Balance sheet carnage wrought by the coronavirus pandemic is providing plenty of opportunities for financial advisory companies, such as Braemar Naves.
But Axel Siepmann, managing partner of the Braemar Shipping Services subsidiary, has warned that danger lurks for shipowners from an unexpected quarter.
Somewhat counter-intuitively, Siepmann said distressed companies are most at risk when markets recover.
"For the shipowners the worst moment comes when the markets pick up, because that is when they are most vulnerable," he told TradeWinds.
"They are still in default of the loan agreement, but the owners of the loans will find willing buyers to move into the market when it recovers."
This of course puts new owners in charge of the debt, and, with Siepmann forecasting many more debt-to-equity swaps ahead, these financiers could gain control.
Portfolio disposals to accelerate
The market for loan portfolio disposals is expected to be relatively quiet this year, however, as crises usually have a significant lead-in time.
Higher levels of activity are expected in 2021, the company believes.
Siepmann said: "It reminds me a little bit of 2009 when suddenly a lot of liquidity left the market, especially the banks that had very vulnerable balance sheets and were looking at downsizing."
The coronavirus outbreak has accelerated speed of bank exits from shipping, he added.
"In many sectors, temporarily at least, charter rates are in distress. That means a lot of restructuring work and the identification of alternative capital. We feel quite familiar with this. It's an interesting and busy time," Siepmann said.
The executive said reaching out to new clients has been difficult due to travel restrictions, but with video conferencing it has not been impossible.
Volatility proves a problem
"The difficulty is of course implementing the actual financing solutions because the market is so volatile [that] even the alternative lenders sometimes have concerns whether the situation is sustainable enough for them to come up with the money, but that remains to be seen," he added.
"Usually, if a crisis hits the market it takes several months for the changes to be actually implemented. Of course, in the first instance cash reserves are drawn down and thereafter the situation really requires a dramatic change."
He added that there is currently large differentiation between strong and weak shipowners.
The current disruption in the value of shipping portfolios, particularly in the cruise liner market, has offered additional opportunities for Braemar Naves to grow its strategic and restructuring advice.
The firm is working on the restructuring and recapitalisation of a number of international companies, as well as actively pursuing other mandates across the globe, including LNG project financings in Africa.
Distressed for eight years
"We should all keep in mind that large parts of the shipping industry have been more or less in continual distress for eight years," Siepmann said.
"Some players actually never really got a long enough recovery to fill up their reserves, so they're all used to working in that environment, and so are the financiers on the other side."
This includes existing lenders who never really managed to get out in the first place, he added.
Siepmann is predicting a rise in transaction volumes in distressed markets on an international level in the next 12 months.
Traditional shipping banks have already offloaded billions of dollars in the past two or three years.
"Interestingly, now we are in the phase where the purchasers are working on follow-on transactions" to find buyers and exit themselves, Siepmann added.
"The last two or three months have been difficult in terms of handing over ships, so there was a kind of pause where some parties kept quiet."
German workforce reduced
Braemar Naves' pre-insolvency and post-insolvency management business, which had a specific emphasis on Germany, has contracted with a reduced workforce in Hamburg.
"It's not a lot, it's a few people. Our strategy is to increase headcount in Singapore and we're also starting in Athens," Siepmann said.
"With the shrinking number of vessels in the German fleet, it was a natural fluctuation. We didn't lay off anybody, it was voluntary. They looked for other opportunities."
He maintained that Hamburg is an important base, with the recruitment of quality employees not as costly as in London and Singapore.
Braemar Naves' revenue fell from £7m ($8.7m) in 2019 to £5.9m in the year to 29 February due to lower levels of transaction-related fees.
Operating profit was £1.1m, down from £2.1m.
The Singaporean office became profitable in the second half of the financial year, following the success of a number of equity financings in Asia.
