A Study On The Legal Issues Of Mezzanine Finance In Ship Finance

Facing the conflict between the rapid development and limited fundingsources, shipping industry needs to find new means of financing. Mezzaninefinance is a kind of financing method which is different from senior debt andequity. It has higher interest rate than debt and lower risk than equity; andmeanwhile it can be transferred to debt or equity in certain conditions. It issuch a new financing technique and the present law has not special articlessupporting the legal operation. However, it seems that china law mayassimilate it into its own legal system by adoption of existing law to the newcomplex legal problems involved in Mezzanine finance.According to the corresponding circumstances, different legalframework of Mezzanine finance can be constructed at different stages.Shipping industry is full of uncertainty and investment risks. When thevessel has been completed, both the method of mezzanine loan and preferredequity can be applied to financing. By signing the conditional contracts, parties can consult the content of stock equity, which should contain bothproperty rights and non-property rights. The ship has been given as a securityto the secured creditor, so there is a conflict of interest between mezzaninecreditor and mortgage creditor and the creditor agreement is an indispensablepart of the financing. Under the existing laws and regulations, there are noprovisions about preferred equity in the Company Law and the SecuritiesLaw. But some clauses imply the meaning. When applying mezzaninefinance, we must integrate its properties with the extraordinary nature ofshipping finance and the features of the vessels themselves.Due to the distinctiveness of the concept, vessel under construction,the model of mezzanine loan can be used in this stage. Once mezzanine loanhas been settled, dual relationships, debtor-creditor relationship and mortgagerelationship, have been set up between mezzanine borrowers and lenders. Theownership and mortgage of the vessel under construction can be negotiated inthe contract subject to compulsory provisions of law.