Shipping companies are generating substantial profits and using this cash flow to repay outstanding loans and bonds.
However, Arctic Securities believes more shipowners should leverage the Nordic bond market as a funding source.
Robert Christiansen, head of sales at Arctic Securities, told TradeWinds: “We would like to see more shipping companies using the strength in the bond market today.
“You should raise cash when you can, not when you have to.”
Arctic’s high-yield shipping credit spread index has tightened to the lowest level ever. This means that issuers have never borrowed cheaper money.
“It is attractive for companies to issue more unsecured bonds today. The market has a capacity for more bonds in different segments,” he said.
The volume of shipping bonds outstanding in the Nordic high-yield market has fallen since a peak in the third quarter of 2021, when the outstanding amount was $5.4bn, according to Arctic.
In the third quarter of 2024, the outstanding volume was $2.9bn.
This decline has reduced investors’ exposure to shipping at a time when most segments of the industry are seeing robust rates.
The credit quality of the shipping bond issuers has also improved in the upcycle.
“From the creditor’s perspective, the risk-reward is very good as a high-yield investor. Even though shipping is cyclical, there are very few defaults,” Christiansen added.
The Oslo-based investment bank arranged most of the new shipping bond issues in 2024.
In early October, Arctic assisted Navigator Holdings in issuing a $100m, five-year bond with a 7.25% coupon rate.
The broker has also supported bond issuances for MPC Container Ships, SFL Corp and Ocean Yield.
Kristian Hammarstrom, who works with bond origination at Arctic, said: “All the issues we have worked with this autumn have been priced at the lowest level ever for every company. The attractive funding shipping companies get reflects that the investors have realised that the credit quality has improved a lot.”
The listed shipping companies have been disciplined but it could also be beneficial to have some leverage to increase return on equity.
“We see that companies that still have a certain level of leverage get better equity valuation. In turn, this is reflective of equity investors’ preference for dividends in this part of the cycle.
“There is definitely a potential for shipowners to take on more unsecured debt,” Hammarstrom said.
The fact that several shipping companies have ordered new vessels could be a trigger for more bond issues in the coming years, according to Arctic.
Alexander Jost, head of research, said: “The number of issues will grow with the orderbooks.”