Photo of Sofi a Hammoucha, BNP Paribas collects the award on behalf of Simmtech Co., Ltd.

This solution involved a US$50m without recourse insured umbrella receivables purchase facility, which has since been increased to US$80m and achieved off-balance sheet accounting treatment.

Off balance sheet accounting treatment for receivables purchase solution

The challenge

Simmtech had enjoyed a period of solid growth in recent years, positioning itself as the world’s number one player in memory module printed circuit boards, with over 30% global market share. The company was looking for a solution to optimise its working capital with the following key requirements:

• Favourable accounting treatment – Simmtech was looking to achieve off-balance sheet treatment of the account receivables, for example to recognise the receivables on its balance-sheet as cash (and not recognised as bank borrowing) through the sale of receivables to the bank provider.
• Cheap funding cost.
• Fast onboarding of new customers to the programme.

The solution

BNP Paribas structured and implemented a US$50m Without Recourse Insured Umbrella Receivables Purchase Facility in May 2017.

BBVA is a participating bank in the programme. Simmtech had initially implemented the programme for US$50m and it had been running successfully for quite a few months. Following the smooth operation of the programme, Simmtech had increasing working capital requirements, so the bank increased the programme limit from US$50m to US$80m. BBVA was invited to participate in the deal as a participant, where it bears part of the risks in the programme (on a pro-rata basis) for up to US$430m, by providing BNP Paribas with their pro-rata share of the funding requirement for each purchase of receivables.

Best practice and innovation

Credit insurance: the trade receivables purchased under the solution are 90% credit insured by K-Sure and BNP Paribas is named as Loss Payee under the K-Sure trade credit insurance. In addition, given the bank’s experience with K-Sure, the associated legal documentation and operational requirements of such a solution were mitigated for Simmtech.

The solution allows for rapid on-boarding of new customers and its structure was implemented with the following important flexibilities:

• There is no defined list of account debtors of the receivables acceptable under the facility. BNP Paribas is able to accept any new account debtors as long as the account receivables are insured under the K-Sure trade credit insurance policy and fit into the structure of the facility, providing the due diligence checks have been carried out.
• The advance ratio of the programme is set to be equal to the insured percentage of the receivables. From a risk perspective, BNP Paribas always purchases the insured portion of the account receivables and the credit risk of the account debtor is thus mitigated. Therefore, there is no additional approval process from BNP Paribas with regard to the different insurance percentage from different debtors under the insurance policy.

Key benefits

• Paper removed.
• Quick turnaround times and customised reporting.
• Off balance sheet accounting treatment achieved.
• Company only need to interface with one bank for the programme with a simple and efficient syndication process.
• Attractive pricing.
• Working capital improved.
• Flexible structure.

“Having an alternative source of funding to improve our working capital with receivables purchased by BNP Paribas is a real advantage. Flexibility of the programme allowed it to cover most of our customers, as long as they are covered under the K-Sure trade credit insurance policy and acceptable to BNP Paribas from a due-diligence perspective,” concludes Daniel Seo, Finance Team Leader.