U.S. Structured Finance Newsletter: Trade Receivable Securitizations — A Brief Primer
ABCP, Auto, RMBSSummary
Across the globe, trade receivable securitizations have predominantly been financed through asset-backed commercial paper (ABCP) conduits supported by separate liquidity facilities. These liquidity facilities typically provide partial or full credit enhancement for each transaction financed in a conduit. Trade receivable securitizations are also executed on a stand-alone basis with no liquidity facility. For the former structure, the rating analysis focuses on the credit enhancement provided by the supporting liquidity facility; for the latter structure, the rating analysis focuses on credit enhancement typically in the form of overcollateralization, similar to some other asset-backed security term asset classes. The total overcollateralization in the reserves will comprise the total advance rate (also known as the borrowing base). Moreover, similar to other asset classes, there are unique legal, operational risk and transaction structural considerations, as explained herein.
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