Recent events have been dramatic in shipping markets. Freight and charter rates have plunged. Apart from the tanker sector, almost every other sector has been affected, especially the offshore sector and dry cargo.
So far, few loan defaults have been acted on. While accepting the temporary waivers of non-payment defaults like loan-to-value covenants, the central monetary authorities and shareholders (particularly governmental) may not allow such latitude with payment defaults. In light of this, prudence would dictate that banks should feel 100 percent comfortable with their ship security. With the exception of ship finance lawyers no one wants to look at mountains of paper, but during the quiet spring and summer months, banks are well advised to conduct a thorough review of their loan documents. Early discovery of errors and omissions can avoid problems later, and it is crucial to avoid priority being lost.