Amendment Mortgages Increase in Response to Market Realities 

Author: Peter Grima


Over the last two years the shipping industry has been experiencing a roller-coaster across its supply chain, effecting shipbuilding through to general operations and logistics. The natural consequence of the Covid-19 pandemic, Covid-19 restriction measures and the more recent Russian-Ukrainian conflict, which placed an even greater strain on shipping, has led the shipping industry through periods of collapse and record highs across various maritime sectors.

Container shortages, rising shipping costs, congestion at ports, port closures, personnel shortages and fluctuations in supply and demand of various goods, minerals and resources, are just some of the features that have characterised the shipping industry during the doldrums and recovery period of the pandemic, as well as throughout the ongoing conflict in Ukraine. The combination of policy measures and market forces has impacted the maritime industry to varying degrees, ranging from a complete standstill for the cruiseliner industry, to the emergence of a super-cycle in containership and bulk carrier markets, as well as record growth in the yachting sector (arguably surpassing the super-cycle years of 2008 and 2009).

For the industry sectors most affected by disruptions to their shipping activities, refinancing arrangements have been necessary for ship owners to free up capital and increase liquidity in response to market stagnation. During these periods, vessels registered under the Malta flag have witnessed an increase in refinancing activity that necessitated amendment mortgage registrations, as security for the additional obligations undertaken between shipowners and financiers. Under Maltese law, there are two principal instances in which an amendment mortgage is permitted, namely, where there is:

  • an increase in the amount of capital to be secured by a registered mortgage; or
  • an extension of a registered mortgage to secure any other obligation of the mortgagor, whether as principal debtor or as surety for any other person, in favour of the mortgagee.

In either of these instances, an amendment mortgage is a necessity and not an option, for the mortgage to extend to secure the additional amounts or obligations, as the case may be. The amendment mortgage, once registered, forms an integral part of the original mortgage which it amends, and such mortgage shall continue to have the same priority as it had before the amendment was registered.

The rise in financings has also become an increasing feature of the booming container and bulk trading markets which has in contrast to other maritime sectors, found stakeholders with an influx of liquidity and capable of (i) paying off their loans and discharging existing security over their vessels, and (ii) requesting further financing from their ship finance sources for new build vessels to meet increased capacity requirements. In such instances fresh financings require the corresponding obligation of fresh security, since Maltese law stipulates that an amendment to a registered mortgage may not be effected after the obligation secured by the registered mortgage has been satisfied.

This new market reality is a result of the increasing demand for goods and reduced supply that have characterised global markets since the second and third quarter of 2021. This scenario, coupled with the increased liquidity in containership and bulk carrier markets, has led to an increased willingness of financiers to put up capital and a simultaneous desire of shipowners to take on additional loans and purchase vessels as they seek to redress supply shortfalls.

The expectation is that the exigencies of international shipping activities will continue to grow in the short to medium term and with it a continued impetus of ship finance and re-finance transactions. A key focus of the industry during this period will be to ensure that the cycle does not follow the boom-and-bust trend witnessed post 2009. The global maritime industry will be conscious of this risk and ship owners and financiers alike will be eager to ensure measured and continuous investment, with the aim of avoiding (i) exacerbating shipping costs to the detriment of international trade and the global economy and (ii) excessive investment in shipbuilding that could lead to another capacity glut.



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