Saving approximately $1m p.a. in Europe on interest expense, this highly innovative, and industry-first global asset-based lending (ABL) structure has enabled treasury to consolidate banking relationships and accounts across multiple entitles in Europe.
Photo of Lluis A. Homs, General Cable and Robert Turner-Kerr, J.P. Morgan.
Lluis A. Homs
Treasurer, Europe & Mediterranean
General Cable is a leader in the development, design, manufacture, marketing and distribution of copper, aluminium and fibre optic wire and cable products for the energy, industrial and communications markets.
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General Cable’s European treasury operates across four primary entities, each of which maintained six or more banking relationships with multiple accounts. This highly decentralised lending approach included a multitude of credit lines involving derivative lines, trade lines, factoring lines, reverse factoring lines, and overdraft facilities.
Managing these individual banking relationships and accounts presented a significant challenge for treasury. Some entities had credit lines that were unused, while rates for each bank varied. In order to increase control and contain costs, the treasury team recognised the need to consolidate banking relationships to a single, primary provider and reduce the number of credit lines as well.
By implementing an asset-based lending (ABL) approach that utilised fewer credit lines, treasury sought to significantly reduce interest expenses across Europe. “In addition, a new liquidity structure would be required that would automate the sweeping of receivables and payables into a header account enabling treasury to borrow and pay down under the ABL from a single liquidity position,” Lluis A. Homs, Treasurer, Europe and Mediterranean explains. “This would also provide greater control and visibility, making funding and forecasting much easier.”
“As a result of the efficiencies and cost savings achieved to date, General Cable is already beginning the next phase of our ambitious treasury evolution.”
Lluis A. Homs, Treasurer, Europe & Mediterranean
In order to consolidate its banking relationships and improve the control and visibility of its credit lines throughout its European entities, General Cable put an ambitious global credit structure in place. J.P. Morgan was chosen to facilitate a billion dollar asset-backed loan with the same terms, conditions, and rates worldwide, replacing the ‘hotchpotch’ of rates from multiple local banks.
One of the innovative features of this solution was how General Cable utilised an existing ABL, which had only US and Canadian entities as borrowers, and added $300m in European receivables as security under the loan to enable the global ABL structure.
Best practice and innovation:
Using the global structure, treasury is now able to effectively fund their factoring arrangements via the ABL, providing greater predictability around rates and allowing for more effective management of payments. From an intercompany perspective, this innovative ABL significantly improves lending and borrowing within the cash pool in Europe, enabling the company to pay down loans from a single position. An additional innovation has been the ability of non-parties to the ABL to benefit from this single liquidity position via intercompany loans.
“As a result of the efficiencies and cost savings achieved to date, General Cable is already beginning the next phase of our ambitious treasury evolution,” adds Homs. “The XML format has been chosen for use across Europe, which will be instrumental in the company’s full-blown host-to-Host/Kyriba implementation. We have joined SCORE, becoming a full member of SWIFT, and early this year we will move to a full host-to-host solution. The cost savings made possible by the ABL have made significant new technology investments possible that will drive further process efficiencies through full automation of the incoming and outgoing message platform via SWIFT and direct connectivity via an electronic bank platform. The success of our innovative global ABL structure is a tribute to the highly effective use of the latest technologies in support of critical treasury objectives.”