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Mitigate your performance risks and secure your transactions
ACE is a highly specialized financial services company providing « CREDIT SUPPORT
SERVICES ». This enables financial institutions to effectively monitor and control assets throughout the value chain. With such an effective degree of
Basel 2-compliant collateral control, financial institutions are now able to extend
financing to customers from whom they would previously have shied away.
Commodities are an asset with a value from the moment that they are produced; even
commodity-producing ability is a bankable asset. By working with a credit
support company, a bank can structure a loan around the commodity supply chain,
if it wishes starting from the farmgate and going to the end user. But even
if a bank only wishes to finance a segment of the supply chain, it can benefit from
the domain expertise and local presence that a credit support agency can bring.
Apart from reducing their risks, banks can also expand into new market segments.
For example, many companies have a large part of their working capital tied up in
stocks of goods - raw materials, inputs, spare parts, goods awaiting shipment.
By having an independent credit support agency controlling these goods, the bank
can effectively manage the related working capital needs, freeing up the company’s
cash. Working with a specialized agency mitigating performance risk and securing
transactions, a bank will have abundant new opportunities.
Main relevant ACE services
ACE’s main clients are banks and financial institutions. We have a team of
experienced credit support officers worldwide to analyse any particular transaction
in terms of time, quality, price, weight, quantity, logistics, legal, tax and insurance
risks; and then to help structure a financing so as to ensure performance of a specific
transaction. Services to banks are multiple, and are further described in
other ACE brochures, but can be summarized as follows:
Structured Trade and Commodity Management Services
Structured Commodity Management Services (STCM) is a Credit Support Risk Management
Services that provides performance risks mitigations to financial institutions or
commodities companies based or active in developing markets and realizes repayment
of the loan from export or Import from the sales of commodity.
Under STCM, ACE works hand in hand with banks to develop banking products and ACE
services associated with such products. Details of structures of the products, minimum
terms and conditions, risks taken by the bank and mitigation thereof, risks taken
by ACE and mitigation thereof, and the roles of each party in each particular transaction
are clearly defined to ensure performance of the transaction.
ACE Credit Support Services provides accurate, timely and objective transactional
loan protection to enhance and support our client's loan decision-making.
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ACE Collateral Control Services
5CS = Character, Capacity, Capital, Collateral, Conditions and Surveillance
It is this acronym that describes ACE’s mission to provide lenders with physical
custody of collateral like inventory and accounts receivable. This serve to not
only provide continuous monitoring but the leverage to take possession of the assets
in certain cases of forbearance, breaches of lending agreements, insolvency actions
or other cases where segregation is required.
Field Warehousing and Storage Services
Field Warehousing and storage is essentially a method whereby a borrower’s trading
assets are used as security at the borrower’s own premises for a loan. This is because
of the control over those assets taken by a credit support company to act as a custodian
of the goods on behalf of the lender: Field Warehousing is therefore a security
device which enables the borrower to deliver to the lender legally valid documents
of the title and to grant a possessively pledge of goods stored in the borrower's
own plant, mill, refinery or warehouse.
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Collateral Management Services
In cases where the goods to be pledged by the customer are already stored with an
independent warehousing company, it is possible for a Field Warehouse to be set
up. For this purpose an Agency Agreement is entered between the
warehousing company and ACE whereby it agrees to act on behalf of ACE, in holding
the pledged goods. Under its provisions the warehousing company undertakes to hold
the goods solely to the order of ACE: ACE in exchange pays the warehousing company
its charges. The effective control of the Field Warehouse remains with ACE: thus,
ACE attorns to the Bank in respect of consignments of goods being taken into the
Field Warehouse and authorizes release of goods in accordance with the bank’s instructions.
ACE Collateral Management Services provide the banker with on-site physical and
legal control of inventory stocks, which are pledged as the operator's collateral.
ACE Collateral Management Services are designed to allow continuing relations with
marginal or troubled operators, while retaining the flexibility to provide protection
to the trader in the event of unanticipated increases in the operator's requirement
for further funding. By having ACE Collateral Management Services to control and
secure the pledge over the operator's inventory, the trader can customize the terms
of its loan to support the operator's specific needs. Under Collateral Management,
a Warehouse or Silo operator will use its own warehouses and clients will deliver
commodities for storage in such warehouses / silos.
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Monitoring Services
ACE’s continuous services include: its “Enhanced Credit Control System (e3c) that
“shadows” your customer’s borrowing base [the underlying in-out, eligible-ineligible,
validity test activities reported to the lender on specific time intervals] with
continuous third-party reporting of ongoing changes with periodic field auditing
in one package. This may optionally include, (on a reasonable efforts basis), a
“Red Flag” notification system for exceptions that could give rise to diminishment
of the collateral. Monitoring services are priced relative to the size of the loan
and number of locations where collateral is located. We accept liability for errors,
omissions or negligence only. We are not an insurance company or risk transfer agent.
Through our insurance partners, we may obtain an exclusive borrower all risk insurance
including misappropriation, FOG, FOQ in which the lender is the loss payee and ACE
is the additional insured.
Collateral Monitoring Services
5CS = Character, Capacity, Capital, Collateral, Conditions and Surveillance Describes
ACE’s mission to provide lenders with proactive services that not only inform, but
protect their interest in accounts receivable, inventory and other trading assets.
At the point periodic field examinations may not capture continuous changes in a
complicated, transitional or troubled borrower, Monitoring Services may be indicated.
With Monitoring Services you are receiving voluntary submissions of borrowing base
reports from your customer, but we provide a continuous “shadowing” of that process,
independently reporting to assure compliance with established eligibility and compliance
to lending agreements. We will shape a reporting service around the attributes of
your borrower’s business and the level of risk management you deem appropriate.
Monitoring Services are flexible but better tracking dynamic changes than examinations
alone, however complete they are. The objectivity of independent, ongoing surveillance
process is bundled with regular field examinations that are based upon need or enterprise
condition and less on timing intervals. Monitoring Services tend be regulator-friendly
as a push in the future is expected to favor transparency and independence in lender
servicing of borrower collateral.
A. Credit Support Accounts Receivable Service (CSARS)
Using data mining and account coordination techniques, ACE will report to the lender
on a continuous basis activity regarding validity of new invoices generated, payments
received, credits issued, offsets, ineligibility, other impairment, and outstanding
balances. Periodic aging and verifications of account debtor balances can be performed
as-well; the latter of which is on a specific request basis. This monitoring system
also is bundled with regular onsite examinations that are carried out announced
or unannounced basis and at a frequency relative to the underlying risk. The cost
of the service is expressed in a monthly rate that usually a low percentage annually
of average month-end collateral balances. It is assessed on monthly basis, and may
be invoiced to the borrower directly or through the lender that invoices the customer
with its other interest and fees.
B. Inventory Service (CSARS)
ACE will gather continuous additions, deletions, ineligible items, exceptional activities,
by electronic data mining by our account coordinators relative to the borrower’s
risk profile, and the characteristics of the inventory. Special attention is given
to verifying receipts, buildup of inventory categories (and slowness of others),
special terms, freight usage, gross margin tests, consignments, offsets, competing
claims and aging of major categories to preserve values or adjust to changes rapidly.
It is particularly important to monitor inventory build up with customers that engage
in vendor managed inventory (stocking) programs or consignments, especially involving
custom goods. The IMS system also includes regular onsite examinations, as well,
carried out on an announced or unannounced basis, and a frequency relative to the
underlying risk. The cost of the service is expressed in a monthly rate that usually
a low percentage annually of average month-end collateral balances. It is assessed
on monthly basis, and may be invoiced to the borrower directly or through the lender
that invoices the customer with its other interest and fees.
C. Secured Distribution
In Control Services, ACE’s Monitoring Services are included together with physical
dominion [where we obtain possessionary rights to hold and control your collateral
in our own leased storage areas co-located in the borrower facilities. This would
include inventory, raw material or finished goods.ACE utilizes a legal methodology
known as bailment in which storage locations are leased or sub-leased to ACE that
is the “bailee,” or custodian of those goods. This entails a greater degree of leverage
and control than otherwise possible through any other collateral management service.
The operative authority is established using a multi-party contractual agreement
and lender instruction letter we approve. We also can include inventory subject
to outside processing or tolling arrangements that can be difficult to control and
sometimes risky
ACE also manages the creation-to-collection of accounts receivable using either
a lender’s lock box or one we administrate, as-well a deposit-only cash collateral
account. Accounts receivable can also be controlled using third-party blocked postal
boxes where proceeds are collected by the borrower. This too, is governed by a multi-party
agreement and instruction letter.
Accounts receivable and inventory control may be jointly or separately managed as
deemed appropriate. We accept liability for errors, omissions or negligence only.
We are not an insurance company or risk transfer agent. Through our insurance partners,
we may obtain an exclusive borrower crime policy or bond in which the lender is
the loss payee and ACE is the additional insured
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Inspection Services
At ACE have a policy of continual enhancement of the quality of our services by
means of tight internal quality control network which enable us to offer to our
clients an accurate, fast and efficient service.
ACE Inspection Services provide protection to the parties of a
contract by ascertaining that the goods conform to the standards and / or specifications
the contract has been based on.
ACE can provide Inspection Services, as listed below:
- Inspection of containers (20 and 40’)
- General box condition appraisal
- Condition to receive cargo (dunnage)
- Stuffing / unstuffing process (tally, sampling)
- Weighing container load (weighbridge)
- Sealing
- Loading on vessel
- Bagged cargo
- Tally
- Check weight of bags
- Packing / marking
- Sampling
- Laboratory test
- Bulk dry cargo
- Holds cleanliness
- Weighting supervision
- Draught survey sea going vessel
- Draught survey barges
- Volume determination
- Sampling
- As per usual standard
- As per special sampling plan requirement
- Quality checks
- Quick tests (moisture etc…)
- Visual checks (sorting out)
- Laboratory tests
- Hatch cover water tightness
- Fumigation
- Full Outturn Guarantee
- Full Outturn Quality (FOQ)
- Bulk liquid cargo
- Quantity
- Shore tanks dipping
- Vessel tanks ullage
- Transfer line survey
- Sampling
- Shore tanks
- Vessel tanks
- Transfer line
- Quality
- Density field check temperature
- Laboratory tests
- Full outturn guarantee (FOG)
- Full outturn quality (FOQ)
- Consumer Goods
- Tallying cartons / boxes / units
- Sampling plan AQL (acceptable quality limits)
- Defects determination
- Expiry date-remaining life time
- Laboratory tests
- Packing / marking
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KYCC (Due Diligence) Services
ACE primary purpose of Know Your Client’s Customer (KYCC) is to provide our clients with support for identifying and determining those risks that might be of primary concern when evaluating a particular transactional commodity loan and to provide adequate mitigants.
The survey includes a complete investigation and analysis of:
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The prospective borrower and the relevant intermediaries
- The commodity specifications
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The relevant Lending Rationale
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Its financing needs,
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The legal requirements and Taxes
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The type of insurances offered by all the parties that to participate in the transaction.
ACE tailors to the financial institutions a comprehensive Credit Support Approval Package (CSAP) to analyze issues of overall viability, management effectiveness, operational difficulties, and transactional risks.
More Information
Accounts Receivable and/or Inventory Examinations
Accounts Receivable and/or Inventory Verification
Creditor Advisory Services
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ACE Credit Shield (Insurance)
ACE Credit Shield provides loss prevention and management services with reasonably
priced insurance coverage in one integrated program from the country of origin of
the product to the country of destination.
On the other hand, ACE through its expertise and experience in commodity financing
transactions, offer to review insurance policies on behalf of parties involved in
a transaction and advise on its viability and adequacy for the particular transaction.
At ACE, we aim
- To offer a policies issued by AAA underwriters
- To offer a comprehensive though tailored insurance package capable of covering:
- All cargo risks, misappropriation, errors, omission and fraud
- All aspect of the transactional cycle (storage, goods in transit, transport, processing
- From inland at origin to final destination
- To automate policy coverage through ACE's systematic involvement
- To combine the use of ACE's other risk mitigation services to tailor and reduce
premiums
- To facilitate claim filing, administration and invoicing between underwriters and
loss-payee.
ACE Global Marine Cargo Open Cover Presentation
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Inventory Appriasal
With our first-hand knowledge of the storage, composition, suppliers, competitors
and historical turnover of inventory, we are capable of providing on a reasonable
efforts basis, a non-certified, going concern, orderly in-place, or forced valuation
based upon our insight into the dilution, comparables, and liquidity of certain
inventory. In other cases we can seamlessly employ one of the certified appraisal
firms we use, or one you favor. ACE can provide value-added consulting services
to enhance the potential for greater recovery due to its knowledge of the debtor’s
business and comparables if involved with a prior collateral management service.
Turnaround, Workout and Corporate Recovery Services – Debtor
In our role representing creditors, but with nearly a quarter century of experience
working with troubled and transitional companies, we can vet or develop recommendations
for debtor-representation in the event you would like to use our experience and
turnaround industry connections to locate the right consulting or interim management
firm.
We normally do not engage in debtor representation. We may represent creditors or
lenders in forensic investigations, litigation support, or vetting debtor plans
or supporting motions for particular legal actions such as cash collateral hearings,
motions to appoint examiners, Lift of Stays, fraudulent conveyances, preferences,
and conversions from Chapter 11 to liquidations.
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Alternative Financing
If we are currently providing collateral management, we are in a particularly good position to develop alternative credit through trade suppliers to supplant lenders; to obtain replacement financing or gain a distressed debt investor to purchase your position. In addition, we may also arrange the sale or merger of a troubled customer given our close connections to many private equity firms.
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Audit Services
Because of our continuous contact with borrower assets we can seamlessly extend
our services into related requirements involving management of collateral, other
assets or certain operations. This includes developing secondary markets for collateral,
valuing trading assets, vetting debtor turnaround advisors, arranging alternative
credit or financing and the sale or liquidation of a distressed credit.
Elements of these services are as follows: Collateral Liquidation, Collection, Evaluation
Services
Our collateral management and advisory services logically set us up to control assets
when it becomes apparent that a borrower or debtor is incapable of completing an
out-of-court composition, workout, going-concern recovery or confirming a plan of
plan of reorganization if operating under Chapter 11 of the U.S. Bankruptcy Code.
We additionally are well positioned to assist receiverships including state court
assignments for the benefit of creditors. Some of the services we or our partner
firms provide are as follows:
• Collecting receivables and liquidating inventory during wind-down or in shuttered
status.
• Controlled billing and remittance programs under third-party control.
• Developing bulk sales and creditor buy-back’s on inventory.
• Interim management of liquidating estates.
• Onsite going-concern or going out of business sales.
• Pre-liquidation evaluation appraisals.
• Support for buyouts or earn-outs that are collateralized by the assets sold, and
requires monitoring.
• Monitoring assets for assignee in an assignment for the benefit of creditors or
Trustees in bankruptcy liquidations.
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Commodity Profile
The ACE - Audit Control and Expertise Group has international experience in serving the Commodity Transactions in sub-Saharan Africa, Asia, Middle East, Latin American and Europe. We mitigate transactions risk on behalf of a broad base of Clients. ACE holds and manages an impressive database on numerous commodity profiles. Such information is critical to lenders, traders and ACE Group as it help with understanding of commodities, standard norms, identification of risks associated with such commodities and putting in place proper mitigation factors when structuring a loan.
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Legal Services
Our in-house legal services team is composed of 12 experienced lawyers with recognised
expertise in international commodity trade finance operating throughout ACE network
of offices located in more than 49 countries throughout Africa, Asia, South America,
Middle East and Europe.
Our lawyers have wide experience in all aspects of international structured trade
and commodity finance, advising on the legal and regulatory aspects of commodity-linked
financing transactions, collateral control and warehouse receipt financing under
various legal systems, mainly common law and civil code, counselling international
organizations, governments, financial institutions and banks, raw materials producers
and refiners, trading companies, exporters and other market players.
These transactions require special knowledge of local laws regarding foreign trade
and exchange control, title to goods and creation of security interests, implementation
of appropriate collateral control and monitoring devices appropriate to the transaction.
The agreements which we would normally recommend for use in connection with ACE
professional services have been prepared by our lawyers and approved by local solicitors
with a formal legal opinion confirming and warranting that all applicable laws governing
the entire transaction are being complied-with and will constitute a valid, binding
and enforceable legal instrument under the laws and regulations of the country involved.
The establishment of a field warehouse invariably involves the concept of bailment,
in legal terms, field warehousing may be defined as the establishment of a valid
bailment upon the premises of the depositor by an independent third party, thereby
creating a change of possession and an effective pledge.
We provide legal opinions for the type of transaction proposed by the bank as and
when required.
LEGAL OPINION
The issuer of the field warehouse receipts creates a legally independent warehouse
within the borrower's premises by
- Leasing the storage area,
- Posting prominent signs giving public notice that the controlled area is operated
by the field warehousing company
- Controlling movements in and outfield of the warehouses
- Installation of locks (double lock kept by ACE and the borrower) and seals, management
by ACE staff, in order to issue legally valid warehouse documents (URC 522)
The principal competitor of Field Warehousing as a method whereby a corporate customer
can give security over stocks and similar assets to a lender is the floating charge.
However, not only does the floating charge have many disadvantages, but Field Warehousing
has certain positive advantages in those areas where the floating charges is weakest.
Thus:
- Field Warehousing enables the bank immediately to perfect its security. The floating
charge, on the other hand, only “crystallizes” (that is, becomes fixed) if the customer
goes into liquidation or makes default in payment of principal or interest or some
other breach of the terms of the debenture occurs, and the bank thereupon takes
some positive step to enforce the floating charge. Until such time as the floating
charge crystallizes (which will, of course, often occur only when the customer is
in extremis) it will be superseded in order of priority by any subsequent fixed
charge unless the floating charge prohibits this and the fixed charge has notice
of the prohibition.
- Field Warehousing provides the bank with both the organization and expertise to
control its security: It has the guarantee of ACE that if and when security
is needed it will be there intact and available to be realized. The
existence of a floating charge, on the other hand, gives no such guarantee and until
it crystallises will not prevent the customer disposing of all or any of the assets
charged. The customer may therefore, unknown to the bank, realize his stocks and
other current assets in order to meet pressing unsecured creditors, with the result
that when the bank appoints a receiver the value of the remaining assets secured
by the floating charge is totally inadequate.
- The bank’s security under field warehousing has priority over other creditors
except ACE’s lien for its charges and the claims of a landlord levying a distress
for a rent. These risks may however be mitigated by the bank guaranteeing ACE fees
and landlord rent whereas the landlord will sign a waiver of lien. The floating
charge, on the other hand, is subject to priority by a variety of creditors both
preferential and others. Preferential debts include not only wages and salaries
and national insurance contributions but one year’s taxes payable to the inland
revenue (who are in practice often the largest creditor of all). Other creditors
which take priority over the floating charge are the landlord levying for distress,
secured creditors in respect of their specific charges (as mentioned above) and
judgment creditors who execute before the floating charge crystallizes.
- A security perfected under Field Warehousing provided that it is not a fraudulent
preference is unaffected by a subsequent liquidation however soon it may follow.
- A Floating Charge can only be granted by a corporate customer.
- A floating charge has to be registered which may affect the customer’s credit
rating and may give information to third parties which the customer would not wish
to be disclosed.
Companies are frequently subject to restrictions in loan agreements or debenture
trust deeds which prevent them giving charges. In some cases this prohibition may
not extend to pledges, depending on the terms of the particular restriction.
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Training Services
Trade, agricultural development and medium scale business enterprise growth, and
by implication the economic development of developing countries, have been hampered
by inadequate credit financing. Banks in these countries have refrained from extending
credit to these important sectors because of the perceived risks and their limited
capacity to mitigate such risks. Particularly for commodity finance facilities,
there is an established need ACE has identified, for financiers to improve on capacities
for structured financing, to rely less on fixed pledged assets and also consider
the underlying liquid/current assets as collateral; plus (necessarily), the underlying
ability of the business to perform. The borrowers and the lender have a mutually
beneficial position in utilizing structured and self-liquidating financing arrangements.
For illustration of this position consider the following sample concerns for both
the financier and his client:
- How knowledgeable is in-house staffs in Commodity finance structuring and/or the
Trade finance infrastructure set up?
- What protection, control and monitoring measures are in place for the underlying
trade transaction being financed, so as to enable effective and efficient completion
of the trade cycle, from the point at which funds are disbursed to the point at
which reimbursement is made to the Bank.
What coverage is available to ensure that alternative off-takers or sales contracts
are in place and to ensure the Bank will be reimbursed in case the initial transaction
falls through?
- Is it possible to have hedging mechanisms to mitigate price and other risk thereby
increasing the collateral value afforded to Financiers?
- Is there any partnership, competition or similar situation from the business environment
that has not been utilized to in-house operational performance results? How sound
is 'our' Business development initiative?
Responses to these and similar concerns may evidence an identifiable gap between
Traders and financiers' needs in the Commodity finance that the ACE training package
seeks to address.
Strategic Program Objective
- To ensure the capacity of the banks to provide credit financing for expansion of
trade, agricultural development and medium scale business through structured financing
backed by risk mitigation and collateral management instruments drawn from ACE experience
in these markets.
Operational Objectives
- To provide training to middle level and senior staff of commercial and development
banks in: structured commodity trade, finance, agricultural credit management, business
appraisal, and on-going monitoring and evaluation of project performance.
- To provide exposure to legal and policy framework backing structured commodity trade
finance (e.g. warehousing and utilization of warehouse receipts/warrants) as one
of the bases for effective and viable trade facility disbursements.
- To provide training to middle level and senior staff of commercial and development
banks in: structured commodity trade, finance, agricultural credit management, business
appraisal, and on-going monitoring and evaluation of project performance.
To provide exposure to legal and policy framework backing structured commodity trade
finance (e.g. warehousing and utilization of warehouse receipts/warrants) as one
of the bases for effective and viable trade facility disbursements.
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