Re-negotiating existing financing packages due to COVID-19

The COVID-19 pandemic has created a global crisis with far-reaching consequences, particularly for the shipping industry, an industry which was already facing challenges before the virus took hold around the world. This challenging global scenario is inducing some shipowners to consider re-negotiating their financing package in order to obtain more favourable terms which would help them survive the challenges the shipping sector will inevitably face in the next few months.

One of the factors which is considered during the re-negotiation of an existing financing package is whether any amendments to the underlying finance documents would necessitate amendments to the security package securing such financing. Maltese law on ship mortgages is very clear on this. While a mortgage over a Maltese registered ship may be amended for any reason, an amendment to a Maltese mortgage will be required only in two particular instances:

(a) to increase the amount of capital being secured by the mortgage; and
(b) to extend such mortgage to secure any other obligation of the mortgagor, whether as a principal debtor or as surety for any other person, in favour of the mortgagee, except where the new obligation qualifies as a future obligation of the mortgagor to the mortgagee secured by the mortgage being within a maximum sum of principal stated in the relative mortgage instrument.

An agreement to amend and vary the rates of interest payable, the modalities for the calculation of interest including any indices, margin, or market mechanism, the repayment schedule, or the currency in which payment is to be made will not require an amendment to any registered Maltese mortgages.

Therefore, unless the parties agree to an increase in the amount of the obligations being secured by a Maltese mortgage, it will not be necessary to amend any registered Maltese mortgage.