Commodity repo transactions and true sale considerations


Produced in partnership with Sullivan
Practice notes

Commodity repo transactions and true sale considerations


Produced in partnership with Sullivan

Practice notes
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Commodity repurchases (repos) are a common alternative method of financing. There are a number of advantages for both the financier and a commercial party like a trader in entering into commodity repos but the parties will need to do the appropriate legal and accounting due diligence and carefully check the wording of the documentation to ensure that the desired outcomes will be achieved.

What is a commodity repo?

Put simply, a commodity repo involves the sale of a commodity from one party (a seller) to another (a buyer) which is accompanied by a 'forward sale' under which the seller will repurchase the commodity from the buyer at a future date.

There are a number of variations that a commodity repo structure can take; for example, the seller may have an obligation or an option to repurchase the commodity in the future, or the seller may act as a 'service provider' to monitor the commodity after it has been sold to the buyer and deal with collections. This Practice Note looks at the various structures that can be adopted

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Jurisdiction(s):
United Kingdom
Key definition:
Repo definition
What does Repo mean?

An arrangement which involves the sale of securities and the subsequent purchase of those or similar securities and which equates, in substance, to a transaction for the lending of money at interest from or to a company with the securities which were sold as collateral for the loan.

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