Handbook of Finance: Investment Management and Financial Management

Chapter 76. Funding through the Use of Trade Receivable Securitizations

ADRIAN KATZ

CEO, Finacity Corporation

JEREMY BLATT

Managing Director, Deal Structuring and Execution, Finacity Corporation

Abstract: A trade receivables securitization is a way for a seller to raise capital by selling certain trade receivable assets into a special purpose vehicle (SPV), on a revolving basis. This permits the SPV to raise capital by issuing notes or taking out a loan, using the trade receivable assets as collateral. The proceeds from the loan or note then flow back to the seller as purchase proceeds for the trade receivable assets. Such a transaction can typically garner a rating higher than seller's own corporate credit, thereby giving the seller access to greater liquidity at a lower cost of funds. Other advantages may include trade credit insurance and off-balance treatment. Structures, operations, and overhead can vary considerably, and there is room for optimization, customization, and fine-tuning; so, it is important for a seller to choose its securitization partners and arrangements carefully.

Keywords: securitization, trade receivables, accounts receivable, invoices, off-balance-sheet treatment, trade credit insurance, dilution, deductions, losses, write-offs, exclusions, eligibility, concentration, cross-border, multiple originators, multiple divisions, multiple business units, legacy systems, supplier finance, Statement of Financial Accounting Standard 140, international financial reporting ...