How to stay on course with yacht finance in the current economic conditions.
This articel is a response to the many questions that Ciris Capital has been receiving related to the credit crunch. As a company that exists primarily to provide clients with access to loans and other financial arrangements, the current situation obviously has our full attention.
This mail has been written to clarify the position of the banks and explain how business can still be done with the right preparation and know-how in place. Feel free to respond and share your thoughts and further questions.
What is the current position of the banks involved in yacht finance? Are they still active? These are good questions and like all good questions there is no simple answer. What we have seen over the last six to eight months is that all banks continue to claim that they are open for new business and have received no internal instructions to do otherwise. The only change that they publicly admit to is that turnaround times are a little longer.
The reality is that the banks which do respond to applications will surprise you with questions that you have never thought of before or set conditions that cannot be fulfilled. At the end of the day this means banks can deny saying no to an application. ‘We were willing and able to complete the transaction but the client could not fulfil the requirements.’ Don’t blame the banker, in other words.
With the limited number of banks and leasing companies that are still related to yacht finance we are in active contact regarding outstanding applications. It seems that these banks are the serious remaining players, although they are also making slower progress than they used to.
Our current approach to new projects is as follows:
Other banks ask for a good faith deposit before they start working. This will be refunded to the client should the application be rejected for any reason.
As mentioned above, applications are a time consuming process in the current environment where bank policies can change by the hour. It is also difficult to obtain clear directions with regard to pricing the transaction. This is mainly due to the fact that money has become more expensive for banks to loan from other banks. Taking this into account, for a loan in the range of 60% to 70% with a term of max 120 months, we calculate an interest rate of euribor/libor plus 2.5% to 3.5%, plus an upfront fee for the bank of 1% to 2% over the loan amount.
For our work we sometimes get paid by the bank and sometimes by the client, depending on the involved bank(s) and needs of the client. In return the Ciris Capital team members will use all their in-depth knowledge of how the banking system works to maximise the chance of a positive outcome. Our long-lasting contacts within the banking network are proving especially valuable in these turbulent times.
To use a sailing metaphor, the journey may take longer than was previously the case but Ciris Capital knows which route to follow and how to hold a steady course. In doing so we aim to keep the lines of communication as straightforward and open as possible with our clients.
Please do not hesitate to contact us should you have any questions based on the above, or if we can be of assistance in any other way.
This articel is a response to the many questions that Ciris Capital has been receiving related to the credit crunch. As a company that exists primarily to provide clients with access to loans and other financial arrangements, the current situation obviously has our full attention.
This mail has been written to clarify the position of the banks and explain how business can still be done with the right preparation and know-how in place. Feel free to respond and share your thoughts and further questions.
What is the current position of the banks involved in yacht finance? Are they still active? These are good questions and like all good questions there is no simple answer. What we have seen over the last six to eight months is that all banks continue to claim that they are open for new business and have received no internal instructions to do otherwise. The only change that they publicly admit to is that turnaround times are a little longer.
The reality is that the banks which do respond to applications will surprise you with questions that you have never thought of before or set conditions that cannot be fulfilled. At the end of the day this means banks can deny saying no to an application. ‘We were willing and able to complete the transaction but the client could not fulfil the requirements.’ Don’t blame the banker, in other words.
With the limited number of banks and leasing companies that are still related to yacht finance we are in active contact regarding outstanding applications. It seems that these banks are the serious remaining players, although they are also making slower progress than they used to.
Our current approach to new projects is as follows:
- We start by getting an overall feeling of the project and issues such as type of yacht, investment and build time.
- It is crucial to know who the prospects/clients are, have a copy of their passport, understand their general background and business activities, and have an indication of their private means.
- Another key issue is to know which other banks the prospects/clients have private or business accounts with. It is especially useful if one of their banking relations is related to a European bank.
- With respect to personal wealth, it is useful to know whether the activities of the prospects/clients or part of their wealth are based in Western Europe.
- Once these basics have been established, we will decide which banks are best to approach for this project and ask them for an indicative term sheet.
- If the conditions of one or more banks that are willing and able to produce a term sheet are acceptable to the client, we will decide together which banks to start the credit process with.
- For the credit process (writing up of the application), we carry out an intensive intake of all the information required in order to avoid having to frequently return to the client
- After the client has approved the write up, this will be presented to the bank. We will take care of monitoring the process and give any further explanations the bank may require.
Other banks ask for a good faith deposit before they start working. This will be refunded to the client should the application be rejected for any reason.
As mentioned above, applications are a time consuming process in the current environment where bank policies can change by the hour. It is also difficult to obtain clear directions with regard to pricing the transaction. This is mainly due to the fact that money has become more expensive for banks to loan from other banks. Taking this into account, for a loan in the range of 60% to 70% with a term of max 120 months, we calculate an interest rate of euribor/libor plus 2.5% to 3.5%, plus an upfront fee for the bank of 1% to 2% over the loan amount.
For our work we sometimes get paid by the bank and sometimes by the client, depending on the involved bank(s) and needs of the client. In return the Ciris Capital team members will use all their in-depth knowledge of how the banking system works to maximise the chance of a positive outcome. Our long-lasting contacts within the banking network are proving especially valuable in these turbulent times.
To use a sailing metaphor, the journey may take longer than was previously the case but Ciris Capital knows which route to follow and how to hold a steady course. In doing so we aim to keep the lines of communication as straightforward and open as possible with our clients.
Please do not hesitate to contact us should you have any questions based on the above, or if we can be of assistance in any other way.