Trade Finance Advanced

“Great training – gives a clear insight into complex banking transactions”
Paris, France

This 4-day on-line virtual classroom advanced trade finance training course comprising 12 modules provides a practical in-depth analysis of the structuring of back to back credits and letters of guarantee, receivables finance, payables finance (supply chain finance) and commodity finance. The use, key criteria and credit risk appraisal of structured trade finance is explained and applied to a variety of case studies. Information is gathered to understand a client’s trade needs from which the trade cycle timeline is constructed, and a trade financing solution formulated which addresses the needs of the client and provides risk mitigation to the bank.

The virtual classroom provides the engagement and participation of a physical class without leaving the home or office. Each day is structured into four separate 75 minute sessions. Case studies are discussed, and structured solutions formulated via delegate participation through virtual breakout syndicate rooms.

Training objectives

By attending this on-line virtual classroom training course, the delegates will:

  • Appreciate the importance of the commercial contract to open account financing

  • Appreciate why structured trade finance is an alternative to traditional ‘balance sheet’ lending

  • Collect key information to enable a trade financier to assess and evaluate the proposition

  • Understand risk assessment and structuring techniques of supply chain finance (payables and receivables finance)

  • Evaluate credit insurance and use this in support of trade and receivables financing

  • Structure a self-liquidating trade finance facility

PROGRAM OUTLINE (on-line virtual classroom delivery)

MODULE 20

Demand guarantees: structuring to mitigate risk (75mins)

Middle-parties

  • Role and function of the middle-party
  • Appreciation of risk:
    • Commercial divulgement
    • Bank credit risk exposure

BACK TO BACK DEMAND GUARANTEE FACILITY: MITIGATION OF RISK

Boston Bonds
Identification of risks following a request from a middle-party for a letter of guarantee facility
Formulation of a proposal to mitigate risk, minimise credit facility exposure, and fund the underlying transaction
Case study: virtual breakout syndicate       

NOTE: A good understanding of letters of guarantee or prior attendance on Module 9 (Introduction to Letters of Guarantee) will be required 

MODULE 21

Back to back letters of credit: structuring to mitigate risk (75mins)

Back to back credits

  • Description, operation, and parties:
    • Master credit
    • Counter credit
  • When used
  • Risk appreciation:
    • Commercial divulgement
    • Misalignment of LC terms
    • Dealing with a discrepant presentation under the counter credit
    • Risk exposure to a discrepant presentation under the master credit
  • Structuring back to back credits to mitigate risk

BACK TO BACK LETTERS OF CREDIT: STRUCTURING TERMS TO MITIGATE RISK

In Excess Traders
Structuring the terms of the master and counter credit to mitigate risk for the middle-party and the counter bank
Case study: virtual breakout syndicate     

NOTE: A good understanding of letters of credit or prior attendance on Module 7 (Introduction to Documentary Letters of Credit) will be required

MODULE 22

Commercial terms: their relevance to trade finance (75mins)

Commercial contracts

  • The relevance of the commercial contract to trade finance
  • Key aspects of the commercial contract
  • Risk evaluation

COMMERCIAL CONTRACT: EVALUATION & RISK MITIGATION

Ace Models
Examination of a commercial contract and identification of areas of risk for the seller and financier
Recommendation for amendments to mitigate risk
Case study: virtual breakout syndicate       

MODULE 23

Credit insurance: use and evaluation to support financing (75mins)

Short term credit insurance

  • What credit insurance is and when it should be used
  • Its use to support trade and receivables finance
  • The insurance contract:
    • Uberrimae fidei
    • The proposal
    • Insurance policy
    • Schedule of insurance
  • Types of credit insurance policies:
    • Losses arising
    • Risks attaching
  • Insurance value:
    • Loss indemnity
  • Deductibles:
    • Non-insured percentage
    • Minimum retention
    • Excess
    • Aggregate first loss
  • Risk cover:
    • Pre-delivery
    • Commercial risk:
      • Insolvency
      • Protracted default
    • Political risk:
      • Third country
  • Working with and evaluating a credit insurance policy:
    • Insured buyer limits:
      • Approved method of payment
      • Maximum terms of payment
    • Approved territories
    • Maximum extension period
    • Uninsured events and exclusions
    • Claims waiting period
    • Maximum policy payment liability
    • Period of cover
    • Retention of title:
      • All monies?
    • Performance risk: adherence to policy terms and conditions:
      • Declaration of material information
      • Acting as a prudent non-insured
      • Overdue and adverse event reporting
      • Payment of premiums
      • Claim history
    • Financier endorsement – joint insured Vs loss payee
  • Claims and recoveries:
    • Cause of loss
    • Claims process
    • Debt recovery
    • Salvage and recoveries
    • Subrogation

CREDIT INSURANCE: EVALUATION

Identification of risk from a seller’s and financier’s perspective in respect of a schedule of insurance
Case study: virtual breakout syndicate     

MODULE 24

Receivables finance: structuring to mitigate credit risk (150mins)

Receivables finance

  • Conditionality of the commercial sales contract or end-buyer’s purchase order
  • Validity, nature, legal enforceability, and transferability of the trade receivable:
    • Proof of delivery (relevance of the Incoterms® rule)
    • Encumbrance: can the financier achieve good title?
    • Performance free (‘sell and forget’ – not ‘contract debt’)
  • Seller – risk assessment:
    • Ability to perform
    • Credit note history: its importance to risk assessment:
      • Frequency, reasons, and value
      • Credit notes outstanding
    • Financial statement analysis:
      • Debtor ageing (debt turn and trend)
      • Debtor spread (concentration risk)
      • Bad debt history
      • Creditor ageing (liquidity pressure?)
      • Contra trade
      • ‘Going concern’ status
    • Invoice dilutions: nature and extent:
      • Accrual for rebates etc.
      • Retention reserve
  • Debtor – risk assessment:
    • Ability to pay (credit status: insolvency, protracted default)
    • Willingness to pay:
      • Vulnerability of goods to dispute/rejection (new to market?)
      • Timeliness of delivery: criticality and consequences of late delivery
    • Country transfer risk
    • Political risk (contract/payment frustration)
    • Trade credit term (reasonable for the nature of goods?)
    • Collectability of debt:
      • Legal right to recovery and enforcement
  • Disclosed and undisclosed facilities:
    • Risk implications
  • Prepayment:
    • Determining the amount to finance (prepay): dilutions and retentions
  • Calculating the maximum funds in use (MAFIU) facility requirement
  • Capture of the trade receivable:
    • Designated bank owned account
    • Trust account
  • Rights of recourse:
    • With recourse
    • Without recourse
    • Limited recourse
  • Debt purchase agreement:
    • Prepayment percentage
    • Eligible and non-eligible debts
    • Funding limits
    • Drawing documentation
    • Covenants and restrictions:
      • Use for working capital only
      • Contra trade
      • Debt turn (maximum)
      • Concentration (maximum percentage)
      • Dilutions (maximum percentage)
      • Dispute (maximum percentage)
      • Net worth (minimum)
    • Representations, warranties, and undertakings
    • Debt repurchase events
    • Period of agreement
  • Audit: key aspects

INSURED DEBT PURCHASE: STRUCTURING A SOLUTION

Traffic Land Cruisers
Structuring an insured finance solution for the sale of vehicles to a buyer in Africa on three years credit
Case study: virtual breakout syndicate     

NOTE: A good understanding of receivables finance or prior attendance on Module 17 (Introduction to Receivables Finance) will be required 

MODULE 25

Introduction to structured trade finance (150mins)

Structured trade finance: exercising control

  • When and why deal structuring should be used:
    • An alternative to balance sheet lending: generation of additional bank credit appetite:
      • Securing repayment from a more reliable source than the borrower
      • Exercising control: ‘follow the goods, documentation and the money’
  • Source of repayment:
    • Evaluation of the quality, dependencies, and reliability of the trade receivable
  • Fully structured self-liquidating facilities: characteristics:
    • Identification of a reliable source of transactional repayment (or self-collateralised)
    • Ring-fence and capture of the trade receivable as the primary source of repayment
    • Controlled loan drawdown against pre-specified documentary criteria
    • Trade loan aligned to the next stage of the trade cycle or expected receipt of related receivables
  • Partially structured facilities: characteristics:
    • Timed repayment of the trade loan to the debit of the borrower:
      • Not classed as self-liquidating given no bank control over the receivable proceeds
  • Facility structuring: key controls:
    • Use and application of finance
    • Linkage of payment and/or finance to trade documentation
    • Control over the goods:
      • Bills of lading
      • Freight forwarder: acknowledgement of bank instruction and noted financial interest
      • Warehouse receipts, holding certificates, deeds of attornment
  • Cargo insurance: its importance to the financier:
    • Negotiable certificate Vs loss payee
  • Trade loans:
    • Drawdown documentation
    • Duration: identifiable date set for repayment aligned to the trade cycle
    • Use of labelled/descriptive trade loans:
      • Managing risk exposure aligned to facility sub-limits
  • Determining the required nature and extent of facility structuring:
    • Mind the ‘credit gap’
  • Benefits of structured trade finance to the bank:
    • Credit enhancement:
      • Transactional appraisal
      • Controlled release of finance
      • Security and control over the goods
      • Monitoring transactional performance
      • Timely triggers for enquiry
      • Repayment from the transaction: ownership and capture of the receivable

PAYABLES & RECEIVABLES FINANCE: STRUCTURING A SOLUTION

Travis Meats
Risk appraisal and formulation of a solution for the importation of frozen chicken meat and its sale on extended credit 
Case study: virtual breakout syndicate     

CASE STUDY AND SOLUTION

MODULE 26

Structured trade finance: credit risk assessment (150mins)

Credit risk assessment in trade finance: relevant deciding factors to credit support

  • Defining credit risk and its causes:
    • Probability of default:
      • Results of the ICC survey
    • Loss given default
    • Exposure at default
    • Expected loss
  • Differences to traditional balance sheet assessment:
    • Borrower repayment Versus repayment from controlled transactional proceeds
  • Key aspects of credit assessment in structured trade finance:
    • Identifiability and credit quality of the source of transactional repayment:
      • Nature of evidence of debt
      • Quality: end-buyer’s ability to pay
      • Performance: end-buyer’s willingness to pay
      • Allowable deductibles (dilutions)
      • Ownership, control and capture of the trade receivable proceeds
      • Legal right of debt enforcement
    • Sales leverage:
      • Client’s USP
      • Motivation for end-buyer’s purchase: need or price driven?
  • Relevance of financial statement analysis in structured trade finance:
    • Importance of the aged debtor and creditor listings, and credit note history of the client
  • Fundamental importance of performance risk to the structured trade financier:
    • Risk profile of the trade cycle entry point for the financier
    • “Going concern” status of the client: dependence risk on other credit facilities/financiers:
      • Type of facility: double finance risk?
      • Available facility headroom
      • Security provided
      • Expiry/renewal date
      • Facility covenants (risk of breach?)
    • Supply chain:
      • Reliability: goods conformity and timeliness of supply
      • Supplier dependency and contingency: uniqueness of supply?
  • Goods: risk aspects and dependencies to facility repayment:
    • Nature of goods:
      • Re-sale restrictions: unique; branded; licensed
      • Vulnerability to dispute
      • Product life cycle
    • Quality management
    • Price dynamics
    • Secondary market:
      • Liquidity
      • Realisable price
  • Taking security over the goods:
    • Nature and purpose of security:
      • Creation of property rights over the asset
    • Location of goods:
      • Control
      • Legal principle of ‘lex situs’
    • Pledge and trust receipt
    • Reality of security – liquidation of goods

PRE-SHIPMENT FINANCE: RISK APPRAISAL (Part 1)

Aerosmith Machine Tools
Risk appraisal on the funding requirement of a potential client for the manufacture and export of a machine
Case study: virtual breakout syndicate 

MODULE 27

Trade cycle timeline: use, construction, and funding (75mins)

Understanding and evaluation of the trade cycle

  • Key stages of the trade cycle: risk profile of each
  • Plotting the time flow of goods, documentation and money
  • Identification of the funding gap
  • Determining the right form of finance:
    • Pre-shipment finance
    • Post shipment finance
  • Calculation of the bank credit facility requirement

TRADE CYCLE TIMELINE: CONSTRUCTION & FACILITY CALCULATION

Cutting Crew
Construction of a trade cycle timeline and facility requirement based upon the forecasts of a business
Case study: virtual breakout syndicate 

MODULE 28

Structuring payables finance (75mins)

Payables finance

  • What payables finance is and when it should be used
  • Financing the supply chain:
    • Advance payment to the supplier
    • Purchase order finance: prior to shipment to the end-buyer
    • Stock finance
    • Approved trade payables finance (reverse factoring): buyer-led
  • Structuring a payables solution:
    • Controlled facility/trade loan drawdown:
      • Documentation
    • Trade loan aligned to the trade cycle/expected receipt of receivable proceeds
    • Monitoring transactional progress and risk exposure: timely triggers
    • Capture of the trade receivable proceeds
  • How payables finance can improve a client’s financial metrics:
    • Lengthening of DPO and resultant liquidity benefits
    • Increased profitability: supplier payment acceleration for early settlement discount

PRE-SHIPMENT FINANCE: STRUCTURING A PAYABLES SOLUTION (Part 2)

Aerosmith Machine Tools
Structuring a payables solution for the manufacturer of a machine
Case study: virtual breakout syndicate 

MODULE 30

Trade and receivables finance proposition evaluation (150mins)

Proposition evaluation: key aspects

  • Identification of client drivers, needs and strategic priorities
  • Key aspects of trade proposition evaluation:
    • Basis of sales order/contract
    • Trade cycle timeline
    • Supply chain
    • Nature of goods and marketability
    • Quality risk management
    • Nature and domicile of warehoused goods
    • Mode of shipment
    • Method of payment
    • Trade credit
    • End-buyer and country
    • Nature of debt

GATHERING INFORMATION (Part A)

Argent Handbags
Information will be sought to evaluate the proposition of a client who requires an increase in their facilities
Case study: virtual breakout syndicate       

MINIMISING CREDIT RISK EXPOSURE: FORMULATING A SOLUTION (Part B)

Argent Handbags
Assessment of a client request for a standby letter of credit and increase in their overdraft
Construction of the trade cycle timeline, calculation of the facility requirement and formulation of a trade payment and financing structure which minimises credit risk exposure
Case study: virtual breakout syndicate       

MODULE 31

Commodity finance (225mins)

Risk evaluation

  • What commodity finance is and when it should be used:
    • Using structured commodity finance to look beyond the balance sheet
  • Types of commodity
  • Characteristics of the commodity market:
    • Benefits of exchange traded commodities
  • Evaluation of commodity finance transactional risk:
    • Existence/availability of the commodity
    • Control over the commodity and receivable throughout the commodity cycle
    • Source of repayment: identifiable and reliable
    • Understanding and validating the trade flows
  • Financing the commodity trader

Pre-export finance and prepayment

  • Risk appreciation and mitigation:
    • Performance risk:
      • Risks relating to grower/producer finance
      • Non-availability/non-delivery
      • Specification, grade and quantity
      • Quality
  • Description and use of:
    • Red and green clause credits
    • Advance payment and performance guarantees

PRE-EXPORT FINANCE: STRUCTURING A PAYMENT SOLUTION

Brubeck Coffee
Structuring a pre-export payment solution to mitigate risk
Case study: virtual breakout syndicate 

Warehouse finance

  • Financing warehoused goods:
    • Collateralised mechanism for finance:
      • Pre-sold
      • Speculative
  • Risk appreciation:
    • Non-existence of goods
    • Incorrect specification, grade, quantity
    • Quality deterioration
    • Theft or damage
    • Mixed storage: not separately identifiable
    • Loss of control: unauthorised movement/exit
    • Inability to perfect security and right of sale
    • Price degradation
    • Political frustration: sale, export, repatriation of proceeds
    • Transfer risk: proceeds of liquidation
  • Control of goods:
    • Warehouse receipt: description and example:
      • Status of issuer/warehouse owner
      • To what extent can the Receipt be relied upon?
      • Does the Receipt constitute a negotiable document with full legal attributes of negotiability?
      • Control over Receipt originals
      • Registration?
      • Notification to issuer/warehouse operator of financier interest
    • Warehouse warrant
    • Deed of attornment/holding certificate
  • Assessing and determining the value of goods:
    • Market price volatility
    • Net realisable value
    • Financing ratio
  • Security over goods:
    • Implications of ‘lex situs’
    • Legal ownership Vs pledge/security
  • Monitoring goods in the warehouse:
    • Use of collateral managers:
      • Collateral management services

Borrowing base

  • Description, operation, and use
  • Risk appreciation
  • Structuring a revolving borrowing base facility
  • Value of the asset pool:
    • Determination of asset class lending values
  • Operation
  • Reporting

COMMODITY FINANCE: STRUCTURING A TRADE CYCLE SOLUTION

Toto Copper
Identification and consideration of the risk aspects of a commodity transaction
Formulation of a structured trade finance solution across the commodity trade cycle
Case study: virtual breakout syndicate       

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