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The role infrastructure funds and private capital in shipping finance

Photo: Marine Money Flickr marine-money-new-york-2023.jpg
The role of commercial bank finance for shipping took a downward turn during the 2010s with alternative capital stepping in to fill the gap including infrastructure funds and non-bank finance both of which were focused on at last week’s Marine Money event in New York.

The infrastructure funds panel at the conference was moderated by Bank of America’s Brian Innes, who noted a spate of large deals done recently.

“Infrastructure funds have long-dated investment horizons looking for stable risk adjusted returns…” explained Bank of America Managing Director, Investment Banking, Loli Wu. After noting the abundance of potential funding opportunities, he said: “The public markets don’t seem to be pricing those cash flows very efficiently. I think there’s a very logical and expanding role for infrastructure funds.”

James Wyper, Senior Managing Director at Stonepeak. which had acquired Teekay LNG Partners, then rebranded as Seapeak, for $6.2 billion, in early 2022 said that the combination of hard assets with lengthy charters was very suitable for infrastructure financiers.

Danny Srecovic, Credit Partner to Global Infrastructure Partners, recently linking up with a Crowley unit investing in alternative energy sources, emphasized the importance of long duration deals -usually with lower return targets than conventional private equity, with reliable cash flow streams, and to “really button up risks.”

The infrastructure panel also included well known shipping executive Art Regan, CEO of Energos Infrastructure-launched almost a year ago when private equity (PE) behemoth Apollo acquired a major stake in a fleet of LNG tankers, from New Fortress Energy, another PE investor. He opined that: “The development of infrastructure funding into the shipping industry is a very good thing,” and went on to suggest the energy transition, where long-term arrangements will be more of the norm, is bringing shipping into the infrastructure realm, along with utilities.

In talking about Energos Infrastructure’s FSRUs, he said that: “We own vessels that are marine infrastructure…their purpose is to regasify…take LNG, turn it into natural gas…and then send it into the power grid.”

The panel on private capital, moderated by Vedder Price’s Dylan Potter,  looked at a broad spectrum of non-bank funds providers, sometimes known as “Alternative Lenders”, which evolved from shipowners who put their vessels out under financial leases.

Conference organiser Matt McCleery, from Marine Money, reminisced about one of the earliest instances of such lending, which took the form of leasing but also “mezzanine finance” - debt with some equity-like features. In the very early 2000’s, shipowner Northern Navigation, teamed up with financier DVB to create NFC Shipping Funds. Its offspring, Northern Shipping Funds, was subsequently absorbed into Hudson Structured Capital Management, in mid 2022.

Fast forward to 2023, with the panel from capital providers that included longtime banker Sven Engh, now running the Blue Ocean franchise of shipping activities at the behemoth funds packager- EnTrust Global. He said that Blue Ocean provided mostly debt, or common equity; “We always try to be counter-cyclical,” he explained. “Right now, we are mostly doing senior secured debt,” he said.

Picking up on a theme that emerged frequently over the three days, Engh said: “we have now gotten into the offshore oil services sector…we had backed away from that for years…but the bread and butter is still commodity shipping.”

Fellow panel member Christoph Toepfer, from Borealis Maritime, which invests directly in equity and also provides debt through its subsidiary, Australis Maritime, has also been attracted to the offshore sector taking very brave positions beginning around 2018 - well before the current recovery. “We try to identify opportunities in the maritime space, and then match them up with institutional capital,” he explained.

TAGS: Americas