Lexington has developed an asset light shipping industry strategy, with an experienced management group skilled in commercial management, freight trading, hedging, investment management, as well as providing cargo movement optimization services to ship-owners and managing distressed assets. Lexington will mitigate risk by structuring its transactions with credit worthy counterparties, established shipping pools and other risk management tools.
Lexington’s time charter solutions enable ship-owners to receive defined returns against the earnings from the physical shipping markets.
THE MARKET SCENARIO
In recent years, vessel owners have increasingly contributed their vessels to third party managed pools to reduce volatility in earnings and achieve scale. For Suezmax tankers there are at least six major pools managing over 100 vessels. Including all other submarkets, we estimate over 500 ships in various pools. In contributing a vessel to a pool, the owner commits to a long term floating rate revenue model that is difficult to exit. From time to time, owners may prefer a fixed earnings stream for period of one year or more. Lexington offers fixed rate time charters to these owners without disrupting their long term commitment to the pool.
THE LEXINGTON CHARTER
Lexington will structure a solution for the client by providing them with fixed returns. The vessels will stay in the current pool with the cash flows of the time charter adjusted to pool terms. The pool manager controls the cash flows with Lexington receiving the excess earnings from the pool over spot rates.
THE IDEAL CLIENT
Typical clients of Lexington own and operate fleets of tankers employed in spot market driven pools. With rates having increased significantly, many clients would like to fix current market levels for the medium term. However, structural barriers have kept them from securing fixed-rate earnings: being commercial manager and/or a founding member of a pool, the client often has financial interest in the pool; the client does not want to reduce its pool fleet for strategic reasons; the vessels are funded with bank debt which restricts the use of derivatives. Regardless, in most cases, the mark-to-market accounting of the derivatives causes difficulties for the client.