Receivables Securitization

Securitization is the process of taking an illiquid asset, or group of assets, and through mathematical techniques, transforming it into a security.

Leading up the financial crisis in 2008 and the global recession, securitization played a major role in its cause.  Relative to this, laws and regulations were implemented to cope up with the crisis and to prevent such from happening again.  However, securitization can still be massively beneficial to financial lenders.

Through securitization a company has the potential to lower their funding costs in relation to their current level of risk. Through these methods, a company that has a lower credit rating but maintains assets that are very high in quality (AAA or AA) can borrow at significantly lower rates, using the high-quality assets as collateral. In comparison, issuing unsecured debt would be far riskier and at much higher rates. rs.

The transactions typically involve a one-off or periodic legal “true sale” of the receivables to a Special Purpose Vehicle (SPV). The SPV, in turn, raises funds for a portion of the total value of the receivables, using the receivables as collateral​. Sellers receive the proceeds raised by the SPV initially, with the balance payable as the receivables collect. This can benefit suppliers tremendously in ways such as: maximizing liquidity, mitigating risk, lowering cost of funds and diversifying funding sources.

Alternative Lending | Movable Assets | Securitization | Supply Chain Finance