Rare Securitization Of Commodity Inventories In The Works

  • 10 Nov 2002
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Baar, Switzerland-based Glencore International, one of the world's largest natural resources companies and commodity traders, is preparing a rare securitization of its commodity inventories through a single-seller commercial paper conduit, according to Seth Vance, managing director, head of financial institution securitization and European collateralized debt obligations at Deutsche Bank in London. The $750 million deal, scheduled to be launched next month, is being structured and lead managed by Deutsche Bank's London-based securitization team.

The deal will securitize inventories of lead, nickel, zinc, copper and aluminium. Glencore and Deutsche Bank opted for a CP deal instead of a term deal, because it provided for more funding flexibility. Glencore can be long on commodity inventories or very short, and wanted to fund to match that dynamic, meaning the company did not want to have to pay a coupon to investors when it did not have any inventory, explains Vance. It is the sale of the commodities to the conduit that generates cash to pay cp holders, while Glencore keeps the profits.

One of the challenges in structuring the deal was getting rating agencies/liquidity providers/investors comfortable with the volatility inherent to commodities as an asset class, says Vance. "This is a creative application of securitization technology in another growing area within the business," says Vance. In future, he foresees more deals of this kind as the structure could be used to securitize other non-traditional assets such as forests and oil and gas reserves, for example.

Only a few securitizations of commodity inventories have been executed. One was a E100 million term securitization of diamonds for Rosy Blue a Belgium-based diamond wholesaler. Another was a securitization of wool inventories.

  • 10 Nov 2002

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 14,443 29 18.07
2 Bank of America Merrill Lynch (BAML) 8,264 27 10.34
3 Lloyds Bank 7,329 24 9.17
4 Citi 6,748 19 8.44
5 JP Morgan 5,220 8 6.53

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 117,398.62 338 11.04%
2 Bank of America Merrill Lynch 94,721.79 272 8.91%
3 JPMorgan 92,612.23 269 8.71%
4 Wells Fargo Securities 82,597.19 239 7.77%
5 Credit Suisse 69,442.99 183 6.53%