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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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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Power Finance Corporation Ltd., India
- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Straits Asia Resources Limited - Singapore
- VISA Power Limited - India
- Electricity Generating Authority of Thailand
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Sindya Power Generating Company Private Ltd
- GVK Power & Infra Limited - India
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- Goldman Sachs - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Orica Australia Pty. Ltd.
- Kohat Cement Company Ltd. - Pakistan
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Jindal Steel & Power Ltd - India
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Kaltim Prima Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Transport, Egypt
- Independent Power Producers Association of India
- Coastal Gujarat Power Limited - India
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- OPG Power Generation Pvt Ltd - India
- Edison Trading Spa - Italy
- Energy Development Corp, Philippines
- Makarim & Taira - Indonesia
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- San Jose City I Power Corp, Philippines
- Mercator Lines Limited - India
- Essar Steel Hazira Ltd - India
- Formosa Plastics Group - Taiwan
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Indika Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Coal and Oil Company - UAE
- Timah Investasi Mineral - Indoneisa
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- India Bulls Power Limited - India
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- Baramulti Group, Indonesia
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Bangladesh Power Developement Board
- New Zealand Coal & Carbon
- Sinarmas Energy and Mining - Indonesia
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- Aditya Birla Group - India
- Bhatia International Limited - India
- Lanco Infratech Ltd - India
- Kumho Petrochemical, South Korea
- The University of Queensland
- International Coal Ventures Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Renaissance Capital - South Africa
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Marubeni Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Ind-Barath Power Infra Limited - India
- Merrill Lynch Commodities Europe
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- Dalmia Cement Bharat India
- PTC India Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Global Business Power Corporation, Philippines
- Indonesian Coal Mining Association
- ASAPP Information Group - India
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- Uttam Galva Steels Limited - India
- McConnell Dowell - Australia
- Toyota Tsusho Corporation, Japan
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Altura Mining Limited, Indonesia
- Australian Coal Association
- Bhushan Steel Limited - India
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- Port Waratah Coal Services - Australia
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Chettinad Cement Corporation Ltd - India
- Samtan Co., Ltd - South Korea
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pendopo Energi Batubara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
- Salva Resources Pvt Ltd - India
- CNBM International Corporation - China
- Planning Commission, India
- Heidelberg Cement - Germany
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Karaikal Port Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Economic Council, Georgia
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Bukit Baiduri Energy - Indonesia
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Meralco Power Generation, Philippines
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- White Energy Company Limited
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- Coalindo Energy - Indonesia
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
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