Galena commodity trade Finance fund

Dominique_bnpparibas[1].jpgIn a move to attract new sources of liquidity into the commodity trade finance market, French trade bank BNP Paribas CIB completed its first securitisation of commodity trade finance loan receivables on 22 August 2013.

Lighthouse Trade Finance Issue I Ltd is a US$131.6m transaction arranged, originated and managed by BNP Paribas and rated AAA by ratings agency Fitch.

Part of the bank’s originate and distribute strategy, this particular deal marks the beginning of a series of similar transactions for BNP Paribas Energy & Commodity Finance.

Lighthouse Trade Finance Issuer I Ltd is the first issuance from a platform, Lighthouse Trade Finance Master Ltd, which was set up to distribute commodity finance assets originated by BNP Paribas CIB to investors. The debt is backed by short-term loan advances granted to corporates for the financing of physical commodities trade flows, such as the shipment of oil and metal-based products, mostly by vessels or pipelines. This financing covers the funding gap between the payments to the suppliers and the receipt of the final buyers’ payments.

Dominique Remy, head of BNP Paribas CIB Europe (pictured) said: “The Lighthouse platform is an excellent illustration of our originate and distribute business model, which is to continue serving our corporate clients whilst managing our balance sheet exposure. As a world leader in commodity finance, we strive to offer an enhanced range of credit solutions to meet the requirements of our client base, and at the same time to open our product range to institutional investors.”

Frédéric Janbon, the French bank’s global head of fixed income made the point that banks have had to adapt the way the do business in recent years. “This platform is a great example of collaboration between our fixed income and corporate banking businesses, providing investors with access to a new asset class that is key to the economy, representing around 30% of world exports, ” he said.

The international law firm, Allen & Overy advised on the deal, and a summary of its role can be found here.

The combination of tightening regulation, the tendency of regulators and governments to favour domestic banking activities and the failure of central bank liquidity programmes to become a reality have all played their part in reducing trade finance capacity.

Securitising trade finance assets, in other words bundling up the outstanding loans to attract institutional fund investors, has been slow to take off because of a lack of data so that investors can make informed decisions (see David Gustin’s comment in his TFR blog, ‘What Secondary Market?’.

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