Structured Collateral Facility for Trade Finance
Structured Finance is “a form of financing where investors look solely or primarily to the cash flows of a specific commodities transaction to repay debt service and to all of the underlying trade assets (physical & contractual) as collateral for the investment” unless otherwise guaranteed. This results in a short-term, self-liquidating structure, secured through borrowed collateral along with liens on trade receivable or export letter of credit, and by the underlying commodity and related off-take contracts.
Facility
Facility Amount: 10,000,000<br /> Lender Collateral Instrument: 10,000,000 CD rated AA Blocked for term.<br /> Term: one year.<br /> Lending Rate Interest: 6% p.a. or as negotiated.<br /> Delivery: DTC/Euroclear<br /> Security: Bank Undertaking to return unencumbered.<br /> Indemnity Insurance Policy: supporting repo undertaking. Schedule AppointmentFacility Use:
a) Documentary Letter of Credit (DLC) To secure the Commodity Supplier invoice on behalf of the counterparty Buyer for the release and delivery of legal goods in legal jurisdictions including trade advances or receivable discounting (IDF).<br /> b) To secure the Commodity Exporter with transaction specific working capital to get the commodity delivered to the end buyer against an operative DLC. Schedule AppointmentRestriction:
Limited to the designated transactions. Restricted from issuing instruments to guarantee other lines of credit. Schedule AppointmentType of collateral borrowed:
An investment grade financial instrument(s) such as bonds, treasuries, CD, MTN’s which can be negotiated usually through a letter of hypothecation and/or delivered into custody electronically bank to bank in an amount equal to 130% of facility requirement and for a term of one-year. It might also be the purchase of a CD in the Transaction Bank or Private Wealth Management internal facility block. Also collateral can be in the form of (a) demand guarantee (the Bank Guarantee/Standby Letter of Credit) from an investment grade bank.
Collateral Use:
The beneficiary may utilize the collateral for their own purposes which may include; security for loans, credit lines or for trading purposes. At the end of the term, the Beneficiary agrees to extinguish any encumbrance against the Guarantee and allow it to lapse (or return it) prior to expiry and indemnify the Provider against any loss incurred by default of loans secured upon it.
Collateral Lending Agreement:
A document agreed between two parties that sets out standard terms that apply between the collateral lender and borrower.
Collateral Agent:
Works for the collateral lender to manage risk on the lenders behalf. The agent may offer some additional risk protections by providing the lender with a type of insurance (often called an indemnity). (Collateral Lending Agreement).
Collateral Management:
Collateral management services consist of receiving physical commodities into storage (custody) and retaining control over the said commodities until such time as Collateral Manager is instructed by the parties to release them in accordance with the terms of the Collateral Management Agreement.
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