Private equity’s Oaktree Capital has found yet another way to play in the shipping sector with a newly launched business as an alternative lender to small- and medium-sized owners.
Longstanding Oaktree business ally Petros Pappas is the key partner in the venture, which will be known as Meerbaum Capital Solutions.
Two banking veterans already working in Pappas’ Oceanbulk companies — Martin Hugger and Hamish Norton — will steer the alliance.
Filling a vacuum
Oaktree hatched the idea after seeing how traditional shipping banks had turned their backs on smaller owners, creating a lending vacuum, Norton tells TradeWinds.
“Oaktree saw that there’s an opportunity to make loans to good-quality shipping companies of small and medium size because the banks are exclusively lending to larger owners,” Norton said.
“They asked if we’d be prepared to help based on our shipping expertise. Someone in the Pappas group of companies is going to know stuff about the commercial viability of any given vessel.
“We’ll be able to interpret inspection reports in a way a bank will not. We will know something about the shipowner’s character and business that maybe a bank would know and maybe it wouldn’t.”
Norton (pictured) is the former Jefferies and Bear Stearns investment banker who moved to the Pappas group in January 2013. He is president of New York-listed Star Bulk and chief financial officer of Oceanbulk Maritime.
Meerbaum managing director Hugger is the former head of Greek shipping for Commerzbank and has led Oceanbulk’s German division with an eye toward distressed opportunities since 2013.
“This finance enables shipping companies to renew or enlarge their fleets at historically low asset prices and to benefit from our quick response time when acting upon opportunities,” Hugger said in a prepared statement.
Meerbaum can finance a ship or a fleet in amounts ranging from $5m to $40m, he said. Funding will come from funds managed by Oaktree, which is the largest shareholder in Star and fellow US-listed bulker owner Eagle Bulk.
65% financing
According to Norton, a typical transaction would see an owner who wants to buy a vessel and can’t attract bank lending. Meerbaum would ask him to put up 35% equity and source the remaining 65% from Oaktree.
“If it’s the right ship and the right borrower, we’ll then buy the ship with his 35% and Oaktree’s 65% and we’ll bareboat it back to the fellow who wanted to buy it in the first place.
“We’ll give him purchase options along the way and a purchase obligation at the end — it behaves a lot like a loan.”
Not cheap
Like other forms of alternative finance that have emerged since bank financing got tighter, the money will be more expensive, Norton acknowledged.
“We’re not in competition with any shipping bank — if an owner has bank financing available, he’s not going to find our financing economical,” he said.
“Shipping banks tend to lend at spreads that are driven by competition. We will tend to lend at spreads that are driven by credit analysis and Oaktree’s demand for return.”
