Clyde Co Guide to Superyacht Law - Sixth Edition

DOCUMENTATION

SECURITY

Once the finance has been approved the lender will require that a number of documents are entered into and actions completed before any money is paid out.

The lender’s main security will be a mortgage to be registered over the superyacht and the flag state will have its own documentary requirements. Certain flag states require only a statutory form of mortgage and in such instances, the lender will usually also require the owner to enter into a deed of covenants which sets out additional obligations on the owner.

The borrower will usually be the owner of the yacht and it should have the sole purpose of acting as owner and operator of the superyacht being financed and should hold no other assets. The lender will want to see evidence of the borrower’s (and any other party providing security’s) authority to enter into the financing documents, usually in the form of resolutions of the directors (and perhaps also the shareholders) of the relevant company. The lender will require legal and tax opinions and insurance reports, which you will have to pay for. The lender will need to know if the ownership structure is lawful and typically recognised for superyachts sailing into EU territorial waters? Are all requirements for non-EU structures complied with? What might be the tax implications?

The lender will consider the security risk on any superyacht. More specifically, with superyacht construction, the lender will also consider the risk of the shipyard going bankrupt. The lender’s concern would be to ensure that its security is protected against the yard’s other creditors. They will want to know that the owner has clean and full ownership of the superyacht capable of being enforced in the event of default under the loan agreement. Generally, until a superyacht is almost 80 per cent completed, the value of the construction never corresponds to the actual money already paid into the project. The lender would always require additional security both pre and post-delivery, including personal guarantees by the beneficial owner covering any and all amounts due by the borrower to the lender under the loan agreement.

Other security may vary from corporate guarantees, account charges and share charges to assignments of the shipbuilding contract, earnings and insurances and undertakings from the managers that their rights will be subordinated to those of the lender. Where there is a default under the loan agreement, the lender will be entitled to enforce its security, including to exercise its powers of possession and sale of the superyacht.

When the lender is financing a pre-owned superyacht, they will arrange a valuation and inspection survey and will often request an inventory of all items on board.

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