Insight & Analysis

Cashing in on outstanding invoices

Published: May 2024

Banks remain positive about the growth potential of trade receivables securitisation, buoyed by smaller corporates seeking a cost effective option for long term financing.

Person looking at invoice and payments on laptop and phone

Securitisation remains a popular opinion for European companies, with total issuance in 2023 up by more than 5% from the previous year according to data from the Association for Financial Markets in Europe.

According to Demica’s third annual benchmark report for banks in trade finance, many fintechs that originally funded their books via warehouse funding lines are turning to the trade receivables securitisation market for a low cost option that allows them to deconsolidate their funding portfolio from their balance sheet.

One-third of the banks surveyed by Demica referred to trade receivables securitisation as the product with the highest growth potential within their securitisation teams, well ahead of inventory finance or asset-based lending.

In early May, Trafigura Securitisation Finance – a receivables securitisation vehicle of commodities group Trafigura – priced a new series of notes worth a total of US$500m on the 144A/RegS asset-backed securities market.

This was Trafigura’s seventh public transaction since the inception of the programme in November 2004. Trafigura Securitisation Finance is the largest AAA/Aaa publicly rated securitisation programme of trade receivables in the world.

“This pricing demonstrates not only the attractiveness of trade receivables as an underlying asset class, but also the quality of the structure,” says Laurent Christophe, Trafigura Group Treasurer. “We are committed to the asset-backed securities market which offers access to a deep liquidity pool and sophisticated investor base and will continue to issue new series on a regular basis.”

The programme sources funding from both the conduit market and the term asset-backed securities market. Trafigura Securitisation Finance issues both variable funding notes underwritten by conduits – sponsored by banks – and medium term notes placed with institutional investors. According to the company, this dual approach enables it to achieve solid diversification, attractive pricing and flexibility in sizing the programme.

The main challenges corporates face when setting up securitisation transactions have in the past related to tracking and reporting. The necessary information is usually in their systems, but it may not be configured in a way that satisfies the information delivery requirements of investors/lenders. This creates manual, time consuming work for corporates that lack the right technology tools or partners.

On the up side, securitisation allows a supplier to monetise a larger pool of obligors than can be accomplished under factoring explains Dominic Capolongo, CRO of marketplace trading platform LiquidX.

“Factoring usually involves the purchasing of individual invoices from risky obligors, which is more expensive than securitisation and comes with a variety of extra costs that the factoring company charges the supplier,” he says.

Securitisation is a form of asset based lending – it can be structured to be on the balance sheet and therefore characterised as a loan for accounting purposes by the supplier or as a true sale. This means the amounts received by the supplier would not be a loan, but rather proceeds from the sale of the invoices for accounting purposes.

“In trade receivables securitisation it is possible to embed a very high degree of flexibility and this creates the opportunity to build tailor-made solutions for corporates,” says Abigail Deméocq, Managing Director, Global Head of Origination Corporate Securitisation at Crédit Agricole CIB. “In fact, securitisation structures can handle very granular and diversified pools with different jurisdictions, various currencies, broader eligibility criteria and characteristics which often do not comply with the standard requirements of factoring and dynamic discounting programmes.”

Corporate securitisations are very attractive to companies looking for a financing tool able to adjust to medium and long term objectives. Trade receivable securitisation also helps corporates achieve full diversification of funding sources.

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