Second-Hand Ship Purchase Financing: From MOA to Closing

Q: How large is the deposit and to whom is it paid?

Usually around 10% of the purchase price. It is lodged in an independent escrow account chosen by both parties and set off at closing.

Second-hand ships are the largest segment of world ship trade — hundreds of vessels change hands every year. Unlike newbuilds, acquisition is fast, yet vessel age and condition directly shape the financing decision. This guide covers the MOA, survey, valuation, collateral structure, and closing process.

What this guide covers

The scale of the second-hand market and why it trades most
The MOA / Norwegian Saleform (NSF) and its key clauses
Pre-purchase survey and DWT-based valuation
Class status, flag transfer, registry, and mortgage registration
Typical financing structure, collateral, and LTV
Risks specific to second-hand and the closing timeline

Note: This page is educational. We do not quote specific LTV, rates, or fees; every vessel, age, owner, and segment differs.

Why second-hand trades the most

Most of the world fleet is already at sea. Newbuild capacity is limited and delivery takes years. A second-hand vessel can be taken over within weeks.

Speed: Owners take a position the moment an opportunity appears
Capital efficiency: A depreciated vessel carries a lower unit cost
Liquidity: A deep buyer and seller pool with transparent pricing
Flexibility: Segment and tonnage can be switched quickly

Each year a very large number of ships sell on the second-hand market, and volume far exceeds newbuild deliveries. That depth gives financiers a predictable collateral value.

The purchase process: MOA / Saleform

The sale contract is the MOA (Memorandum of Agreement). The industry standard is the Norwegian Saleform (NSF) — the current version is Saleform 2012.

Core MOA clauses

| Clause | Content | |---|---| | Definitions | Vessel, parties, and price definitions | | Deposit | Often around 10%, held in escrow | | Inspection | The buyer's right to inspect | | Time and place of delivery | Delivery location and window | | Drydocking / divers' inspection | Underwater hull inspection | | Encumbrances | Delivery free of mortgages and liens | | Documentation | Class, flag, and registry certificates | | Default | Consequences of party default |

Deposit and escrow

On signing the MOA, the buyer typically lodges a deposit of around 10% of the purchase price. This sum sits in an independent escrow account and is set off against the price at closing.

Pre-purchase survey and DWT-based valuation

The pre-purchase survey is the foundation of the financing decision. A bank will not set a loan structure without knowing the vessel's true condition and value.

Survey scope

Hull structure, plate thickness, and corrosion
Engine room, main engine, and generators
Class records and outstanding recommendations
Drydocking and last special survey dates

DWT-based valuation

Ships are usually valued on DWT (deadweight tonnage), expressed as dollars per DWT. An independent surveyor or broker performs the valuation and weighs:

Vessel type, age, and tonnage
Class and flag status
Current sale and purchase market levels
Charter income potential

This value sets the loan ceiling and the LTV ratio. See the DWT definition and the MOA definition in the glossary.

Class, flag, registry, and mortgage registration

Closing is a set of legal steps that happen simultaneously.

Class status

The vessel should hold clean class with a recognised society (an IACS member: Lloyd's, DNV, ABS, BV, and so on). Outstanding recommendations complicate financing.

Flag transfer and registry

The old flag is deleted (deletion certificate)
The vessel is registered under the new flag and registry
A financier-accepted flag is preferred (Marshall Islands, Liberia, Malta)

Mortgage registration

At the moment of closing, the ship mortgage is registered on the new registry. The mortgage is the financier's first-ranking security under the flag's law.

Typical financing structure and collateral

Second-hand ship financing follows the classic ship-finance structure.

Collateral package

| Collateral | Description | |---|---| | Ship mortgage | First-ranking mortgage over the vessel | | Charter assignment | Assignment of charter earnings to the bank | | Insurance assignment | Assignment of H&M and P&I policies | | Earnings account pledge | Pledge over the earnings account | | Shares pledge | Pledge over the owning SPV's shares |

LTV and equity

For second-hand vessels, LTV typically runs 50-65%. It is lower than for newbuilds because the remaining economic life is shorter and value erodes faster. The balance is owner equity.

Risks specific to second-hand

Age: Advanced age lowers remaining economic life and LTV
Condition: Corrosion, engine fatigue, and deferred maintenance
Remaining class cycle: An approaching special survey drives heavy CAPEX
Residual value: The vessel's value at loan maturity is uncertain
LTV impact: All of these factors press directly on the offered ratio

For an older vessel, the loan tenor is usually shortened to match remaining life. The structure ensures vessel age plus loan term stays under a defined threshold.

Closing timeline and what drives it

Second-hand acquisition is fast compared with newbuilds.

| Stage | Typical duration | |---|---| | MOA negotiation and signing | 1-2 weeks | | Survey and valuation | 1-3 weeks | | Financing approval | 3-6 weeks | | Closing (delivery and mortgage) | 1 day (simultaneous) |

Timeline drivers include survey findings, flag transfer speed, financing due diligence, and party readiness. The full process typically takes 4-8 weeks.

Frequently asked questions

Why is LTV lower on a second-hand ship?

Remaining economic life is short and value erodes fast. To offset residual-value risk, banks keep LTV in the typical 50-65% range.

How large is the deposit and to whom is it paid?

Usually around 10% of the purchase price. It is lodged in an independent escrow account chosen by both parties and set off at closing.

Can a very old vessel be financed?

It can, but the tenor shortens, LTV drops, and the survey is stricter. An approaching special survey CAPEX must be built into the loan structure.

Does flag choice affect financing?

Yes. Financiers prefer flags with familiar mortgage registration and enforcement regimes (Marshall Islands, Liberia, Malta). An unfamiliar flag lengthens the process.

How long does closing take?

Typically 4-8 weeks end to end. Survey findings, flag transfer, and financing due diligence set the pace.