Oil-Price Crash Raises Risk for Banks, Commodity Traders; Some oil-producing nations repay loans with crude. That could become a problem for banks and trading houses
“Prepayment deals usually include a buffer to ensure there is some headroom for the producer to still meet obligations if the price of the commodity drops. If a price move in oil erases any buffer, borrowers can deliver additional volumes or repay in cash instead of in oil,” said Trafigura Chief Financial Officer Christophe Salmon. "In the worst case where the producer has no cash, no ability to add volumes, you extend the duration of the prepayments."
This article was originally published by Wsj.com on the 15 March 2020.
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