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Working Capital Insider: How is COVID-19 Impacting SCF Funding?

By • Published April 22, 2020 • 4 minute read

In this Working Capital InsiderTM video interview, PrimeRevenue’s Tom Roberts, SVP Global Marketing & Inside Sales, interviews EVP Global Funding Dominic Capolongo on how COVID-19 is having an impact on trade finance from a funding perspective.

Tom Roberts:

Hi there. I’m Tom Roberts. I’m the Global Head of Marketing for PrimeRevenue. We’re recording this session in late April in the midst of the global coronavirus pandemic. And we’re really here to talk about specifically the economic impact that the pandemic is having as it relates specifically to what we do, which is support global trade finance and supply chain finance. And specifically today’s topic has to do with funding. We’re all at home, so welcome to my home and also welcome to my guest’s home, Dominic Capolongo. Dominic joined us approximately four years ago and prior to that had a long career in law and banking, all of it relating to trade finance. So welcome, Dominic.

Dominic Capolongo:

Thank you. Good to be here, Tom.

Tom Roberts:

So to start, then, I’ve got a very simple question for you. From your perspective, how is COVID-19 or coronavirus impacting trade finance programs like the ones that we run at PrimeRevenue, and specifically what kind of impact are we seeing from a funding perspective?

Dominic Capolongo:

That’s a great question, Tom. The volatility that the coronavirus has caused has not spared the financial and economic marketplace. As a result, banks, including the funders on our platform, are taking a careful look at all of the facilities that they have outstanding from both a credit perspective as well as from a liquidity perspective.

Tom Roberts:

So what are we seeing? Are we seeing lines be reduced? Are we seeing prices increase? Are we seeing both? And what’s the magnitude and impact of those sorts of forces?

Dominic Capolongo:

For the most part we’re seeing increases in the spread that the banks are charging. That spread has typically averaged about 50 basis points and has been primarily focused on passing on the increased costs of funding that the banks are suffering during this crisis. We have not seen much in the way of line reductions. We have seen a couple of banks that have particularly large lines go in and evaluate the total need, both current and projected, and right size their line to the needs of the program. But we have not seen much in the way of banks reducing lines in terms of the utilized capacity.

Tom Roberts:

So you mentioned price increases. We also know that LIBOR, which is typically the base rate for most of the programs around the world, or many of them, has come down fairly substantially over the last six to eight weeks. Can you talk about the net impact of that?

Dominic Capolongo:

Sure. You’ve actually hit the nail on the head. We see price increases, as I mentioned, of 50 basis points, but the overall cost to our clients on the programs has actually come down on a total rate. About two to three months ago, before the crisis, LIBOR was about 2.8%. That’s three-month LIBOR, which is generally the preferred base rate on most of our programs, has come down from 2.8% before the crisis to about 0.8%, so 80 basis points today. That 200 basis point reduction more than offsets the 50 basis point average increase. So the overall rate has actually come down about 100 to 150 basis points from pre-crisis to today.

Tom Roberts:

All right, great. Thank you, Dominic. I really appreciate you taking the time to talk with me today.

Dominic Capolongo:

My pleasure.

Tom Roberts:

And for those of you watching, thank you very much. For additional updates with video content and/or other things that we’re publishing, I strongly suggest you follow us on LinkedIn and also check our website regularly. Thank you very much. Bye-bye.

Dominic Capolongo:

Take care.