When Sean Durkin and Sybren Hoekstra launched Northern Shipping Funds in 2008, it meant something a little different to be an alternative capital provider than it does in today’s landscape.

“We started the business when money was available to everybody everywhere,” Durkin said.

“To find clients, you had to deal with start-ups, older assets or assets operating in a difficult part of the world.”

In the following years, many traditional shipping banks began to retreat from the market, replaced first by Asian leasing companies and then by an array of opportunistic lenders looking to fill the senior-debt void.

“When all these changes came quickly, we had a 15-year head start,” Durkin said.

The transition was already underway when Hudson Structured Capital Management (HSCM) decided shipping would be one of its focus areas upon starting up in 2016.

HSCM’s initial specialty was mezzanine-level financing and sale leasebacks. It did not necessarily compete directly with Northern Shipping’s senior-debt products but would investigate some of the same deals with some of the same people.

Along the way the two Stamford, Connecticut-based companies saw things to like about each other, culminating last month in HSCM’s acquisition of Northern’s key business assets.

Leaders of both teams — now working as colleagues — came together at HSCM’s Stamford offices recently to explain the mutual attraction to TradeWinds.

While some trends have changed, others like the retreat of traditional lenders have persisted, strengthening the rationale for their business, they said.

David Andrews, co-founder and co-managing partner for transport at HSCM, said: “Together we’re a powerhouse.

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“We consider ourselves thought leaders in the areas in which we operate and we’re smarter working together, with more capital and structural flexibility to provide the market.”

Durkin and Hoekstra launched Northern as a continuation of the old NFC Shipping Funds, a successful collaboration between Northern Navigation and DVB Bank.

They had an established record in the field extending financing at what sector observers said was typically a “low double-digit” interest rate, but with the flexibility to offer greater leverage in many cases.

HSCM was founded by Andrews, former primary credit portfolio manager for global transportation at Pimco, and Michael Millette, former transport investment banker and partner at Goldman Sachs.

Aviation was a larger part of HSCM’s transport portfolio before the balance began to shift towards shipping following Covid-19.

“There has been a consistent, multi-year reduction in capital available to maritime operators,” Andrews said. “This scarcity of capital has allowed us to remain selective, and when deploying capital to use structure in seeking to protect our downside.”

Even with most shipping markets in boom mode since the pandemic, Durkin said he does not see traditional banks rushing back into the space in any significant number — keeping the thesis strong for alternative financiers such as HSCM.

“We believe the trend line of banks pulling back will continue, but new sources of capital may appear,” he said. “Our ability to offer the market a variety of capital solutions makes us attractive and competitive partners.”

Andrews was highly complimentary of Northern’s team and processes as a motivator for HSCM’s interest.

One perhaps below-the-radar aspect is Northern’s ability to evaluate and monitor private credits, a system developed over some 20 years.

A deeper dive

“It gives us a deeper dive into the counterparties,” Durkin said. “We probably have more resources on the portfolio management side than the commercial side.”

Andrews said: “Their portfolio management expertise is exceptional. These capabilities greatly enhance our team’s ability to monitor our assets.”

Hudson Structured Capital Management co-founder David Andrews on aquiring Northern Shipping Funds: ‘Together we're a powerhouse.’ Photo: Joe Brady

On the other hand, Northern faced limitations typical of a relatively small manager with assets slightly under $1bn.

“We have a platform that is relatively small with 12 or 13 people,” Hoekstra said. “[Hudson] have a bigger platform. For things where we would do all the activity ourselves, they have specialised departments. It’s a logical integration.”

Durkin said: “The life of a small fund manager is getting more complicated every day in terms of the amount of regulation coming at you. [HSCM] have that backbone that we could never afford to have for ourselves. The time you spend in that area is time taken away from the commercial side of the business.”

The synergies between the two are no longer just theoretical.

Northern prides itself on an ability to execute deals quickly. Under the new combination, a term sheet signed on a Friday was approved on the next business day and is set to close in a few weeks.

“It’s been very important to us that the brand and competitive advantages they’ve developed doesn’t change under the HSCM umbrella,” Andrews said.