Bank Relationships

Bank relationships are the foundation of a trading house’s financing capability. Building these relationships takes years and requires consistent performance, transparency, and mutual benefit.

The Bank Landscape

Commodity Finance Banks

Tier	Banks	Characteristics
Tier 1	BNP Paribas, ING, Societe Generale	Large limits, full service, global
Tier 2	ABN AMRO, Credit Agricole, Rabobank	Strong in specific commodities
Regional	Standard Chartered (Asia), Natixis	Geographic focus
Specialized	Trade finance boutiques	Niche, flexible

Bank Services for Traders

Service	Description
Revolving credit	Working capital facility
L/C issuance	Trade payment guarantees
Term loans	Longer-term funding
Prepayment facilities	Producer financing
Hedging/derivatives	Risk management
Cash management	Treasury services
Advisory	M&A, strategic finance

Building Relationships

Starting from Zero

RELATIONSHIP DEVELOPMENT PATH
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YEAR 1-2: Introduction
├── Meet banks at industry events
├── Share company information
├── Small bilateral facility ($20-50M)
├── Demonstrate reliable repayment
└── Build personal relationships

YEAR 3-4: Expansion
├── Request larger facility
├── Add more banks
├── First syndicated deal
├── Regular reporting established
└── Bank visits to operations

YEAR 5-7: Maturation
├── Full bank group (10-20 banks)
├── Multiple facility types
├── Investment grade treatment
├── Strategic partnership discussions
└── Better pricing

YEAR 8+: Partnership
├── Preferred bank status
├── Complex transactions
├── Advisory relationship
├── Crisis support (if needed)

What Banks Want to See

Factor	What to Demonstrate
Track record	Years of profitable trading
Management	Experienced, reputable team
Risk controls	Policies, limits, systems
Financial strength	Adequate equity, liquidity
Transparency	Timely, detailed reporting
Operational excellence	Clean audit, no incidents
Hedging discipline	Consistent risk management

Relationship Banking vs Transactional

RELATIONSHIP APPROACH
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BENEFITS:
- Better pricing over time
- Support in difficult periods
- Flexibility on covenants
- Priority allocation
- Strategic advice

COSTS:
- Reciprocity expected
- Deposits/ancillary business
- Time investment
- Less ability to "shop around"

EXAMPLE:
Trader maintains $50M deposits with lead bank
Gets 10 bps better pricing on $500M facility
Net benefit: Positive if relationship support is valued

Facility Structures

Revolving Credit Facility (RCF)

REVOLVING CREDIT STRUCTURE
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TYPICAL TERMS:
Size: $500M - $5B
Tenor: 3-5 years
Pricing: SOFR + 100-200 bps
Commitment fee: 30-50% of margin (undrawn)
Security: Unsecured (for investment grade)

USE:
Draw as needed for working capital
Repay when cash collected
Redraw for next transaction

MECHANICS:
Day 1: Facility signed, $0 drawn
Day 5: Draw $100M for cargo purchase
Day 65: Receive payment, repay $100M
Repeat...

Syndicated Facility

SYNDICATED LOAN STRUCTURE
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ROLES:
Mandated Lead Arranger (MLA): 2-4 banks
Bookrunner: Coordinates syndication
Agent: Administrative role
Participants: Remaining banks

ECONOMICS:
Arrangement fee: 30-75 bps (to MLAs)
Participation fee: 15-30 bps (to participants)
Annual fees: Per role

EXAMPLE ($1B FACILITY):
MLAs (4 banks × $150M): $600M (60%)
Participants (8 banks × $50M): $400M (40%)

Fees:
Arrangement: $1B × 50 bps = $5M (split among MLAs)
Upfront: $1B × 20 bps = $2M (to all)

Borrowing Base Facility

BORROWING BASE MECHANICS
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ELIGIBLE COLLATERAL:
+ Inventory (valued at market)
+ Receivables (less than 90 days)
- Concentration limits
- Quality adjustments
= BORROWING BASE

ADVANCE RATES:
Oil inventory: 80-85%
Metals inventory: 75-85%
Agri inventory: 70-80%
Receivables: 80-90%

MONITORING:
Weekly inventory reports
Monthly reconciliation
Quarterly audits

Covenants

Typical Financial Covenants

Covenant	Definition	Typical Level
Net worth	Equity minimum	$1B+
Gearing	Debt/equity	Max 4-6x
Current ratio	Current assets/liabilities	Min 1.1x
Working capital	Current assets - liabilities	Positive
Interest coverage	EBITDA/interest	Min 2.5x
Tangible net worth	Equity - intangibles	$800M+

Covenant Monitoring

COVENANT COMPLIANCE PROCESS
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QUARTERLY:
1. Finance team calculates ratios
2. Compare to covenant levels
3. If headroom <15%, alert management
4. If breach likely, engage banks early

CERTIFICATE:
Each quarter, CFO certifies:
- Financial statements accurate
- All covenants met
- No defaults

BREACH CONSEQUENCE:
- Technical default
- Banks can accelerate
- Usually negotiate waiver
- May require amendment fee

Bank Communication

Regular Reporting

Report	Frequency	Content
Trading P&L	Monthly	By desk, by commodity
Position report	Weekly/monthly	Exposures, hedges
Financial statements	Quarterly	Full financials
Covenant certificate	Quarterly	Compliance confirmation
Annual review	Yearly	Full business update

Bank Meetings

ANNUAL BANK DAY AGENDA
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09:00 - CEO Overview
        Market outlook, strategy update

10:00 - CFO Presentation
        Financial performance, capital structure

11:00 - Risk Management
        Risk policies, VaR, hedge effectiveness

12:00 - Lunch with Senior Management

14:00 - Trading Desk Presentations
        By commodity, performance, outlook

15:30 - Operations Tour (if at office)
        Trading floor, systems demo

16:00 - Q&A Session
        Open forum with all banks

17:00 - Close

PURPOSE: Transparency, relationship building

Crisis Management

When Things Go Wrong

CRISIS COMMUNICATION PROTOCOL
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TRIGGER: Material adverse event

IMMEDIATE (24-48 hours):
1. Assess situation internally
2. Prepare initial communication
3. Call agent bank
4. Request confidential meeting

MEETING CONTENT:
- What happened
- Financial impact
- Remediation plan
- Ask (waiver, amendment, support)

DON'T:
- Surprise banks with bad news
- Downplay severity
- Make promises you can't keep

DO:
- Be transparent
- Show you have a plan
- Demonstrate management control
- Request support you need

Covenant Waiver Process

WAIVER REQUEST PROCESS
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STEP 1: Identify issue early
        Forecast shows covenant breach next quarter

STEP 2: Prepare waiver request
        Letter to agent bank
        Explanation of cause
        Remediation plan
        Request for waiver

STEP 3: Agent circulates
        To all syndicate banks
        Usually 10-15 business days

STEP 4: Banks respond
        May request additional info
        May negotiate terms

STEP 5: Documentation
        Waiver letter signed
        Fee paid (25-50 bps typical)

OUTCOME: Covenant waived for period
         Often with conditions

Bank Group Management

Optimal Bank Group Size

BANK GROUP SIZING
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SMALL TRADER ($500M FACILITY):
5-8 banks
Each bank: $60-100M
Relationship: Personal

MEDIUM TRADER ($2B FACILITY):
10-15 banks
MLAs: $200-300M each
Participants: $75-150M each
Relationship: Professional

LARGE TRADER ($5B+ FACILITY):
20-30+ banks
Tier 1: $400M+
Tier 2: $150-300M
Tier 3: $50-150M
Relationship: Institutional

Managing Bank Preferences

BANK ALLOCATION STRATEGY
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CONSIDERATIONS:
1. Long-term commitment
2. Crisis support capability
3. Ancillary business potential
4. Regional coverage
5. Commodity expertise
6. Pricing competitiveness

RECIPROCITY:
If Bank A takes $200M in RCF
Consider them for:
- L/C issuance
- Hedging business
- Cash management
- Advisory work

Balance: Reward loyal banks without overpaying

Key Takeaways

Relationships take years to build — Start early, be patient
Transparency is essential — Banks hate surprises
Reciprocity matters — Give business to supportive banks
Covenants require monitoring — Early warning is crucial
Crisis handling defines relationship — Communicate early
Bank group must be managed — Balance size and commitment

References

Loan Market Association (LMA)
Loan Syndications and Trading Association (LSTA)
Bank commodity finance teams
Trade finance periodicals