Sucafina: The digital borrowing base benchmark
Sucafina has returned to the debt market for an ESG-tied borrowing base - sporting a debut digital tool courtesy of Komgo – as well as an upsized deal volume and extended KPIs. The deal has also provided a seedbed for future digital borrowing base transactions, and other types of structured commodity trade financings.
Signed in mid-May, the two-year $500 million sustainability-linked borrowing base is Swiss-based coffee trader Sucafina’s largest borrowing to date – upsized from an initial $400 million after being significantly oversubscribed.
Inclusive of two up-to-one-year extension options, proceeds will be used to refinance the trader’s 2019 two-year $300 million senior secured borrowing base, and to finance trading operations in the coming years, together with another existing Brazilian borrowing base and bilateral loans.
ING took on the lead role in the syndication as sole bookrunner, coordinator and documentation agent, facility agent, security agent and overdraft bank, upping its involvement from the 2019 deal. “The security agency role is particularly interesting within this deal, given the collaboration with Komgo and the digitalisation of the process,” Maartin Koning, head of structured commodity finance at ING, tells TXF.
Citi, Rabobank, and Natixis joined ING as bookrunning mandated lead arrangers (MLAs) ahead of syndication, with Credit Suisse, HSBC, Raiffeisen Bank, Societe Generale, UBS, and UniCredit in the same capacity. CA Indosuez, ICBC, and SMBC were MLAs, with DZ Bank as lead arranger; and Banque Internationale de Commerce Bred, and Banque Cantonale de Geneve as arrangers. HFW acted as legal counsel to Sucafina while Hogen Lovells acted for the banks.
BNP and ABN Amro both exited the facility after announcing their retrenchment in commodity finance last year (BNP being previous security agent), with new banks Citi, Raiffeisen Bank, UniCredit, CA Indosuez, ICBC, SMBC, DZ Bank lending in the new syndication for the first time. According to a banker on the deal, lenders are seeing BNP and ABN’s retreat from the space as an opportunity to up their involvement in the agri/softs sector.
Komgo’s borrowing base debut
Brand new to the deal, trade finance blockchain platform Komgo has taken on the role of digital agent – making Sucafina’s facility the first of its kind. Borrowing base structures infamously require a lot of data sourcing, and comparing this data to the rules of the borrowing base, which is typically done by the agent bank and requires a lot of manual work, such as gathering information on warehouses and stock by email and keeping track of this information on paper and spreadsheets.
“All this work needs to be done manually before the borrower can access the funds, which is one of the key pain points of a borrowing base,” Kris Van Broekhoven, CFO at Komgo, tells TXF. “What Komgo has come up with, together with Sucafina and ING, is a system that automates much of this data gathering, and the reconciliation of this data.”
For example, throughout the maturity of this borrowing base, Sucafina will need to send out regular requests to its 80 warehouses for the latest inventory positions. “The tool will allow them to do this with just one click,” Van Broekhoven explains. This sends out a message to every warehouse, enabling them to input their data in a consistent manner, via a link, which comes back to Sucafina as structured data.
The beauty of the system is that it presents the data in a format that is readable by a computer. “This means that the tool can compare data from the warehouses and data from Sucafina for the invoices, and automatically tells the agent bank which invoices are overdue or what the position is under sublimits – so a huge amount less work to be done by the agent and the borrower,” says Van Broekhoven. “The system is all about operational efficiencies, reduction of human error, and providing audit trails that people can go back to and trust.”
Although this is the first time Komgo has taken on this role within a borrowing, the company is already in discussions with a number of other corporates with borrowing base loans to explore whether the tool can be replicated and adapted to their specific facilities.
Komgo also intends to apply the tool beyond the borrowing base structure. “Sucafina is very digitally and environmentally minded and were keen to be the first ones to try something new with us,” Van Broekhoven tells TXF. “But we very much think this will be a useful tool for the entire industry in the near future, not just within borrowing bases, but also reserve based lending and other types of asset-based financing”.
The sustainability-linked feature this year is not a new element on the deal, which was initially introduced in 2019. But Sucafina has set itself additional ESG challenges alongside making adjustments to the existing KPIs, having upped the percentage of farmers certified as fairtrade to 5% per year, as well as taking new measures to reduce the carbon footprint and deforestation across their seven origin countries, including Columbia, east Africa, Vietnam and Indonesia. The facility also holds new reporting obligations for Sucafina to share information on its carbon footprint with its banks and shareholders.
Additionally, Sucafina’s ESG initiatives go beyond its borrowing base – such as its joint venture with IBM Food Trust Platform - Farmer Connect – which is a tech startup that provides farm-to-consumer traceability solutions. “It enables consumers to have as direct as possible a relationship with the producing farmers, which is extraordinary if you think about it,” Olivier Bazin, partner at HFW tells TXF. “Five years ago, this would have been considered a crazy idea.”
According to Bazin, the softs space is one step ahead of other commodities sectors in terms of innovation and transparency and traceability of the supply chain. “Soft commodities is an interesting sector because there is a human end-consumer who is interested in traceability,” he says. “Consumers are now asking for much more detail on where their coffee or food is coming from, are the farmers being paid fairly and what is the environmental impact in terms of deforestation or use of pesticides. In the oil and metals sectors, there is less questioning by the end-consumer.”
Perhaps in the near future there will even be potential to combine the digitisation of more than one aspect of a deal like this. “If you are trying to conceptually visualise how the role of digitisation will evolve over time, we might see a digital integration between financing structures and supply chain auditing – but we are not quite there yet,” says Koning.
“I cannot imagine that within a couple of years, the vast majority of borrowing bases will not be digitalised. I’m not saying that every borrowing base will follow the exact same tool used here, maybe some will go further. But it is really the way to go,” he concludes.