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 ...

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