Law firm Holman Fenwick Willan (HFW) has advised on the establishment of one of the first securitisations of both existing and future trade finance receivables. The firm believes the structure will stand as a blueprint for further deals, and provide a new source of funding for the commodity trade finance market, which has seen a substantial reduction in capacity over recent years.
The securitisation will enable Luxembourg-based asset manager Synthesis to access the capital markets (including retail investors) through a medium-term note (MTN) programme established by three special purpose issuers: Synthesis Trade Finance I SA, Synthesis Trade Finance II SA and Synthesis Trade Finance III SA, in order to provide trade finance to the commodity market.
“Use of the securitisation structure has been discussed for quite some time now as a potential saviour for the trade finance market, but had not yet materialised due to the sheer enormity of resource and commitment needed to put together a bankable deal in the arena,” says HFW commodities trade finance partner, Philip Prowse.
The programme allows for the issue of notes with an aggregate principal amount of up to US$500mn, but can be increased. Notes issued under the programme will be listed on the Luxembourg Stock Exchange, and admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange.
The proceeds from the issuance will be invested in commodity trade finance deals across various geographies and commodity types.
In a recent survey conducted by HFW and GTR on the future of commodity trade finance, 75% of respondents said they would be inclined to engage in a securitisation programme in relation to trade finance, an indication of the market’s willingness to innovate to overcome barriers in accessing finance.
The survey report references the Synthesis transaction because of its innovative approach: “As the underlying investments were the subject of multiple originations, the bond was novel for the Luxembourg listing authorities and the process to have the prospectus approved was complex, but it does demonstrate the willingness of the authorities to co-operate in such novel deal structures and could be an indication that securitisation is a viable structure for the commodity trade finance sector.”
Prowse explains that the structure also had to solve the puzzle of using short-term trade finance maturities to finance long-term note programme investments.
“At the same time, it has had to be designed to be appealing both to investors looking for a way to invest into the asset class on a relatively de-risked basis – not simply to leverage regulatory capital on a synthetic basis, but also to promote true sale asset investment – and to borrowers so that they can gain access to that capital for application to deals on a dynamic and relevant basis,” he adds.
Read the full survey report, which also includes sections on sustainability, digital solutions and alternative finance here.