Back in July, long before anyone was looking at Glencore (or Asia's largest commodity trader, Noble Group which we also warned last month was due for a major crash, precisely as happened overnight) which everyone is looking at now that its CDS is trading points upfront and anyone who followed our suggestion last March to go long its then super-cheap CDS can take a few years off, we had a rhetorical question:

Which will be first: Trafigura, Mercuria or Glencore — zerohedge (@zerohedge) July 22, 2015

Judging by what happened less than two months later, it appears that we have our answer: for now at least, Glencore, which is now flailing and which Bloomberg reported moments ago is set to meet with its bond investors tomorrow (supposedly to allay their fears of an imminent insolvency), is firmly the "answer" to our rhetorical question.

And yet, something stinks.

First, a quick look at Trafigura bonds reveals that the contagion from the Glencore commodity-trader collapse, which "nobody could possibly predict" two months ago and which has rapidly become the market's biggest black swan, has spread and we now have a new contender. And while Trafigura's equity is privately held, it does have publicly-traded bonds. They just cratered:

... sending the yield soaring to junk-bond levels.

As discussed below, this may just be the beginning for the company which, because it does not have publicly traded equity - but has publicly traded debt - has so far managed to slip under the radar.

But who is Trafigura? Only the world's third largest private commodity trader after Vitol and Glencore.

From the company's own description:

Trafigura is one of the world’s leading independent commodity trading and logistics houses. We’re at the heart of the global economy. Every day and around the world, we are advancing trade – reliably, efficiently and responsibly. We see global trade as a positive force and we go further to make trade work better.

More important than some pitchbook boilerplate, is the company's history: Trafigura was formed in 1993 by Claude Dauphin and Eric de Turckheim when It split off from a group of companies managed by Marc Rich, aka "the king of oil" in 1993.

Who is March Rich? Why the founder of Glencore of course who as a reminder, was indicted in 1983 on 65 criminal counts including income tax evasion, wire fraud, racketeering, and trading with Iran during the oil embargo. Upon learning his prison sentence may be as long as 300 years, Rich promptly fled to Switzerland; he was so afraid of US authorities, he even skipped his daughter's funeral in 1996.

Marc Rich got a presidential pardon from Bill Clinton in a decision which was blessed by the kingpin of corruption, former DOJ head Eric Holder. Clinton himself later expressed regret for issuing the pardon, saying that "it wasn't worth the damage to my reputation."

But back to Trafigura, whose summary financials reveal that the company - with $127.6 billion in revenues in 2014 and $39 billion in assets - is absolutely massive. In fact, in terms of turnover, it is virtually the same size as Glencore.

But the most important and relevant numbers are on neither of the pretty annual report grabs above. They are highlighted in red in the excerpt from the company's interim report: the $6.2 billion in non-current debt and $15.6 billion in current debt for a grand total of 21.9 billion in debt!

Now, this is less than Glencore's $31 billion (the implication being that Trafigura has a solid $6 billion equity cushion although judging by the bond plunge the market is starting to seriously doubt this) but the problem is that Trafigura's EBITDA is lower. Much lower.

According to CapIq, Trafigura had $1.8 billion in LTM EBITDA, suggesting a debt/EBITDA leverage ratio of a whopping 12x. If one wants to be generous and annualizes the company's disclosed 6-month EBITDA (for the period ended 3/31/2015) of $1.1 billion, the EBITDA grows to $2.2 billion. This lowers the debt/EBITDA for Trafigura to "only" 10x.

Indicatively, Glencore's own debt/EBITDA, and the reason for so much conerns about the company's solvency, is about half of Trafigura's.

At least on the surface, it appears that Trafigura, which is as reliant on the ups and down of commodity trading as Glencore, is far more levered, and exposed, to any commodity crush than the Swiss giant.

But what really set off our alarm bells, is that a quick skim through the company's annual report reveals something disturbing: a commissioned report titled "Too Big To Fail: Commodity Trading Firms and Systemic Risk" whose purpose was to explain why, as the title implies, commodity trading firms are not systemically important. The timing, just months before a historic rout for commodity traders, is odd to say the least.

As a general take, any time someone first brings up, and then tries to talk down the impact of something as being "Too Big To Fail", run.

More seriously, there are two problems with this analysis: as events in the past week have shown, commodity trading firms clearly carry a systemic risk: after all, one after another news outlet rushed to explain why yesterday's market plunge was the result of Glencore fears. It would have been the same with Trafigura's equity plunge... if the company had publicly-traded equity instead of just debt.

The second problem is the subheader to the paper:

Trafigura commissioned a white paper this year on commodity trading firms and systemic risk. Its author, Craig Pirrong, explains why he believes these firms are unlikely to have a destabilising effect on the global economy.

The paper's conclusion: "Commodity trading firms are not a source of systemic risk."

Oops.

Who is Craig Pirrong? As the NYT explained in a 2013 article titled "Academics Who Defend Wall St. Reap Reward", Pirrong, a University of Houston professor, is just a member of that all too pervasive "paid expert for hire" group, academics without actual credibility inside their own circles, and who as a result will "opine" on anything and everything - usually involving Wall Street regulatory and "risk" matters, just to get paid.

This is precisely what Trafigura did when it commissioned him to "explain" why Trafigura is not systemic. Ironically it did so in August, just as all hell was about to break loose for the commodity traders, especially the most systemic ones.

And while the market has shown how the paid opinions of such "experts for hire" should be completely ignored, the question remains: just what was Trafigura so concerned about when it commissioned a well-compensated study meant to goal-seek the company's explicit conclusion: that it is not systemic, when it obviously is.

Opinions aside, at the end of the the market will decide just who is systemic and who isn't. One look at the price of Trafigura's bonds above has given us the answer: it is a move comparable to what happened to Lehman bonds - if not equity - the day after the bankruptcy filing.

Clearly the Lehman bonds could not believe what just happened until it was too late. For Glencore, and increasingly Trafigura, the bond price is finally signalling the realization that "this is indeed happening."

* * *

We'll save our discussion of Mercuria for another day.