Corporate Debt and Leveraged Loans vs Trade Finance: Risk Factors Managed or Structured |
|||
|---|---|---|---|
| Risk Factors | Corporate Debt & Leveraged Loans | Trade Finance Loans | Trade Finance Mitigant |
| Credit |
- Company creditworthiness - Cash flows and liquidity |
- Liquidity position and overall creditworthiness and payment. - Capacity of the company to perform under the transaction and deliver the goods. |
- A thorough examination of the track record of the borrower, including capacity and cost analysis. - Security package – collateralisation by underlying goods, assignment of export contracts, recourse to fixed assets. |
| Country |
- Political stability (sovereign risk) - Macroeconomic environment |
- Ability of transaction to survive distressed political environment. - Import and export regulations exchange controls. |
- Strategic nature of goods. - Offshore collection/repayment account. - Political risk insurance. |
| Performance |
- Profit and loss - Operating cash flows |
- Agent - Transaction risk or risk threatening the completion of the transaction e.g. a. Operational issues (damage or loss of goods) or b. Specifications (quality and quantity). |
- Reputable collateral managers. - Recourse to insurance providing coverage against losses through insolvency, protracted default and political risk. - First-class inspection companies. |
| Market |
- Interest rate fluctuations - Volatility of spreads/stress periods |
- Commodity price risk - FX risk |
- Back-to-back contracts, hedging, over-collateralisation. - Self-liquidating. - Use of swaps. |
| Legal | - Documentation |
- Documentation - Governance |
- Global standard binding sale and purchase agreements (BAFT MPA). - Thorough analysis of contractual terms. |