A-Mark, a precious metals trading company based in El Segundo, Calif., is turning to the securitization market in order to boost margin lending to its clients.
The company is selling $100 million 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.
It’s an asset class that was pioneered at another precious metals company, Monex, in Newport Beach Calif., which has completed nine deals to date. Two bankers who worked on Monex’s transactions while at Piper Jaffray, Chris Flannery and Tom Baurle, are leading A-Mark’s deal from their new firm, Oak Ridge Financial.
The practice of using a commodity as collateral for a loan is being litigated by the Commodity Futures Trading Commission, which 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.
Morningstar Credit Ratings, which rated Monex’s most recent securitization, in 2016, is rating A-Mark’s deal as well. In its presale report, the rating agency stated that the litigation is unlikely to pose a risk to A-Mark’s transaction, even if the CFTC appeals.