Mention risk in the time of coronavirus and in shipping thoughts first go to crew and the many hurdles facing stranded seafarers, then maybe to shoreside staff still working from home or the many conferences cancelled throughout 2020.

But another type of risk is financial.

And while it may not be as dramatic as the other scenarios, it is one the executive management team at Ireland’s Ardmore Shipping tackled recently in revisions to more than $300m in debt.

The somewhat arcane details emerged on Ardmore’s recent second-quarter earnings call, as equity analysts came away impressed that Ardmore had been able to swap floating-rate debt for a fixed rate of 0.32% for the next three years.

Ardmore’s chief executive Anthony Gurnee and chief financial officer Paul Tivnan explained the financial tack to TradeWinds in an interview this week.

As Tivnan clarified, it is not the bank margin over the London Interbank Offered Rate (Libor) that is in question, but rather the Libor portion of the floating-rate debt itself.

This is composed of two parts: a base interest rate linked to the three-month US Treasury bill, and a second rate that reflects what banks charge each other for short-term loans. The second part is known as the Treasury-Euro Dollar (TED) spread.

While the base treasury rate can fluctuate, the TED spread has the potential to be more volatile, and in some cases has been, Tivnan explained.

During the global financial crisis in 2008, for example, it reached nearly 400 basis points. And with the onset of the pandemic in March, it reached 140 basis points for a time.

This helped Ardmore decide in May to swap all of the debt it could — essentially all of its term loans — for what it considered a tough number to refuse.

“There was a point where the TED spread went to nearly 1.5% because there was a lot of concern about the banking system,” Gurnee said.

“That’s when the Fed stepped in and put a lot of money into the banking system to put that down. That also happened during the financial crisis.

“So while we really don’t expect this type of heavy volatility to happen, we’re covering our risk at a very minimal cost. It was an opportune time to lock in very low rates for three years and eliminate the possibility of higher debt costs.”

Gurnee has been watching such things for three decades, even before his time as the chief financial officer for the old Teekay Shipping in the mid-1990s.

He learned a couple things in that time. There is generally a correlation between a rise in charter rates and in the Libor spread, and for the most part shipowners are better off going with the variable Libor rate rather than locking in a flat rate.

“What’s changed is that rates are so low now there wasn’t a risk of rates going lower but there was a risk of Libor getting expensive again because of the banking system,” Gurnee said.

Yes, the rate is good.

"I thought [it] was a typo at first," said Jefferies analyst Randy Giveans during the conference call.

"You're not the first," responded Tivnan.

At present, the swap is in the money, Tivnan said. And compared to what Ardmore paid in 2019, the company will be saving about $800 per day.

But should the banking system get rattled again because of coronavirus or some other disruption, the pay-off could get bigger than that.