Deal of the month
WHAT'S NewS Issue 1 January 1998
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Rabobank International is one of the main
sponsors of this presitious event.
which was structured and executed in-
^ouse. However, the Atlantis program
stands in a quite a distinct category from
the usual securitization programs.
With respect to Atlantis, there are two
important points to bear in mind. First,
income from the securitized assets will
equate, guilder for guilder, with the net
profit associated with the original
transactions. In other words, no revenue
will be lost. Secondly, the structure will
not require cliënt notification or
acceptance, which should reduce any
potential for the disruption of
relationships to a minimum. Customer
concerns that do arise can easily be put to
rest. The ultimate goal of the Atlantis
exercise is quite simply to restructure our
credit risk; these corporate loans will stay
on our balance sheet, as before, and the
program will have no effect on our
debtors whatsoever.
The cliënt: Lewis Peat
(Rubber) Financial
Corporation Ine (LPF)
T'be deal: Three standby credit
^■acilities to realize the
securitization of pre-sold
inventories and receivables
from the clients' US and UK
operations.
The players: The players: Ong
Poon Lee (account manager,
Singapore), Brian James
(securitization, London) and
Caroline Hastings (New York).
Lewis &i Peat, a Singapore
based supplier of natural
rubber products with
operating companies in the US,
Singapore and the UK, as well
as agents throughout the
world, is an established
Rabobank International cliënt.
^The company has been
Bgrowing rapidly of late and
now controls approximately
10 percent of the global rubber
trade. lts share of the
European market is 20
percent, and it is the number
one supplier of latex to North
America, where it commands a
28 percent market share. In
short, Lewis Peat has
established a track record as
one of the world's largest and
most experienced rubber
December 16: the minority
shareholders of Rabobank BRP
in Poland have agreed to
Ife transfer their stake to us so that
our Warsaw-based operation
will become a wholly owned
subsidiary.More in our
February issue.
traders in competition with
such players as Cargill,
Guthrie, Deli Maatschapij and
the Alcan Group.
Recently, it was approached
with new sales contracts and
thus the possibility of further
growth that would enable it to
enhance its competitiveness
and market share. 'In a
commodity business like this,
where margins are tight, you
need volume to prosper and
grow,' explains Brian James of
the securitization team in
London. 'But the growth of
any trading company is
basically constrained by its
access to funds. What this
securitization exercise has
done is to disintermediate
Lewis Peat's access to
financing from its actual
capital base. It has been able to
tap the commercial paper
market, which it might not
otherwise have been able to
access, and has also lowered
the cost it pays for funds.'
The securitization is a
complement to a syndicated
facility for USD 150 million
arranged last year. It is a three-
way deal involving the
Singapore, New York and
London branches, and it
involves three separate but
closely interrelated credit
facilities. These were designed
to support the US dollar
denominated commercial
paper program, which works
as follows. Receivables and
pre-sold inventory from Lewis
Peat's US and UK
operations are sold to special
purpose vehicles, which
finance these purchases by
issuing commercial paper
which has been assigned an
Al/Pl credit rating. The three
instruments that enable this CP
program include a standby
credit facility of USD 7
million, to be extended by
Rabo Singapore. In effect, this
upgrades the credit rating
assigned to the cliënt by taking
a risk on Trade Indemnity Plc,
which inures the receivables,
and on Lewis 8c Peat itself,
which has entered into a
reimbursement agreement for
the full amount of the facility.
Activation of this standby
credit would only be triggered
in the unlikely event that (a)
big debtors like Goodyear
would find themselves unable
to pay; (b) Lewis Peat were
to go under; and (c) Trade
Indemnity failed to pay off on
its insurance commitments.
The risk that such a three-fold
scenario might actually unfold
are deemed rather remote. It
should be noted that Lewis
Peat's insured trade receivables
are from highly reputable
buyers. The company does a
substantial business with all
major international tyre
companies - led by Goodyear,
Bridgestone and Firestone - on
a direct export basis. This is
significant for another reason;
although the recent currency
crisis has a negative impact on
rubber prices, since the largest
rubber producing countries are
located in Southeast Asia, the
impact on L&P's trading is
mitigated by the fact that its
sales are done against world
prices. Moreover, long-term
demand for latex and rubber
from China and India is
expected to grow in line with
the size of their automobile
markets. The second
instrument is an FX facility of
USD 15 million, to be
extended by Rabo Singapore
and allocated to Rabo
London. 'Since part of the
receivables are generated
inside Europe and the funding
is denominated in dollars, this
instrument strips out any FX
risk,' explains Brian James.
Finally, Caroline Hastings of
Rabo New York coordinated a
USD 72 million 364 day, zero-
weighted Liquidity Backstop
Facility. Because the liquidity
facility is only drawn if the
company is unable to issue the
commercial paper, for example
due to illiquidity or
exceptional market disruption,
we have been able to make an
attractive return with very
little solvency outlay. The
other aforementioned
facilities, in turn, generate
healthy commitment and
arrangement fees. What is
equally important is that the
securitization has enabled our
cliënt to take advantage of
market opportunities as they
arise - and to adjust its
activities to the fluctuations on
the market rather than being
constrained by its capital base.
'This is an excellent example
of how the Rabobank
International network can
coordinate its access to various
markets, and its ability to
deliver a variety of products,
to create a total package that
can aid in our customers'
business development,' says
Ong Poon Lee of F&A in
Singapore.
