Sample financing comparison
An illustrative example of how financing structure affects equity commitment, cash flow and refinancing exposure.
Illustrative assumptions — not lender quotations or an actual client mandate.
Shared assumptions
All figures are fictional round-number teaching assumptions in USD millions, not current market benchmarks or available financing.
- Vessel purchase price
- $20.00M
- Term / payments
- 5 years, annual in arrears
- Base annual earnings after voyage costs
- $4.00M
- Annual operating, management and maintenance costs
- $1.00M
- Base cash available before financing
- $3.00M
- Downside (earnings 30% lower) cash available
- $1.80M
This simplified cash measure excludes taxes, working capital movements, exceptional capex or off-hire, and financing fees or reserves, so it is not a full client model or a lender covenant calculation. Interest and finance charges are calculated on each year’s opening funded balance and paid at year end.
Owner contributions shown cover purchase price only; fees, reserves and working capital require additional funding.
Structure comparison
| Measure | Bank debt | Sale-and-leaseback | Lower leverage bank debt |
|---|---|---|---|
| Initial advance | $12.00M (60%) | $14.00M (70%) | $10.00M (50%) |
| Owner contribution towards price | $8.00M | $6.00M | $10.00M |
| Hypothetical fixed rate | 7% interest | 8% implicit | 7% interest |
| Annual principal / capital repayment | $1.20M | $1.40M | $1.00M |
| First-year financing service | $2.04M | $2.52M | $1.70M |
| Base cash after first-year service | $0.96M | $0.48M | $1.30M |
| Base first-year coverage | 1.47x | 1.19x | 1.76x |
| Downside cash after first-year service | −$0.24M | −$0.72M | $0.10M |
| Downside first-year coverage | 0.88x | 0.71x | 1.06x |
| Terminal amount at year 5 | $6.00M balloon | $7.00M purchase | $5.00M balloon |
| Terminal amount / assumed $8.00M vessel value | 75% | 87.5% | 62.5% |
- Coverage is illustrative available cash divided by first-year financing service, not a covenant certificate. Below 1.00x means modelled cash cannot cover that year’s service.
- The terminal amount is additional to year-5 regular service and is not included in first-year coverage; a sale, refinancing or additional equity would be required to meet it.
- Terminal ratios are maturity balloon / purchase amount-to-value ratios, not initial LTVs. They illustrate refinancing exposure; no lender is assumed to refinance at these levels.
- The sale-and-leaseback is modelled using a simplified financing-equivalent schedule: annual rental equals capital repayment plus a financing charge on the opening balance, and the terminal amount assumes a mandatory purchase rather than an optional residual. This does not imply legal, accounting or tax equivalence to bank debt.
View payment assumptions
| Year | Opening balance | Finance charge | Principal | Regular service | Maturity balloon |
|---|---|---|---|---|---|
| 1 | 12.00 | 0.84 | 1.20 | 2.04 | — |
| 2 | 10.80 | 0.76 | 1.20 | 1.96 | — |
| 3 | 9.60 | 0.67 | 1.20 | 1.87 | — |
| 4 | 8.40 | 0.59 | 1.20 | 1.79 | — |
| 5 | 7.20 | 0.50 | 1.20 | 1.70 | 6.00 |
| Year | Opening balance | Finance charge | Principal | Regular service | Mandatory purchase amount |
|---|---|---|---|---|---|
| 1 | 14.00 | 1.12 | 1.40 | 2.52 | — |
| 2 | 12.60 | 1.01 | 1.40 | 2.41 | — |
| 3 | 11.20 | 0.90 | 1.40 | 2.30 | — |
| 4 | 9.80 | 0.78 | 1.40 | 2.18 | — |
| 5 | 8.40 | 0.67 | 1.40 | 2.07 | 7.00 |
| Year | Opening balance | Finance charge | Principal | Regular service | Maturity balloon |
|---|---|---|---|---|---|
| 1 | 10.00 | 0.70 | 1.00 | 1.70 | — |
| 2 | 9.00 | 0.63 | 1.00 | 1.63 | — |
| 3 | 8.00 | 0.56 | 1.00 | 1.56 | — |
| 4 | 7.00 | 0.49 | 1.00 | 1.49 | — |
| 5 | 6.00 | 0.42 | 1.00 | 1.42 | 5.00 |
Observations
- A higher advance reduces the initial owner contribution but, in this example, raises annual payments and terminal exposure.
- Lower leverage requires more equity and provides more operating cash headroom, including in the downside case.
- Both bank debt and sale-and-leaseback require review of security, covenants, guarantees, purchase obligations and execution terms.
A mandate-specific review can include cash-flow schedules, financing term comparisons, covenant headroom, earnings and residual-value sensitivities, and balloon/refinancing analysis.
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