Sale and Leaseback in Shipping
Selling a ship to a lessor and chartering it straight back: the structure, the lessor's title as security, the purchase option and the characterisation risk.
Sale and leaseback is a ship-finance structure in which an operating owner sells a vessel to a lessor and immediately charters it back, normally on a long bareboat charter party or finance lease, often with an option or an obligation to repurchase the ship at the end of the term.
The attraction to the seller is liquidity: the ship becomes cash while the operation continues uninterrupted. The attraction to the lessor is the security position, because it owns the asset outright rather than holding a charge over somebody else’s asset, which is a stronger place to stand on an insolvency than a mortgagee occupies. Leasing houses, and Chinese lessors in particular, have used the structure across the main cargo trades.
The full article will cover the transaction mechanics and the documents involved, the pricing basis against a mortgage loan, the purchase option and its finance-lease characterisation consequences, the accounting treatment under IFRS 16, and the risk that a court or a tax authority recharacterises the arrangement as a secured financing rather than a lease. See also ship finance and asset valuation and ship sale and purchase .