Market Overview

The global asset-backed securities (ABS) market was valued at $2.42 trillion in 2024 and is projected to reach $2.59 trillion in 2025, a 6.9% compound annual growth rate. By 2029, it is expected to grow to $3.36 trillion. Meanwhile, the global trade finance gap remains around $2.5 trillion, highlighting demand for innovative, asset-secured funding structures.

What Is Specialty Finance?

Specialty finance—also known as asset-backed finance or private ABS—uses defined pools of trade assets as collateral. Typical asset classes include:

• Purchase orders and confirmed sales contracts
• Warehouse receipts for metals, agricultural commodities or finished goods
• Bills of lading representing title to in-transit shipments

How Trade-Asset ABS Works

Key steps in structuring an ABS transaction:

• Asset selection: Identify eligible collateral and document its quality.
• SPV set-up: Create a single-purpose vehicle to hold the assets and issue secured notes.
• Perfection: Establish first-priority security interests via filings (e.g., UCC-1) or control agreements.
• Note issuance: SPV issues private ABS notes; proceeds fund the borrower’s trade cycle.
• Repayment: As assets convert or receivables are collected, the SPV repays noteholders according to a waterfall.

Benefits of Private ABS in Trade Finance

• Higher advances: Up to 90% of collateral value versus 70–80% under traditional lending.
• Speed: Term sheets in 5–7 days with streamlined credit processes.
• Off-balance-sheet: Proper SPV and true-sale documents can segregate debt from corporate financials.
• Diverse investors: Credit funds, insurers and family offices seeking short-dated, asset-secured returns.

Structuring Considerations

• Collateral criteria: Age limits, quality standards and counterparty ratings.
• Control mechanisms: Warehouse-operator agreements, UCC-1 filings or physical receipt custody.
• Waterfall priority: Clear order of payments: expenses, interest, principal, residual return.
• Legal & tax: SPV jurisdiction and governing law optimized for true sale and tax efficiency.
• Reporting & triggers: Periodic asset reporting and covenants for concentration or credit events.

Common Use Cases

• Seasonal grain purchases: Issue a $20 million ABS note backed by multi-site warehouse receipts.
• Metal inventory financing: Fund 10,000 tonnes of copper cathode stored in approved warehouses.
• Back-to-back letters of credit: Use ABS proceeds to secure an SBLC and layer an export LC for supplier payment.

Challenges & Mitigation

• Valuation risk: Conservative advance rates and margin-call clauses for price declines.
• Operational complexity: Trustee or collateral agent to manage multi-jurisdictional assets.
• Investor due diligence: Comprehensive data rooms with third-party valuations and audit reports.

How FG Capital Advisors Helps

FG Capital Advisors underwrites asset values, designs SPV frameworks, drafts security documentation and places private ABS notes with our global specialty finance network. We streamline execution, ensure enforceable collateral structures and preserve our clients’ bank lines for future growth.