Security Package & Loan Documentation
Minimum Liquidity Covenants
Summary
A minimum liquidity covenant requires the obligor or group to maintain at least a prescribed amount or defined measure of accessible cash.
Why this matters in ship finance
It provides a buffer against freight volatility, off-hire, repairs and variable financing costs.
The concept
Eligible liquidity may be limited by currency, unrestricted status, ownership, location or account control. Minimum levels may be fixed or linked to fleet size, debt service or operating costs.
How it is used in practice
Test the covenant under delayed hire, dry-docking, margin calls, carbon compliance and refinancing scenarios; exclude trapped and pledged cash where required.
Practical issues
Cash held elsewhere in a corporate group may not qualify. A reserve account cannot always be counted twice toward liquidity and debt service.
How ShipFinance.ai uses this concept
Calculate eligible cash exactly as defined and show headroom through time.
Key takeaways
- Accessible cash matters more than accounting cash
- Definitions may exclude restricted balances
- Liquidity and solvency are different