Shipping debt among the private equity and hedge fund sector has risen at its fastest rate since the sector opted to take on loans from banks two years ago, meaning the firsts may eventually own the vessels.
Over the last 12 months, approximately $5 billion in shipping loans has changed hands according to New York fund manager AMA Capital Partners LLC’s estimates.
Such high demand from investors has begun driving prices up to 90 cents on the dollar, from 70 to 80 cents in 2013.
This is indicative of a broader shift in debt patterns as investors take on debt which has been abandoned by banks after regulations were introduced to stop repeats of post-crash taxpayer bailouts.
Hedge funds seem to be putting faith in the recovery of shipping markets in general after they crashed 71 per cent to historic lows half a decade ago.
If the downturn does continue, many funds appear to be willing to do something which banks have been unwilling if a debtor defaults – literally take over the ships.
“The markets are flush with liquidity in terms of investors looking for homes,” said Randee Day, the president and chief executive officer of Day & Partners LLC, an advisory and consulting firm specializing in shipping, who ran JPMorgan Chase & Co.’s shipping division in the 1980s. “If I was still managing a portfolio at a bank, I’d be unloading like mad.”