. Photo: Aurélien Herman / SuperYacht TimesWhile it is difficult to say exactly how many yachts are financed around the world, Blanchet estimates that it is less than 35% of the global fleet. “While the percentage of the global fleet that is financed may not be high, I believe the picture would be different were we to examine how many purchases are made using alternative forms of leverage,” concludes Batchelor.
Yacht financing before the financial crisis
“In the years leading up to 2008, when the financial crisis hit, yacht lenders were financing at 70%, or even 90%, with little to no amortisation against an asset which depreciates over time. At the time the assessment of key credit criteria, such as the real market value of the yacht and the affordability of the lender, were not really the main factors as many lenders were financing superyachts on the assumption they would be able to recover their loan by selling the yacht. However, when prices dropped by 30 to 40% in 2009, a number of banks were left high and dry. Since then yacht lenders have significantly adjusted their yacht financing policies, offering more conservative loan to values and requesting financial security from the lender over and above the mortgage on the yacht. In the current banking environment, loan to values are commonly at 50% to 60% and most lenders will ask for this to be combined with an investment relationship in return for using their valuable balance sheet. This being said, there are still a small number of lenders that will finance up to 70% with no requirement to hold assets under management, but these are the exception rather than the rule,” - Leon Batchelor, Arc&Co Finance.
This article is featured in the latest edition of the SuperYacht Times newspaper. Subscribe now to receive your copy straight to your door and never miss another issue.
SuperYacht Times - The State of Yachting 2019
Being the intelligence partner for the top shipyards and yacht brokers in the world, we have learned to analyse and track the market in great detail. Each year our leading market report is used by investors, CEOs, owners and other key decision makers to inform themselves on the state of the market and future developments. Find all the information you need on the market, fleet, construction book, ownership nationalities and much more in our report.
#weknow - do you want to know? Buy the report now for only €299!