The credit quality of Ship Pfandbriefe is recognised worldwide. Because of their tightly interlinked network of collateral, Ship Pfandbriefe are “gilt-edged”, and they have a spotless credit history. One of the main reasons for this is the clear, well-established statutory provisions of the German Pfandbrief Act (Pfandbriefgesetz, PfandBG).
More than 90% of world trade is handled by sea shipments. Approximately 50,000 registered merchant ships from about 170 countries active in shipping take part in international competition. The effects of globalisation and, in particular, the international division of labour have in recent years led to a rapidly growing shipping fleet, as well as to more intense competition.
Types of ships suitable for financing
Pfandbriefe are normally used to finance only self-amortising merchant ships. Ship types that are unsuited to a change of use and warships are excluded. The types of ships suitable for financing can be roughly divided into three segments:
- Container ships
- Tankers (liquid bulk cargo)
- Bulkers (dry bulk cargo)
In addition to these main types, there are a large number of subgroups in merchant shipping that may also avail themselves of this kind of financing, such as gas tankers, chemical tankers, car carriers, and refrigerated ships.
Ship valuation – high quality requirements for Ship Pfandbriefe
The same high quality requirements apply to Ship Pfandbriefe as to Mortgage Pfandbriefe. Here, too, valuation is subject to a separate legal regime, namely the German Regulation on the Determination of the Mortgage Lending Value of Ships (Schiffsbeleihungswertermittlungsverordnung, SchiffsBelWertV). The application of its provisions is mandatory when determining ship mortgage lending values pursuant to section 24 (1) to (3) PfandBG and collecting the data needed for determining value.
Regulation on the Determination of the Mortgage Lending Value of Ships (SchiffsBelWertV)
The regulation entered into force on 1 July 2008. It governs the determination of the mortgage lending value of ships and ships under construction that are recorded in a public register. Its specificity is due to the special nature of the mortgaged asset. The SchiffsBelWertV has its own upper-limit model, which specifies three maximum limits as the standard for determining the mortgage lending value. The parameters set forth in section 4 (1) SchiffsBelWertV are:
- the ship's current market value,
- the average market value over the previous 10 calendar years, and
- the new construction price or, for ship purchases, the purchase price.
None of these values may be exceeded when setting the ship mortgage lending value. Once the maximum limits are determined, however, the Ship Pfandbrief bank is not obligated to use the lowest maximum value as the mortgage lending value. Rather, it may, and in some cases must, set an even lower value as the ship mortgage lending value if such lower value corresponds to the ship's sustainable value. These requirements, which apply to all ship financing that is intended to be used as cover, ensure the high standard of the German Ship Pfandbrief. Details on including ship mortgages in cover are addressed in section 21 PfandBG.
Section 21 et seq. PfandBG
The PfandBG codifies the requirements for issuing Ship Pfandbriefe, i.e. covered bonds, on the basis of acquired ship mortgages. Section 21 et seq. PfandBG contain special provisions concerning ships and ships under construction. They are supplemented by the SchiffsBelWertV, which addresses the determination of the mortgage lending value of ships and ships under construction that are recorded in the register.