Shipping Credit Risk
An accurate and unbiased assessment of a project's creditworthiness is essential in order to ensure the profitability of a loan and the success of a bank's risk management program.

For many shipping projects, the necessary information is not readily available or the credit evaluation process is not standardized, making it difficult to ensure a consistent and speedy loan evaluation.
The Shipping Credit Management service helps to streamline and increase the quality of shipping credit evaluation by bringing all the essential data together in a readily accessible format and providing standardized project creditworthiness reports.

The result is higher loan officer productivity and better quality control of the credit evaluation process. This translates into more time and capacity to win attractive banking business, and better ability to structure loans profitably and competitively.

Market Early Warning
In the shipping industry it is essential to maintain a clear and objective perspective on the market's cyclical opportunities and threats. Understanding whether or not the shipping markets are in a period of sustained strength or emerging weakness is essential in order to develop the right lending strategy.
Marsoft's market analysis and forecasting services provide the information and perspective necessary to identify and evaluate changes in future market conditions:

• Ongoing and constantly updated reviews and projections of shipping market supply and demand conditions.
• A team of consultants with the experience necessary to show what the analysis means for our client's projects.
• A track-record and client base that demonstrates the quality and reliability of Marsoft's recommendations.
• Marsoft's principals have worked with senior management in shipping companies around the world for more than fifteen years; we maintain an ongoing dialogue that ensures that both we and our clients are completely up-to-date with market developments.

Customized Service
The reports illustrated below indicate the nature of Marsoft's Shipping Credit Management services (SCM). Our services are customized to meet each client's demands and include internal systems for market and project analysis, retainer service for ongoing client support and a variety of project-specific services.

Project Definition
The project definition capabilities of the SCM provide for a simple but comprehensive description of the vessel under consideration and the credit package being proposed. The system takes into account vessel-specific factors that may support a premium (or impose a discount) relative to the general market level.

A project may include many vessels (from any segment e.g. dry bulk, tanker, containership, etc.) and/or many loans, each with its own terms. Corporate portfolios containing existing and new vessels/loans can be evaluated as well.

Market Cycles and Credit Risk
The SCM focuses on the long-term market risk of a project as determined by how a vessel's price compares with historical average, high and low market indicators as well as forecasts market developments.

A vessel priced at the high end of its historical price range faces a relatively high risk of a decline in value due to adverse market developments. Conversely, a vessel priced at the low end of its historical range faces a low risk from adverse developments.

Historical Price and Earnings
SCM produces graphical and tabular reports on the historical value and earnings profiles for the specific class of vessel under evaluation. They show how the value and earnings of a vessel would have evolved over the past fifteen years.

The Marsoft Market Outlook
The actual value of a vessel may be very different from its historical average if market conditions change over the project's life. A vessel's value will decline more rapidly than average if the market falls over the course of the project, and vice-versa.
Marsoft's forecasts of market conditions help identify and evaluate the potential for changes in the market. They are based on comprehensive and systematic analysis of current and prospective supply and demand factors and the implications for rates and values.

Projected Vessel Valuation and Uncertainty
The chart below shows one way the SCM provides project-specific risk profile that takes into account both the market-related and the age-related changes in values. The age of the ship is shown along the horizontal axis, and the (inflation adjusted) vessel value along the vertical axis.
The green line indicates the average rate of age-related depreciation observed over the historical period; the actual rate of depreciation may be much more (less) rapid if the market falls (rises), as shown historically by the blue line. Marsoft's forecast of the impact of future market developments on the value of the ship is shown by the red line. All the curves slope down because a vessel's value declines as it ages. High and low risk price indicators (as defined by the market’s historical volatility) converge to scrap value as the vessel approaches its scrapping age.

Credit and Investment Analysis
The SCM compares the projected value and earnings profile of a vessel with the outstanding loan balance. The comparison highlights the banks exposure to adverse market developments. A similar analysis is done for the earnings of the vessel as compared with the required principal and interest payments.

The SCM also calculates the project’s return on equity from an investor’s perspective. The investment analysis is particularly valuable for projects in which the bank provides sub-debt and/or equity finance.

Loan Profile and Project Risk
The loan profile analysis can be used to show the consequences of changing the credit terms on the loan risk. A shorter loan tenor or more aggressive schedule may reduce its exposure. Alternatively, the bank may bid more aggressively for projects with an acceptable risk profile.

Comparable Transactions
The SCM provides a report of recent transactions of comparable vessels. The report shows how the specific transaction under consideration compares with other transactions and can help validate that the proposed price accurately reflects market conditions.
The chart on the following page relates the individual transactions to both the vessel under analysis and the historical range of price developments.

The Marsoft Database
Marsoft has provided market forecasting, project analysis and investment advisory services since 1979 and has developed a unique database of rates, prices and transactions over that time. The information, which has been collected from brokerage reports, client surveys and proprietary sources, provides a quality controlled and constantly updated review of market conditions.

The SCM includes Marsoft's database for the dry bulk, product, crude and chemical tanker, containership and reefer markets and focuses on rates and prices for the major segments of those markets.

The Marsoft SCM Database
• Historical data since 1980 on a quarterly basis in current dollar terms and adjusted for inflation.
• Purchase/Sale transactions since 1991.
• Customized to reflect specific project under consideration.
• Quality controlled by extensive Marsoft research and validation. Meets highest industry standards.
• Updated on a quarterly basis.