Corporate Finance & Capital Markets
Debt vs Equity Financing in Shipping
Summary
Debt preserves ownership but creates contractual payment and covenant obligations; equity absorbs losses without mandatory scheduled repayment.
Why this matters in ship finance
An apparently cheaper loan can be more costly when freight volatility raises default risk or forces asset sales near a market trough.
The concept
Compare financing instruments by all-in cost, priority, covenants, dilution, liquidity commitments and control. Hybrid securities may combine debt and equity characteristics, with accounting classification determined by contractual terms.
How it is used in practice
Build the same investment case under alternative debt/equity mixes; compare equity internal rate of return, covenant headroom, cash burn and rescue-capital needs.
Practical issues
Do not equate accounting equity with loss-absorbing cash or assume that equity always has no contractual distribution features.
How ShipFinance.ai uses this concept
Offer side-by-side leverage scenarios and a debt/equity decision guide linked to financing structures.
Key takeaways
- Debt creates scheduled payments; equity absorbs residual risk.
- Evaluate all-in cost alongside control and liquidity.
- Compare financing mixes under the same downside scenario.