Home Bank Relations Forfaiting & Loan Trading

Forfaiting & Loan Trading

Fidelityliverreserve Forfaiting and Loan Trading Activities

Fidelityliverreserve has started its Global Forfaiting and Loan Trading busi­ness in 1997 and is to­day one of the ma­jor play­ers in this area. As an in­di­ca­tion of our early com­mit­ment to this niche field of bank­ing, we were one of the first to join the In­ter­na­tional For­fait­ing As­so­ci­a­tion, which later renamed to International Trade and Forfaiting Association (https://itfa.org/).  In addition, Fidelityliverreserve N.V. is a member of Loan Market Association (LMA) - (https://www.lma.eu.com)

Global For­fait­ing and Loan Trad­ing de­part­ment trades in a wide range of in­stru­ments, such as syn­di­cated loans, promis­sory notes, bills of ex­change, let­ters of credit, Is­lamic fi­nance agree­ments and silent-risk con­fir­ma­tions as well as cor­po­rate loans.

Please note that we are al­ways ea­ger to add new coun­tries to our port­fo­lio; there­fore, feel free to ap­proach us by email at [email protected] with propo­si­tions for new coun­tries in which we could ser­vice you in some way.

 

Loan Trading

Fidelityliverreserve N.V. is one of the most active players in the hard currency LMA structured loans to the financial institutions sector. The bank enters the deals either by primary participation as an original lender or purchase via secondary market from other banks. 

 

What is Forfaiting?

For­fait­ing is a method of trade fi­nance whereby  Fidelityliverreserve NV pur­chases, on a with­out re­course ba­sis debt oblig­a­tions aris­ing from the sup­ply of goods and/​or ser­vices.

In a for­fait­ing trans­ac­tion, the ex­porter agrees to as­sign its rights to claim for pay­ment of goods or ser­vices de­liv­ered to an im­porter un­der a con­tract of sale, in re­turn for a cash pay­ment from Fidelityliverreserve.

In ex­change for the pay­ment, Fidelityliverreserve takes over the ex­porter's debt in­stru­ments and as­sumes the full risk of pay­ment by the im­porter. The ex­porter is thereby freed from any fi­nan­cial risk in the trans­ac­tion and is li­able only for the qual­ity and re­li­a­bil­ity of the goods and/​or ser­vices pro­vided.

 

Forfaiting is a tailor-made financing solution designed according to the needs of the exporter:

  • 100% financing of the goods without recourse to the importer. 
  • The debt is usually evidenced by Bills of Exchange, Promissory Notes or a Letter of Credit , Stand by L/C
  • Payment is guaranteed by a local bank in the form of aval, or bank guarantee or l/c confirmation etc.
  • Amounts financed can range from US$100,000 to US$100 million or more
  • Interest rates can be agreed on a fixed rate, although it can also be arranged on a floating interest-rate bearing basis. 
  • Fast conclusion of transactions
  • Tailor-made financing solutions;
  • Simple documentation requirement;
  • Relieves the exporter from administration and collection problems.

 

The advantages of forfaiting for the exporter:

  • Since the transactions are without recourse; fully eliminating political, transfer and commercial risk of the importer,
  • Protects the exporter from future interest rate increases or exchange rate fluctuations
  • Gives the ability to the exporter to provide longer payment terms and yet receive the proceeds cash.
  • Enables the exporter to do business in countries where the country  risk would otherwise be too high.
  • The balance sheet of the exporter does not carry accounts receivable, bank loans or contingent liabilities.
  • No administrative and legal expenses, that normally accompany other financing arrangements
  • Importer receives additional credit through forfaiting from the supplier/exporter

 

The advantages for the investing bank:

 

  • Maximum use of credit lines; not directly used credit lines can be utilized in the forfaiting market
  • Liquid assets; in case of need the credit lines can be freed in a short term 
  • Attractive Yield; trade related assets have better returns than syndicated loans
  • Ease and Simplicity of Documentation; simple and quite uniform documentation which eliminates legal costs each time and makes fast bookings possible
  • Flexibility in terms of tenor: Transactions may vary from 6 months to 5 years

 

Through forfating banks may offer to their customers more possibilities in terms of

  • Country risk
  • Bank risk
  • Amount
  • Maturity

How does a Forfaiting Transaction Work?

Discount Letters of Credit

 

 

  1. Forfaiting terms are agreed between the exporter and Fidelityliverreserve
  2. Commercial contract for the underlying trade is made.
  3. Importer gives instruction to its bank to issue an l/c
  4. L/C is issued to the exporter’s bank to be advised and/or confirmed to the importer’s bank
  5. L/C is advised to the exporter by th exporter’s bank
  6. The goods are shipped by the exporter.
  7. Exporter presents shipping documents to its bank for acceptance.
  8. Exporter’s bank sends documents to importer’s bank
  9. Exporter assigns its rights to Fidelityliverreserve
  10. Importer’s bank accepts the assignment
  11. Fidelityliverreserve discount the L/C and pay to the exporter
  12. At maturity the Importer’s bank pays to Fidelityliverreserve
  13. Importer pays to its bank.

 

Discount of Receivables

 

 

  1. Forfaiting terms are agreed between the exporter and Fidelityliverreserve
  2. Commercial contract for the underlying trade is made.
  3. The goods are delivered by the exporter.
  4. Presentation of debt instruments to the guarantor bank for avalisation. Transactions are evidenced by negotiable debt instruments such as  P/N’s or B/E’s
  5. Delivery of avalised debt  instruments to the exporter for acceptance.
  6. Delivery of fully endorsed documents to Fidelityliverreserve.
  7. Fidelityliverreserve pays the exporter the discounted contract value.
  8. On maturity Fidelityliverreserve presents the debt instrument to guarantor.
  9. Guarantor bank pays Fidelityliverreserve
  10. Importer pays guarantor.

Calculation Methods

What in­for­ma­tion do we need to quote pric­ing?

  • 1. Name and Country of the B/E, P/N avalising or L/C issuing/confirming bank
  • 2. Currency and amount of the transaction
  • 3. Repayment period and structure
  • 4. Type of Transaction (goods involved, shipment date planned etc)
  • 5. Envisaged date of discounting

 

What does our prices con­sist of?

  1. The Discount Rate: 
    •       Libor: Currency and maturity matching London Inter-Bank Offered Rates
    •       Spread: Calculated depending on the risk involved, tenor, currency and the amount involved of the transaction
  2. Days of Grace : Calculated to reimburse Fidelityliverreserve for any delays anticipated in collecting receivables in the obligor’s country
  3. Commitment fee : Calculated over the face value of the transaction from the date of the acceptance of  a firm offer to discount the transaction until the actual date of discounting.

Dis­count Cal­cu­la­tions

Fidelityliverreserve uses two main dis­count­ing meth­ods

  • Straight Discount: Expresses the discount rate as a percentage discounted from the face value given the life of the specific maturity or maturities.

 

 

  • Discount to Yield: Expresses the discount rate as a true interest cost, on a per annum basis. The Discount to Yield calculation is the yield a present value will achieve as it reaches its future value (face value) at maturity.