Financing Structures & Capital Sources
Sale and Leaseback Transactions
Summary
In a sale and leaseback, a shipowner sells a vessel to a financier and simultaneously charters it back under a bareboat charter, often with a purchase option or purchase obligation at the end of the term. Economically the structure delivers financing against the vessel while transferring legal title to the financier.
Why this matters in ship finance
Sale and leaseback structures have become a major source of shipping capital, in particular from Chinese leasing houses. They offer high advance rates and long tenors but change the legal, tax and accounting profile of the vessel materially.
The concept
The vessel is sold to a leasing SPV controlled by the financier. The original owner continues to operate the vessel under a bareboat charter and pays regular hire that repays the financier’s investment and provides a return. At the end of the charter the vessel may revert to the original owner under a purchase option, be sold to a third party or be retained by the financier.
How it is used in practice
Sale and leaseback is used to fund acquisitions, refinance existing debt at higher advance rates, release equity from owned tonnage and finance retrofits or dry-dockings. It is common in dry bulk, tankers, containers and gas segments, with structure and pricing varying widely by financier and by vessel quality.
Practical issues
The economic cost of leaseback financing must be compared with the equivalent bank loan on a like-for-like basis, taking into account advance rate, tenor, amortisation, purchase option and tax treatment. Accounting treatment under IFRS 16 affects the balance sheet presentation. Enforcement paths differ from those of a traditional mortgage-secured loan.
How ShipFinance.ai uses this concept
The platform can present a sale-and-leaseback structure alongside senior debt alternatives on a comparable basis, so that the effective cost, advance rate and residual risk are visible in the same view.
Key takeaways
Sale and leaseback is not simply a higher-advance loan. It is a distinct legal and accounting structure whose economics must be assessed on their own terms.