By DAN REYNOLDS, senior editor of Risk & Insurance
Those who board the largest seagoing passenger vessel in history for a warm Caribbean cruise out of Fort Lauderdale, Fla., this December can thank a credit insurance deal done in icy Finland for the experience.
The $1.5 billion Oasis of the Seas, at 225,782 gross tons and 1,181 feet the largest passenger vessel ever built, was due in Fort Lauderdale on Nov. 13, after a voyage across the Atlantic from its birthplace at the Turku Shipyard in Turku, Finland.
Owned by Royal Caribbean Cruises Ltd., the vessel makes the Titanic, at 882 feet and 46,328 gross tons, and the Queen Mary, at 1,019 feet and 81,237 gross tons, look like dinghies, comparatively speaking.
But the financing of the ship's construction almost went aground during the global credit crunch of the past year.
According to Topi Vesteri, the Helsinki-based executive vice president of Finnvera, the official Export Credit Agency of Finland, the collapse of Lehman Brothers in September of 2008 and the subsequent global credit meltdown sent he and his colleagues scrambling for financing for several already negotiated capital goods export financing transactions, including the funding for Oasis of the Seas.
"We started preparing a temporary export credit funding scheme, and that required some legislative changes, which were done in the last couple of months of 2008 and in January of 2009," Vesteri said during a phone interview with Risk & Insurance®
on Nov. 11
By January of 2009 and with global credit markets in free fall, Finnvera, in concert with three banks (Paris-based BNP Paridas and Stockholm-based SEB and Nordea), had put together, at $1.05 billion, the biggest single ocean vessel buyer credit guarantee in history. Forty percent of the loan came from Finnvera's 100 percent subsidiary, Finnish Export Credit Ltd., and 60 percent was funded by the three banks.
Finnvera provided export credit insurance that essentially covered 95 percent of the risk over the 12-year life of the loan.
Finland normally doesn't provide such funding support for export credits at all, but Finland's government, a member of the OECD (Organization for Economic Development and Cooperation), legislated a temporary export credit scheme to fund the export transactions. The ship's purchase was the first transaction to benefit from this temporary scheme.
OECD export credit terms require a maximum 12-year window for the loan's repayment with semi-annual payments options.
Officers with Royal Caribbean did not return e-mails requesting comment.
Finnvera, along with commercial insurers that Vesteri wouldn't name, also provided bonding support to the Turku shipyard for the vessel's construction. Finnvera's construction period exposure for the ship's construction peaked at 550 million euros, Vesteri said.
According to copies of Royal Caribbean's SEC filings, the company plans to invest $5.8 billion in the construction of five vessels, two of them, the Oasis of the Seas and its sister the Allure of the Seas, capable of housing 5,400 passengers each.
By the fourth quarter of 2012, the company plans to have delivery of three more vessels of what it refers to as the Solstice class, each of which can house 2,850 passengers.
According to its SEC filings, the company plans to expend $2.1 billion in capital on the five ships in 2009 and $2.2 billion in capital in 2010.
"We also have a commitment for a financing guarantee from Finnvera for 80 percent of the financed amount for the Allure of the Seas, and we believe we will obtain committed financing on acceptable terms for the ship before its delivery date," Royal Caribbean said in its third-quarter filing. Royal Caribbean expects delivery of the Allure of the Seas by the fourth quarter of 2010.
Among many other features, the Oasis of the Seas and its sister ship the Allure of the Seas, have 16 decks and will feature a "Central Park" with live trees and an outdoor restaurant.
Vesteri reminds readers that Finland has a history of credit worthiness, having paid all of its post-World War II U.S. government loans at the same time it was paying reparations to the USSR, having been accused of starting the 1939 "Winter War."
The credit insurance extended to Royal Caribbean is more proof that Finland's strong credit is a helpful tool even in the most difficult of markets, according to Vesteri.
"I think what was exceptional here was the size of the transaction and that we hit this serious storm in the financial markets, and we put up this temporary funding facility quicker than any other country which was helping to get this financing in place," Vesteri said.
November 13, 2009
Copyright 2009© LRP Publications