Synthesis Bond Presentation

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Bond Issuance

6.50% p.a. indicative rate in USD (Swap equivalent level in EUR and GBP: indicatively 5% p.a. in EUR and 5.50% p.a. in GBP)
For a 2yr Issue

from a USD500mio Note Issuance Programme

Listed in Luxembourg

Transaction Highlights


  • A strategic way for bond investors to obtain a high yield return from a diversified trade financeportfolio
  • All underlying transactions are synthetic investment grade due to the use of A- or better rated credit insurance and letters of credit and have a maximum tenor of 124 days
  • Strong origination team with extensive experience across markets
  • Bankruptcy-remote SPV structure ring-fences the excess spread to provide additional protection for investors

How our Business operates

Our business model is similar to financing that has been carried on for centuries. We provide funding for companies who have strong business models but need outside help to finance their larger transactions


1. We finance transactions, not companies.

We are not a lender in a traditional manner and we do not provide loans to companies. All funding that we provide is repaid upon completion of the transaction and our exposure ends at that point.

2. We step directly into the transaction.

Most of the transactions that we finance are the simple sales of goods to end buyers. In this case, we are bridging the time gap between dispatch of the goods by the supplier, and receipt by the buyer. W e pay the seller directly, we take ownership of the goods until receipt, and collect sales proceeds directly from the buyer.

3. We always require secured method of payment.

Where letter of credit or credit insurance is not feasible or customary we would require that final buyer pays through Cash Against Documents arrangement plus payment guarantee/performance bond.

Synthesis Trade Finance II SA Bond Issuance

The notes will be :

  • Listed on the Luxembourg Stock Exchange
  • Available for trading on the Euro-MTF market
  • Deliverable in Euroclear, Clearstream and CREST

The proceeds of the notes will be used to finance short-dated, secured, trade finance transactions to a diverse pool of clients. Every transaction will have either a Letter of Credit or Credit Insurance backing it, as well as appropriate legal charges over the financed goods. The underlying transactions will have no market risk because they are financing existing back-to-back contracts. The goods themselves will primarily be commodities. The transactions will be originated by Synthesis Structured Commodity Trade Finance Limited and purchased by Synthesis Trade Finance IISA.

This document gives an overview of the planned issuance programme.

Stock Exchange listed
Locked
What is Structured Trade Finance?

Structured trade finance is where a finance company funds a transaction on behalf of a third party. In our case we achieve this by directly purchasing the goods from their supplier and then selling the goods directly to their purchaser, instantly removing a substantial portionof the creditrisk.

The advantage for investors is that trade finance portfolios :

  • Are self-liquidating

    Trade finance transactions are typically 30-60 days so there is a clear exit path for the funder. It also allows funders to quickly reduce exposure to borrowers, sectors and geographies
  • Have strong returns

    Typically trade finance transactions have very strong returns due to the short tenor. By efficiently keeping money deployed, this can be converted to strong annualised returns
  • Have strong security

    The funder generally has direct ownership or a charge over the assets being financed as well as access to a Letter of Credit or Credit Insurance
  • Have low default rates

    Historically, structured trade finance transactions have very low default rates and very strong recovery rates, thanks tothe strong asset security
  • Self-Liquidating
  • Strong Returns
  • Enhanced Security
  • Low Default Rates
Structured Trade Finance in numbers
$6 trillion
WTO Member Exports per year

Despite global economic uncertainty, global trade continues to grow year-on-year as globalisation continues

>50%
SME share ofthat trade

SMEs continue to globalise, moving their goods in greater size, across greater distances

80%
Of the SME share requires trade finance

However, as deliveries take longer, SMEs turn to trade finance to bridge the cashflow gap between production and payment

0.02%
Is the historical default rate

According to the International Chamber of Commerce Report in 2011, default rates in trade finance stood at around 0.02% - better than investment gradebonds*

* http://iccreport2015
ProductTotal Exposure($mio)Total DefaultedExposure ($mio)Exposure-weighted Default RateTransaction Default Rate
Export L/C988,4342350.02%0.01%
ImportL/C1,656,5281,2100.07%0.08%
Performance Guarantees1,023,5611,1540.11%0.17%
Loans forImport/Export3,154,4075,3230.17%0.22%

Why is there an opportunity for investors in Structured Trade Finance?

With the phased implementation of Basel III and tighter lending criteria from banks, many SMEs have lost access to the funding that they previously had.

Banks are reducing exposure due to

  • High regulatory costs of capital
  • Out-dated technology and KYC infrastructure
  • A reluctance to lend on a transactional basis

The Global Financial Crisis created a gap

With banks less willing to lend to SMEs an opportunity has been created for smaller, more nimble financial organisations to enter the market.

Using a combination of experience and understanding of global trade flows, a new breed of trade finance houses is emerging who can lend based upon assets, increasing security whilst maintaining strong returns.

How do we choose our clients?

Here at Synthesis, a large part of our success within the group comes from working exclusively with borrowers who have a strong track record in their industry. We look for a minimum of three years of successful trading by the management team and a strong business model with good margins across their product range.

Deal selection

In Structured Trade Finance the key to a successful portfolio is not just to choose the right counterparties, but also to select the deals with the right characteristics. Each commodity has its own idiosyncrasies, but in all transactions we seek verification of the value of the goods and will, where possible, take a charge over the goods. In the event of non-payment, we would liquidate the assets, hence our preference for non- perishable, generic commodities.

Underlying asset

The underlying asset must be something that we can take control of, check the quality of and re-sell if necessary. It is always non- perishable

Credit Enhancement

The transactions that we finance are always backed by a Letter of Credit or Credit insurance from an investment grade counterparty, or by alternative arrangements ensuring prompt and secure payment by the customer (performance bonds, payment guarantees)

Loan-to-value

Typically we look at a “real” valuation of the asset in terms of what price it can be sold at in a variety of jurisdictions

Monitoring

Are we able to identify, monitor and exercise control over the asset at any point during the transaction?

Our Strategy: Risk Mitigation

RISK FACTOR RISK MITIGANT
Risk of non-paymentSynthesis only lends to companies or management teams with a significant track record in the relevant commodity
Both the arranger of the deal and the debtor are required to pass our KYC process
Each transaction will have in place a Letter of Credit or Credit Insurance to act as a safeguard"
Risk of rejection of goods"Goods are checked for quality where necessary and certified by an independent inspector before the transaction is funded
Country RiskIn conjunction with leading trade finance law firm Watson Farley & Williams, Synthesis – Structured Commodity Trade Finance Limited continually monitors any potential risks, in particular those relating to currency restrictions, sanctions or embargoes"
Commodity Price RiskSynthesis – Structured Commodity Trade Finance Limited does not engage in transactions where the return is in any way linked to the price of the underlying goods. Each transaction will have a sales contract at a pre-agreed price so that the return is fixed
In the event of non-payment by a borrower, Synthesis -
Structured Commodity Trade Finance Limited would first look to enforce the terms of the contract. It would then seek to sell the commodity to another buyer. It is only after that that they would seek recovery through the Letter of Credit or Credit Insurance. By concentrating on fungible, hard commodities, the risk of depreciation of the asset is minimised"
Risk of Documentary FailureFacility Documentation is arranged by WFW and all transactions are documented by experienced professionals"

Worked Example

Purchase cost of the goods : USD100 Contribution by the Client : USD10 Contribution by Synthesis :USD90

Sales Revenue of the goods : USD105 Returned to Synthesis : USD92 Returned to Client : USD13

Marine Insurance during transit : Typically 110%of purchase price (USD110) with Synthesis as first loss payee

Credit Insurance before payment : Typically 90% of sale price (USD94.5) with Synthesis as first loss payee (note our exposure is only USD90)

Bond Structure

Paripassu

All bonds issued with the same maturity date are pari passu and seniorsecured

Luxembourg regulated

All bonds are approved by the CSSF and application will be made for them to be traded on the Euro-MTF market

Bankruptcy remote

The SPV structure means that each issueris independent of the others and dependent only upon its underlying investments

Excessspread

Each Issuer retains its excess spread (the difference between where it borrows and where it invests), less management costs, to provide a buffer for investors

Securitisation Structure

As a securitisation vehicle, Synthesis Trade Finance I SA (STF I SA) has no ability to transact directly. This provides additional protection to investors because transactions are originated by a separate company with a separate decision making process (Synthesis Structured Commodity Trade Finance Ltd) and only purchased with the approval of the separate board of Synthesis Trade Finance SA.

Disclaimer


This communication is being furnished solely on a confidential basis to the recipient. This communication is directed at persons having professional experience in matters related to investments and any investment or investment activity to which this communication relates is available only to such persons or will be engaged in only with such persons (or other persons to whom such investment can lawfully be made available or with whom such investment activity can lawfully be engaged). If you do not have professional experience in matters relating to investments you should not rely on this communication.

Neither this Communication nor any of the associated documents may be reproduced, re-transmitted or further distributed to any other person or published, in whole or in part, for any other purpose than that stated above. The information in this document, which is in draft form and incomplete, is subject to updating, completion, revision, further verification and/or amendment. In particular, the documents refer to certain events having occurred which have not yet occurred at the date these documents are made available, but which are expected to occur prior to the publication of an approved prospectus in final form. Recipients of this Communication (or any of the associated documents) who are considering purchasing or subscribing for Notes in any of the issuers are reminded that any such purchase or subscription must be made only on the basis of information contained in the approved prospectus its final form, which may be different from the information contained in this document. Notes may not at this time be offered by any of the issuers directly to the public. Neither this Communication nor any of the attached documents constitutes an offer of Notes.

By accepting delivery of this Communication, you agree to keep it and its content (including the attached documents) confidential, and not copy, publish, distribute, pass on or disclose any of it except with the prior written consent of Synthesis.

To the extent permitted by applicable law and regulation, Synthesis Trade Finance S.A. and its affiliated companies expressly disclaims and excludes any and all liability that may be based on this communication and the attached documents, any errors in it/them or omissions from it/them.