October 2021 by Adrian Katz
7A.1 Investible assets
Securitisation of various cash flow assets began in the 1980s. Trade receivables, while not the first asset class to be securitised, date back approximately 30 years. Trade receivables securitisations allow companies to raise capital by selling, on a revolving basis, a selection of receivables to a legally separate, bankruptcy-remote special purpose entity (SPE). The SPE, with the conveyance of the acquired receivables, can issue collateralised notes with the issuance proceeds flowing back to the original selling company. While comprehensive data as to the existing size of the trade receivables securitisation market is not available (much of the funding is done through individualised private transactions), existing outstanding securitisations amount to approximately USD80−100bn. Trade receivables from most industries and numerous geographies can be considered eligible for inclusion.
Transaction sizes generally range from USD50m to more than USD1bn. Larger transactions are often funded with multiple funding sources, a trend that accelerated after the Global Financial Crisis of 2008−9. While most transactions are funded in US dollars, depending on the pertinent invoicing countries and currencies, liabilities can also be denominated in euros, sterling, Mexican pesos or other currencies. Transactions can incorporate receivables originating from multiple countries and can involve both in- country and cross-border receivables. Sellers/issuers and/or obligors can be unrated or below investment grade, and yet as a consequence of the structuring process, the resulting securitisations can achieve investment grade ratings, thereby providing a positive credit arbitrage to the seller of the receivables.