Some loans made to shipping companies include a condition requiring the borrower require regular dry-dock maintenance of the ships collateralizing the loan, and furthermore require this maintenance be carried out by a third-party hired by the borrower.

A) Why do lenders include this requirement in the loan contract? Wouldnt borrowers want to keep their ships well-maintained anyway? i) Explain the circumstances, if any, under which borrowers might prefer to neglect maintenance if they were free to do so. ii) Does the requirement to do the maintenance affect the interest rate charged for the loan? Explain.

B)Why are loan contracts written to require the maintenance to be done by a third party? Does structuring the loan in this way affect the interest rate charged for the loan? Explain.