Financial Metrics & Modelling
Debt Yield in Ship Finance
Summary
Debt yield compares a specified recurring cash-income proxy with outstanding debt, offering a cash earning power measure independent of collateral market value.
Why this matters in ship finance
It can complement DSCR and LTV when evaluating downside debt support but is not necessarily standardised in vessel loans.
The concept
A conventional real-estate-style debt yield uses net operating income divided by loan balance. In shipping the numerator must be defined carefully, for example vessel cash earnings after operating expenditure but before financing, dry-dock and other adjustments as specified.
How it is used in practice
Select a documented earnings proxy, period and debt denominator; compare by vessel size, charter employment, off-hire exposure and market regime.
Analytical formulation
Illustrative worked example
Illustration: EUR 6m of defined annual vessel income over EUR 50m debt gives 12% debt yield.
Practical issues
Do not portray any one target debt-yield ratio as a universal bank or Basel requirement. It cannot replace scheduled-amortisation analysis.
How ShipFinance.ai uses this concept
ShipFinance.ai can structure this topic around a transparent, auditable record of formula inputs, time basis, scenario assumptions and debt/equity cash-flow reconciliation. A useful decision output is a base case beside a clearly labelled alternative case, with input sources, effective dates and the assumptions responsible for any change in financing capacity.
Key takeaways
- Debt yield compares a specified recurring cash-income proxy with outstanding debt, offering a cash earning power measure independent of collateral market value.
- Select a documented earnings proxy, period and debt denominator; compare by vessel size, charter employment, off-hire exposure and market regime.
- Do not portray any one target debt-yield ratio as a universal bank or Basel requirement.