Navios Holdings and Navios Acquisition, through their new joint venture Navios JV, have signed an agreement to buy ten vessels from German ship lender HSH Nordbank (HSH) for $130m.
The vessels include five product tankers in the size range of 30,000dwt-80,000dwt and five container vessels of 2,000teu-3,400teu, with an average age of 5.5 years.
According to HSH, the vessels, belonging to different owners, are currently not employed or operate well below cost coverage.
With the deal, HSH intends to reduce its balance sheet and cut its risk exposure on loans by $300m.
When the vessels are transferred to Navios, the current owners will be released from their respective credit obligations; Navios’s payment of $130 million represents around 40% of the outstanding loan amount.
As part of the deal, the remaining $170m of the loan amount is expected to be converted into a participating loan, giving HSH the opportunity to participate in any market improvement and completely recover the original credit amount in the future.
According to Navios, the cash portion of the deal is equal to 60% of the current fair-market value of the vessels, plus $10m.
Following the sale of vessels, Navios JV will receive a 12.7% annual preferred return on its $10m investment.
HSH Nordbank restructuring unit head Wolfgang Topp said the innovative financing structure is the bank’s approach to deal with the ongoing crisis in the international shipping industry.
"This approach, which we developed together with our partner Navios, serves as a role model for the entire maritime cluster," Topp said. "The insolvent vessels, or those on the brink of insolvency, are transferred to a highly professional operator that is able to secure an economically feasible operation of the vessels throughout the shipping crisis."
Navios will also receive 20% of cash flow from operations or sales; 80% of the returns generated by the ships will be paid to HSH until the subordinated loan is repaid.
After clearing HSH’s loan, Navios will receive 100% of any further sales proceeds.
Navios Holdings and Navios Acquisition chairman and chief executive officer Angeliki Frangou said the company has devised a programme with HSH whereby vessels can be removed from insolvency and placed into a stable situation.
"Navios is acquiring a significant fleet at historically low values with favourable economics," Frangou said.
Navios Holdings will provide the joint venture with as much as $5m in working capital and the JV has the option to sell the vessels after seven years, with the arrangement with HSH expected to be completed after ten years.
HSH said it is currently in talks with owners of other vessels in its loan portfolio to reach similar agreements to reduce its holdings by more than €1bn.