Ship Finance Fundamentals
Financing Newbuildings vs Second-hand Vessels
Summary
Newbuildings introduce shipyard delivery and construction risk; second-hand purchases concentrate risk at acquisition, vessel condition and near-term employment.
Why this matters in ship finance
The timing and security of funds differ substantially between staged instalments and a completed-asset purchase.
The concept
Predelivery stages involve shipbuilding contracts, instalment guarantees, refund guarantees and possible delivery finance. Second-hand finance involves sale-and-purchase agreements, inspection, title and mortgage discharge, and closing coordination. Specifications and regulatory readiness affect both.
How it is used in practice
Compare total acquisition cost and cash timing, enforceability of refund guarantees, delivery delay scenarios, maintenance backlog, earnings and residual value.
Practical issues
Without an acceptable refund guarantee, predelivery debt is often not bankable; post-delivery lending may still be feasible. Terms depend on security and parties.
How ShipFinance.ai uses this concept
Offer a decision guide comparing newbuild and second-hand financing on a common cash-flow basis.
Key takeaways
- Construction exposure is not operating exposure
- Delivery security is central to predelivery lending
- Compare lifecycle costs, not only purchase prices
Primary legal, rule and scholarly sources
- Schinas, Grau & Johns (eds.), The HSBA Handbook on Ship Finance (Springer, 2015) - scholarly reference, not legislation
- Schinas (2018), Financing the New Generation of Ships - scholarly chapter
- Schinas, Ross & Rossol (2018), Financing Green Ships through Export Credit Schemes - empirical research
- Loan Market Association - contractual loan documentation practice; not law