BOW WAVE 214

New Year Edition

news and views on trade, insurance and risk

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Wavy Line	sam@wavyline.com
(c)2003 WavyLine.com	Issue No 214 29 Dec 03
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. Sample Syndicated Shipping Loan
3. New Year's Resolutions
4. IT and the Lloyd's Market--What will 2004 hold?
5. State of Shipping
6. And Finally...

1. Welcome

"New Every Morning," by Susan Coolidge

Every morning is a fresh beginning,
Listen my soul to the glad refrain.
And, spite of old sorrows
And older sinning,
Troubles forecasted
And possible pain,
Take heart with the day and begin again

New Readers this week include:

Robin Lee,CEO, Atlantic Fiduciaries Ltd
Lecturer Henk Kortekaas, Australian Maritime College in Tasmania Lawyer Frazer Hunt of Piper Alderman in Sydney

An end of year flavour informs this Issue, along with a bonus (but lengthy) item 2 which takes a refreshingly sane approach to explaining the syndicated loan

Happy New Year to Readers.

Enjoy

2. Sample Syndicated Shipping Loan

The following standard contract has been doing the rounds in the Commerzbank for many years. It is a pretty good way of explaining shipping loans to trainees and the rest of us who are a little challenged in these matters.

Does any Reader have any idea of whence it came?

Mr. B. Beard
Crossbones Shipping Co
Kinglandia

Dear Blue,

Please pardon me for writing this on the back of a sick-bag; it’s all I had on the plane back to London.

As I said, we and the syndicate can let you have the US$500,000,000 for buying up your fine new fleet of tankers with deck ro-ro facilities and the pretty, fluttery flags at the back.

This is how we see the deal:

1.Send us a telex

You can have the money any time up to three months from now. Just send us a telex. We will each chip in our bit and no more. Use it to buy the boats.
2.We’ve got shareholders too

Pay us back our money - this is important and should take preference over the golf days. Sixteen equal lots, one every three months starting six months from now.

3.You want out

If you want to pay back early, that’s fine, but you must call us up to 30 days ahead and pay us a 1% consolation fee. Big rounded amounts only. Early pay-back means a shorter deal.

4.Milk of human kindness

As I explained to you, we unfortunately have to charge for this money. I congratulate you on beating us down to 0.75% over LIBOR; charity runs in our blood.
We will fix every three or six months at your choice. You pay the interest at the end of each period. I hope you took on board my explanation of the 11 a.m.
(London time) routine etc. Remember? Anyway, just leave the mechanics to us as we always do it.
If you don’t pay on the nail, we can add an extra 1% till you pay up.

5.That’s your problem

I know it’s very difficult for you to understand, Blue, but we don’t carry this $500,000,000 around in our pockets. We have to get it elsewhere in London. If we can’t, naturally we’ll get round a table with you and talk about ways and means. But if we don’t see eye to eye after, say, 30 days, you pay us back, and that’s the end. It’s too bad that you may not be able to get the money either, that’s your problem.

6.The taxman

You pay us in spendable dollars of the US of A at our New York agent per CHAPS. And we want the full amount, i.e. you pay the taxman and top up our money.

7.Extras

So far, the authorities have left us alone. Cost to you is cost to us plus spread. But we have to face facts, some central bank or other like person may poke his nose into our business. Reserves, taxes, that sort of thing. If that happens, you pay us the extra. We will tell you how much and you can’t argue. But if any of us ups the cost, then you can take him out.

8.We don’t want to go to jail

If our side of the deal runs foul of the law, no more money from the bank affected and you take him out straight away. Plus the unwinds.

9.Fanatics

We want mortgages, pledge of shares, assignments or earnings, insurances, the lot. This pile of paper will be wheeled in by the mad monks from our law firm. You will have to attend before an oath-muttering weirdo, who will draw up the documents with ribbons and coloured stars. Don’t tip him, you’ll get the bill later.

10.The bunce

Pay the earnings into our coffers. You can have some if you really need it, provided your dues to us are covered.

11.Chicken and egg

You can’t have any money until you own the boats, the mortgages have been written up in the book, we’ve got the corporate papers and our lawyers have given us the thumbs-up the way we like it.

12.Promises, promises

You promise us:

(a) Your company is there in good shape
(b) Your company can do this deal and you, Blue, can sign (c) It’s all legal
(d) The authorities have given their OK
(e) No mistakes in your last financials. Things haven’t got worse since then.
(f) Nobody’s suing you for big money
(g) You are sticking by the terms of your other deals (h) The fact-sheet we sent round about the deal sets it out like it is. (i) Our security stands up
(j) Blue, you’ve gotta make sure that everything you owe doesn’t amount to more than three times your profits-- if it does, pay us back first
(k) Equally if your profits aren’t three times your interest bill, say goodbye to the boats.

13.Do’s and don’ts

(a) Send us your financials (no matter how fictitious) within 90 days of year-end; we will file them, look at them in about 9 months’ time then ask you lots of questions about the notes when you’ve forgotten all about them (b) Send us other info when we ask for it
(c) I know the mortgage is not top of your reading-list, but basically, Blue, we’re paying for the boats so you got to look after us. Take out full cover and pay the protection money. Keep the boats in A1 nick. Fly the same flag. Bone up on the rules and regs and pay what you have to pay. Keep our docs on board and replace the girlie pics with a framed ad about us. Keep the boats out of the clutches of thieving creditors. Don’t sail into shoot-outs, leave smuggling to pirates more qualified than yourself. Tell us of any problems. Also, no fancy revamps, no sell-offs, no lousy charters we don’t like, no aiding the enemy. You will get better results if you pay the sailors.

14.The plug

Our money back straightaway and not another cent if:

(a) You don’t comply
(b) You have told us a lie
(c) You don’t stick by the terms of your other deals. (d) You go bust
(e) You vanish
(f) You close up shop or sell out in a big way
(g) Your other creditors move in
(h) We don’t like the way things are going for your financial-wise (i) A boat Titanicizes or a master does a Captain Bob with the cargo (j) The flag-state goes a’nuking
(k) You, dear Blue, shed this mortal soil

15.The consequences

If the plug gets pulled, we can grab the assets. We can sell you up. We can ram half-a-dozen Brussels Conventions down your throat. You’ve met Nev from our Legal dept - don’t upset him

16.No stabs in the back

Blue, you can skip this clause because this bit is between me and the banks.

You, colleagues in the syndicate, appoint us as your leader to run this deal. We are delighted to be of assistance and value your esteemed confidence. But, just to avoid any unpleasant misunderstandings, we have to make some things clear. It’s every man for himself. We don’t have to tell you what we know: you check it out yourselves. If we have slipped from the very highest standards of veracity in order to get you into this deal, keep your eyes open next time. We can believe everything the lawyers or anybody else tells us. We can do other deals with the borrower and pocket the profit. If it’s between us and you, we can look after No. 1. Naturally, we will do what most of you want within reason, but if we foul up, no liability. Sorry.

17.Boiler-plate

Yet again you can skip this part, Blue, since it’s the boiler-plate (a) You will pay us out out-of-pockets, including the lawyers. I much enjoyed eating out in Kinglandia at your expense. (b) We could lose money if you don’t pay when we say. You will see us whole, especially for the unwinds.
(c) You pay for the stamp.
(d) If we turn a blind eye once, it doesn’t mean we’ll do so next time. (e) We don’t have to write it all out here; we can still throw the book at you.
(f) We can give other banks a slice of the action any time. We can switch to our other offices.
(g) I’m a lousy linguist and I don’t speak Kinglandian, beautiful language though it is. Please help us with our translations. (h) If the judge gives us dinarios etc, you make up the difference. (i) If you don’t pay, we can keep the money you left with us.

18.The Rules

I was most touched by your patriotism, Blue but, if you don’t mind, we’ll keep to the English rule-book.

19.The Judge

Lord Denning's successors to sort out any problems. Or anyone else we choose. We can send the invite c/o your offices in London. Don’t say it’s inconvenient. Were not that bad - we promise not to use anyone like the late Judge Tumim.

20.P.S.

If you put the ships through your brassplate conveniences, then "you" = each of them.

I understand there may be some delay as one of your splendid vessels (to be renamed - as a tribute to your lovely lady - m.t. "Mrs. Razor Beard") is presently located on the Dogs Island mud-bank. I hope the Coast Guard and Greenpeace stop the oil slick in time.

Assuming you like this deal, Blue please say so.

Yours hopefully,

Mr. Bouncing Banker

_
____________
Hava Banque

Its OK by me;

Blue Beard

______________
Crossbones Shipping Co.

It’s OK by us;

US$500,000,000

Hava Banque 100
First National Bank of Disneyland 70
Bloodbank 70
Mongpongbank 50
Meischterbank 50
HankkiPankki Bank 50
Magnifiquebank 40
Hokki Kokki bank 40
Meanbank 20
Meanestbank 10

3. New Year's Resolutions

Your editor has spent a little time pondering the way ahead for Bow Wave in 2004 and resolving:-

To report and to encourage the reporting not only of the casualties, mistakes and pratfalls of the industries concerned, but also to seek out and discuss innovation and forward looking developments in the insurance, transport shipping and international trade world.

To grow the readership well past 10 000

To encourage correspondents and corresponding

To review more books

To examine ways of working which capitalise on the benefits of technology and respect the industry's need for trust between contracting parties.

To preserve at all times a sense of humour and sense of perspective

4. IT and the Lloyd's Market--What will 2004 hold?

This is the question asked in the last LIMP newsletter issued by IT guru Roger Foord who writes:-

Apart from being a leap year and the Chinese year of the monkey, some things are predictable for London in 2004 and others are maybes.

Certainly FSA regulation and submission of applications is unavoidable. LMP slips are decreed by the Chairman of Lloyd’s as being compulsory, but this should not be difficult. Getting underwriters to adhere to the underlying requirements of improved service might be less easy.

Kinnect will increase their volume and number of users, but will it become a private company when there is a steady income. It will need to get some big volumes to start paying back the millions invested unless Lloyd’s writes it off.

China will probably still dominate the ‘new business opportunity’ for Lloyd’s.

From a technology point of view, the use of Wireless in the market should be available especially for brokers. The benefits of downloading information to PDA’s in the Lloyd’s building have good financial benefits without inhibiting face-to-face negotiations.

Acord will want to see some move towards the use of their standards, but will the market agree in its entirety or just the larger global players.

What is for sure is that the London market’s business will continue to thrive, but will 2005 be better or worse?

http://www.rogerfoord.com

5. State of Shipping

Our eye was caught this week by a report in the admirable e-zine of the Australian Lloyd'sList DCN reporting comments made by Clarkson research chief Martin Stopford at a Fortis Bank Christmas Seminar

Stopford noted how record after record has been smashed in the shipping industry during 2003:-.

An early 1990s built capesize was earning US$65,000 a day, against an average during the 1990s of US$15,837 a day and a previous all-time high of US$41,000 a day in October 1973.

Spot market earnings in the dry bulk shipping industry for the year are likely to total US$25bn, the first time that they have ever passed US$20bn.

Laid-up tonnage is now at its lowest level since January 1971, while newbuilding output has just pipped last year's record, at 22.5m compensated gross tonnes. This means that shipbuilders have trebled their output in the last 15 years.

Not surprisingly, hedging has become very popular, with dry cargo futures contracts expected to have increased by 50% this year.

The main driver was bulk imports into China, which grew briskly up until 2000, and then trebled in the years after.

Two thoughts occured to your editor upon reading these remarks. Those of us who spent most of the 1990s promoting greater concentration by the marine insurance world upon the markets of the Western Pacific were not wasting our time.

If the marine insurance world cannot get well during the current shipping upwave, it never well.

http://www.lloydslistdcn.com.au

6. And Finally...

Shipping PR Maven Barbara Yeninis sent in this fine end-of-year story worthy of the great Charles Bukowski himself:-

After 35 years of carrying the mail through all kinds of weather to the same neighborhood, the mailman was going to retire on the last delivery day in December.

When he arrived at the first house on his route, he was greeted by the whole family who roundly and soundly congratulated him and sent him on his way with
a tidy gift envelope.

At the second house, they presented him with a box of fine cigars.

The folks at the third house handed him a selection of terrific fishing lures.

At the fourth house he was met at the door by a strikingly beautiful woman in a revealing night dress.

She took him by the hand, gently led him through the door and up the stairs to the bedroom where she astounded him with passionate love-making.

Afterwards, they went downstairs where she made for him a giant breakfast of eggs, potatoes, ham, sausage, blueberry waffles and freshly squeezed orange juice.

When he was truly satisfied she poured him a cup of steaming coffee! As she was pouring, he noticed a dollar bill sticking out from under the cup's bottom edge.

"All of this was just too wonderful for words", he said; "But what's the dollar for"?

"Well", she said, "last night, I told my husband that today would be your last day, and that we should do something special for you. I asked him what to give you, and he said; "Screw him. Give him a dollar". The breakfast was my idea!"

BOW WAVE is published each week to around 9400 Readers in the transport,insurance,shipping and finance industries.

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