Barclays broke new ground recently by arranging a multi-geography, cross-currency syndicated receivables purchase programme for a world-leading metals company.


Arranging a US$300mn receivables purchase syndication for a world-leading company brings its challenges – not least when the facility involves working across multiple geographies, time zones and currencies – and with a syndicate of banks from different continents.

However, none of these issues proved an obstacle to Barclays when it acted as sole lead arranger for a US$200mn receivables purchase facility at the end of 2014 for US-headquarted company, Novelis Inc., a world leader in rolled aluminium products for the beverage cans, automobiles, architecture and consumer electronics sectors, and then followed this up with a €90mn European deal for Novelis Deutschland GmbH in Germany earlier this year.

The syndicated receivables purchase programme arrangement was unique for its scope as being multi-seller, multi-obligor, multi-bank, multi-jurisdictional and multi-currency.

“We were mandated by the company in mid-November 2014, and the requirement was for the facility to be closed and funded by mid-December. This meant we had to act very quickly to perform our due diligence, arrange the syndicate, document the facility, perfect security interests and establish the operational model,” explains Baihas Baghdadi, head of trade and working capital international at Barclays.

“Both tranches of this deal were executed in particularly fast time to market – and this was not easy given that banks from different continents participated in the syndication.”

Prior to arranging the receivables purchase facility, Barclays enjoyed a long-term relationship with Novelis’ Indian parent, the Aditya Birla Group, one of the largest Indian multinational conglomerates.

Barclays was also a relationship bank to Novelis and a lender under the company’s existing asset-backed lending (ABL) facility. However, the company wanted to achieve more.

“Novelis wanted to optimise the monetisation of a portion of its trade receivables by using the receivables purchase facility, which funds at 100% of invoice face value, and provides the company with an additional source of liquidity,” explains Baghdadi, pointing out that in some instances the new receivables purchase facility is more cost-effective than the asset-backed facility and increases the collateral value when historical trading performance is strong.

He continues: “Another important reason why Novelis went down this route was to achieve a true sale of receivables so that the receivables could be taken off-balance sheet. Novelis was also looking for a form of non-recourse financing.”

This was also the case with the second €90mn tranche of the deal, which was arranged for Novelis in Germany in the first quarter of 2015, and involved the sale of receivables of a Swiss account debtor.

“The arrangement of this facility also serves for strategic purposes. By ensuring strong cashflows the company can service debt, and use cash for other general working capital purposes as required,” says Baghdadi. “It has enabled the company to satisfy its liquidity needs and to do this off-balance sheet.”

While the bank syndicate brought together for the deal involved a mix of Novelis relationship and non-relationship banks, crucially all the participants had connections with Barclays.

There was significant interest from Indian banks, many of which were attracted to the deal by the opportunity to develop closer ties with – and promote their visibility to – Novelis’ large Indian parent company. ICICI Bank participated in both the first and second tranches of the syndicated deal, alongside Royal Bank of Scotland and Regions, a US regional bank. The State Bank of India joined the syndicate for the second €90mn tranche.

“In many respects the deal was not operationally natural for the banks given the multiple currencies and legal jurisdictions, as well as the added complexity of funding a high-volume, high-frequency programme, which is exacerbated by the multiple time zones of banks and the selling entities of the company,” says Baghdadi.

“It was important for us to work closely with the participant banks as the sole lead arranger and administrative and receivables agent. This was made easier by the fact that we have good relationships with all the participants and that we have had prior experience of working together.”
However, the challenges did not end here.In many cases, Novelis’ account debtors in both the US and European markets were lesser known subsidiaries of larger companies. This represented a concern to some of the banks in the syndicate, which did not have a good understanding of – nor visibility into – the companies whose receivables they were purchasing.

Barclays’ strengths as a global bank, and its own visibility into Novelis’ customers played a huge role here.

“One of the most important attributes Barclays brought to the deal was its coverage of multiple jurisdictions, and its knowledge and understanding of Novelis customers in the US and Europe,” says Baghdadi.

“As a global bank, we are able to take a view on Novelis customers in different parts of the world, and this was very important.”

Further challenges to both tranches of the deal came from Novelis’ requirements for next-day funding and – in certain cases – same-day funding of receivables posted for sale.

Baghdadi explains that, as Novelis sells receivables under both facilities on an ongoing weekly basis, there are large numbers of invoices involved. Additionally, in certain cases, the company has been looking to receive payment for receivables posted for sale within a matter of hours.

“In some instances, Novelis has posted invoices in the morning for sale, and looked to receive funds from their sale on the very same day. Barclays has the breadth and expertise to arrange this type of speedy sale and execution when working with account debtors in multiple jurisdictions,” explains Baghdadi.

“This added to the challenges Barclays faced with this transaction as we are working with a different obligors across different time zones. As receivables agent, we have had to be able to co-ordinate this effectively. Same-day funding of receivables would have been very difficult to achieve without being a global bank.”

Baghdadi explains that Barclays was able to offer “a very joined-up team approach” to the syndication via its Trade Finance Syndication desk in London, which has excellent access to the European banking subsidiaries of the main bank participants involved, and with the New York team looking after US-based bank participant connections.

“This meant that we could run this type of global operation easily and with flexibility,” he says. “We also brought significant expertise of syndications into the deal, and the team worked very closely with the participating banks throughout the due diligence and documentation process, which ensured that we were able to meet the closing deadlines.”

Further challenges were faced when arranging the second €90mn tranche – most notably in ensuring that a true sale of the receivables was effected under European laws.

Barclays sought out both German and Swiss legal opinions and examined case law to ensure that the security interest from the sale of receivables to the bank participants was perfected.

“Whereas across the US market there is a well-established and consistent filing process for perfecting one’s security interests, this can vary from one jurisdiction to another in different parts of the world,” says Baghdadi.

With a total facility of about US$300mn arranged for Novelis in both the US and Europe so far, both Novelis and Barclays are interested in expanding the facility in size by adding additional account debtors in new jurisdictions.

Future tranches are likely to include US dollar, euro and sterling-denominated receivables – again proving a challenging task from a geographic, time zone and currency perspective.

Baghdadi is not surprised: “The strengths that Barclays brought to this transaction, and which it will continue to deliver for Novelis, are flexibility, speed to market and a broad network of corporate and banking relationships, all of which are co-ordinated by excellent coverage, product and syndications teams.”