Borealis Maritime has formed a debt fund with private equity partners KKR and Oak Hill Advisors to provide $1bn in financing to small and medium-sized shipowners.
New subsidiary Australis Maritime has already notched up more than $70m on three loans as London-based Borealis seeks to fill the gap left by shipping banks exiting the sector.
The goal is to grow rapidly and take advantage of the large supply and demand imbalance for shipping credit, Borealis founder and chief executive Christoph Toepfer said.
The backing of the two big US investment firms is expected to lead to “quite a sizeable vehicle”, chief investment officer Elias Sakellis added.
‘We have big plans’
“We will have deployed a lot of capital in the next two to three years. We have big plans. And we will probably launch the next round of capital in the next 18 months,” he said.
Borealis, a shipmanager and maritime-focused asset manager, has built up a fleet of around 70 vessels in the containership, chemical and dry cargo sectors since 2010. It recently made its first foray into offshore with new investors.
Australis Maritime wants to diversify its portfolio and is offering loans up to $100m, Toepfer said.
“There is still more debt leaving this market than coming in,” he told a gathering in Hamburg last week. “With us coming to this market and providing in excess of $1bn of debt hopefully at some stage, that is still a drop in the ocean compared with the debt that is leaving this industry.”
Borealis teamed up with KKR in 2013. It has since worked mainly on asset acquisitions with the New York division of the private equity firm. Australis Maritime will work with a separate division run by KKR’s credit desk in London.
Significant partner
KKR’s partnership with Oak Hill brings another significant credit fund into the Borealis fold.
In June, Oak Hill and Varde Partners took $1bn of shipping loans off the hands of Deutsche Bank.
But Australis Maritime will focus on writing new loans and will not be involved in secondary loans or portfolios.
“We have for a long time intended to provide a lending platform and our capital providers were very interested in deploying capital into the maritime space through a lending platform,” Toepfer said.
Australis Maritime plans to differentiate itself by lending at a higher loan-to-value ratio of up to 80%, compared with 55% for banks. Terms are up to seven years.
Toepfer presented figures showing that 60% of tonnage is made up of small and medium-sized companies, but only 20% of financing goes to these entities.
“We estimate that for the next 12 to 18 months, there are $50bn to $60bn of refinancing requirements,” he said.
Australis Maritime will lend to small and medium-sized shipowners that banks avoid “because we value the management capability more than the balance sheet strength”, Sakellis said.
The inflexibility of bank financing for ships more than 10 years old presents a further line of business. “We have some very large and strong owners who just have older vessels and nobody else will finance. We will,” Sakellis said.
Australis Maritime operates as an unregulated financial provider, which gives it the flexibility to put together deals more swiftly than banks. However, it is positioned to partner banks that need to refinance maturing loans.
Sakellis believes that shipping’s underlying good fundamentals mean “lending is not a particularly risky proposition”. But the company is still targeting “high single-digit returns”.
Australis Maritime has offices in London, Hamburg, Oslo, Athens and Istanbul. “Our focus is initially on Europe, but eventually we will venture out into the Asian market and potentially into the American market,” Toepfer said.
