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  • 10.5.3-RISK AND THE RELATION TO TRADE CREDIT-SPECIFIC CONDITIONALITIES

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  • Specific conditionalities

     
     

    All or some of the following preconditions, the conditions precedent, must be met before any lending agreement will be considered.

    1. The borrower has obtained all necessary authorizations to export.
    2. All levies, fees and taxes are paid up to date.
    3. Legal opinion confirms the rights of the lender and the right to execute these without needing a court order.
    4. The borrower's entitlement to enter into the lending agreement is evidenced by, for example, a directors' or shareholders' resolution.
    5. Statements are available showing there are no outstanding or pending claims from tax or other authorities or institutions which could impinge upon the free and unconditional execution by the lender of its rights or the free and unencumbered movement of the goods.
    6. Grading, bagging, inspection and quality certificates are available.
    7. The goods are and will be stored separately under the full control and responsibility of an approved collateral manager.
    8. Suitable commercial all risks insurance cover is in place, covering storage, in-country transit and loading onboard ship.
    9. Suitable political risk insurance cover is in place, covering seizure, confiscation, appropriation, exporter default due to export restrictions, riots, looting, war, contract frustration and so on.
    10. Cash deposit or collateral deposit of X%.

     

    Usually, the lending agreement will take effect only if:

    1. The goods are covered by fixed sales contract(s), pledged to the lender.
    2. All rights under the sales contract(s) are assigned to the lender with the acknowledgement of the buyer, authorizing the lender to execute the contract in case of default by the borrower.
    3. The export proceeds (receivables) under the contract(s) are pledged to the lender.
    4. The borrower's export account (escrow account) and other assets with the bank are also pledged to the lender. (An escrow account is an account under a third party's custody or control.)
    5. All insurance policies are assigned to the lender with acknowledgement that the lender is the loss payee or beneficiary.
    6. A collateral management agreement with an eligible and approved collateral manager is in place.
    7. The coffee (stock in trade) is pledged to the lender. Weekly stock statements are issued by eligible (approved) warehousing companies under collateral management agreements, or countersigned by an independent collateral manager confirming that the quantity and quality are equivalent to or higher than required for tender against the pledged sales contract(s).
    8. All relevant forwarding and shipping documents, issued by eligible (approved) transport, warehousing and shipping companies, are assigned to the lender.
    9. The transaction structure and control over the goods is such that there are no obvious 'gaps' in the transfer of title documents.