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  • Writer's pictureRyan Lynch

Fair Market Value Adjustment

When looking at maritime investment, we often see the business cycle across the segments impacted by a myriad of different variables such as : day-rate, steel price, cargo demand, shipbuilder capacity, interest rates, leverage/loan interest, risk margin and of course the geo-political environment amongst others.

To un-pack these variables (all which have an elasticity effect on investment returns) we find it elegant to look at the acceleration of straight line depreciation values to hit risk metrics, namely market to market ("MTM) figures at seminal points in the life cycle of investments. We call this the fair market value ("FMV") accelerator. While not a crystal ball, it gives us a brief run down of how market activity has resonated across acquisition, lending, leasing and voyage markets in different maritime investment segments.

For example, in highly backward-dated rate markets (today >tomorrow) we see higher accelerators in the more vintage tranches (higher asset prices versus end of life/scrap value), due principally to pro-cyclicality. In markets with more contango rate structure (tomorrow >today), we see more front loading of the accelerator, or at least a more even distribution, which is due to a counter cyclical investment at present.

There are of course idiosyncratic concerns here, such as LNGC with technological obsolescence through time, the engine maker efficiency gains being more beneficial when the vessel is larger (cet pars) also the volatility of the transactional nature of the business (eg PCC voyages versus spot Capes), and of course shipbuilder desire or ability to price the berths rather than them be assessed (eg LR1 versus MR).

Please don't hesitate to reach out to discuss findings or explore them further.

Disclaimer : This content is constructed using publicly available information and distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. MOIC accepts no liability whatsoever for decisions made using this general advice

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