Mark Burgess of the Business Aviation and Superyacht Community, Switzerland (BASYCS) gives some insights into the move of superyacht finance banks towards sustainably-driven financings.
Words by Mark Burgess
Recently, as I was walking to the gate to catch a flight from Geneva, where I live, to London, something
occurred to me that I hadn’t fully registered before. The glitzy private bank adverts that line the travelators (it’s either expensive watches or bank adverts) were using tag-lines such as “sustainable”
and “responsibility”. This language is à la mode in commercial banks but it struck home that even the
traditionally discrete private banks are promoting these values and ambitions in an effort to differentiate themselves. It is this differentiation and the ability to have the edge over one’s competitors that is one of the drivers leading banks to invest
heavily in to what are generically referred to as
Challenges to superyacht financing
Banks that finance superyachts, like all banks, are
facing increasing challenges. These are due not only
to today’s banking sector uncertainties be they base-rate overhauls, Brexit uncertainty (especially relevant for UK based banks with a European client-base), the ever-complex regulatory and sanctions rules governing the banking industry, or their own internal policy decisions that create additional complexities to navigate when onboarding and growing a client-base. The biggest challenge, however, is innovation. Besides structuring deals flexibly, what are superyacht finance banks bringing to the table that is stand-out beyond the mere provision of credit?
Well, there is without doubt an advantage to having an established bank in the picture when acquiring a superyacht. Not only does that bank bring reassurance to the seller (be it an individual or a yard) that credit risk exposure is covered, but the bank will know the other players in the cast of many who will have a stake in the process. This knowledge it
will share with its customer/buyer and whilst not advising directly, the bank will be in a position to gently guide its customer when important decisions during the course of the acquisition need to be made.
But this is nothing new and any reputable
superyacht finance bank will be adopting this strategy as good practice. An example of differentiation that has been seen in the market is that of doing away with the requirement of minimum Assets Under Management (or AUM). By way of
brief explanation, the standard model of yacht financing deals anticipate that the customer deposits an amount of cash or shares as AUM (often 50% of the financing) as a condition of the financing being offered. These amounts are not usually pledged as collateral for the loan but there is the requirement that they be maintained at the specified minimum amount during the tenor of the financing.
So, removing the AUM requirement is a novel twist and an attractive one too for the customer. However, as the attraction of AUM is a key driver for banks lending to yacht owners, it is not one that the majority of Yacht Finance banks are comfortable with.
The drive for sustainability
And so we come back to sustainability.
This is by no means a new concept and we’ve seen in the superyacht sector how key players from shipyards and engine manufacturers to interior designers and even crew clothing companies have embraced this as the gateway for innovation potential. Banks are no exception and they too are looking to sustainable-based principles
to help them stand out among their peers when it comes to financing superyachts.
The most obvious example is in targeting
the financing of superyachts displaying new and
innovative sustainable technology such as hybrid
engines, energy-efficient hull & coating solutions and
exhaust emissions-reduction systems. Depending on the specifications of the yachts in question, these are attractive assets to finance. On the investment side, banks might also provide their superyacht customers with the opportunity to invest AUM within sustainable portfolios such as Sustainable and
Responsible Investment (SRI) funds or equivalents. These are funds that invest in companies or baskets of companies that themselves adhere to socially responsible values. Banks may further look to the philanthropy activity of a customer when structuring and pricing a transaction with a strong philanthropic commitment.
It is perhaps early days and we’re not yet at the stage where sustainably driven superyacht finance
products are the norm. But there is no denying that the move towards sustainable solutions within the superyacht sector is important, and should indeed
ring true for all stakeholders. The superyacht
sector has the opportunity to be an ambassador of
change at all levels and some of the major superyacht finance banks (including my own employer, BNP Paribas) are rising to the challenge and committing themselves…to differentiate!
Mark Burgess is a lawyer and founder member of the
BUSINESS AVIATION & SUPERYACHT COMMUNITY, SWITZERLAND (BASYCS). He is based in Geneva where he works as a superyacht finance specialist for BNP Paribas (Suisse) SA.