Required Minimum Value

This figure shows the minimum market value the ship can have before a loan is in breach of its minimum value covenant. It is calculated by taking the outstanding loan balance and multiplying it by the LTV ratio. For example, if the loan balance is USD10 million and the LTV covenant is 130%, the required minimum value will be USD13 million. As the loan is amortized the required minimum value will be reduced, but the ship will also be older and subject to a fall in value, due to its having less remaining economic life. The repayment profile of most shipping loans is normally structured so that the loan balance is scheduled to reduce faster than the ship age, and an argument can be made that the LTV should be somewhat less onerous at the beginning of the loan.

 

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