The below updates focus on transactions originated by the Yieldstreet Marine Finance team, based in Athens. The Team has originated term loans amounting to $78.5M across four investments to date and focuses on borrowers and sponsors across the three main shipping sectors, namely: tankers, bulk carriers, and container carriers.
The array of marine transactions already offered on the Yieldstreet platform provides our investors with a well-diversified exposure across all major shipping asset types (dry bulk/tankers/containers). A breakdown of Yieldstreet-originated marine transactions can be found below:
As background, Vessel Refinancing I is an investment in a term loan facility collateralized by two sistership container carriers typically used to carry finished goods and other products across the consumer supply chain. These ships are owned by a major US-based private equity fund and a sizable shipowner as a portfolio that includes a total of 12 container carriers.
A 3-month maturity extension was granted through January 31, 2021 to allow additional time for the Sponsor to refinance the Vessels through another lender. During this time, the Sponsor continued to make timely quarterly amortization and interest payments to investors from cash flow generated by the vessels.
We are pleased to report that the refinancing was completed in line with the maturity extension and paid back full principal and interest to investors, concluding this investment.
Since its inception, Tanker Acquisition I has performed as expected. We expect this investment to continue to make quarterly interest and principal payments according to the established amortization schedule at the stated target yield of 9.2% until the target maturity of 12/14/21, when the Sponsor intends to sell or refinance the Vessels.
As background, this is an investment in a term loan facility collateralized by a product and chemical tanker. Since the outset, the facility is fully covenant compliant and is scheduled to mature in December 2021. The original amount drawn of $11.2M has been reduced to a current loan balance of $8.93M, following quarterly principal and interest installments made in accordance with the repayment schedule. The financed vessels, a product tanker and a chemical tanker are each of 19,000 deadweight tonnage or “dwt”, which signifies their cargo carrying capacity.
These vessels are employed in a profitable mix of spot and period charters. It is worth noting that despite one of the financed vessels being required to undergo repair work over the past few months due to damages to its main engine, the resulting loss of hire (essentially, shortfall in anticipated charter income), was covered under specialty insurance required by Yieldstreet as a condition of financing. YS Marine Finance maintains a strong relationship with the Borrowers and the facility continues to be serviced to our satisfaction. As of September, the Loan-to-Value (“LTV”) is 64% net of blocked cash reserves held on account.
As a background, Vessel Refinancing II is an investment in a term loan facility collateralized by two dry bulk vessels.
Vessel Refinancing II has performed as expected. We expect this investment to continue to make quarterly interest and principal payments according to the established amortization schedule at the stated target yield of 8.2% from cash flow generated by the vessels until the target maturity of 11/14/21, when the Sponsor intends to sell or refinance the Vessels.
Since the outset, the facility is fully covenant compliant and has been serviced in full and punctually. The original amount drawn of $27M has been reduced to a current loan balance of $24.42M, following quarterly principal and interest installments made in accordance with the repayment schedule. The financed vessels are one Capesize bulk carrier of 170,000 deadweight tonnage or “dwt” and one Panamax bulk carrier of 76,700dwt. While both ships have undergone drydocking in the last 12 months as a mandatory requirement relating to statutory repairs, both are now employed in short-term period charters, generating positive cash flow, with one of the vessels fixed in early October to a first class charterer for 3 to 5 months. YS Marine Finance continues to have a strong relationship and remains in close communication with the Borrowers. The facility continues to be serviced to our satisfaction. As of September, the Loan-to-Value (“LTV”) is 90% net of blocked cash reserves held on account, which reflects the currently prevailing dry bulk market downfall.
As background, Tanker Acquisition II is an investment in a term loan facility collateralized by up to four tankers. The Sponsor has acquired and financed two ships under the facility, which is fully funded as the borrower chose not to progress with the previously-available loan tranches.
Since inception,Tanker Acquisition II has performed as expected. We expect this investment to continue to make quarterly interest and principal payments according to the established amortization schedule at the stated target yield of 9.2% from cash flow generated by the vessels until the target maturity of 12/14/21, when Sponsor intends to sell or refinance the remaining Vessels.
Since the outset, the facility remains fully covenant compliant. The original amount drawn of $11.93M has been reduced to a current loan balance of $10.12M, following quarterly principal and interest installments made in accordance with the repayment schedule. The financed vessels are two Medium Range oil products tankers of 54,000 deadweight tonnage or “dwt” each. These ships are profitably employed in a mix of voyage and period charters. YS Marine Finance continues to have a strong relationship and remains in close communication with the Borrowers. The facility continues to be serviced to our satisfaction. As of September, the Loan-to-Value (“LTV”) is 55% net of blocked cash reserves held on account.
For a complete portfolio overview of all asset classes, please see our January Portfolio Snapshot.
Although markets in shipping are typically cyclical, (performance is historically associated with peaks and troughs), vessel earnings and asset values are also impacted by both seasonal and major one-off events that affect global commerce and trade of goods. This was further illustrated in the last several months by the COVID-19 pandemic and the subsequent onset of related restrictions, which had a significantly adverse effect on the shipping industry across all market segments—both from an economic and operational perspective as it related to the temporary prohibition of crews’ rotation onboard vessels.
Industry projections and reports indicate that global seaborne trade is expected to contract by 4% year-on-year (“YOY”), which is comparable to the aftermath of the 2008 financial crisis, which saw a 4.1% decrease in 2009. Further details are provided below on a sector-by-sector outline:
The effect of COVID-19 on the dry bulk trade has led to the 15% YOY reduction in seaborne coal trade due to reduced power demand, with a more modest overall reduction reported for minor bulk trade (6% YOY). Although iron ore and grain seaborne trade were not as severely affected as coal trade, average dry bulk vessels’ earnings still suffered a 34% reduction in Q2 YOY. However, the initial blow to dry bulk vessels’ earnings softened a bit over time, with 25% YOY reduction for the period January through August of 2020. Recent reports indicate some improvement to vessel earnings, suggesting that the worst impact of the pandemic has passed, whereas dry bulk trade volume is forecast to increase by 4% in FY 2021, compared to the expected FY 2020 figures.
Prior to the pandemic, the container market had been forecast to grow in 2020. However, the impact of COVID-19 translated to a 24% decrease in earnings in Q2 2020. The market has since improved, with Q3 figures bringing average freight rates back to the end of Q1 levels and earnings rebounding considerably. Overall, however, YOY comparison suggests that YTD 2020 earnings have decreased by 7%, according to a market-leading shipping researcher.
With regard to tankers, 2020 has been extremely volatile, with earnings and asset values in this sector experiencing significant declines over the past 5 months. Initial unprecedented demand for floating storage noted in Q1 2020 was followed by a significant deterioration in seaborne oil trade (estimated 8% drop YOY in Q2), with pricing dropping down to nearly 75% of that in 2019 in the larger sub-sectors. Operators expect a modest upturn, which may come about in the coming winter period due to seasonal demand for oil, however it is not forecast to be sufficiently robust to herald a full recovery.
The effects of the recent financial crisis and capital restrictions of predominantly European-based banks has signaled a decrease in global availability of debt capital, which previously catered to the investment requirements of established shipping companies. This reduction, particularly felt in the financing of medium-aged tonnage, has allowed alternative investment firms, such as Yieldstreet, to significantly expand their footprint in a previously inaccessible market.
Yieldstreet is of the opinion that current market conditions create a window of opportunity for the Yieldstreet Marine Finance team to further capitalize on its strong ties with the shipping community in order to structure quality projects with long-standing, quality counterparties for the benefit of our investors. This is evidenced by the ever-expanding deal flow of potential transactions being reviewed by Yieldstreet in order to identify those deals worth pursuing further. Our aim remains to maintain a healthy pipeline of marine projects with attractive and appropriate risk-reward for our investors.
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* This portfolio update does not include those loans previously originated by Global Marine Transport Capital/Four Wood Capital Partners, a former external originator and investment advisor with whom Yieldstreet terminated its relationship in April 2020. The latest developments regarding the North Star Maritime Holdings Ltd (originated by GMTC) can be found here.
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