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HFW advises on novel trade finance securitisation

15 November 2016

Commodities and trade finance specialist 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 securitisation structure 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 commodities market. The programme allows for the issue of notes with an aggregate principal amount of up to US$500million, 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 securitisation provides a new source of funding for the commodities trade finance market, which has seen a substantial reduction in capacity over recent years. Increased regulation, difficulty of on-boarding counterparties and sanctions risk associated with dealing in emerging markets have led to a retreat of the traditional banks from commodities trade finance. These concerns have resulted in what was a US$14 trillion bank-led market before the financial crisis being reduced to less than one half of that today.

The team at HFW was led by corporate Partner Alex Kyriakoulis and commodities trade finance Partner Philip Prowse. Robert Finney, head of financial regulatory at HFW also assisted.

Philip Prowse commented:

“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. The Synthesis structure has 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.”

Philip further notes that:

“It has been essential to ensure that the deal meshes with the latest software available from trade finance solutions providers, in order to take advantage of the digitised revolution that is happening in the financing of global commodities supply today. We are delighted to have been able to work with Synthesis on this transaction, which can certainly stand as a blueprint for further deals, and which we believe will assist in the much needed growth of global commodities trade.”

HFW’s global commodities practice has been at the forefront of legal developments in the commodities and trade sector for many years. This is underpinned by HFW lawyers’ collaborative and creative approach to resolving complex matters in this arena.