Access to International Liquidity for Greece’s Corporates: Trade Finance

by Sophie Papasavva, Partner at EMFC Loan Syndications LLP
March 2013



During any economic downturn, banks and other lending institutions typically retreat to core markets, core clients and substantially reduce their lending activities. At the same time, certain highly-structured loans have historically been developed to protect lenders against exactly such difficult conditions or against other risks more prevalent in emerging markets. These highly-structured loans have specifically been developed in order to help mitigate the risks that difficult economic, political and legal environments generate. Trade finance or pre-export finance loan structures are exactly this - loans specifically geared to facilitating cashflow lending, while at the same time mitigating production and delivery risk, payment risk and country risk.

Trade finance loans rely on the cashflows generated by an exporting company. The loan is typically structured in a manner that captures these cashflows to create a lending opportunity that would otherwise be unattainable. This is of particular relevance to Greece’s corporates. This article describes some of the feature of the trade finance loan structure and argues that certain, exporting Greek corporates should consider this option for their next financing.

Basic Structure

At its most basic, trade finance is simply secured lending to a producer of goods, with the majority of activity taking place in a jurisdiction that is bankable. The trade finance loan structure often includes a Special Purpose Vehicle (“SPV”) set up to be the Borrower, in a jurisdiction that banks feel comfortable with. In the current economic climate, that would therefore be a jurisdiction outside of Greece, such as Luxembourg, or the Netherlands or elsewhere, as long as banks are comfortable with the political and economic risk associated with that country. The following diagram illustrates the trade finance loan structure in its simplest form.

Basic Structure

Step 1 - Once the SPV is created, it begins to ‘buy’ commodities produced by the Parent (or other group subsidiaries) and on-sells them on behalf of the Parent to clients abroad. This SPV enters into sales contracts directly with clients (Buyers or Offtakers) and this SPV sells commodities to the Buyers directly. As a result of this set-up, the SPV benefits from two valuable assets: client contracts and direct revenues / cashflow, generated by these contracts.

Step 2 - the SPV enters into a loan agreement with a group of lenders, who are comfortable with the country risk associated with the SPV’s jurisdiction. The lenders make available to the SPV, a loan which is granted on a secured basis. The Parent is required to offer the lenders an unconditional, irrevocable, first demand guarantee. In addition, the Parent is required to pledge to the lenders its shares in the SPV.

Step 3 - in addition to the shares and Parent guarantee, lenders require an assignment over the SPV’s client contracts and any sales contract letters of credit. Once this is effected, the lenders are able to direct the Buyers to pay contracted payments into a bank account that acts as the lenders’ collection account (“Collection Account”). Under a trade finance loan structure, all of the revenues generated by the SPV’s client contracts are automatically paid into the Collection Account. The lenders further benefit from a charge over this account.

Step 4 - as cash is paid into the Collection Account by the Buyers, certain pre-agreed amounts are further automatically swept into the Debt Service Reserve Account (“DSRA”). The DSRA collects the lenders’ interest as well as the scheduled principal repayments as stipulated in the loan agreement. The lenders also benefit from a charge over this account.

Step 5 - automatic payments are made from the DSRA to the lenders on interest payment dates and on scheduled principal repayment dates, as stipulated in the loan agreement.

Step 6 - any amount over and above the requirements of the DSRA are deemed to be excess cashflow and can thus be re-directed to the SPV from the Collection Account.

If the currency of payments under the sales contracts is not the same as the currency of the loan, consideration is given to the impact on, amongst other things, hedging, coverage ratios and the bank account structure. If commodity price (or interest rate) protection is required, hedging arrangements can be entered into and assigned to the lenders.

As illustrated in the diagram above, each of steps 1 to 6 take place outside of the ‘offending’ jurisdiction, which in this case is Greece, with the exception that the Parent guarantee would be under Greek law. As a result, it is likely that little value would be placed on a Greek parent guarantee, hence the remaining structure needs to be credit worthy in order for it to be bankable. This implies strong, regular client contracts, payable in stable currencies, from Buyers in low risk jurisdictions. Moreover, the tenor of the client contracts is important in relation to certain commodities, where such contracts are required to have a longer tenor than the loan financing. Trade finance structures are typically short-term, especially for first-time borrowers.

Trade finance or pre-export finance are the most popular loan structures to help mitigate political and economic risk and are therefore often associated with emerging markets borrowers. However, as such structures have been used by lenders for years and so credit committees are very familiar with them, in this economic environment they are also increasingly being used outside the sphere of traditional trade finance. Indeed, similar structures as the one described above may also be applied to borrowers seeking finance to support acquisitions or other event-driven activities.

Sources of Liquidity

Export Credit Agencies are often key to assisting exporting borrowers raise bank debt, however, in the case of Greece this is not currently an option. Commercial banks active in the trade finance space include HSBC, Deutsche Bank, Citi, ING, Raiffeisen Bank, Barclays and UniCredit. Unfortunately, although several of these institutions have a presence in Greece, it doesn’t necessarily mean that they are willing and / or able to lend to a Greek corporate.

CFOs of Greek corporates that recognise trade finance structures may be applicable to their business, are probably more likely to gain some indicative interest from lenders abroad, than if they were to approach banks in Greece. Why? Because the nature of the risk that lenders are trying to mitigate, implies that the financing will need to have been ‘exported’ to an SPV in a jurisdiction other than Greece. For example, HSBC Greece may have drastically reduced its appetite to lend to Greece’s corporates, however, HSBC Amsterdam may be interested to look at a trade finance structure that by-passes Greece entirely, in favour of Dutch jurisdiction. Similarly, Barclays London, Raiffeisen Vienna etc. All of these commercial lenders have the ability to structure and effect loans all across Europe.

If corporate borrowers were better prepared for international lenders and if they had realistic expectations of banks’ deliverables, tapping into available pockets of liquidity might be achievable under trade finance structures. In the case of Greece’s exporters, the most important time and money saving exercise that a CFO can perform, is to spend time preparing, before the banks are involved. International banks require a reasonable set of projections, validated by independent sources and benchmarked against peers and competitors. International banks need sensitivity scenarios. It is the analysis of the business plan projections that drive most of the elements of the financing: the loan structure, the amount, the tenor, the repayment schedule, the financial covenants.

Corporate’s Responsibility

For a CFO contemplating a trade finance structure, legal advice is absolutely critical. This is one case where the expression ‘you need to spend money in order to make money’ holds truth. There is a plethora of international and domestic law firms located in Greece, many of whom would have structured trade finance loans, if not for Greek corporates, then elsewhere across countries facing similar challenges with attracting international liquidity. Trade finance is very popular across Central & Eastern Europe as well as in many African countries, with law firms representing each borrower and each lending group in each and every one of these transactions. The law firms will opine on appropriate jurisdiction for the SPV and content of commercial contracts to ensure they are financeable. Legal advice will also assist in exploring bespoke elements that may be required to make a potential loan attractive to international lenders. Oil and gas are obvious commodities that can benefit from this loan structure, as is tobacco, tomatoes, olive oil and many other soft commodities, but in essence any exportable product may be a candidate for this loan structure and legal advice will help determine many factors to facilitate this.

A second element that requires a CFO’s attention is the Request for Proposal (“RFP”). The RFP is an opportunity for the CFO to articulate the key elements of the business and present the financing opportunity to lenders. The RFP is actually a step most often skipped in its entirety by Greek corporate borrowers, yet, it serves to structure the request in a manner that helps compare responses from lenders and provides a framework for assessing options. In times of ample liquidity, the RFP helps the CFO to ‘shop around’ for the best deal possible. In times of restricted liquidity, shopping around is less about creating competition amongst lenders and more about identifying otherwise unexplored pockets of liquidity. A CFO with an interest to explore the potential of trade finance is required to dedicate time and resources to help identify not only the right legal structure, but also the right lead bank that will be the most successful in helping it raise its debut trade finance loan.

Advice is available, from lawyers, tax accountants and loan advisors. Banks with an expertise and an interest in trade finance are available. The trade finance loan is a tried and tested structure, often based on standard Loan Market Association documentation which facilitates an efficient financing. Greece is full of corporates that are ideal for trade finance loans, being producers of commodities geared for export. All the components seem to be in place, so the responsibility remains with the CFOs to raise their company’s profile and approach the relevant parties that may help make trade finance a solution to the liquidity constraints faced by many of Greece’s private sector corporates today.


This article was submitted by the author in English; it was translated into Greek by the editorial team. To read the original, please visit:

Sophie Papasavva

Sophie Papasavva

Sophie Papasavva is the Founding Partner of EMFC Loan Syndications (“EMFC”), a boutique firm assisting companies seeking to raise bank debt. EMFC offers Loan Execution Support, acting as an additional ‘in-house’ resource to time-constrained finance teams. Prior to establishing EMFC, Sophie was a loans banker for 12 years, first as telecoms, media & technology relationship manager and later in loan syndications and sales, where she gained experience in multiple sectors such as oil & gas, mining, infrastructure, agribusiness and others. Sophie has originated, structured, executed, sold, restructured and syndicated loan financings ranging from simple bespoke bilaterals to complex multi-billion dollar, multi-currency syndicated transactions. Her expertise lies in arranging structured, bespoke financings for corporate borrowers operating in the emerging markets. To contact Sophie, please e-mail her directly at or follow her on Twitter at @Sophie_EMFC.