Collateral Management

Collateral Management operations envisage use of storage premises which are owned and operated by an independent third party without the influence of the depositor of the goods.

The inventory collateral or pledged goods are therefore placed at third party premises such as independent, public or terminal warehouses. In such cases ACE Global Depository, as the collateral controller, is required to enter into an arrangement with the store keeper / warehouseman in order for it to devise a methodology for maintaining control, custody and possession and for effecting release within the premises, all of which binds the third party to ACE Global Depository as the collateral controller as per the mechanism agreed by the Bank/ financier. Such an arrangement would allow ACE Global Depository to be eyes and ears of the Bank/ financier within the independent premises.

It is therefore critical for the success of such operations that ACE Global Depository devise a methodology for maintaining control, custody and possession and effecting release (where legally and practically permissible), all of which binds the third party to the mechanism agreed by the Bank. In such Collateral Management Operations, it is this third party which is deemed to be the original goods father in respect of such goods i.e. the first bailee of the goods.

  • ADVANTAGES TO THE LENDER
  • From the lender's point-of-view, the legal title in the goods is unquestioned if the collateral management is properly established and maintained on its behalf and possession of the Goods is maintained in the hands of an independent third party.
  • As a pledgee the lender is a secured creditor pursuant to the financing documents and is in constructive possession of the goods placed as security and listed on the Warehouse Receipts. A lender secures its interest in the goods and perfects the pledge through ACE Global Depository via:
  • Constructive possession and monitoring of pledged goods;
  • Accurate reporting and accounting by ACE Global Depository of all movements and balances;
  • Deliveries to the depositor/ third party and releases being made only in accordance with the lender's instruction;
  • ACE Global Depository ensures accurate reporting over the condition of the goods described in the Warehouse Receipts; and
  • Lender as the holder of the Warehouse Receipts is protected against professional negligence and fraud under ACE Global Depository's comprehensive professional indemnity insurance.
  • ADVANTAGES TO THE DEPOSITOR
  • From the Depositor's perspective, facilities are provided for the convenient deposit and withdrawal of goods for processing or sale, a condition which may be essential to the proper conduct of the business
  • The establishment of a Collateral Management Agreement may be the least costly method of enabling a business to obtain credit and to carry on productive operations that would otherwise be impossible to do with goods being placed at third party/ independent premises. Collateral management operations may also be set up to effect savings in storage rates and to avoid storage costs
  • Pre Loan Considerations for Financier
  • In any loan application that is considered by the Bank/ financier, there are a number of pre-loan considerations which must be taken into account by the Bank prior to agreeing to grant a credit facility to its client. Know Your Client’s Client (KYCC) due diligence has to be conducted and certain decisions have to be taken such as:
  • The maximum amount of credit to be made available against Warehouse Receipts;
  • The percentage of the advance to be made against the value of the collateral.
  • The pricing system in valuing the collateral (i.e. borrower cost, sales price less percentage, etc.)
  • The frequency with which reporting on the borrowing base would be required and the nature of the documentation to be presented by ACE Global
  • The reporting mechanism prior to the goods being released by ACE Global Depository, or under ACE Global Depository's supervision, the independent third Party Storer to the depositor / relevant off taker.

For further assistance, information and templates with regard to our Services, or if you wish to subscribe to our premium E Learning service for a full legal appraisal and regular updates on developments within the field in various jurisdictions worldwide, Please contact us at info@ace-group.net.