International accountant and shipping adviser Moore Stephens has warned that some shipping companies are not adequately prepared to conduct successful negotiations with their banks, which are likely to occur with increasing frequency.
“Shipping is experiencing tough times,” said Paul Edwards, a Moore Stephens corporate finance director. “An increasing number of companies are unable to repay or, in some cases, even service their debts. That could mean an uncomfortable meeting with the bank. But too many companies are not properly prepared for such an encounter.”
“Businesses must be able to produce properly documented and timely financial information for their stakeholders, which should include a view of the future,” Edwards continued. “In good times, when charter rates exceeded operating expenses, little attention needed to be paid to future cash flows and debt service. But today, it is essential to be able to anticipate, to the extent possible, future cash flows and pinch points.”
Edwards recommends that it is essential to provide banks with detailed information in the event that it becomes clear that a company may default on the terms of a loan, and that it is better still if this can be done before any covenants are breached or payments missed.
“Clearly, a model is not a panacea for difficult trading conditions, but working with a bank to present its credit committee with a potential solution, rather than with a problem, is more likely to engender a positive attitude to any restructuring,” said Edwards.