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Synthesis Structured Trade and Commodity Finance
|Issuer||Synthesis Structured Trade and Commodity Finance II S.A.|
|Currency||USD (also on ASW in EUR and GBP)|
|Seniority||Senior pari passu notes with an excess spread roll-up|
|Size||USD 200 mio|
|Listing||Euro-MTF Market of the Luxembourg Stock Exchange|
|Auditor||Price Waterhouse Coopers|
|Legal Counsel for the Borrower||Allen & Overy, Luxembourg|
|Coupon||4.5% in US$, 3.5% in €|
|Look-Through and Consultation||Yes|
|Credit Enhancement||Yes (CI or LC)|
Our bond structures assume:
- The credit is structured around an export contract between an exporter (the seller) and an off-taker (the buyer). Synthesis has the receivables assigned to its account(s), and repayment is further enhanced by secure payment method including Letter of Credit or Cash Against Documents supported by credit insurance or payment guarantee.
- A diversification cap of 20%per commodity and geography
|Loan Administrator||Synthesis Structured Commodity Trade Finance Limited|
|Currency||USD (also on ASW in EUR and GBP)|
|Seniority||Senior, direct lending exposure|
|Underlying Documentation||Master Loan Participation Agreement|
|Typical Structure||Pre-agreed Counterparties with 48 hours notice of drawdown on a funded basis|
|Diversification||At the discretion of the lender|
|Wind-up Period||3 months|
|Average Yield||4.50% in $ (3.50% in €)|
|Look-Through and Consultation||Yes|
Our participation structures assume :
- Sensible diversification
- Pre-agreed "facilities" that define transactional drawdowns
Background and Entities
Synthesis Group of Companies
Synthesis Structured Trade and Commodity Finance II S.A.
STF is a bankruptcy remote company, set up purely to finance structured trade finance transactions. It has an independent Board of Directors with a long experience of the management of collective investment vehicles, risk management and compliance. The Board of Directors is supported by a team of expert Special Advisors in the field of trade financeFixed Income
Synthesis Structured Commodity Trade Finance Limited
SSTCF is the UK- based company which originates business. SSTCF works with companies to structure solutions to their financial requirements and helps to arrange funding and a strong security package before arranging funding via STF or via participation agreements
About Structured Finance
About the product
What is the Structured Trade Finance
Structured Trade Finance is the provision of funds to allow commercial transactions to occur between counterparties in different jurisdictions
Traditionally it has been a business controlled by banks, but in recent years more and moreopportunities have arisen for non- bank participants to participate in the sector. Synthesis is the first financial institution to independently securitise trade finance assets
Transactions are typically very short in duration (between 15 and 90 days). Where we can obtain very strong collateral, a maximum of 10% of our portfolio will finance transactions of up to 124 days
The focus of a trade finance transaction is upon the value of the goods being transported, not the balance sheet of the seller, giving us excellent security
Why is there a lack of trade finance?
Banks have higher costs and smaller balance sheets
Banks are less likely to provide trade finance credit lines now than in the past. There are several reasons for this. First, the operational costs of financing small transactions can be quite high as it can require large teams of people for a very small margin per transaction. Secondly, many transactions are cross- border and where a bank does not operate in both jurisdictions they may decline to take on such business. Finally, many trade finance transactions are for large amounts compared with the equity value of the company
Banks are focussed on larger clients
With the right experience and understanding of global trade flow, a new breed of trade finance house is emerging, able to lend based upon assets. Synthesis Structured Trade and Commodity Finance is at the forefront of this transformation
Banks can’t make decisions about clients quickly enough
Banks take time to make decisions. With our strong knowledge of the sector and streamlined risk management and cash management we can generally make a decision very quickly, which is key to companies trying to finance orders andinventory
Why does Synthesis fund trade finance?
Trade finance transactions have a natural conclusion (the sale of the underlying goods) and have little risk of unforeseeable delays in repaymentStrong Security
When we enter into a transaction we typically (although not exclusively) step in as seller, acquiring all of the legal title, the rights to payment from the buyer and any credit support
Due to the short duration of the transactions, yields on them tend to be higher than on longer, balance- sheet loans, meaning that returns on efficiently deployed capital are higherLow Default Rates
Trade finance typically funds genuine commercial transactions. With the additional protection of Letters of Credit or Credit Insurance, default rates are far below those of standard corporate loans*
Trade Finance in Numbers
The sheer scale of global trade is staggering and this offers a huge market in which Synthesis Structured Trade and Commodity Finance can operate
WTO Member Exports per year
Despite global economic uncertainty, global trade continues to grow year-on-year as globalisation continues
The SME share ofthat trade
SMEs, particularly in fast developing economies, are an increasingly large part of the global supply chain
Of that SME business struggles to obtain funding
As Basel III increases pressure on bank balance sheets, SMEs are proving to be the main victims of the funding drought
Is the historic default rate according to ICC Data
If well structured, trade finance transactions can be considered extremely low risk in comparison to other forms of credit investment
How we operate
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
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.
In many of our financing activities there can be multiple companies involved – buyers, sellers, shipping companies, warehouses and intermediaries. We have very clear selection procedures on who we will transact with
Minimum three year track record
All of our counterparties must be able to demonstrate that their management has at least three years of experience similar transaction. With all transactions being less than 124 days, this means that it will have taken place successfully multiple times alreadyEach counterparty must then :
- Be able to satisfy our KYC and AML procedures for the company, its management and its shareholders
- Be able to demonstrate a solid client base that is in line with our policies
Unlike traditional bank lending, we are funding specific transactions, so even if we agree to provide funding for a counterparty, we will first ensure that the money will be used for a specific transaction that meets our requirements and the money is returned as soon as that transaction is completed
The assets that we finance must be fungible and have a liquid market. This means that we focus on non-perishable, quality- checked goods, typically either listed on a mercantile exchange or with a particularly well- developed OTC marketCredit 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)
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 as well as only lending relative to the purchase priceMonitoring and Control
Are we able to identify, monitor and exercise control over the asset at any point during the transaction?
Establishing a Trade Finance Facility
- -Referrals from existing clients
-Pre-existing contacts of Team Members
-Referrals from existing transaction originators
-Unsolicited client approaches
- -Compliance Catalyst via Bureau van Dijk
-Procedure covers all steps in the transaction chain
-Managed via internal CMS system and multiple sign-offs are needed
- -The Facility Letter is indicative and is subject to Lender approval
-It lays out terms but is not binding for its duration
-Contains CPsand CSs that will be essential for each underlying trade
- -Does it meet the Lender’s criteria?
-Is the product fungible and can we assert security?
-Are the management team credible?
-Are there any regulatory hurdles?
- -Can the transaction be structured in a way that suits the lender?
-Is there sufficient margin to makethe transaction work?
-Are we in control at all points of the transaction?
- -Should the IFOL be accepted, full KYC and facility information is submitted to the Lender for approval
-Final negotiation of terms occurs
-Preparations made to transact shortly
Drawing down on a Facility
- -Client contacts us to confirm that the transaction meets the terms of the Facility Offer Letter
- -Lender is notified of the need to provide funding and we confirm that CSs have been met
- -SSTCF constantly monitors documentation and location of the stock throughout
- -SSTCF reviews the transaction for any irregularities and ensures that KYC checks are inplace
- -Funding is released by SSTCF to the Seller, enabling the transaction to occur promptly
- -SSTCF accept repayment and disburse as appropriate to lenders
Supplier Performance Risk:
All Suppliers will undergo KYCprocedures by SSTCF,including ascertaining and monitoring their ability to supply in a timely manner and their marketreputation.
Obtaining Good Title:
SSTCF will confirm that the Supplier has good title to the goods prior to sale.
Quality and Quantity of Collateral:
All goods will be quality and quantity approved by an approved third party before release of funds to ensure that they will meet the purchaser's requirements upon delivery.
Swap Counterparty and Price Risk:
The Purchase and Sale prices will be determined before the Purchase and any foreign exchange risks are for the account of the client who have agreed to put in place appropriate hedging should it berequired.
Eligible Obligor Performance Risk:
All Obligors will undergo KYC procedures by SSTCF, including ascertaining and monitoring their ability to pay, their market reputation and their pre-requisites for completing the purchase in a timely manner.
Risk Mitigation (...continued)
Eligible Obligor Security Risk:
SSTCFwill ensure that it has an assignment of receivables or be the named assignee or beneficiary of any Letter ofCredit.
Eligible Credit Support Provider Performance
SSTCF will ensure that it is a named loss payee on any credit insurance policy or the direct beneficiary of any such policy Credit support will only be provided by Eligible Credit Support Providers asdefined in the Prospectus.
SSTCF will ensure that all documents are received in a timely manner from all parties and will maintain a four eyes principle, whereby two directors check all documents. SSTCF will confirm that the contractual terms for the purchase and the sale are substantially identical and Deliverable
Co-mingling of Assets:
SSTCF will ensure that they continually monitor the location and state of the assets in order to minimize the risk of co-mingling.
Other Counterparty Exposures:
KYC checks will be performed on other parties to each transaction as SSTCF are notified of them. This will include inter alia warehouses, shippers, quality inspectors and any other parties who may affect the value or reliability of the security.
Risk Mitigation (...continued)
Other Legal Considerations:
As of the date of this application, no embargoes or sanctions are applicable to these Proposed transactions. Legal documentation has been approved by Watson Farley& William and to the best of our knowledge is both:
(i) Enforceable as against all parties and;
(ii) is in line with market practice.
The countries in which transactions will occur are listed in this application. SSCT will continually monitor the geopolitical and regulatory landscape to ensure that risks remain acceptable.
Pipeline as of today
|Commodity||Finance Type||Facility||Avg Transaction Utilisation Tenor||Interest Rate p.a.||Underlying Risk||Risk Mitigation|
|Wheat||*Port Warehousing financing against inspection & FCR|
*FOB Sale on CAD to reputable buyer
|USD 10,000,000||USD 2,750,000||90%||45||11.00%||CAD payment from a reputable buyer||Documentary transaction through top-tier bank , original title is released only upon payment. Payment against copies of documents|
|Soya||*Warehouse financing against inspection & FCR|
*CFR Sale on L/C basis
|USD 8,000,000||USD 1,750,000||90%||45||10.50%||Incoming LC from approved Dubai based bank||LC at sight from the bank|
|Barley||*BL financing||USD 7,500,000||USD 3,750,000||90%||60||9.75%||Incoming LC from first-tier Swiss bank||LC Confirmation by Borrower's bank|
Pipeline as of today
Sample Transactions (continued)
|Sunflower Oil||*Warehouse financing against inspection & FCR|
|USD 7,500,000||USD 2,340,000||90%||50||11.00%||100% CAD payment against copies of documents||Contract with investment grade buyer plus performance bond. Original title and documents are not released to the buyer untill payment is received|
|Sunflower Meal||*Warehouse financing against|
inspection & FCR
|USD 8,000,000||USD 2,750,000||80%||60||11.25%||CAD payment from a reputable buyer||Documentary transaction through top-tier bank , original title is released only upon payment. Payment against copies of documents. Credit Insurance is in place.|
|Rape Seed||*Warehouse financing against inspection & FCR|
|USD 6,000,000||USD 2,450,000||90%||55||10.25%||LC from approved Czech Bank||LC Confirmation by Borrower's Bank and assignment of proceeds|
Pipeline as of today
Sample Transactions (continued)
|Rape Seed Oil||*Warehouse financing against inspection & FCR|
|USD 6,000,000||USD 2,700,000||90%||60||9.75%||Contract with recognized Switzerland based Commodities Trader||Credit Insurance from Pre-approved Insurance Companies|
|USD 5,000,000||USD 1,250,000||80%||40||12.00%||Incoming L/C at sight from reputable German Bank||Confirmation of L/C by borrower's bank|
|Fertilizer||*Warehouse financing against||USD||USD 3,500,000||90%||60||10.25%||CAD payment from investment||Credit Insurance, assignment of proceeds|
|FCR||8,500,000||grade buyer||and joint account with the borrower|
|*CIF sale on CAD|
List of Eligible Credit Support Providers
|Abu Dhabi Commercial Bank PJSC||Industrial Bank of Korea|
|Agricultural Bank of China Limited||ING Bank N.V.|
|Australia and New Zealand Banking GroupLimited||JP Morgan Chase Bank N.A.|
|Atradius Credit Insurance N.V.||Korea Development Bank|
|Bank of China Limited||Lloyds Bank Plc|
|Bank of Communications Co., Ltd||Lloyds of London Insurance Syndicates|
|Bank of Nova Scotia||Malayan Banking Berhad|
|Banque Cantonale Vaudoise||National Australia Bank Limited|
|Barclays Bank Plc||National Bank of Abu Dhabi PJSC|
|Bayerische Landesbank (Bayern LB)||National Bank of Kuwait S.A.K.P.|
|BNP Paribas||Norddeutsche Landesbank Girozentrale|
|China Construction Bank||Oversea-Chinese Banking Corporation Limited|
|Citibank N.A.||Qatar National Bank S.A.Q.|
List of Eligible Credit Support Providers
|Coface S.A.||Royal Bank of Canada|
|Coöperatieve Rabobank U.A.||Santander UK plc|
|Crédit Agricole S.A.||Skandinaviska Enskilda Banken AB|
|Credit Suisse AG||Société Générale S.A.|
|CTBC Bank Co., Ltd.||Standard Chartered Bank|
|DBS Bank Ltd||The Toronto-Dominion Bank|
|Euler Hermes S.A.||UBS AG|
|Export-Import Bank of Korea||Unicredit Bank Austria AG|
|Garant Versicherungs AG||United Overseas Bank Limited|
|Hang Seng Bank Limited||Wells Fargo Bank N.A.|
|HSBC Bank Plc|
Chairman & Chief Risk Officer
Mac has assumed executive and senior management positions in the commodity trading and financing industries since 1982. Over the course of the last 20 years, he has built Deutsche Bank’s global Structured Commodity Trade Finance franchise, a multiple- year “Best Structured Commodity Trade Finance Bank” award-winning business by various industry publications, leaving his position of Global Head and Vice Chairman at the end of 2019. Prior to joining Deutsche Bank, Mac headed Structured Trade and Commodity Finance at Santander Central Hispano and before that Bayerische Hypo-und Vereinsbank. Based in London, he is involved in a number of industry-wide initiatives, amongst others as the Chairman of the London Trade Roundtable that provides thought leadership in international trade finance, the advisory board of Global Trade Review and Trade & Forfaiting Review to which he regularly contributes. Mac’s publications include the Elsevier-published “Structured Trade & Commodity Finance: What Can Go Wrong” - an in-depth guide to structured trade and commodity finance in emerging markets. Mac has an MA from Cambridge University and is retired officer of the Royal Marines.
Mac serves as the Chairman of the Board, overseeing Synthesis’ risk and control frameworks, risk appetite and holds decisioning authority on all investment opportunities entering the securitisation programme.
Dr. Tasneem Krueger-Vally
Managing Director & Head of SCTF
Tasneem has 15 years of experience in structuring and executing complex financing for clients operating in the natural resources and commodities sectors; 7 years of risk management experience and 5 years of consulting experience. At Deutsche Bank, she closed more than 60 transactions in 7 years driving revenues and business growth globally which led to her being awarded Top Dealmaker, two years successively by TXF. In her time at Deutsche Bank she held senior roles of Head of Middle East & Africa, Structured Commodity Trade Finance (STCF); Head of Business Development, SCTF where she expanded the SCTF business into Australia, setting up and resourcing the Sydney office and was the Global Coordinator for Borrowing Base Facilities. Prior to joining Deutsche Bank, Tasneem was responsible for a c. AUD 4bn natural resources, oil & gas portfolio in the IB&M Risk Division (Sydney). She has also worked for Rand Merchant Bank in London after a successful career as a senior consultant for Alexander Forbes Risk Services (Johannesburg) where she managed projects across various industry sectors across the globe. She currently serves on the executive committee of the London Trade Roundtable. Tasneem holds a doctorate in Chemical Engineering and Masters in Business Administration.
Founder, Chief Strategy Officer
Spyros has 22 years of experience in alternative investments. He began his career in Private Banking, first with Citigroup in London and Geneva and then with Société Générale in Athens. Spyros moved on from Private Banking in 2006 to set up an asset management company for Deloitte, before returning to London as a Director of the hedge fund Absolute Return Partners. In 2012, he launched the first Peer-to-Peer Lending Fund outside of the US, investing in consumer lending products. Since July 2014, his focus was on the then nascent asset class of packaged structured trade & commodity finance credit. In 2016 Spyros spearheaded the first structured commodity trade finance securitisation by a non-banking institution under the Synthesis name and has continued with the development of the business since. Spyros holds an Investment Management Certificate of the CFA-Society of the UK and is at the helm of Synthesis’ investor relationships as Group’s CSO.
Matthew has over 27 years’ experience in financial services. He began his career with Tullet and Tokyo in the city of London in 1990 where he quickly established himself as a leading broker. Matthew worked for two other leading brokerage houses in London before moving to Athens in 1997. He was head of all foreign exchange activities for Sigma money brokers who under his guidance became the global benchmark for GRD brokerage. He has since acted as a business development consultant for ICAP London, BGC Partners and Cleaves Securities. Throughout his career Matthew has developed and managed key client relationships and maintains strong relationships with banks, brokerages and private equity firms.
Jose Antonio Fernandez
He has over 14 years’ experience in M&A, focus on Financial Institutions Group, (FIG), having participated in several transactions, among others advising the FROB on the privatization of Catalunya Banc with an innovative structure (bought by BBVA for €1.1 bn and by Blackstone for €3.6 bn), Bankia on the equity sale of Bancofar, and BMN in the merger with Bankia. Recently, in 2018, he co-founded Zero1, a Fintech Company, which use the Machine Learning technology in order to disrupt the Supply Chain Finance industry, solving finance gap in trade finance. Previously, José Antonio worked in Alantra Investment Bank, Deloitte’s Financial Institutions Area & Banco Espirito Santo Investment Bank.
Michael has over 40 years of experience as a banking lawyer in London. During this period of time he has provided assistance to many of the world’s leading financial institutions, and has been mentioned regularly in legal directories as one of the world’s leading banking lawyers. He has contributed to developing many banking and financial products and possesses significant experience in all areas of bank transactions and capital markets, including leverage finance, project finance, structured finance, commodity and trade finance and insolvency and restructuring procedures. Michael has regularly provided assistance to clients at Board level and, in the 2008 financial crisis, he acted as a high-level strategic legal advisor to financial institutions on issues ranging from major litigation disputes to financial regulatory reforms, and to the implications of the Eurozone crisis. From 1976 to 2015, Michael was a banking partner at Clifford Chance, where he also held a number of senior management roles. From 1995 to1999, Michael was Chair of the Global Finance and Capital Markets Practice of Clifford Chance and from 1999 to 2002, Michael was the Firm’s Global Managing Partner. After retiring from Clifford Chance in 2015, Michael became, and remains, a partner in, and member of the executive committee of, Grimaldi Studio Legale, a firm which he co-founded as a part of Clifford Chance when Clifford Chance first established a presence in Italy. Michael holds a first class honours degree in law from Liverpool University.
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