Sinosure support adds a new twist to JOLCO ship financing
A novel arrangement for containership lessor Seaspan sets a template for long-term, cross-border financing that will help modernise the shipping industry.
Seaspan Corporation, the world’s largest independent containership lessor, has built an impressive track record of innovative financings for its portfolio of 134 modern vessels1. As it expands its fleet, with dozens more ships currently on order and under construction, a new lease financing arrangement offers a template that is likely to catch on with other shipowners.
Seaspan recently completed the financing for 15 new vessels on order with a shipyard in China. Societe Generale served as Joint Mandated Lead Arranger, Bookrunner and Senior Lender on the US$1.17 billion deal, combining two ship finance structures with a relatively rare loan underwriting.
The deal combines a 12-year syndicated loan backed by the Chinese Export Credit Agency (ECA) - China Export & Credit Insurance Corporation (Sinosure) with sale-leaseback arrangements under the Japanese Operating Lease with Call Option (JOLCO) structure. It is the first time the combined structure has been fully underwritten.
Under the JOLCO structure, Seaspan will set up vessel-owning special purpose companies (SPCs), which will then enter into sale and leaseback transactions with SPCs set up by a Japanese equity arranger.
The JOLCO structure is attractive for shipowners, providing a cost-efficient 100% loan-to-value financing by leveraging Japanese equity investors’ hunger for yield and diversified fixed asset investments. It also has a lower capital cost compared with the shipowners’ own cost of equity.
ECA-JOLCO transactions also provide favourable risk profiles for lenders, who benefit from various layers of protection, including high investment-grade ECA cover, recourse to Seaspan’s balance sheet and solid vessel charter contract assignments with major liners.
“This Sinosure-backed financing provides a longer tenor compared to pure JOLCO financing, lower costs compared to a traditional commercial shipping loan, fully-funded construction costs and diversified funding sources, while also strengthening Seaspan’s reputation as an innovator in shipping finance,” said Graham Talbot, CFO of Seaspan. “We look forward to further deepening our relationship with Sinosure, Japanese equity investors and banking partners in the future.”
“There is enormous potential for such ECA-backed finance structures in support of Seaspan and other shipowners in the future. We are very pleased to have arranged and structured this innovative vessel financing solution by leveraging expertise across our Maritime Industries, Development and Structured Export Finance, Aviation Finance and Syndication teams,” said David Gore, Head of Asset-Based Finance for Asia Pacific, Societe Generale.
Greener seas ahead
Significantly, the Seaspan ships financed by the ECA-JOLCO arrangements are also equipped with dual propulsion systems that can be operated on conventional marine fuels or on cleaner liquefied natural gas, allowing a reduction of lifecycle greenhouse gas emissions of up to 25% compared with conventional fuels.
The lenders in this deal also have future-proof collateral in the form of vessels that have an Energy Efficiency Design Index in line with the International Maritime Organisation (IMO) phase 3 targets for 2025, which call for a 30% reduction in carbon dioxide emissions per tonne of goods carried.
“Though loan underwriting remains relatively rare in shipping finance as opposed to some other types of structured finance, the quality of the sponsorship in Seaspan together with the robustness of the structure made it viable on this occasion and the deal was well received and in fact over-subscribed in syndication,” said Gwenael Delattre, Head of Loan Syndicate for Asia Pacific, Societe Generale.
Societe Generale has a strong track record of structuring and executing cutting-edge financing solutions to support its clients in their environmental objectives. For instance, the Bank supported Seaspan’s closing of the first sustainability-linked loan and sustainability-linked swap in the container ship lessor sector in 20202. Structures such as the ECA-JOLCO financing highlight the role of innovative long-term finance in the world’s transition to a more sustainable future.