Structured Com.

Structured trade finance

These are techniques/structures deployed to finance specific situations where the tenor of the financing exceeds the typical asset conversion cycle. Some examples include:

Prepayments
To secure supplies on a long-term basis (or to obtain preferential terms), the trader may be required to provide prepayments to the suppliers. The prepayments are repaid from a stream of supplies in the future. The trader may approach the bank to provide the financing by assigning the future flow of supplies to the bank.

Such financing may be offered with recourse to the trader, or on a limited recourse or without recourse to the trader. The determining factor is the bank’s assessment of the performance risk on the supplier.

Tolling
The trader may supply raw materials to a processor and choose to offtake the processed material instead of an outright sale. The trader’s bank may be requested to finance the purchase of the raw material, against the assignment of the sales proceeds from the processed material.

Risk mitigation techniques vary, from a straight forward exchange of raw materials for already produced goods against a pre-agreed price, to a more complicated one that includes also taking control over the production process and work-in-progress.

Structured inventory product/repo
Here the goods are sold to the bank (or an SPV) with the agreement that the trader will buy it back within an agreed time frame for an agreed price. The price will be sufficient to cover the cost of holding the inventory for the duration plus an agreed margin.