New Build & Shipyard Financing: Tranched Structures and Timing

Financing a yacht or vessel built from scratch at a shipyard is one of the most complex structures in maritime finance. The process takes months — sometimes years — payment is tied to the yard's build schedule, and risk is distributed across parties. This guide walks through the mechanics, decision points and flow of new-build financing.

What this guide covers

What separates new-build financing from purchasing an existing vessel
Shipyard payment milestones (tranches) and how financing matches them
The handover between construction-period and post-delivery structures
Refund guarantees, class surveys and insurance architecture
Owner / entity-side preparation

Note: This page is educational. We don't share specific amounts, tenors or interest rates — those figures depend on the project, the yard and the funding partner's credit policy. For figures specific to your case, please contact us.

Why a separate pillar?

New-build financing is structurally a different discipline from buying an existing vessel:

The collateral (the vessel) doesn't yet physically exist
Money is not paid upfront; it flows in parallel with the yard's progress
Risk is spread across three sides: owner, yard, financing partner
Insurance is different during construction (builder's risk) — normal H&M takes over post-delivery
The repayment period typically starts post-delivery; the construction period acts as a grace period

These differences require careful coordination at every stage. If a payment milestone slips by a month against the yard's delivery schedule, the financing partner may revise the credit structure.

Matching shipyard payment tranches to financing

A standard new-build contract ties payments to yard "milestones". Typical tranches:

| Tranche | Trigger (example) | |---|---| | 1st | Contract signing | | 2nd | Steel cutting start | | 3rd | Hull completion | | 4th | Machinery installation | | 5th | Sea trials | | 6th | Delivery |

Each tranche pairs with a financing drawdown. Every yard milestone is verified by an independent inspector (class representative or owner's representative); without verification the financing side won't release funds.

The critical advantage of this structure: risk is spread across tranches. If the yard hits a problem at one stage, the next tranche's cash flow can be paused; you don't lose millions overnight.

Construction-period vs. post-delivery: two financing layers

New-build financing is effectively two-layered:

Layer A — Construction-period financing

Financing of the milestone tranches the owner pays while the yard works. Characteristics:

No principal repayment (interest accrues; can be capitalized)
Collateral: assignment of the build contract, refund guarantee, (where applicable) other owner assets
Insurance: builder's risk (yard's responsibility or shared)

Layer B — Post-delivery financing

Long-term repayment structure that activates once the vessel is delivered. Characteristics:

Standard loan shape — regular repayment begins
Collateral: vessel mortgage (now physical), H&M insurance
Tenor: from a few years upward

In practice both layers are set up by the same financing partner so the Layer A → B transition is automatic on delivery. Separate providers would mean a "refinance" — additional negotiation, delay, and cost.

Yard refund guarantee

An instrument that ensures the owner's milestone tranches are recoverable if the yard fails to deliver. Typically issued by the yard's own bank.

The financing side requires this guarantee — the money paid is not unsecured. Yard-bankruptcy risk is covered by the refund guarantee.

Refund guarantee structures vary yard by yard:

What scenarios are covered (delay, default, bankruptcy)
Repayment window (within how many days)
Repayment currency
Limits (does it cover all payments, or scaled)

Financing advisors review these clauses in detail during contract negotiation.

Class / classification surveys

In new build, the vessel is built under the supervision of a classification society (Lloyd's Register, DNV, Bureau Veritas, RINA, ABS). The class certificate is non-negotiable for the financing side — insurability and operational suitability depend on it.

During construction, the class surveyor visits regularly and verifies milestones. Financing drawdowns are usually tied to these verifications.

Owner / entity-side preparation

Documents expected in financing negotiation for a new-build project:

Owner / entity financials: last 3 years of audited statements, existing debt structure, banking relationships, sector experience
Yard contract: at least a draft, payment plan, technical specification, delivery date
Refund guarantee: draft of the guarantee the yard will provide
Classification society letter: which class will supervise, planned certificates
Owner's representative appointment: owner's on-site representative during construction (surveyor, experienced captain or engineer)
Insurance plan: builder's risk structure proposed by yard / owner, indicative post-delivery H&M policy
Operating plan: what happens post-delivery (private use, charter, commercial operation)

How yard selection affects financing

Some yards are "easier" for the financing side:

Track record of delivering past projects on time
Established relationship with a classification society
Strong refund guarantee from a credible bank
Complete technical documentation capacity
Name recognised by international funding partners

Yard selection is not only a technical / price / delivery-date decision; it directly affects financing terms. That's why bringing financing advisory into the yard-selection stage is valuable.

End-to-end flow

Owner + yard preliminary agreement → technical spec draft
Financing advisor enters → suitability assessment
Pre-negotiation with funding partner(s)
Yard contract finalised → payment plan locked
Refund guarantee + classification society contract signed in parallel
Master financing agreement signed (Layer A + B as one package)
First milestone tranche drawdown → yard starts work
Through construction: milestone-based drawdowns + class surveys
Sea trials + delivery
Layer A → B handover: mortgage registered, H&M activated, repayment begins
Repayment-period management (insurance, class, reporting)

Frequently asked questions

Why a separate financing structure for new build?

Because payment structure, risk distribution and insurance are completely different. With an existing vessel, the collateral is in place and you pay upfront. In new build, the collateral doesn't yet exist, and money flows alongside yard progress.

Do I have to use a yard I've chosen?

Generally yes — you choose the yard. But if a financing advisor is involved early, they can offer perspective on which yards the financing side finds workable. That's valuable for avoiding surprises later.

If the refund guarantee comes from the yard, is there still risk for me?

The refund guarantee comes from the yard's bank, not from the yard's word. Even if the yard goes bankrupt, the guaranteeing bank is liable for repayment. Still, the text of the guarantee should be reviewed carefully — what's in scope vs. out of scope is critical.

If construction takes 24 months, am I paying interest the entire time?

Depends on structure. Two main models in practice: (a) interest accrues during construction but is not paid in cash — capitalized and added to principal post-delivery; (b) interest is paid during construction and principal starts post-delivery. Which model fits depends on the owner's cash flow.

What if the yard delays delivery?

The contract should contain delay clauses — daily / weekly penalties, the right to terminate the contract beyond a certain delay, etc. The financing side reviews these clauses; if the delay extends, the credit structure may be revised.