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What is a borrowing base facility?

Borrowing base facilities ('BB Facilities') are a type of trade finance. They are working capital credit facilities designed to provide short term liquidity by way of advances or the issue of trade instruments ('Instruments') such as letters of credit (see: Letters of credit—overview) or demand guarantees (see: On demand guarantees/bonds—overview). They are secured in full by current assets (usually trading receivables, inventory (ie goods in storage or in transit), cash and contractual rights) of the borrower and/or other security providers. To that end, the amount of capital available to the borrower at any moment is directly linked to the value of the assets providing security to the lender(s).

BB Facilities are generally provided to trading companies on a revolving basis for the purposes of purchasing, storing, transporting and selling prescribed commodities. They are usually used to finance a pool of traded assets with high price volatility. A typical borrowing base facility agreement will include provisions which focus on those assets and their value.

A typical BB Facility will have a tenor of 1–2 years, although it