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The Distressed Shipping Market Attracts Private Equity

BY Brad L. Berman
June 26, 2012

Since the collapse of Lehman Brothers, private equity has explored the distressed markets to find hidden value. With the decline in world demand, the workhorse of the transportation sector, shipping, is an obvious target. This article explores some of the risks in an investment in shipping.

For shipowners, private equity is hailed as the panacea for solving the funding imbalance of the overall uncommitted newbuilding order book. However, in the current financial crunch, tankers are the Rodney Dangerfield of all shipping sectors. Private equity investors are learning that the tanker sector has its own inherent risks; the wet market just doesn't seem to get any respect.

These risks include cargoes viewed as inherently dangerous (sulfuric acid?), civil and criminal oil pollution liability (all ships can spill bunkers, but tankers have wet cargo too) and the public perception of irresponsibility. Financier and attorney can provide shipping investors with advice on reducing operational control and setting up an insulated corporate structure. Nevertheless, the idea of the ocean swallowing a boatload of grains seems inherently less problematic than a shipment of jet fuel.

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