Securitization – but not as we know it
As the boundaries of corporate securitization are increasingly stretched, the foundations upon which the concept is built are rapidly being eroded.
It seems almost inconceivable that just a few years ago the corporate securitization market was a dull backwater in which the odd tap issue was about as exciting as things were likely to get. In the past couple of years the surge in LBO activity has dragged this concept along in its wake, and it is now at the cutting edge of the market – the place to be and to be seen. Even last year’s trailblazers, such as the $1.7 billion franchise receivables securitization for Dunkin’ Donuts and the Hertz LBO refinancing, now seem like ancient history. The market is moving so fast that old certainties are being turned on their heads on a monthly basis.
Certainty one was that corporate securitization is a niche market particularly suited to the UK because of its creditor-friendly legislation and the ability to take a floating charge over the assets. This is long gone, with structuring advances now enabling this technology to be applied from Dunkin’ Donuts in the US to Vodafone in Japan.
Certainty two is that operational cashflows will always limit the amount of leverage that can be achieved. This went out of the window some time ago with the emergence of opco/propco structuring and the exploitation of rampant asset value growth in the real estate market to override such leverage limitations.