Credit Risk & Underwriting
Recovery Analysis for Distressed Shipping Loans
Summary
Recovery analysis estimates creditor proceeds after borrower distress, considering vessel realisation, alternative collateral, legal priority, time and costs.
Why this matters in ship finance
Downside loss can be larger than the difference between loan balance and a quoted vessel market value.
The concept
Net recovery includes proceeds from ship sale or continued operation, distributions under security, guarantor payments and competing privileged claims, less legal, arrest and carrying costs. Jurisdiction and enforcement timing are decisive.
How it is used in practice
Model an ordered claims waterfall, distressed sale discounts, maintenance and detention costs, insurer claims and multi-year collection timing.
Practical issues
Loan recovery assumptions must not assume universal mortgage priority or automatic clean title. The Beijing Convention only applies within its scope and relevant jurisdictions.
How ShipFinance.ai uses this concept
Calculate loss-given-default ranges under vessel, guarantor and enforcement scenarios.
Key takeaways
- Net proceeds determine recovery
- Legal ranking and timing matter
- Market value alone is not recovery value
Primary legal, rule and scholarly sources
- Schinas & Kewitsch (2015), Loans and Risk Management Considerations, in BK3 - scholarly chapter
- Schinas, Grau & Johns (eds.), The HSBA Handbook on Ship Finance (Springer, 2015) - scholarly reference, not legislation
- 2022 Beijing Convention on the Judicial Sale of Ships - applies only to relevant parties and matters
- Regulation (EU) 2015/848 - cross-border insolvency proceedings within its scope