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. More Information

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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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

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:

1. 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
2. Bagged cargo
   • Tally
   • Check weight of bags
   • Packing / marking
   • Sampling
   • Laboratory test
3. Bulk dry cargo
   • Holds cleanliness
   • Weighting supervision
   • Draught survey sea going vessel
   • Draught survey barges
   • Volume determination
4. Sampling
   • As per usual standard
   • As per special sampling plan requirement
5. Quality checks
   • Quick tests (moisture etc…)
   • Visual checks (sorting out)
   • Laboratory tests
6. Hatch cover water tightness
7. Fumigation
8. Full Outturn Guarantee
9. Full Outturn Quality (FOQ)
10. Bulk liquid cargo
11. Quantity
    • Shore tanks dipping
    • Vessel tanks ullage
    • Transfer line survey
12. Sampling
    • Shore tanks
    • Vessel tanks
    • Transfer line
13. Quality
    • Density field check temperature
    • Laboratory tests
    • Full outturn guarantee (FOG)
    • Full outturn quality (FOQ)
14. Consumer Goods
    • Tallying cartons / boxes / units
    • Sampling plan AQL (acceptable quality limits)
    • Defects determination
    • Expiry date-remaining life time
    • Laboratory tests
    • Packing / marking

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:

• The prospective borrower and the relevant intermediaries
• The commodity specifications
• The relevant Lending Rationale
• Its financing needs,
• The legal requirements and Taxes
• 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.

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

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.

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.