Ship Pfandbriefe must meet high quality standards
Under the Pfandbrief Act, German lawmakers provided for the issuance of the Regulation on the Determination of the Mortgage Lending Value of Ships, stipulating that the Ship Pfandbrief must meet the same strict quality criteria as the Mortgage Pfandbrief. Observance of the provisions of this regulation is mandatory when calculating ship mortgage lending values (MLVs) pursuant to § 24 par. 1 to 3 of the Pfandbrief Act and when collecting the data required for valuation.
Regulation on the Determination of the Mortgage Lending Value of Ships
The Regulation on the Determination of the Mortgage Lending Value of Ships (SchiffsBelWertV) entered into force on July 1, 2008. It concerns the determination of the MLV of ships and ships under construction that have been entered in a public register.
This regulation marks the first time that details on the methodology and form of the determination of the MLV of ships and ships under construction, as well as the minimum requirements to be met with regard to valuers’ qualifications, have been laid down in this way. In this respect, then, the SchiffsBelWertV sets new standards.
The Regulation on the Determination of the Mortgage Lending Value of Ships - SchiffsBelWertV is part of the Pfandbrief Act brochure which is available as hardcopy or for download as a PDF file in our order center.
The need for a special regulation on determining the MLVs of ships lay in the special nature of the assets lent against. Because they are standardized, commercial ships may be compared with one another in the financing-relevant segments. And the fact, moreover, that a large number of vessels are bought and sold makes the ship market highly transparent; brokers’ estimates can also serve as a basis for valuation purposes. Given their market expertise and the market reports they regularly compile, certified brokers and appraisers are considered qualified to calculate a ship’s market value using the comparative method. Unlike with real estate, an analytical valuation procedure consisting of different components has not become established as a means of determining the MLV of ships. There is no two-pillar principle under which, say, the income producing value and the real value (or net asset value) might be determined, and then set in relation to each other to arrive at the MLV. It is not usual to calculate the income producing value, as this would make the MLV dependent on charter rates. These are very volatile, however, making them unsuitable as a basis for valuation. Nor is a formal cost approach applied, as the value of a sea-going vessel cannot be measured solely according to the size and the fittings of the ship.
For this reason, the SchiffsBelWertV defines its own model, which stipulates three upper limits as a gauge for determining the MLV. The parameters set forth in § 4 par. 1 of the SchiffsBelWertV are the current market value of the ship, the average market value of the last ten calendar years and the new construction price or, when a ship is bought, the purchase price. When determining the ship MLV, none of these three values may be exceeded.
However, a Pfandbrief Bank active in ship financing is not required to take the lowest maximum limit in each case as the mortgage lending value. It can, and in some cases must, set a lower value as the ship mortgage lending value depending on the sustainable value of the ship. These requirements, which apply in respect of every ship loan that is to be included in cover, guarantee that the high standard of the German Ship Pfandbrief is maintained.