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| Alastair Malcolm |
Siemens Financial Services (SFS) has teamed up with UK securitization boutique SecDebt to try to bring SMEs and mid-cap companies to the capital markets. SFS and SecDebt reckon that between them they can cut the cost of issuing bonds backed by invoice debt in trade receivables-style deals.
?Treasurers who are managing maybe £10 million of debt on their balance sheet at any one time fall short of the investment banks? radar screen for inclusion in pools of debt to back capital markets issues,? says SecDebt CEO Alastair Malcolm. ?Securitization has been around for many years but plateaus at quite a complex level.?
This is especially true of trade receivables deals, which have been off limits to smaller borrowers because invoice debt is a cumbersome and expensive underlying asset to manage. Sales ledgers contain so many possible discrepancies that day-to-day monitoring of them is vital.
Under its new scheme, SFS buys the ledger and puts it on its own balance sheet. For smaller invoice ledgers, SFS might finance the whole book. With larger invoice pools split into tranches, SFS may act as a partial investor.
Using its Trade Receivables Information Management (TRIM) software package, SecDebt then runs automatic daily ledger monitoring and reporting. SecDebt also acts as the sales and origination team in the UK.
Automated credit risk monitoring means cost savings and cheaper funding for SMEs. Another advantage is better advance rates. Better analysis and monitoring of asset portfolios should mean that borrowers can back higher volumes of financing with the same portfolio. That is because finance directors will be able to predict more accurately what proportion of their ledgers in any given month will be financed. ?Better security translates into better advance rates,? says Malcolm.
Bad news for clearers
SecDebt was set up five years ago by Malcolm, former Bank of Scotland business banking director Richard Newland, and lawyer and banker David Bonsall.
If the SFS/SecDebt initiative takes off, it could be bad news for UK clearing banks. This is because recent court cases have questioned whether or not UK clearers actually have a fixed charge over invoice debt as outlined in their standard asset-backed lending agreements unless they exercise effective day-to-day control of the account that the receivables are paid into.
?There?s a lot of potential in bypassing the UK clearers,? says Malcolm. ?A lot of banks would shudder at the thought of getting involved in the day-to-day running of a sales ledger. They have been hamstrung by the courts. An alternative is using structured finance. Because we and SFS take security over the debtor asset rather than lending against it, we are using securization technology, which gets more out of the assets.?
Similarly in Germany, if Mittelstand companies want to stop borrowing from their traditional house banks, they could use invoice debt to back bond issues.
