BNP Paribas revives "originate to distribute" for commodities

Thu Aug 22, 2013 10:49am EDT

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LONDON, Aug 22 (IFR) - BNP Paribas is taking part of its commodity trade book off balance sheet, in a new deal called Lighthouse Trade Finance 1, reviving the "originate to distribute" business model.

It has sold a securitisation of USD131.6m of commodity transport receivables, the first in a planned series of deals from the bank's Energy and Commodities group. The deal removes the receivables from the French bank's accounting and regulatory balance sheet, which should allow it to originate more commodity trade finance than its increasingly constrained balance sheet allows.

In contrast to pre-crisis deals, however, it will retain 5% of the risk, as a result of European rules designed to align bank interests with their deals.

For BNP Paribas's clients, the commodity trading houses that generate trade receivables, a deal like this connects them directly to the capital markets in secured format.

Subordinated paper in the new vehicle has been subscribed by Lord Capital, a specialist institutional investor in trade finance deals. It said it is buying the entire subordinated tranche, and will be the controlling class for the entire portfolio.

Although this deal is only USD131.6m, Lord says its deal could ultimately be on a USD3bn book. BNP Paribas's total commodity trade financing business is around USD20bn.

The deal is structured a little like a mortgage master trust - there is a master issuer vehicle, and subsidiaries for each series of notes. Assets are grouped by type, rather than by client, with multiple client receivables originated by BNP Paribas (Suisse) backing each issuance.

The first issue is limited to crude oil, oil products, ferrous or non-ferrous metals, coal and fertilizers or alloy products.

Transaction structure is a USD100m senior tranche, to be rated AAA by Fitch, paying one-month Libor plus 85bp. This is subscribed by a single investor.

There is also a USD20m Class B paying one-month Libor plus 300bp, a USD5m subordinated tranche paying one-month Libor plus 1000bp and sub notes additional coupon (targeted at 475bp per annum) and USD6.6m of sponsor retention notes.

The latter will be held by BNP Paribas to fulfil the EU's Article 122a risk retention rules.

All tranches have an expected maturity of August 2015 and final maturity of August 2017.

The bank said: "This transaction will ensure more liquidity in the commodity transportation market and will give investor clients access to a new asset class. Part of the bank's originate and distribute strategy, this particular deal marks the beginning of a series of similar transactions for BNP Paribas Energy & Commodity Finance". (Reporting By Owen Sanderson, editing by Alex Chambers and Anil Mayre)

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