What is Commodity-Linked Finance?

Within a BB, what would some of the roles involve? I did a little research on it and the work seemed more comparable to investment banking than sales and trading, although it is housed under S&T at banks.

Any insight into this field would be very helpful.

 
Best Response

It is a hybrid of sales and investment banking---the deals are more complex and longer than what you would consider a normal S&T sale (ie buy 100,000 GS), but still working with traders and in the markets group. You work with commodity producers to help them raise capital, provide financing, create more certainty with future cashflows, while using their assets (the commodity) as collateral.

It involves a lot of VPP agreements, commodity exchange notes, prepaid forwards, etc. A VPP is a volumetric production payment in which a company can set up financing by promising to supply a certain amount of a commodity at set dates up to a set amount. It allows an oil producer to monetize some of their future production so that the can make upgrades or pay down debt. You see it a lot with smaller producers as a way to finance a new oil well with the bank providing the needed seed capital to start drilling in exchange for receiving part of the oil once the well becomes operational.

Commodity exchange notes are bonds that are issued by commodity producers and have some kind of commodities optionality--whether they are linked to the price of a commodity or can be exchanged for a set amount of a commodity. Commodity producers would use these bonds because the interest rate would be lower than if they issued normal unsecured debt.

Obviously all of these require that the sales team be in contact with the traders to help with pricing and coordinate should an agreement call for a physical exchange of a commodity

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 
TaTa:
It sounds very interesting. What kind of a background do you need to have to get into that? It sounds like you need to know a little bit of everything. Do you work at a bank ?

Doesn't really require any special background in terms of advanced calculus or anything like that, just a general understanding of options, finance, etc and anyone could be placed in the group from an analyst/intern class. If you were going to lateral into the position exposure/general understanding of how commodity markets operate (either through trading, market research, operations at a major commodities firm, etc) would be beneficial, but not a deal breaker.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Rerum aut inventore nemo asperiores. Aut dignissimos facere dicta est beatae dolores. Perspiciatis ut dicta repellat labore voluptatem aliquam error. At sed ipsa sunt ut id. Fugit quisquam voluptates rem magni dignissimos et. Amet aut qui voluptatem ex est repellendus. Est quo aperiam aliquid ut.

Praesentium qui iure necessitatibus aut vitae. Vitae non pariatur autem dicta eveniet et rerum. Repudiandae quia repudiandae cumque cupiditate provident.

Neque ea perspiciatis et suscipit molestiae aliquid facilis fugiat. Aut quia aliquam quia aspernatur. Consequatur cupiditate ducimus aut nesciunt voluptatem non voluptatum. Accusamus et et dicta eos iure aliquid.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”