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Issuers Examine Trade-Payment Offerings
Asset Backed Alert, Harrison Scott Publications Inc. (March 19, 2010)

Several companies are developing term securitizations backed by their trade receivables - an asset class that hasn't produced such a deal in years.

Investors said underwriters have approached them in recent weeks to gauge interest in potential offerings backed by short-term payments that apparel, construction, energy, food, manufacturing and transportation businesses are owed from corporate buyers of their goods or services. Past issuers Amsted Industries and Walt Disney are among those considering deals, as are a number of first-time players.

The first transactions are projected to hit the market in the next 3-6 months, and would weigh in at $100 million to $500 million each. Single-A ratings are likely.

While a lack of recent supply from the trade-receivables sector makes it difficult to predict pricing, one buysider said spreads of more than 200 bp over Libor are expected. That's based partly on the fact that single-A-rated credit-card bonds with two-year lives are trading around 210 bp.

Market players see trade-receivables deals as somewhat comparable to those backed by credit-card accounts, as both types of issues entail revolving collateral pools. The projected returns, meanwhile, could prove a draw for increasingly yield-hungry investors.

Trade receivables were among the first cashflows packaged into asset-backed bonds, starting in the mid-1980s. But they have never been a huge source of supply for the term market, and dealflow has especially dried up in recent years. The first record of a term trade-payment securitization in Asset-Backed Alert's ABS Database came in 1987. About $6.8 billion of such offerings have been distributed in the U.S. since then, mainly in the early 1990s. The most recent transaction: a $150 million deal in 2006 from Amsted, a Chicago-based maker of railroad, heavy-truck and industrial products.

In the meantime, huge volumes of trade receivables flowed into commercial-paper conduits. Issuers were drawn to that market by low funding costs and an availability of short-dated facilities that matched the terms of their cashflows. As the global credit crisis and implementation of less-friendly accounting rules caused the conduit industry to begin contracting, however, there was some chatter that term deals could offer an alternative.

In part, the transactions now in development would mark the materialization of that talk. Availability of funding is part of the equation. So are expenses, as conduit operators are charging 125-200 bp over issuance costs to finance trade receivables. They had been charging less than 50 bp in recent years.



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