Innovation in ship finance - tapping the capital markets

Introduction

Tighter credit conditions in recent times have prompted shipping companies, which have traditionally relied on bank debt to finance their operations and the acquisition of vessels, to seek other forms of financing. One alternative source of finance that has been found suitable and, importantly, available, has been the international debt capital markets. Evidence of this trend is provided from the increasing number of bond issuances by shipping companies towards the end of 2009 and through 2010. An interesting feature of this trend is the variety of bond instruments which shipping companies have employed and which are tailored to their circumstances and market conditions. These range from relatively straight forward "plain vanilla" corporate bonds through to more "exotic" varieties such as convertible bonds and covered bonds. This is interesting, given that the bond markets have not historically been viewed as a typical source of ship finance other than