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Rosy Blue tapping ABS for $150M to refinance diamond inventory

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Rosy Blue, a diamond manufacturer based in Mumbai, India, and Antwerp, Belgium, is tapping the securitization market for $150 million to finance its inventory of rough and and polished gems.

This isn’t the company’s first securitization; it completed a receivables transaction in 1999, the first diamond inventory securitization in 2001, and a private securitization earlier in 2018 that will be refinanced with this issuance, according to Kroll Bond Rating Agency.

The collateral for the transaction consists of Rosy Blue’s rough and polished diamond inventory, as well as outstanding receivables. The transaction features a borrowing base concept whereby the eligible collateral balance must equal or exceed the then outstanding aggregate debt balance plus a dynamic overcollateralization amount. Failure to comply with the borrowing base test for 10 consecutive business days results in an amortization event.

Two $75 million tranches of four-year notes with preliminary A ratings from Kroll will be issued, one fixed-rate and one floating-rate.

Jefferies is the initial purchaser.

The transaction features a dynamic borrowing base to ensure that rough and polished diamonds, as well as outstanding accounts receivable, provide sufficient collateral coverage to noteholders. The borrowing base includes limitations on diamond type, weight, color, cut and clarity as well as jurisdictional limitations on where the inventory is maintained. The calculations are performed on any advance or funding occasion (practically daily).

There is also a non-declining cash reserve account of $5 million at closing that can be used to pay senior expenses and interest on the notes. Various advance rates are used, dependent upon geographic location of the inventory, as well as whether the inventory consists of rough or polished diamonds. In addition, there is an inventory turnover test and financial covenants to ensure that the inventory is being properly liquidated over time and that the company remains profitable with sufficient financial capabilities.

Rapid amortization will also be triggered if the borrowing base test is not complied with for 10 consecutive business days. Insurance policies are also in place in case of fraud, physical loss of or damage to inventory, losses resulting from acts of terrorism, consignee exposure and losses on accounts receivable.

The Rosy Blue Business Alliance was established in 1960 in Mumbai by Arunkumar Mehta and opened an office in Antwerp in 1973. Currently, the Mehta and Bhansali families control various entities.

The company is one of the largest diamond traders worldwide and has offices in Belgium, Israel, Hong Kong, Japan, the United States, China and Dubai. The company is also one of a small number of diamontaires that are sightholders of three of the largest mining companies: the Diamond Trading Co., Almazy Rosssii-Sakha Joint Stock Co. and Rio Tinto Diamonds. A sightholder is permitted to purchase rough diamonds directly from each respective mining company.

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Esoteric ABS