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Asset backed securities

Credit enhancement

A financing alternative for larger corporations exists in the securitization of trade receivables, also known as asset backed securities. The process consists of converting liquid assets, usually trade receivables, into fixed-income, negotiable securities.

This is how it works: Your company acts as the seller of the receivables and sells its trade receivables to a special purpose entity, a so-called Special Purpose Vehicle (SPV), created solely for this financing model. These SPVs are incorporated by large business banks that then also assume the structure of the financing. In return, they receive immediate liquidity. The sale is transacted without recourse in the form of an undisclosed assignment. By doing this, the collection of overdue receivables remains in your company’s hands.

The SPV negotiates credit insurance for the purchased receivables in order to eliminate the risk of non-payment and therefore to guarantee the receivable (so-called Credit Enhancement). The SPV securitizes the receivables and refinances itself on the international capital market through the issuing of rated short-term securities, the Commercial Papers (CPs). These CPs are asset backed securities. That means they are based on your customers’ credit insured trade receivables.

Balance sheet improvement through credit improvement

Credit Enhancement offers attractive advantages for your company: Through the securitization you will receive immediate liquidity from your trade receivables and can improve your balance sheet ratios. Furthermore, you can offer your customers attractive payment terms and you can use purchasing advantages for yourself. Even the declining dependency on the banks current account credit lines as well as the resulting lower financing costs are decisive factors.

The transactions for credit enhancement are customized for your company and developed in cooperation with you. The design and the administration of the contract are not complicated and can be quickly realized. A comprehensive IT support program is a matter of course.