Glencore International, the Swiss-based natural resource business involved in the physical trading of commodities, such as metals, minerals, energy and agricultural products, recently brought to market the largest ever trade receivables securitization to be sold in the bond market. Deutsche Bank acted as arranger and bookrunner for the $700 million transaction, called Energy & Metals Finance Ltd.

Glencore has already gained experience of securitization through a $650 million asset backed commercial paper conduit, which the latest deal is tied to. Proceeds from short-term contracts already fixed and arranged between two companies in the Glencore group - one based in Baar, Switzerland and the other in Stamford, U.S. - and over 500 customers in 42 countries, are put into the special purpose vehicle.

The revenues are then lent in the form of a revolving loan to Glencore's commercial paper conduit, called Albis Capital Corp, which in turn lends the revenues to another SPV, M&M Finance. Albis funds its loan to M&M Finance by issuing ABCP and Energy & Finance Ltd. issues notes to finance its loan to Albis.

The revolving structure between the SPVs and the ABCP conduit will allow Glencore to reduce the conduit size from $650 million to $500 million.

Glencore has moved away from the ABCP market with a longer-term issue to escape volatility in the shorter-term market. "Financing via the ABCP market does make a lot of sense; because these are short-term receivables, they are well matched," said Tamara Adler, head of European ABS at Deutsche Bank. "But the ABCP market is getting more volatile, and firms wishing to expand their programs, use the bond market, like Glencore did."

The one-tranche deal was given a triple-A rating by Standard & Poor's, Fitch IBCA and Moody's Investors Service. Despite the somewhat volatile nature of the commodities business, all the ratings agencies were comfortable with the deal because Glencore is not involved in speculative futures trading, but the physical delivery of products.

"The volatility of the markets was not a prime concern, because Glencore is not really a trader. They supply oil to firms that use oil; they are a commodity supplier in that sense," explained Diana Turner, a ratings analyst with Fitch. "Their buyers will continue to require the commodities: they are not betting on the commodity prices. Also, when you are dealing in such a range of commodities, one might be up, another might be down, so it evens out."

The five-year soft bullet floating rate notes priced at 32 basis points over Libor, a spread that Adler described as "excellent" in relation to similar deals. Deutsche roadshowed the transaction in the U.S., the U.K. and continental Europe. Adler said that the deal sold in all three regions, and investors had a healthy appetite for the transaction.

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