KKR dives into maritime debt void

The business has been set up to address the struggling shipping market, which has been heavily impacted by rising fuel costs, over-supply and slowing demand following the financial crisis.

The tough market conditions are reflected in the Baltic Dry Index (BDI), which provides an assessment of the price of moving major raw materials by sea. The index reached a high of 11,793 points in May 2008 when demand outstripped supply, but, by December that same year it fell to a measly 663 points. As the debt crisis in Europe continued, shipping companies, many of which are headquartered in Greece and Northern Europe, have struggled to break even as new supply flooded the market.

For maritime lenders, particularly German banks, the weakened freight market has caused major write-downs and losses. Bafin, the Federal Financial Supervisory Authority in Germany, in its recent shipping probe said that German banks need to make further provisions to cover bad loans. It is estimated that German banks have around €100bn of shipping loans sitting on their books. The lenders include HSH Nordbank and Commerzbank, both of which were bailed out during the financial downturn. According to AMA Capital Partners, more than $220bn of debt capital will be required by the maritime sector by the end of 2014 globally.

KKR's new maritime business will be led by former Helios Advisors partners Kristan Bodden and Gabriel Tolchinsky. The business will act as an asset-based lender focused on maritime assets in the offshore oil field services and traditional shipping sectors. It will look to provide credit to assets including drilling rigs, development and production assets, subsea construction vessels and other more traditional shipping assets.

The business will initially manage $580m of capital, of which 45% has been provided by KKR from its balance sheet, its listed operation KKR Financial Holding and MerchCap Solutions. The remaining 55% was provided by various family offices, mutual funds, hedge funds and specialist finance services investors.

"This is an area that has historically been served by European banks. The current dislocation in the European banking sector has created a substantial funding gap in maritime asset financing. With Maritime Finance, we are capitalising on an opportunity to fill an obvious void," commented Bodden.

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• Financing
• KKR