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A-Mark closes sale of $100M notes backed by precious metals loans

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It took a little longer than expected, but precious metals trading company A-Mark completed a $100 million offering of bonds backed by a revolving pool of loans secured by precious metals as well as some of its own inventory of cash and gold, silver, platinum, and palladium.

The transaction, which will fund additional lending to customers, closed on Friday, roughly three months after it was launched in early June.

AM Capital Funding, LLC Series 2018-1 consists of two tranches of notes: $72MM of Class A notes are rated AA by Morningstar and pay a fixed rate of 4.98%; and $28 million of Class B notes are rated BBB by Morningstar and pay a fixed rate of 5.98%. All of the notes mature in September 2023.

Oak Ridge Financial led the deal.

Precious metals prices have been under pressure this year from a strong dollar as well as concerns about the impact of a trade war with China. Metals and other commodities are priced in dollars, so when the U.S. currency’s value rises, it makes them more expensive for investors holding other currencies.

Also in mid-June, the Trump Administration announced a tariff on $50 billion of goods from China, setting off a back-and-forth as China retaliated. Many of the products that China is taxing are commodities and agricultural products.

Demand for A-Mark’s offering may also have been negatively impacted by an ongoing lawsuit by the Commodity Futures Trading Corp. against Monex, another precious metals trader that securitizes loans to customers.

The CFTC sued Monex last year, claiming it was engaged in illegal, off-exchange transactions. In May, however, a California federal judge rejected the CFTC’s claims, ruling Monex’s trading fell outside the agency’s authority. A-Mark’s deal was launched a few weeks later.

In July, however, the CFTC filed a notice of appeal.

Morningstar clearly sees the litigation as a risk to a securitization Monex completed in 2016; it has had the deal under review for a possible downgrade since late last year. The rating agency believes that the theory raised by the CFTC in the Monex litigation would be unlikely to pose the same risk to A-Mark’s transaction, however. That's because A-Mark delivers metal to a depository of the customer's choosing, pursuant to a consent order with the CFTC.

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