LIBOR: Shipping’s elephant in the room

The shipping industry’s vessel loans are typically taken on the basis of a premium over LIBOR. LIBOR has been experiencing upward pressure since early 2017, as major central banks have moved to a tightening stance. The three-month LIBOR has risen to 2.3% as of April 2018, the highest rate seen since November 2008, the early days of the financial crisis. As LIBOR increases, stresses on shipping industry balance sheets, cash flows and earnings also rise. With rates still at relatively low levels in historic terms, further increases are likely, and for a highly capital-intensive sector like shipping, this will undoubtedly weigh heavily on already debt-laden companies. To get an idea of just how much leverage the shipping sector is exposed to in the context of the wider economy, we used the median leverage ratio for S&P 500 companies as a baseline and compared it to the leverage ratio for shipping players as listed on S&P Global Market Intelligence’s platform. The difference between the two is startling: while the median net debt to EBITDA of S&P 500 firms is 1.5x, the rate for shipping firms is around 8.0x Another solvency measure commonly used is the Interest Servicing Coverage ratio, which is… continue reading

Continue reading LIBOR: Shipping’s elephant in the room. This article appeared first on CTRM Center.

Source: CTRM Center

Related Posts

Leave a reply