The methodology describes how ARC assesses securitisations or asset-backed financing where the underlying revenue-generating asset and/or collateral comprises a portfolio of, or individual vessels (‘ships’).

When ship financing is funded with the asset-backed lending/mortgage method, the vessel charter income is the principal source of funds to ensure repayment during the contract term. Like other mortgage contract types, the underlying vessel forms part of the enforceable security contracts, and the underlying vessel forms part of the enforceable security, which the lender can seize if the final balance is unpaid at the loan’s maturity date.

During the loan or lease term, charter income is the primary source of funds to service debt repayments. ARC can either assess the credit risk of the charterer(s) as a proxy for the loan’s default risk or, absent such information, assume that the securitised vessels are not subject to long-term charter arrangements. This methodology primarily focuses on the approach to evaluating shipping financing based on spot charter rates.