REPOS & SOFTS
Documentation The following documents are likely to be used in a
repo transaction involving soft commodities: 1. Master Purchase and Sale Agreement (MPSA) (and schedules thereto, commonly comprising a Purchase Confirmation, Storage Receipt, Sale Confirmation and Notice to Lenders). This document specifies the terms that apply to the repo transaction between the parties, including remedies in the event of counterparty default. Subsequent transactions between the same parties can be added through the use of ‘confirmations’ that supplement the MPSA. See below for a list of headline issues that should be considered and incorporated (where necessary) into the MPSA.
2. Collateral Monitoring (or Management) Agreement. Effective management of collateral in the form of soft commodities requires substantial investment in infrastructure, technology and expertise; this can be an investment in which many Buyers are not willing to engage. The creation and maintenance of internal systems to manage and track the commodity would detract from a substantial amount of a Buyer’s resources and its core business. In order to avoid these excess costs, at the request of the Buyer, counterparties often arrange for the commodity to be held and managed by a third party. In some transactions, such an agreement may be a condition precedent to signing an MPSA.
3. Insurance Policy. The Sugar Company, at its sole cost and expense, could be required to obtain and maintain in effect a valid, binding and enforceable insurance policy. The insurance policy would be issued in favour of the Sugar Company, with the Bank designated as an additional insured on the same terms and conditions as the Sugar Company.
4. Authorisations and/or consents. Copies of all necessary authorisations, consents, approvals or licences, and any other documents with respect to the execution, delivery and performance of the MPSA should be obtained.
5. A certificate of authority and specimen signatures of individuals executing the MPSA. This is to ensure that all signatures, stamps and seals (as the case may be) that appear on the MPSA are genuine.
6. The constitutional documents of the party selling the commodities (the Sugar Company). This is to minimise counterparty and/or credit risk, as discussed below, and ensure that the Seller is duly incorporated.
7. Exemption Certificates. Each party should provide to the other party copies of any applicable resale certificates or exemption certificates or other documentation necessary or
useful to establish or document any relief, exemption or credit from any tax.
8. Legal Opinion (or Opinion Letter). The Buyer may request a legal opinion to be prepared in order to understand the validity and enforceability of the MPSA in the jurisdiction in question, and to identify any legal risks that they should consider further and evaluate. In particular, substantive differences between the laws and legal systems of different jurisdictions can create numerous issues that require attention. Carrying out transactions in lesser known legal systems may also
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