1 / 16

Merchant Trade Capital: Unlimited, Costless Capital?

Merchant Trade Capital: Unlimited, Costless Capital?. How much does it take? Identifying Capital Components What’s the cost? Pricing Trade Capital Components Will market bear the cost? Structural Mitigants (Capital Management).

Download Presentation

Merchant Trade Capital: Unlimited, Costless Capital?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Merchant Trade Capital: Unlimited, Costless Capital? • How much does it take? Identifying Capital Components • What’s the cost? Pricing Trade Capital Components • Will market bear the cost? Structural Mitigants (Capital Management)

  2. How Much (Capital) Does it Take?Identifying Capital Components • “Lending” (Deploying) Capital • Credit Assets • Sales Payment cycle (net/25) • PRMAs (MTM Assets): Probabilistic Capital Deployed • “Borrowing” (Sourcing) Capital • Credit Liabilities • Purchases: (same payment cycle) • PRMLs (MTM Liabilities): Probabilistic Capital Sourced • Why/how is this a bad thing?

  3. [A/R slide]

  4. [MTM +/- slides]

  5. What’s the Cost?Pricing Trade Capital • ‘Lending’ Commodity / Position (Credit Assets) • Market Price of Credit (Credit Spreads and Default Probability) • Portfolio Diversification • Term Structure Sensitivity (credit theta) • Subordination (contractual and structural) • ‘Borrowing’ Commodity / Position (Credit Liabilities) • Uncommitted Capital / Incomplete Capital • BalanceSheet Liquidity Stress/Tax • Missing Piece: Contingent Capital (Backstop) • Cost of Contingent Capital?

  6. [CS term slide]

  7. “Fully-loaded” Capital Cost: Example #1A/Rs & A/Ps • Example: Purchase at GasDaily; 10,000 MMBtu/d; and Sale at GasDaily; 10,000 MMBtu/d • How Much Capital? • Lend Capital (Sale): A/R Credit Risk Assumed • Borrow Capital (Purchase): A/P BalanceSheet Liquidity Consumption • Cost of Capital? • Counterparty Default Risk • BalanceSheet Stress • Incremental increase in committed capital revolver

  8. “Fully-loaded” Capital Cost: Example #2PRMAs & PRMLs • Example: BUY: 1-Year Fixed-Price Swap; 10,000 MMBtu/d SELL: 1-Year Fixed-Price Swap; 10,000 MMBtu/d • Capital Identified • Capital Deployed (Sale): Potential MTM Credit Risk Assumed • Capital Sourced (Purchase): Potential MTM Liability/Liquidity Assumed • Cost of Capital • Counterparty Default Risk • Credit Spreads (or Default Probability and Recovery) • Term Structure: One-Year; delcining volume • BalanceSheet Stress • Incremental increase in committed capital revolver?

  9. Will Market Bear the Cost?Structural Mitigants & Capital Management • Position Consolidation • Consolidation Factor (gross vs. net throughput ) • Cleared Products • Capital Management Opportunity • Market Structure • Price Discrimination despite Counterparty Anonymity? • Example: best available price (price stack ‘depth’) • Credit risk premium embedded? • Capital Advantages?

More Related