CASE STUDY – Re-Launching the Flaminia
SC Lowy’s expertise in alternative lending in shipping finance has also extended to shipping repair. A notable example was the case of MSC Flaminia, which in 2012 suffered a fire in its cargo hold while crossing the Atlantic that left it severely damaged.
Through the provision of finance from SC Lowy, not only was the 6,750 teu liner owned by NSB repaired so that it could speedily return to service, but it was also modernized and upgraded to an eco-friendly and more efficient vessel.
Ship owner NSB appeared to be facing an escalation of problems after the initial fire damage, as adequate funding for repairs to the liner was not forthcoming. This was due in part to the retreat of many traditional lenders from the shipping industry following the global financial crisis, particularly for non-routine but essential repairs.
Another factor was the frequent existence of a delay in insurance payout in complicated cases such as the Flaminia incident. Typically there is a timing gap because of the number of disparate parties involved in a claim where for instance you can have multiple cargo owners, vessel owners as well as the ship’s operators involved. It can take years for up to 10-20 different parties to go through the process of settling claims. In the meantime, the damaged vessel is not able to earn income and value is being unnecessarily destroyed.
SC Lowy’s solution was to provide funds to bridge the gap between the insurer payout to avoid having an idle, non-revenue generating asset. To deal with a complicated situation, risk assessment was undertaken, which involved analyzing the vessel’s underlying customers, contracts, alongside the required repairs and time undertaking.
Upon completion of this analysis, it was established that long-term value existed by looking past short term stress to provide funding. By bridging the gap between the imminent need for capital for the repair expenses and the future insurance recoveries, it was possible to help NSB retain its equity value in the vessel and continue generating cash flows from the existing charter contract.
Since being re-launched in 2014, the vessel has been operating under the original charterer – MSC – while the adjuster continues with processing of general claims. In addition, the mezzanine loan to NSB, not only allowed repairs to be completed, but also for the company to invest in retrofitting the vessel, including ECO-modifications such as a new bulbousbow, an optimised propeller and a turbocharger cut-out device.
This meant the Flaminia was brought back into service with significantly improved fuel efficiency. NSB has been able to recover from the disaster with a greatly improved ship, an outcome that demonstrates the significant practical benefits of a bespoke financing arrangement.
In a statement announcing the repairs, an NSB spokesperson commented: “The aim of the modifications to the original design was to reduce fuel consumption and to make the vessel more efficient and economic overall.”