September 21, 2009 / 6:32 PM / 10 years ago

New fund helps hard-hit US firms finance exports

* New trade finance fund to be launched this month

* Formula for third world exporters applied to U.S. firms

By Joseph A. Giannone

NEW YORK, Sept 21 (Reuters) - The same kind of trade finance used by third-world manufacturers to overcome weak country credit ratings may now help ailing U.S. automakers export cars to the Middle East and elsewhere.

Craig Allen, head of Delphi Trade Inc and an export finance veteran, said he expects to launch an investment fund next week to facilitate sales by U.S. companies currently hampered by weak credit, starting with the beleaguered car companies.

Historically, trade or supply chain finance firms step into the middle of transactions, helping exporters in weak-credit countries sell their products to buyers concerned about payment risk. But the financial crisis and recession have created a whole new audience within the world’s largest economy.

“Over the long term, we are financing exports in developing markets,” Allen said in an interview. “Right now we’re finding opportunity here in our own back yard.”

The serial entrepreneur previously helped run a 2 billion euro asset-backed commercial paper conduit with Nordea Bank NDA.ST, and he founded International Structured Finance Corp in 1992 with Dresdner Bank.

Allen also was a founding partner of securitization boutique Aegis, which went public in 1994, and earlier worked in asset-backed securities for Bear Stearns Cos Inc. For his latest act, Allen and his Dallas-based firm are launching a fund to finance a series of cross-border trades.

The firm’s new fund should go live on Sept. 30, Allen said. The firm has been raising money from U.S. investors and looks to get started with about $100 million of seed money.


Low credit ratings hurt exporters, since customers have to weigh payment and collection risk. Delphi steps in between, forwarding money to buy pre-sold goods and then passing them to the end buyer, collecting a trade margin as its fee.

Manufacturers benefit because Delphi begins delivering payment immediately after a deal is signed, as opposed to months down the road when a product is delivered. That speeds up cash flow that can be invested in production.

This structure also opens doors to a big, well-heeled audience of Middle Eastern banks, he said, because it complies with Islamic banking rules that outlaw interest. In addition to being sharia-compliant, Delphi’s trades offer these banks short-term, commercial paper-like returns for their cash.

“We’re applying our trade finance technology in a way that allows us to enter that market,” Allen said. “We’re trying to create a market for a short-term cash alternative and that falls within the Islamic structure,”

The global auto market, for starters, offers plenty of opportunity, producing $3 billion to $4 billion a year of this type of financing, he said.

Over time, Delphi expects to expand its reach to a number of sectors and countries. Delphi hired Darren Wilcox, a former Goldman Sachs Group Inc (GS.N) banker who will help extend the firm’s reach with energy markets, Allen said.

Delphi could help firms that ship oil and gas via pipelines, he said, as market prices fluctuate wildly as their products move from end to end. Delphi might also in the future advance payments to the mining sector. (Reporting by Joseph A. Giannone, editing by Gerald E. McCormick)

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