New York-headquartered specialty finance company Latitude 20 Capital Partners has provided an $8 million loan to Paraguayan agribusiness Compañia Dekalpar, according to a founding partner at the firm.
Dekalpar imports fertilizer and other farm inputs, which it then barters with regional farmers for soybeans which are then transferred to either Cargill or ADM for export from landlocked Paraguay by river. Founded in 1998, the company operates a network of collection centers, storage silos and demonstration fields throughout the country of approximately 7 million people.
Eimaad Ahmed, a founding partner and portfolio manager at Latitude 20, told Agri Investor that the facility, like all of those offered by the firm, is a senior secured structured trade finance loan. Ahmed declined to specify the interest rate for the loan, which he said has a covenant that ensures Latitude 20’s payment in the event of a sharp fall in soybean prices and is collateralized by the underlying goods to be processed and exported.
“The premise is to transfer the repayment risk from the SMEs that are in LatAm to the Cargills and Bungees and the Louis Dreyfuses of the world,” Ahmed explained. “You can look at it as an ABL [asset-based lending] facility with a borrowing base, where we have land in a bankruptcy-remote trust, in which Lat 20 is the first beneficiary.”
Founded in 2014 and named after the geographical demarcation corresponding to the South American region that is its focus, Latitude 20’s capital is provided by a single “large asset manager” that Ahmed declined to identify, other than to say it is already familiar with the trade finance.
“The worst possible thing you can have is a mismatch between your funding and your loans,” Ahmed said. “I can’t tell a soybean exporter in the middle of a cycle, ‘Hey, I’m getting redemptions, I’m going to call your loan.’”
All of Latitude 20’s loans are tied to specific crop cycles, according to Ahmed, and collateralized primarily by the underlying goods that are being grown and processed by borrowers. About three-quarters of the firm’s loans are devoted to agriculture, with the remainder devoted to aquaculture. Annual return expectations on the firm’s loans vary between 8.5 and 12 percent.
Trade war beneficiary
Despite the large need for trade finance among small- and medium-sized enterprises in Latin American export sectors, which has been exacerbated by the retreat of foreign banks from the region, only a few private lenders have moved to enter the market, according to Ahmed. In addition to a lack of the necessary expertise and personnel to operate in all the region’s distinct markets, many investors continue to view SMEs there as unsophisticated.
“It could be, maybe, that the investors are looking for unrealistic risk-adjusted return,” Ahmed noted. “If someone is looking for LIBOR plus 15 in the agribusiness space in LatAm, you’re not going to get something like that.”
In Ecuador, Ahmad noted, many of Latitude 20’s loans are to aquaculture companies, while in Brazil it has lent to companies involved in sugar, tobacco, soybeans and other commodities. Drought and increased labor costs have kept Brazil from taking full advantage of China’s move to reduce imports of American soybeans, he added, which creates an opportunity for Paraguay, where soybean exports are expected to surpass Argentina’s this year for the first time.
“Paraguay was the prime beneficiary of all of this stuff,” Ahmed said. “Argentina could have done it, but they had a big drought, which reduced the soybeans that they were able to produce and, Argentina being Argentina, they are going through their own new political crisis.”