Efficient and detailed accumulation of the necessary data, as a basis for making well informed decisions.
Every transaction starts with a comprehensive assessment of the existing data universe. The Data Mining process comprises various activities such as data collection, plausibility checks and data aggregation. An efficient and detailed data review forms the basis for further portfolio segmentations and potential work out planning.
The overall goal of the Data Mining process is to gain a realible set of information, which forms the basis for the subsequent structuring process and investor communications (due diligence and term sheet negotiations).
Depending on the underlying portfolio the Data Mining process can comprise varying steps:
- Definition of the necessary data universe
- Identification of relevant data sources
- Evaluation of data completeness and quality
- Discussing the data delivery and highliting of potential improvements
- Assisting the final data extraction
Besides the definition of specific data requirements for the structuring and placement process Crystal Ocean assists its customers in the implementation of the necessary internal processes. Relevant services for banks who want so sell shipping risks can include:
- Advisory on process modelling
- Advisory on the implementation of required IT solutions
- Assisting the successful implementation of mandatory New-Product-Processes (NPP)
Throughout the Data Mining phase the data presentation is chosen to be output-driven and investor-oriented.
The definition and validation of a necessary data universe during the Data Mining phase is followed by a standardised Due Diligence process. Here, an economic, legal and technical assessment on all loans / ships is undertaken:
- Loan balances as well as information on interest and principal payments are of particular importance. Furthermore, a comprehensive analysis of historic profit and loss, including a detailed OPEX breakdown for all relevant vessels is performed.
- The legal check list overviews the legal structure being used for the asset e.g. German KG models. On top of that looking at potential liabilities in connection with article 172 German commercial code are examined.
- The ‘desk-top’ technical evaluation of the vessels is assed based on available class documentation. These documents would include information about recent dockings and successful class certifications.
- As one of the main outcomes of the Due Diligence phase, all loans are categorised into different sub portfolios. Depending on the overall portfolio quality, the segmentation can be based on impairment severity:
- temporary inability for amortisation payments, which can be cured by OPEX optimisation and an improved employment situation,
- ongoing impairments, which can be cured via shareholder capital injections
- ongoing impairments with no prospective improvement of the operational perfomance, continuation of current structure is not feasible, restructuring necessary
- ongoing debt service impairment, no foreseeable economic employment; final decision about vessel sale or bankruptcy pending
Based on the results of the Due Diligence process the subsequent structuring phases intend to develop possible alternatives for individual assets or (sub) portfolios. For each alternative, the potential eanings opportunities are taken into consideration. Notwithstanding potential particularities of individual assets a total of six differentiated service packages can be identified:
- Continuation of existing structure – debt financing case
In cases of only temporary impairments or good restructuring prospects, the continuation of the current debt structure can be beneficial for both the current lender and potential investor. To achieve a successful restructuring, the temporary deferral of principal repayments, adjusted interest rates, further capital injections as well as stand still agreements can be negotiated.
- Continuation of existing structure - equity case
Leveraging on the industry expertise of its shareholders, Crystal Ocean can provide unique opportunities for vessel owners. Value preserving measures in connection with vessel maintenance can have a significant influence on profit generation. This also applies to the deployment of bunker efficient technologies, optimised crewing and sound negotiation strategies for follow-on charters. Specialised services that must be provided by third parties can be coordinated and supervised by Crystal Ocean.
- Loan to Own
For impaired loans, a further repayment of outstanding amounts can be achieved by liquidation of the corresponding vessels. Besides the legal enforcement of pledged securites senior lenders might choose to negotiate a mutual agreement about the transfer of ownership. In this context, the management of Crystal Oceans has extensive experience in these negotiations.
- Loan sale to investors
It might be advantageous for banks to sell individual loan exposures, irrespective of potential debt service impairments. For performing exposures without respective contractual agreements the borrowor must consent to the sale of his loan. For impaired loans, which have gone into default of the contractual arrangements with the bank such consent is not required.
- Vessel sale through asset deals
A vessel sale through an asset deal can be beneficial for both the borrower and the lender. For lenders a regular vessel is of particular importance if they do not expect a market improvement, or if the current employment situation results in a impaired net cash flow. By negotiating a mutually agreed vessel sale high insolvency costs might be evaded.
Under certain circumstances insolvency proceedings can be unavoidable. A close monitoring of this process is one of Crystal Oceans key services. By this we can ensure that lenders’ interests are protected in the best possible way.
Structuring/ Modelling/ Valuation
Structuring can take place on both an asset and portfolio level.
In addition to the customers’ goals, portfolio adjustments (e.g. modelling, selection, etc.), legal aspects, interests of third parties (regulator, auditors) and the potential investor’s bank need all to be taken into account within a structuring process.
Following parameters are important on a portfolio level:
- Optimisation of regulatory equity capital, short fall, loss provisions on the bank side
- Active balance sheet management, e.g. through deconsolidation
- Development of a tailor-made investor platform
A significant success factor of having Crystal Ocean provide advisory services is our experience and knowledge of the banking, investor and regulatory perspectives. This ensures the development of results, which respectively ensure the marketability and effective integration in a current regulatory environment. Our services include:
- Identification of relevant transaction portfolios/ individual assets
- Identification of relevant transaction structures (asset sale, securitization, etc.)
- economic analysis of different transaction structures (P&L impact, cost of capital, etc.)
- Deal performance under various economic assumptions
- Identifying and addressing target investors
- Effective organisation and execution of the investor due diligence phase
- Management of communication processes during a negotiation phase
- Fair-value market pricing
- Support by transaction documentation
A model based theoretical creation of the underlying loans and shipping assets is a significant part of an analysis and structuring phase. The transaction objective, characteristics of the underlying assets and notified transaction type are essential for a chosen modelling approach. The main goal of modelling individual assets or asset portfolios is to create transparency for originators and investors, Modelling is also an indispensable tool for a coordination process with regulators and auditors, as well as a basis of a term sheet in negotions with investors.
The modelling process is set up directly on the basis of the results of the data mining and due diligence processes. One of its main goals is to suitably summarise the obtained data and effectively provide relevant information for decion-makers. This comprises information on the performance of analysed assets, as well as their risk valuations. Essential partial aspects are:
- Cash flow analysis of the underlying assets
- Quantitative assessment of existing financial structures
- Liquidity simulation under various scenario assumptions
- Performance and risk analysis of possible structuring solutions
Type and extent of chosen modelling approaches strongly depend on the problem definition. Particularly a stochastic modelling (originator side) is essential for a securitisation process.
A appropriately calibrated model helps to address the following questions:
- expected and unexpected loss of the different tranches
- Impairment probability of the varying capital structure
- Detection of the significant risk transfer according to CRR.
Depending on the deal structured, a valuation of the transaction or individual asset could be necessary. This assessment is not only essential during the transaction structuring, but also important during the transaction term (e.g. single shipping assets) and can be provided by Crystal Ocean.