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Tuesday, 20 October 20
BIMCO 'SHIPLEASE' TERM SHEET - WATSON FARLEY & WILLIAMS
 KNOWLEDGE TO ELEVATE
The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes it both timely and welcome that BIMCO has produced a standardised term sheet. There was strong Asian representation on the drafting committee. Reflecting the position of Chinese leasing companies in the market, the committee included representatives from four of them. The term sheet is accompanied by explanatory notes, following the structure of the earlier BIMCO loan term sheets (SHIPTERM and SHIPTERM S).
“The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes it both timely and welcome that BIMCO has produced a standardised term sheet.”
Any attempt to produce a standard or indicative term sheet for leasing transactions is challenging. All loan transactions are essentially the same, with differences between the terms of one loan from another being ultimately detail, albeit important detail. The borrower is obliged to repay the loan and once it has done so the lender is obliged to release any security. In contrast, what happens at the end of a lease varies as between one type of lease and another. The broad distinction is between finance leases, where the lessee rather than the lessor takes residual risk and upside benefit, and operating leases, where the reverse is the case to a greater or lesser extent and return conditions at expiry have greater significance. It should be noted, however, that the terms ‘finance lease’ and ‘operating lease’ are not terms of art and mean different things to different people, and in different contexts.
There are also important differences as regards the rights and remedies of a lessor following lessee default, compared with the rights and remedies of a secured lender as against a defaulting borrower. The lessor’s remedies as owner can in certain circumstances be more flexible and favourable than the remedies of a mortgagee. However, English law, at least, requires the lessor to navigate around the risk that a liquidated termination sum is potentially vulnerable to being struck down as an unenforceable penalty, which will be the subject of a briefing note shortly. The English law doctrine of relief from forfeiture can apply to both leases and secured loans but is likely to be more relevant to the former than the latter.
For a lessee, there are two main areas of risk compared with the position of a borrower under a secured loan. First, English law has for a long-time aided mortgagors by protecting their right to get the asset back free of mortgage on repayment (the ‘equity of redemption’) and by imposing duties on mortgagees in relation to the realisation of their security. These protections do not apply to a lessor, at least not to the same extent. Secondly, the fact that the lessor holds legal title to the asset means that a lessee is exposed to greater risks around lessor solvency, ownership and control of the lessor, disposal and lien-creating than is a borrower vis-à-vis a mortgagee.
Since a term sheet for a sale and leaseback transaction will generally originate from the lessor’s side rather than the lessee’s, it is perhaps not surprising that the issues for a lessee briefly referred to above are for the most part not flagged either in the term sheet or in the explanatory notes. Reflecting both the legal complexities of leasing transactions as compared with loans, and also the variety of different structures and types of leasing deal, the term sheet and especially the drafting notes, refer to a number of features and issues, including the following:
• The term sheet generally assumes English law as the governing law of the lease;
• The emphasis is on sale and leaseback of second-hand tonnage rather than newbuildings. Deals involving newbuildings can include additional structural and documentation complexities which are not addressed;
• The intention is that the term sheet can be used for both finance leases and operating leases and even, possibly optimistically or ambitiously, as a basis for specialised transactions such as JOLCOs;
• It is aimed at a single ship deal and expressly does not attempt to address, in any detail, the complexities which can arise from multi-ship deals, especially when the lessors and/or the lessees involved are special purpose companies; and
• The possibility of lessor financing is referred to but not expressly that this can take place at inception rather than by way of ‘back financing’ once a sale and leaseback is completed.
“All-important financial matters such as the calculation of hire, the calculation of the termination sum and financial covenants are left to be completed in annexes.”
Any attempt to provide more detailed explanation or alternative drafting would have resulted in the term sheet itself and/or the explanatory notes become much longer and more cumbersome. One can sympathise with the drafting committee’s tendency towards conciseness. All-important financial matters such as the calculation of hire, the calculation of the termination sum and financial covenants are left to be completed in annexes. The drafting process included wider industry and professional consultation. A close-to-final draft of the term sheet was released for comment a few months before publication took place at the end of September. WFW was among the law firms submitting comments. The explanatory notes were not released in draft during the consultation process.
There are two issues to note, of a mainly stylistic nature. First, as the explanatory notes point out, there are no defined terms as such. The use of defined terms in term sheets is customary and would be familiar to, and possibly expected by, most users. Secondly, the BIMCO style of boxes at the front sits oddly in a term sheet, albeit that it is the format already used in the SHIPTERM term sheets. One example of an area where these features might be more than just one of form and have an effect on substantive issues are the treatment of Purchase Option and Purchase Obligation. If included, these are significant and potentially complex features where clarity is required. The combination of lack of detailed defined terms and the use of boxes imposes a constraint in this and other areas.
This BIMCO project has presented a welcome template for parties and their lawyers to work on. That said, it is unlikely – or at least it would be ill-advised – for non-expert parties to use it without assistance in any but the simplest of transactions. It is a starting point and a foundation rather than a fully-refined product – but that is inevitable having regard to the subject-matter and is the intention, as the explanatory notes make clear. Having now taken this step, it will be interesting to see if BIMCO turns its attention to a full-form lease. BARECON 2017 is used in many sale and leaseback transactions with detailed and extensive additional clauses. Although many lessors prefer to use a fully bespoke form of lease, a variant of the BARECON form addressed specifically at sale and leasebacks might be welcomed by those who prefer to use it as a starting point.
Source: Watson Farley & Williams
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Wednesday, 20 October 21
CHINA COAL HITS RECORD HIGH AMID TIGHT SUPPLIES - REUTERS
China coal prices hit a record high on Tuesday buoyed by a widening power crunch and cold weather despite Beijing’s efforts to bolster supply ...
Wednesday, 20 October 21
MARKET INSIGHT - INTERMODAL
IMO 2020, Ballast Water Treatment regulations, Green Recycling, GHG emissions, EEXI, CII, ETS, Fit for 55, Carbon price/levy, the Poseidon Principl ...
Tuesday, 19 October 21
SPONGE IRON SECTOR MIGHT REPORT NEGATIVE GROWTH DUE TO COAL CRISIS: SIMA - PTI
The domestic sponge iron industry might report a negative growth in the ongoing December quarter “if the shortage of coal is allowed to conti ...
Tuesday, 19 October 21
COAL INDIA, THE FALL GUY FOR POWER CRISIS - INDIA EXPRESS
The post-Covid economic recovery has led to a major increase in the demand for power, both in India and globally. In India, coal-based power plants ...
Saturday, 16 October 21
SOLAR INSTALLATION SURGE PUTS INDIA ON TRACK TO CAP COAL-FIRED POWER AS EARLY AS 2024 - IEEFA
Recent increase in solar power installations could push coal to peak sooner than expected
If India keeps installing solar capacity a ...
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- Asmin Koalindo Tuhup - Indonesia
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- Directorate General of MIneral and Coal - Indonesia
- Thai Mozambique Logistica
- Xindia Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Deloitte Consulting - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The Treasury - Australian Government
- Economic Council, Georgia
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Standard Chartered Bank - UAE
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Siam City Cement PLC, Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Tata Chemicals Ltd - India
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- Independent Power Producers Association of India
- GMR Energy Limited - India
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Kohat Cement Company Ltd. - Pakistan
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
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- Bharathi Cement Corporation - India
- Mercator Lines Limited - India
- Binh Thuan Hamico - Vietnam
- Intertek Mineral Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Semirara Mining and Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
- Parliament of New Zealand
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Marubeni Corporation - India
- Globalindo Alam Lestari - Indonesia
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- MS Steel International - UAE
- Kobexindo Tractors - Indoneisa
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sical Logistics Limited - India
- Antam Resourcindo - Indonesia
- Bukit Makmur.PT - Indonesia
- Indo Tambangraya Megah - Indonesia
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Makarim & Taira - Indonesia
- Parry Sugars Refinery, India
- Edison Trading Spa - Italy
- Agrawal Coal Company - India
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Formosa Plastics Group - Taiwan
- Sree Jayajothi Cements Limited - India
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Merrill Lynch Commodities Europe
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Sakthi Sugars Limited - India
- Dalmia Cement Bharat India
- Star Paper Mills Limited - India
- Attock Cement Pakistan Limited
- Manunggal Multi Energi - Indonesia
- IEA Clean Coal Centre - UK
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Eastern Coal Council - USA
- Tamil Nadu electricity Board
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Global Business Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- Kaltim Prima Coal - Indonesia
- Eastern Energy - Thailand
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kumho Petrochemical, South Korea
- PetroVietnam Power Coal Import and Supply Company
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- SMC Global Power, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Jaiprakash Power Ventures ltd
- Anglo American - United Kingdom
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- The State Trading Corporation of India Ltd
- Bhatia International Limited - India
- Alfred C Toepfer International GmbH - Germany
- McConnell Dowell - Australia
- Jorong Barutama Greston.PT - Indonesia
- Central Java Power - Indonesia
- Minerals Council of Australia
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- The University of Queensland
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- ASAPP Information Group - India
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Ministry of Mines - Canada
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Oldendorff Carriers - Singapore
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Samtan Co., Ltd - South Korea
- Grasim Industreis Ltd - India
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Orica Australia Pty. Ltd.
- Ind-Barath Power Infra Limited - India
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Australian Coal Association
- Indian Energy Exchange, India
- Bangladesh Power Developement Board
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