Background

Following the successful launch of BIMCO’s bilateral term sheet in 2017, SHIPTERM, it was agreed to develop a complementary form for syndicated loan transactions. The Documentary Committee approved this syndicated edition, named SHIPTERM S, in May 2018.

BIMCO is grateful to the following subcommittee members for their valuable contributions to the project:

• Mr Francis Sarre, Compagnie Maritime Belge (Chairperson)
• Mr Christopher Conway, Citi
• Mr Daming Qian and Tao Lan, ICBC
• Mr Gonzague Archambeaud, Louis Dreyfus Armateurs
• Mr Julien Pierret, HSBC
• Mr Klaus Vilstrup, Dampskibsselskabet NORDEN A/S
• Mr Leif H. Spørck, DNB
• Ms Liv Hege Dyrnes, AS Klaveness Chartering
• Mr Matt Hannaford, Hannaford Turner
• Mr Michael Vernell, Watson Farley & Williams
• Mr Nick Fell, BW Group
• Ms Olga Petrovic, Linklaters
• Mr Robin Bencard, shipping and structured asset financing consultant
• Mr Vasilis Papagianopoulos, Common Progress
• Mr Xavier Riffaud, INGEPAR

We would also like to extend our appreciation to those who took part in the consultation process during the drafting. About 100 representatives of banks, shipowners and law firms worldwide joined the sounding board set up to enable a broader group of stakeholders to provide comments to the draft. The sounding board returned a substantial number of comments and drafting proposals, which were all considered thoroughly by the subcommittee.

SHIPTERM S is a standardised term sheet intended for use in syndicated, secured term loan ship financing transactions. The term sheet has been prepared for use in transactions between a syndicate of banks and one or more affiliated borrowers. It can, however, also be used in bilateral transactions, for example in cases where a transaction involves a single bank which sells off part of the loan to another bank, thereby making the transaction syndicated.

To ensure familiarity and facilitate the use of BIMCO’s suite of term sheets, the style and layout of SHIPTERM S has been kept similar to SHIPTERM, where appropriate. The two forms vary in certain places where market practice for syndicated loan transactions differs from that of bilateral loan transactions. 

The term sheet has been drafted to reflect market practice. Practice may differ from one jurisdiction to another, and the basis for the subcommittee’s deliberations has predominantly been practice as applicable in the London market. The term sheet may, therefore, need to be amended or supplemented to reflect matters specific to other markets; to the jurisdictions in which the parties are situated and/or to the governing law chosen (if this is not English law).

Importantly, the parties should keep in mind that the indicative/non-binding nature of the term sheet may not be upheld in all jurisdictions. Thus, despite the term sheet being clearly indicated as indicative, it may nevertheless be considered as a legally binding document in certain jurisdictions.

The identity of the parties involved, the nature of their business and the type of vessels being financed may also dictate that the form of the term sheet would need to be amended or supplemented.

SHIPTERM S contains a large number of square brackets, which is new to a BIMCO contract. The reason for this particular style is that syndicated transactions are always tailored to the borrower and would largely depend on the borrower’s company structure. Rather than leaving the parties to adjust existing wording, the subcommittee felt that common options should be provided in the term sheet itself. 

The subcommittee’s aim has been to produce a comprehensive standard for the shipping industry, which will be useful to lenders, borrowers and lawyers. The goal has been to provide a concise and simple standard document covering the essential elements of a term loan to be provided by a syndicate of bank lenders and used to finance commercial shipping assets while avoiding some of the details included in other forms of loan term sheets. The term sheet does not cover all intra-bank provisions (such as bank sharing provisions), as these are not considered relevant for the term sheet.

Explanatory Notes

Table of contents

• Nature of the term sheet
• Preamble
• Part I
• Clause 1 (Facility)
• Clause 2 (Purpose)
• Clause 3 (Tranches)
• Clause 4 (Amount)
• Clause 5 (ECA Support)
• Clause 6 (Availability Period(s))
• Clause 7 (Drawdown)
• Clause 8 (Repayment)
• Clause 9 (Cancellation and Prepayment)
• Clause 10 (Application of Payments)
• Clause 11 (Interest)
• Clause 12 (Interest Periods)
• Clause 13 (Arrangement Fee)
• Clause 14 (Commitment Fee)
• Clause 15 (Prepayment Fee)
• Clause 16 (Facility Agency Fee) and Clause 17 (Security Agency Fee)
• Clause 18 (ECA Premium)
• Clause 19 (Finance Documents)
• Clause 20 (Security)
• Clause 21 (Insurances)
• Clause 22 (Representations and Warranties)
• Clause 23 (Covenants)
• Clause 24 (Events of Default)
• Clause 25 (Hedging)
• Clause 26 (Majority Lenders)
• Clause 27 (Amendments and waivers)
• Clause 28 (Conditions Precedent)
• Clause 29 (Miscellaneous)
• Clause 30 (Governing law and Jurisdiction)
• Annexes
• Annex A (Vessel Information)
• Annex B (Repayment Profile)
• Annex C (Information)
• Annex D (Financial Covenants)
• Copyright and Availability
• Conditions of Use

These notes are intended to provide guidance on the term sheet and an insight into the subcommittee's reasoning behind the individual provisions contained therein. The notes do not as such form part of the term sheet. Users may find it useful to read these notes in conjunction with the explanatory notes relating to SHIPTERM.

The standard follows the usual BIMCO pattern of a Part I box layout where the parties will import the variable information of the document; a Part II consisting of the standard terms and conditions; and four annexes covering vessel information; repayment profile; information; and financial covenants.

The term sheet does not include a section of defined terms as the subcommittee felt this was unnecessary. However, terms which are capitalised in the boxes in Part I are also capitalised where they are used in Part II.

Nature of the term sheet

The term sheet has been drafted on the basis that it sets out indicative terms and conditions for a term loan facility, but it does not itself create a binding legal agreement. As such, there is no provision made for the term sheet to be signed by the parties.

The terms and conditions of the proposed term loan facility, once agreed, are to be incorporated into a negotiated facility agreement and related security documents satisfactory to all the parties.

It is market practice for any term sheet to be accompanied by a commitment letter prepared by the lender in its house form and addressed to the borrower which would specify in some detail the conditions to be fulfilled before a binding commitment between the parties arises (see also the comment on the confidentiality provision in Clause 29).

Preamble

The opening paragraph of Part I sets out the indicative nature of the term sheet, an approach which the subcommittee considers reflects market practice. To avoid confusion, it has been specified that the term sheet does not constitute an offer to finance the term loan facility. It further provides that the provision of the term loan facility is subject to the lender obtaining credit committee approval and the parties agreeing mutually satisfactory documentation.

Part I

Part I contains certain essential details pertaining to the term sheet which must be entered in the boxes provided. Each box contains a short description of the intended contents and, where appropriate, a cross-reference to the relevant clause or clauses in Part II.

In box 11, the parties can enter the name of obligors in addition to borrowers and guarantors. Such obligors may be shareholders and affiliated bareboat charterers and managers.

The subcommittee considered the wording of box 9 in view of the fact that all lenders may not be known at the term sheet stage. Following consultation with the sounding board on this particular issue, and mindful that in practice the matter would be dealt with in the mandate letter, the box specifies in brackets that the parties should either state the name of the lenders or describe the basis on which they are selected.

The content of other boxes may call for further explanation, but these will, for practical reasons, be dealt with in the relevant clauses in Part II.

Clause 1 (Facility)

Clause 1 provides that the lenders will make a term loan facility available to the borrower on the terms and conditions set out in the term sheet. The final facility agreement will be based on the term sheet as may be amended by agreement between the parties.

Several liability on the part of the lenders is the predominant standard for syndicated loan transactions, and this has been reflected in the second sentence of the clause.

The subcommittee considered whether it was practical to incorporate provisions in the term sheet to cover other forms of financing such as working capital or revolving credit facilities. The subcommittee concluded that this would necessitate incorporating too many optional alternative provisions dealing with, for example, drawdowns, repayments, reductions in the size of the facility and other matters which would confuse users.

Clause 2 (Purpose)

Clause 2 clarifies that the loan may be drawn under the facility for the purpose of financing or refinancing the vessel(s) stated in Box 20. Such vessels may either be described in the box layout or in Annex A (Vessel Information).

The language used in this clause is sufficiently broad to cover most financings likely to be undertaken using a term sheet of this nature. However, as syndicated loan transactions may include other types of financing, for instance ECA supported financing, an option has been provided to state other purposes relevant to the specific loan transaction.

The term sheet does not cater for pre-delivery financing but, as the term sheet is not meant to be exclusive, parties are free to add pre-delivery financing provisions, when relevant. Such provisions may relate to whether the pre-delivery financing will be on the basis of equity in first, pro rata or loan in first.

Clause 3 (Tranches)

The purpose of this clause is to describe the tranches as they have been agreed between the parties.

If the parties wish to include a very detailed description of tranches or if the transaction is very large, it would be advisable to incorporate such details in Annex B (Repayment Profile). In such case, Clause 3 could merely refer to Annex B.

Clause 4 (Amount)

The total commitment of the loan is set out in Box 2 and is referred to as the Maximum Facility Amount. 

Clause 4 provides two options for computing the amount, which are either based on calculations in relation to each vessel under the agreement or calculations per tranche. Of these options, calculations per vessel is the most commonly used.

Clause 5 (ECA Support)

Clause 5 is set out in square brackets because the content only applies in specific circumstances. The clause has been designed for loan transactions that are supported by export credit agencies (ECAs) through a separate instrument in favour of the lenders. If the ECA is a lender itself, the clause would not apply.

While support from an ECA is not a standard feature of all syndicated loan transactions, it is a common occurrence. The clause offers a useful starting point when negotiating such terms, and the term sheet should generally be acceptable to ECAs.

It is worth noting that the clause contains a generic reference to “risks”, as opposed to the common phrase “political and commercial risks”. This is because political risks would not always be covered in ECA agreements, particularly in Asia. The extent of the ECA cover would in any event be as agreed between the borrower and the ECA, and would not be subject to negotiation in the term sheet.

Clause 6 (Availability Period(s))

The purpose of this clause is to define what availability period means for the purpose of drawing under Clause 7. It provides two options: a fixed availability period with a specified end date or a flexible period that would be from the date of the Facility Agreement to the earlier of a fixed date and delivery of the ship or ships under any relevant agreement.

As the facility is likely to include financing of a number of ships, more than one availability period may apply. For the avoidance of doubt, permissible delays under the shipbuilding contract should be considered taken into account when stating the delivery date.

Clause 7 (Drawdown)

Clause 7 sets out when and under which conditions the facility will be available for drawing.

The facility can be drawn in one or multiple tranches, as agreed.

Clause 8 (Repayment)

Clause 8 states that the loan(s) will be repaid in accordance with the repayment profile described in Annex B (Repayment Profile).

The clause also specifies the date by which the loan must be repaid in full i.e. the Maturity Date.

Clause 9 (Cancellation and Prepayment)

The clause sets out provisions relating to voluntary cancellation of the undrawn facility in subclause (a), voluntary prepayment of the loan in subclause (b), cancellation and prepayment of a single lender in subclause (c), and mandatory prepayment of the loan in subclause (d).

Subclause (a) Voluntary cancellation
The subclause sets out the borrower’s right to cancel the whole or any part of the undrawn facility and the conditions for such cancellation.

Subclause (b) Voluntary prepayment
The subclause sets out the borrower’s right to voluntarily prepay the whole or any part of the loan(s) once it has been drawn and the conditions for such prepayment.

Prepayment is not restricted to an agreed minimum amount. This is left to the parties’ discretion, who will normally add an amount, multiple or percentage when the facility agreement is being drafted.

Subclause (c) Cancellation and prepayment of a single Lender
This subclause provides an option for prepayment and/or cancellation of the participation of a single lender, but only where the particular lender has made a claim under the provisions relating to increased costs, tax gross-up or tax indemnity (Clause 29 iii.). The subclause highlights the need for the borrower(s) to address the potential for an event that could limit a lender’s ability to continue funding the loan. It can be expected that other lenders will want to be sure that full documentation contains provisions that ensure fair treatment for all lenders, with no single lender having an unfair ability to be repaid ahead of other lenders.

Subclause (d) Mandatory prepayment
The subclause lists the circumstances in which the loan must be prepaid.

It was considered market practice that a change of control event would cause the loan to become prepayable. However, what constitutes a change of control is so transaction specific that a detailed description would not be helpful, and therefore the parties should add their own wording in subparagraph iii. to describe the change of control events relevant to their transaction.

“Change of control” in relation to a single vessel owning borrower would likely extend to any change in ownership of that borrower’s equity capital but a more nuanced provision might be needed in relation to a holding company or any form of joint venture company. In a number of jurisdictions, the general law may prohibit clauses that effectively prevent shareholders selling their equity interests, especially in relation to listed companies.

Subparagraph iv. covers cancellation, suspension or termination of ECA support. It is the intention that further details should be left for negotiation between the parties when drawing up the facility agreement.

Subparagraph v. addresses termination of any long-term charter party that formed part of the financing package. It is worth noting that the lenders’ right to claim prepayment is subject to the charter party being identified in Annex A (Vessel Information). Without reference in Annex A, the requirement would not apply. An option is given in the clause for replacement of such charter party with another, provided that the new charter or other type of employment is acceptable to the lenders.

The general principle is that no fees will be payable for the cancellation and prepayment options set out in Clause 9. However, prepayment will always be subject to breakage costs and a prepayment fee may apply if specifically agreed between the parties (see Clause 15).

Clause 10 (Application of Payments)

The purpose of this clause is to ensure that the parties agree how excess proceeds of any mandatory prepayment under subclause 9(d)i. and ii. should be applied.

Clause 11 (Interest)

Clause 11 has been drafted on the assumption that the facility will be made available in US dollars and funded on the basis of the London Interbank Offered Rate (LIBOR). If the facility is to be made available in other currencies and/or funded in another market, the provisions of the clause will need to be amended or supplemented to reflect the agreed basis on which interest rates are to be determined and the practice of the relevant market. As an example, loans in USD are normally based on a 360-day year, whereas other loans may be based on a 365-day year.

The subcommittee recognised that negative interest rates have applied to certain currencies in certain markets. However, the subcommittee was not convinced that there was an agreed market approach in the loan market on how the “Base Rate” should be determined, should such a situation arise during the lifetime of the loan, and in particular whether it should ever be allowed to be fixed at a rate below zero. It was decided, therefore, that the issue should be recognised in the text of the term sheet but on the basis that the parties could add their own wording stipulating what would happen in such circumstances.

Finally, it is worth nothing that the margin referred to in this clause could be different for each tranche. The current wording refers to one margin only, so the clause should be amended if different margins are intended to apply.

Clause 12 (Interest Periods)

The purpose of this clause is to define the interest periods to apply. The period should be negotiated between the parties and then stated in Box 4.

Clause 13 (Arrangement Fee)

The arrangement fee is commonly paid to the arranging bank on signing of the facility agreement, but the clause wording has been left open, so the parties can agree alternative timing in the accompanying fee letter. 

This fee is similar to the up-front fee usually referred to in bilateral loan transactions, and it is calculated as a percentage of the maximum facility amount.

Clause 14 (Commitment Fee)

The commitment fee is charged for undrawn and uncancelled amounts and will be payable to the lenders during the availability period. Normally, such fee is paid quarterly in arrears and this has been reflected in the term sheet. The fee is calculated as a percentage per annum of any undrawn and uncancelled amounts under the loan facility.

Clause 15 (Prepayment Fee)

Clause 15 is set out in square brackets because the content only applies in specific circumstances. 

Prepayment fees are subject to negotiation and the borrower’s bargaining power and they would not apply in all instances. The approach in the term sheet has therefore been that prepayment fees would apply only if specifically agreed.

In cases where the parties agree that clause 15 should apply, they will have to decide in which specific circumstances a prepayment fee will be payable. The subcommittee considered that a prepayment fee in the event of cancellation, suspension or termination of ECA support and termination of a long-term charterparty might be fair where the borrowers terminate the contract, but not if this was done by the ECA or charterers. Accordingly, references to subclause 9(d)iv. and v. have been included in square brackets to highlight that these are merely options and that users of the term sheet might not consider that they should be included. 

Clause 16 (Facility Agency Fee) and Clause 17 (Security Agency Fee)

Agents are often used in syndicated loan transactions to represent the group of lenders. The purpose and function of such agents may vary, but the most commonly used are facility agents and security agents. Fees for these agents should be set out in Clause 16 and 17, respectively, and the time for payment should either be specified in the term sheet or set out in the accompanying fee letter.

Clause 18 (ECA Premium)

Clause 18 is set out in square brackets because the content only applies in specific circumstances, namely when the transaction involves ECA support as set out in Clause 5 (ECA Support).

The ECA premium is normally calculated as a percentage of the total ECA commitment or the relevant ECA tranche.

Clause 19 (Finance Documents)

The clause deals with the relevant finance documents, including but not limited to the facility agreement, security documents and fee letters. These documents should be satisfactory to all parties.

Provision has been made for the parties to include reference to a previous facility agreement, should they want to base the new agreement on the terms of a former loan, or to make specific reference to a recognised set of standard terms.

The clause also provides for inclusion of customary requirements relating to ECA support.

Clause 20 (Security)

Clause 20 lists a number of elements which will form part of the security package and while it contains the usual ship mortgage and associated assignments and is reasonably standard for vessel financing, the list will need to be carefully considered in each case to ensure it meets the requirements of the specific transaction. The list provided is not meant to be exhaustive.

Subparagraph iii. sets out that there should be a security interest over an earnings account relating to the financed vessels. While this provision is considered standard in syndicated transactions, it is also common that other types of accounts are included as security, for instance various types of reserve and retention accounts. However, the need for such accounts would depend on the type of transaction and would, eventually, be a negotiation point between the parties, so wording to this effect has not been included in the standard term sheet.

It is worth noting that assignments of charterparties apply under the conditions set out in subparagraph iv. This is relevant when any bareboat or long-term charter party has been agreed, or any charter party has been entered into which has been crucial for obtaining financing. The parties are free to define what a long-term charter party is, ie exceeding the number of months agreed and set out in Box 26, and it is a requirement that any charter parties of vital importance to the transaction are described in Annex A (Vessel Information).

Unless something else has been agreed, security will be cross-collateralised.

Clause 21 (Insurances)

The subcommittee recognised that insurance provisions in shipping loan agreements are extensive and lenders often have their own specific requirements. The subcommittee’s approach has been to outline only the required insurance arrangements and it is suggested that if more detailed provisions are required at the term sheet stage these should be added to the term sheet or included in an additional annex.

It was accepted that there was no standard requirement for loss of hire insurance and accordingly it will only be required if specifically agreed.

It is important to note that the information set out in Box 27 (Major Casualty Amount) must be completed for the clause to be effective.

Clause 22 (Representations and Warranties)

The clause does not set out a list of required representations and warranties but instead states that the obligors shall make representations and warranties customary for transactions of this nature. These representations and warranties may be subject to qualifications agreed between the parties when negotiating the facility agreement.

This approach was felt to be common in debt markets where the nature of the representations is reasonably standard and where the relevant provisions are not generally the subject of substantive negotiation when documenting the loan. In particular, it was felt that there were no representations or warranties specific to shipping transactions which needed to be highlighted.

Clause 23 (Covenants)

The clause mirrors the approach of Clause 22 in as much as it contains a general requirement that covenants will include those customary for transactions of this nature. However, it was acknowledged that the term sheet should only set out those covenants which are market standard in a shipping finance loan agreement to provide a framework for the parties.

It was agreed that the term sheet should reflect common market practice and restrict the list of covenants to a description of the subject matter of each covenant. It was felt that incorporating fully negotiated and agreed provisions would be counter-productive and was better dealt with in negotiation of the facility agreement. In order to allow for this, the introduction to the clause states that the covenants will be “subject to such qualifications and exceptions as may be agreed”.

The subcommittee is aware of the fact that many financial institutions have strict requirements as to the form and content of certain covenants on matters such as sanctions, bribery and anti-money laundering and it is expected that lenders affected by such requirements may insist that these particular requirements be set out in full in an additional annex to the term sheet.

Subclause (a) Vessel covenants
The subclause sets out the covenants which are specific to the shipping sector. The list contains those which are commonly included in term sheets, but it is recognised that other covenants might be appropriate to reflect the nature of the vessel(s) being financed and their particular employment, for example where they form part of a pool.

Subclause (b) General covenants
The subclause sets out those covenants applicable more generally to the business conduct of the borrower and other obligors. It is recognised that the detailed drafting of these provisions will need to make distinctions between the extent of the covenants given by, for example, a holding company guarantor and a special purpose borrowing company, but it was felt impractical to cover all possible variations in a standard term sheet. The particulars were left for detailed consideration during the facility agreement negotiation process.

The subcommittee was reluctant to include a list of covenants typically required from a special purpose borrowing company when there might be no such entity involved in the transaction. At the same time, there was a wish to recognise that if such an entity was the borrower, customary covenants would be needed limiting its business to ownership and operation of a single vessel and restricting its ability to incur further indebtedness or pay dividends.

Subclause (c) Information covenants
The parties should specify in Annex C the detailed requirements in respect of annual and interim financial statements to be provided to the lender, recognising that this is often a matter for discussion between the parties and driven by the financial statements a particular borrower and/or guarantor produces, when they are produced and whether these are consolidated and/or audited or not.

Subclause (d) Financial covenants
The subclause covers all financial performance covenants.

It includes, in paragraph i., a security maintenance covenant as this is considered an almost universal requirement for syndicated loan transactions in the shipping sector. The covenant applies at all times, as opposed to BIMCO’s bilateral term sheet, SHIPTERM, where the security maintenance covenant would apply only if specifically negotiated.

The methodology of valuation of fair market values, the frequency of obtaining valuations and a number of other issues are often heavily debated in negotiating shipping facility agreements, but the subcommittee felt that the term sheet should simply outline the requirements and allow the parties to enter into more detailed discussion of the details at the facility agreement stage of the transaction.  While the methodology used in the term sheet is considered to be the most common method, other valuation methods can also be used. For example for more specialised vessels where broker values cannot be obtained, it is not uncommon for tailor-made clauses to be agreed.

Relating to the frequency of obtaining valuations, it was recognised that 6 months might be considered excessive in some trades, but nevertheless found that this period reflected common practice. While the clause presupposes an average of two desk top valuations, the subcommittee recognised that it is not uncommon to have a third valuation. Valuations more than 10% apart will often require a third evaluation. Valuations by means of automated valuation models (AVMs) are gaining acceptance and, although it was not felt appropriate for the term sheet to refer to AVMs, parties might wish to allow for this by changing the wording of the term sheet accordingly.

The subcommittee wished to recognise that other financial covenants are now very common in shipping loans, but these are specifically tailored to individual parties and groups. On that basis, it was better that transaction specific financial covenants were included in an annex to the term sheet. Paragraph ii. provides that such covenants should be set out in Annex D.

Clause 24 (Events of Default)

This clause adopts the same approach as Clause 23 in stipulating that events of default customary for transactions of this nature will apply, while including a checklist of common events to guide the parties during negotiations. Recognising that events of default are often heavily negotiated, the clause also provides that the events of default listed will in any event be subject to qualifications and remedy periods as may be agreed between the parties when negotiating the facility agreement. 

Clause 25 (Hedging)

Clause 25 is set out in square brackets because the content only applies in specific circumstances.

While hedging is not a standard requirement, it is contemplated in many syndicated transactions. For this reason, a hedging provision has been included to assist those parties that wish to include hedging as part of their loan transaction. A number of options have been set out in the clause, so the intention is to provide the parties with a check-list of items to consider.

Clause 26 (Majority Lenders)

The term sheet does not intend to qualify lender consent as this is a major negotiation point and something that is best left for the facility agreement and the bank-to-bank provisions. 

“Majority Lenders” is, however, commonly referred to as two thirds of the lenders’ total commitments and this number has therefore been included as the starting point for negotiations.

Clause 27 (Amendments and waivers)

Clause 27 serves as a reminder that amendments and waivers generally require consent of the Majority Lenders. The provision is to be read in conjunction with Clause 26 (Majority Lenders) and its purpose is simply to flag the issue for consideration. Detailed wording would be set out in the facility agreement.

Clause 28 (Conditions Precedent)

The subcommittee wished to include a list of standard conditions precedent to assist borrowers in preparing themselves for the documentation process. However, it was accepted that the details of any such list would be heavily influenced by factors specific to the nature of the assets being financed, the jurisdictions relevant to the transaction and a range of other matters.

The list is intended to cover the types of conditions precedent considered common in almost all circumstances but is unlikely to be exhaustive. 

Clause 29 (Miscellaneous)

The clause contains a range of unrelated but nevertheless significant conditions to be included in the facility agreement.

Paragraph i. sets out the circumstances in which a lender may sell or transfer its interest in the loan in the future. In this provision the subcommittee wished to maintain a balance between the interests of borrower and lender but recognises that many financial institutions may insist on greater freedom to dispose of its loan assets, particularly in syndicated transactions where more lenders are involved. Therefore, three options have been provided: the transfer being strictly conditional upon the borrower’s consent to such sale or transfer; the transfer requiring prior consultation between the lender and the borrower; or, the transfer simply requiring notice from the lender to the borrower.

It is standard practice that the borrower is responsible for the reasonable costs and expenses incurred in the negotiation, preparation, execution and perfection of the facility agreement. This is reflected in paragraph ii. and, for the avoidance of doubt, it has been clarified that “costs and expenses” would also cover legal expenses.

Paragraph iii. contains a general statement that the facility agreement will contain provisions customary for ship financing transactions and lists certain examples of areas that will be covered by the facility agreement.

Paragraph iv. states that the facility agreement will contain customary provisions relating to confidentiality in respect of the term sheet and its contents. It was felt appropriate to include such a statement to remind the parties that the question of confidentiality is important and should be addressed within the transaction documentation.

Paragraph v. is an add-on to the general statement in paragraph iii. and its purpose is to flag that customary agency provisions will be incorporated in the facility agreement.

Clause 30 (Governing law and Jurisdiction)

The clause states that the facility agreement and all other finance documents will be subject to the governing law and jurisdiction stated in Boxes 28 and 29. The governing law is the law the parties have agreed will apply to the facility agreement and all other finance documents. The jurisdiction will determine which country’s courts the parties have agreed should hear disputes that may arise in relation to the facility agreement and all other finance documents. 

The clause recognises, however, that ship mortgages will always be governed by the laws of the vessel registries/flag states stated in Box 21 or Annex A (Vessel Information) and that in shipping transactions, security over, for example, insurances and charterparties may need to be governed by the law of the market where the insurances are placed or the governing law of the charterparty. It may not be possible to identify definitively the appropriate governing laws for all security documents at the term sheet stage of a transaction.

The term sheet allows the parties to opt for a governing law mutually agreed between them, which should apply to the facility agreement and other finance documents. Parties using the term sheet are reminded that they should always investigate the implications of their choice to ensure that any term sheet they agree does not contravene any laws of the relevant jurisdiction.

The choice of governing law and jurisdiction does not apply to the term sheet itself. This is in recognition of the indicative nature of the term sheet and to avoid that a reference to a governing law and jurisdiction as applying to the term sheet affords the term sheet enforceability. 

It cannot, however, be ruled out that the term sheet will be considered as a binding document in certain jurisdictions. Thus, the parties should be aware that the term sheet may be considered subject to the governing law and jurisdiction stated therein, even if this provision is only intended to apply to the facility agreement and other finance documents.

Use of the BIMCO Standard Dispute Resolution Clause was discussed by the subcommittee, but since arbitration is not considered to be market practice for disputes concerning term sheets, it was not found appropriate to include a reference to the clause.

Annexes

Four annexes are attached to the term sheet: Annex A (Vessel Information), Annex B (Repayment Profile), Annex C (Information), and Annex D (Financial Covenants). The parties may add additional annexes as they deem necessary.

Annex A (Vessel Information)

Annex A enables the parties to provide further details on the Vessel(s) covered by the term sheet in addition to the information included in Boxes 20 to 25. 

The annex further serves as an important tool to identify long-term charter parties relevant to the loan transaction (see Clause 20.iv.).

Annex B (Repayment Profile)

Annex B enables the parties to describe the repayment profile used to repay the loan, further to Clause 8 (Repayment). The parties may describe the repayment profile in Clause 8, but the level of detail required will normally make it more appropriate to include such information in a separate annex.

Annex C (Information)

Annex C serves two purposes: it provides a template for including a list of pre-agreed valuers for the purpose of vessel value calculations, and it is used to specify other important information relating to the information covenants set out in Clause 23(c).

Annex D (Financial Covenants)

Annex D enables the parties to include specifications relating to the financial covenants set out in Clause 23(d). 

Copyright and Availability

Copyright in SHIPTERM S is held by BIMCO who are also the publishers.

To use SHIPTERM S we recommend BIMCO’s charter party editing system, SmartCon, which provides access to a secure version of the term sheet that can be filled in and edited in Microsoft Word and then exchanged by email. For details of how to sign up to use SmartCon please visit www.bimco.org or contact smartcon@bimco.org for assistance. 

Conditions of Use

BIMCO is the author of and has copyright in SHIPTERM S and has sole worldwide distribution rights. Use of SHIPTERM S is free of charge but is subject to acceptance of and compliance with the following conditions:

You are permitted to use Microsoft Word™ copies of SHIPTERM S for your own business to business purposes but may not otherwise distribute copies by sale, donation or lending. A Microsoft Word™ copy of SHIPTERM S may be obtained by contacting contracts@bimco.org.

The master copy of the SHIPTERM S form you use must be obtained from and authenticated by BIMCO.

You may delete and/or amend the original wording of SHIPTERM S and/or add new wording provided that such changes are clearly marked to distinguish them from the original printed text. 

You are not permitted to produce any new term sheet derived from SHIPTERM S.

You may add your own corporate branding to SHIPTERM S but you may not remove or amend the BIMCO logo.

We reserve the right, at our sole discretion, to modify or replace these Conditions of Use at any time. We will try to provide at least 30 days' notice prior to any new or modified Conditions of Use taking effect. Notice will be posted on BIMCO’s website at www.bimco.org. 

By using SHIPTERM S you agree to be bound by these Conditions of Use. If you disagree with any part of the Conditions of Use you may not use SHIPTERM S.