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Market View: A beginner’s guide to borrowing base facilities
30 January 2012
Watson Farley Williams’ partner, Celia Gardiner, provides a simple guide to borrowing base facilities, an increasingly popular structured commodity financing instrument for both traders and commodity producers.
Read more:
borrowing bases
structured commodity financing
Watson Farley Williams
What are borrowing base facilities, and why are they so popular now?
A borrowing base facility is essentially a working capital facility, usually made available to a trader or to a processor of commodities, in which the availability of the facility is marked to market on a regular basis against the value of the assets held and traded by the borrower. The trading stocks and receivables are usually offered as security for the facility and the amount borrowed is regularly adjusted so as not to exceed the value of the assets held by the borrower at the date of the adjustment. The facility is usually borrowed by way of short term advances or by the issue of credit instruments such as documentary letters of credit, often used for the purpose of purchasing further stocks.
Borrowing base facilities are a more structured development of the traditional transactionally secured facilities made available...
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