clace conference - may 2010 the world of loans and structured trade finance…

CLACE Conference - May 2010

The world of Loans and Structured Trade

Finance…

Structured Trade Finance


-What is STF? Back to Business?- Why STF? Square Peg into Round Hole, Longer Tenor/Larger Size, Unchartered Places, Difficult Markets- How to Work with ECAs, Multilaterals- Private Insurance Market – Trade Credit/Brokers- Bankruptcy Remote, Securitizations- Forfaiting, Factoring, Supply Chain Financing- Secondary Markets- Specializations, Access to Market, Flexibility


What are these ‘worlds’ and how do they differ…??

Trade Finance LoansHandled by Transaction Banking team – large volume of deals per week!!

Handled by Syndications team – modest volume of deals per month

Invariably ‘trade related’ Not necessarily ‘trade related’ – ‘general corporate purposes’ very common

Various types of Letters of Credit (eg, sight, usance, irrevocable, revolving, standby)…

…Receivables facilities also prominent

Main types of Loans: Bilateral, Club or Syndicated…

…close links to Capital Markets

Often 4 parties involved: Applicant, Beneficiary, Issuing Bank, Advising/Negotiating Bank

Number of parties involved could range from 2 to 22 (or more)…

Funding not always required by Banks Term loans almost always funded; Revolving Credit Facilities seldom fully utilized


Deal sizes can range enormously…

Trade Finance deals tend to range from US$1m to US$ 100m

Loans tend to range from:US$1m to US$100m for ‘bilaterals’, from US$50 to US$250m for ‘club deals’, and from to US$100 to US$1bn for ‘syndications’

…but can be higher!!!


How big are these worlds…??


More specifically…

Volume of World Merchandise Trade: 2006 US$ 11.8 trillion 2007 US$ 13.6 trillion 2008 US$ 15.7 trillion

Global Loan Issuance: 2005 US$ 3 trillion 2006 US$ 3.5 trillion 2007 US$ 4 trillion 2008 US$ 2.25 trillion


…and in 2009

World Merchandise Trade fell 23% to US$ 12.1 trillion!!

Global Loan Issuance fell 22% to US$ 1.75 trillion!!

…ouch!!


Which felt like this for some…


What of 2010 - Smooth sailing or stormy waters ??


Well, it’s complicated…


…and tricky


…and volatile!!!


But there’s hope, I think…

Q1 2010 loan issuance up handsomely year-on-year;WTO economists forecast global trade to rise 9.5% in 2010 – MarchSecondary market activity bubblingInvestors hungry for assetsMargins and yields fallingTenors lengthening


Or there was until things started to change in Q2 2010…

April 23 – Greek govt requests the EU/IMF bailout package be activated…


And suddenly things change again…

Market sentiment becomes uneasy

Increase in ‘cost of funding’ (liquidity)

3mth Libor doubled in 2 months!!


And suddenly things change again…

Market sentiment becomes uneasyIncrease in ‘cost of funding’ (liquidity)3mth Libor doubled in 2 months!!Diminishing confidence all roundHigher yields demanded by lenders/investorsOpportunistic bidding/buying in secondary market


Regional Overview - AsiaHigh levels of local currency who have strong appetite to lend to familiar namesChinese banks lent aggressively in 2009-2010 (especially in the property sector) - eg, over US$1trn in Jan ’10!! - but this momentum has slowed following recent govt restrictionsElsewhere, steady flow of deals from Australia, Indonesia, Philippines, Singapore and Vietnam;Tenors being pushed …as far as 7yrsNotable commodities deals:

Trafigura Beheer raised US$2.3bn in Mar ‘10 Glencore Int’l raised $10.2bn in May ’10 Vitol Asia/Holding raised $1.3bn in May ’10

‘Landmarks’ deals with LatAm – Chinese and Taiwanese


Regional Overview – Gulf region

Prominent debt restructurings in the last 2yrs – eg, Kuwaiti investment co.s, Dubai Inc and Dubai World (US$24bn), Saad and Algosaibi (US$22bn), Dolphin Energy (US$4bn)

Balance sheet deterioration – higher NPL’s related to realty

Investors very selective how they deploy their liquidity

3yr tenors are ‘sweet spot’

Explicit guarantees required; no more ‘name lending’

Abu Dhabi and Qatar sovereign success in the bond market – raised US$38bn in 2009, up from US$12bn in 2008

Few sellers offering steep discounts in the secondary market


Regional Overview - Europe

Substantial number of ‘jumbo’ refi’s in Germany and Spain – over US$100bn each in 2009

‘High grade’ tenors pushed to 5yrs

Borrowing costs drop 50% over last 12mths…


Regional Overview - Europe

Substantial number of ‘jumbo’ refi’s in Germany and Spain – over US$100bn each in 2009‘High grade’ tenors pushed to 5yrsBorrowing costs drop 50% over last 12mths…‘Technical rebound’ in leveraged loan market in 2009 – top 40 loans soared 30pts (or 50%!!) to 90% of face value – but now see notable sellers and little appetiteLiquidity has become prominent issue again – forced banks to withdraw from primary loansSecondary market activity ‘spotty’


The market has slowed down…

E M E A P r im a r y L o a n M a r k e t :Q u a r te r l y L o a n V o lu m e

* I n c lu d e s p r o j e c t s , a i r c r a f t & s h i p p in g , in f r a s t r u c t u r e a n d n o n - r a t e d d e a ls o u t s i d e W e s t e r n E u r o p e

* * I n c lu d e s r a t e d d e a ls in E M E A a n d n o n - le v e r a g e d u n r a t e d d e a ls in W e s t e r n E u r o p e , e x c lu d in g a l l s t r u c t u r e d f in a n c e

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H i g h G ra d e ** L e v e ra g e d - B a nk L e v e ra g e d - Ins t i tu t io na l A l l O the r *

S o u r c e : T h o m s o n R e u te r s L P C / D e a lS c a n


…‘pipeline’ not too promising

E M E A P r i m a r y L o a n M a r k e t :L o a n P i p e l i n e

S o u r c e : T h o m s o n R e u t e r s L P C / D e a l S c a n

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Regional Overview – Latin America

A relative paradise to the weary!!…


Regional Overview – Latin America

A relative paradise to the weary!!…Enjoyed fabulous commodities boom; Brazil enjoying a bonanza… …aided by a prudent central bankChile rocked by earthquake but has funds to rebuildMexico sent reeling in 2008 – following US downturn – now ‘on the mend’Top-tier banks and corporates awash with liquidity!!Bond markets undercut and ‘outpaced’ loans in 2009/10Borrowing costs tumbled over last 18mthsTenors being pushed to 3yrs and beyond…


And what of Pricing…??


And what of Pricing…??

“PLEASE CALL THE DESK…”


Thank you for your patience…

Brendan Herley‘Distributor of Loans!’

clace conference - may 2010 the world of loans and structured trade finance…

Documents

flexibility slide

utilized slide

tricky slide

complicated slide

structured trade finance

global trade

trade financeloans

market sentiment